| **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 MARCH 31, 2006** |
| 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                               |
| 2-26983                        |   | **THE                    PEOPLES GAS LIGHT AND COKE COMPANY**             |   | 36-1613900                               |
| 2-35965                        |   | **NORTH                    SHORE GAS COMPANY**                            |   | 36-1558720                               |
|                           |   |                                                                      |   |                                     |
|                           |   | (Illinois                    Corporations)                                |   |                                     |
|                           |   | 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 such shorter period that                    the                    registrants were required to file such reports), and (2) have                    been subject                    to such filing requirements for the past 90 days. Yes [x] No                    [  ] |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Indicate                    by a check mark whether the registrant is a large accelerated                    filer, an                    accelerated filer or a non-accelerated filer. See definition                    of                    “accelerated filer and large accelerated filer” in Rule 12b-2 of the                    Exchange Act. (Check One):                                                                                                                                                                                                   |
| Peoples                    Energy Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Large                    accelerated filer [ X ] Accelerated filer [     ]                    Non-accelerated filer [     ] |
| The                    Peoples Gas Light and Coke Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Large                    accelerated filer [     ] Accelerated filer                    [     ] Non-accelerated filer [ X ] |
| North                    Shore Gas Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Large                    accelerated filer [     ] Accelerated filer                    [     ] Non-accelerated filer [ X ] |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Indicate                    by check mark whether the registrant is a shell company (as defined                    in                    Rule 12b-2 of the Exchange Act).                                                                                                                                                                                                                                                                                                                                                                                                        |
| Peoples                    Energy Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Yes                    [    ] No [ X ] |
| The                    Peoples Gas Light and Coke Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Yes                    [    ] No [ X ] |
| North                    Shore Gas Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Yes                    [    ] No [ X                    ] |

| Indicate                  the number of shares outstanding of each of the issuer's classes                  of common                  stock as of the latest practicable date (April 30,                  2006): |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Peoples                  Energy Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Common                  Stock, no par value, 38,409,036 shares outstanding                                                                                                                                      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                            |
| The                  Peoples Gas Light and Coke Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Common                  Stock, no par value, 24,817,566 shares outstanding (all of which                  are owned                  beneficially and of record by Peoples Energy                  Corporation) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                            |
| North                  Shore Gas Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Common                  Stock, no par value, 3,625,887 shares outstanding (all of which                  are owned                  beneficially and of record by Peoples Energy                  Corporation)  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                            |
| 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. **The                  Peoples Gas Light and Coke Company and North Shore Gas Company                  meet the                  conditions set forth in General Instruction H(1)(a) and (b) of                  Form 10-Q                  and are therefore filing this Form 10-Q with the reduced disclosure                  format                  permitted by General Instruction H(2) of Form                  10-Q.** |

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**Part        I - Financial Information**

**Item        I. Financial Statements**

| **Peoples                    Energy Corporation**                                                                                                   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                    STATEMENTS OF INCOME**                                                                                            |
| (Unaudited)                                                                                                                                         |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                     |   | Three                    Months Ended | Six                    Months Ended |
|                                                                                                                                                     |   | March                    31, | March                    31, |
|                                                                                                                                                |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| *(In                    Thousands, Except Per-Share Amounts)*                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Revenues**                                                                                                                                        |   | $ | 1,180,028 |   | $ | 1,026,906 |   | $ | 2,232,414 |   | $ | 1,764,317 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                    Expenses:**                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost                    of energy sold                                                                                                              |   |   | 886,640 |   |   | 727,715 |   |   | 1,683,067 |   |   | 1,236,607 |   |
| Gas                    charge settlement                                                                                                            |   |   | 15,662 |   |   | - |   |   | 107,330 |   |   | - |   |
| Operation                    and maintenance, excluding                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| restructuring                    and environmental costs                                                                                            |   |   | 93,447 |   |   | 90,204 |   |   | 180,811 |   |   | 169,032 |   |
| Restructuring                    costs                                                                                                              |   |   | - |   |   | 1,956 |   |   | - |   |   | 13,163 |   |
| Environmental                    costs                                                                                                              |   |   | 14,033 |   |   | 14,145 |   |   | 25,329 |   |   | 23,128 |   |
| Depreciation,                    depletion and amortization                                                                                         |   |   | 29,531 |   |   | 28,957 |   |   | 58,516 |   |   | 59,293 |   |
| Taxes,                    other than income taxes                                                                                                   |   |   | 79,470 |   |   | 75,806 |   |   | 148,190 |   |   | 128,860 |   |
| Losses                    (gains) on property sales                                                                                                 |   |   | (162 | ) |   | - |   |   | (69 | ) |   | 72 |   |
| **Total                    Operating Expenses**                                                                                                     |   |   | 1,118,621 |   |   | 938,783 |   |   | 2,203,174 |   |   | 1,630,155 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity                    investment income (loss)                                                                                                  |   |   | (1,975 | ) |   | 397 |   |   | 7,677 |   |   | 1,744 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                    Income**                                                                                                             |   |   | 59,432 |   |   | 88,520 |   |   | 36,917 |   |   | 135,906 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                    income                                                                                                                     |   |   | 1,520 |   |   | 1,036 |   |   | 2,871 |   |   | 2,006 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                    expense                                                                                                                    |   |   | 153 |   |   | 71 |   |   | 191 |   |   | 128 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                    expense                                                                                                                 |   |   | 15,182 |   |   | 12,844 |   |   | 28,405 |   |   | 25,354 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Income                    from Continuing Operations**                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Before                    Income Taxes**                                                                                                          |   |   | 45,617 |   |   | 76,641 |   |   | 11,192 |   |   | 112,430 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                    tax expense (benefit)                                                                                                     |   |   | 12,026 |   |   | 26,810 |   |   | (4,073 | ) |   | 39,536 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Income                    from Continuing Operations**                                                                                            |   |   | 33,591 |   |   | 49,831 |   |   | 15,265 |   |   | 72,894 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Income                    (loss) from Discontinued Operations,**                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **net                    of income tax expense (benefit) of $(277),**                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **$884,                    $(1,039) and $498, respectively**                                                                                        |   |   | (421 | ) |   | 1,341 |   |   | (1,576 | ) |   | 754 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net                    Income**                                                                                                                   |   | $ | 33,170 |   | $ | 51,172 |   | $ | 13,689 |   | $ | 73,648 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Average                    Shares of Common Stock Outstanding**                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                               |   |   | 38,338 |   |   | 37,928 |   |   | 38,291 |   |   | 37,873 |   |
| Diluted                                                                                                                                             |   |   | 38,467 |   |   | 38,093 |   |   | 38,423 |   |   | 38,042 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Earnings                    (Loss) Per Share of Common Stock**                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic,                    continuing operations                                                                                                     |   | $ | 0.88 |   | $ | 1.31 |   | $ | 0.40 |   | $ | 1.92 |   |
| Basic,                    discontinued operations                                                                                                   |   |   | (0.01 | ) |   | 0.04 |   |   | (0.04 | ) |   | 0.02 |   |
| Total                    - basic earnings per share                                                                                                 |   | $ | 0.87 |   | $ | 1.35 |   | $ | 0.36 |   | $ | 1.94 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted,                    continuing operations                                                                                                   |   | $ | 0.87 |   | $ | 1.31 |   | $ | 0.40 |   | $ | 1.92 |   |
| Diluted,                    discontinued operations                                                                                                 |   |   | (0.01 | ) |   | 0.03 |   |   | (0.04 | ) |   | 0.02 |   |
| Total                    - diluted earnings per share                                                                                               |   | $ | 0.86 |   | $ | 1.34 |   | $ | 0.36 |   | $ | 1.94 |   |
|                                                                                                                                                |   |
| *The                    Notes to Consolidated Financial Statements are an integral part                    of these                    statements.* |

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| **Peoples                    Energy Corporation**                                                                                                   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                    BALANCE SHEETS**                                                                                                  |
| (Unaudited)                                                                                                                                         |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                     |   |   | March                    31, |   |   | September                    30, |   |   | March                    31, |   |
| *(In                    Thousands)*                                                                                                                 |   |   | 2006 |   |   | 2005 |   |   | 2005 |   |
| **ASSETS**                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **CAPITAL                    INVESTMENTS:**                                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Property,                    plant and equipment                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Utility                    plant                                                                                                                    |   | $ | 2,663,588 |   | $ | 2,634,629 |   | $ | 2,642,151 |   |
| Oil                    and gas                                                                                                                      |   |   | 742,870 |   |   | 555,365 |   |   | 519,757 |   |
| Other                                                                                                                                               |   |   | 23,765 |   |   | 22,740 |   |   | 20,387 |   |
| Total                    property, plant and equipment                                                                                              |   |   | 3,430,223 |   |   | 3,212,734 |   |   | 3,182,295 |   |
| Less                    - Accumulated depreciation, depletion and amortization                                                                      |   |   | 1,315,470 |   |   | 1,266,351 |   |   | 1,274,022 |   |
| Net                    property, plant and equipment                                                                                                |   |   | 2,114,753 |   |   | 1,946,383 |   |   | 1,908,273 |   |
| Investment                    in equity investees                                                                                                   |   |   | - |   |   | 20,851 |   |   | 13,652 |   |
| Other                    investments                                                                                                                |   |   | 13,215 |   |   | 13,796 |   |   | 13,076 |   |
| **Total                    Capital Investments - Net**                                                                                              |   |   | 2,127,968 |   |   | 1,981,030 |   |   | 1,935,001 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **CURRENT                    ASSETS:**                                                                                                              |   |   |   |   |   |   |   |   |   |   |
| Cash                    and cash equivalents                                                                                                        |   |   | 68,255 |   |   | 18,186 |   |   | 92,775 |   |
| Short-term                    investments                                                                                                           |   |   | 7,000 |   |   | - |   |   | 7,700 |   |
| Deposits                    with broker or trustee                                                                                                  |   |   | 32,026 |   |   | 25,327 |   |   | 18,833 |   |
| Receivables                    -                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Customers,                    net of reserve for uncollectible accounts                                                                             |   |   |   |   |   |   |   |   |   |   |
| of                    $49,949, $34,954, and $35,796, respectively                                                                                   |   |   | 644,410 |   |   | 246,393 |   |   | 515,540 |   |
| Other                                                                                                                                               |   |   | 1,469 |   |   | 4,092 |   |   | 1,152 |   |
| Derivative                    assets, at fair value - current                                                                                       |   |   | 19,485 |   |   | 247,612 |   |   | 36,764 |   |
| Materials                    and supplies, at average cost                                                                                          |   |   | 10,685 |   |   | 10,468 |   |   | 10,486 |   |
| Gas                    in storage                                                                                                                   |   |   | 94,957 |   |   | 236,995 |   |   | 79,360 |   |
| Gas                    costs recoverable through rate adjustments                                                                                   |   |   | 12 |   |   | 8,608 |   |   | 12 |   |
| Regulatory                    assets of utility subsidiaries                                                                                        |   |   | 92,757 |   |   | 30,062 |   |   | 20,997 |   |
| Prepayments                    and other                                                                                                            |   |   | 45,850 |   |   | 70,887 |   |   | 32,564 |   |
| Assets                    of discontinued operations                                                                                                |   |   | 116,717 |   |   | 128,319 |   |   | 117,701 |   |
| **Total                    Current Assets**                                                                                                         |   |   | 1,133,623 |   |   | 1,026,949 |   |   | 933,884 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **OTHER                    ASSETS:**                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Prepaid                    pension costs                                                                                                            |   |   | 151,919 |   |   | 152,720 |   |   | 166,733 |   |
| Noncurrent                    regulatory assets of utility subsidiaries                                                                             |   |   | 314,116 |   |   | 322,163 |   |   | 234,345 |   |
| Derivative                    assets, at fair value - noncurrent                                                                                    |   |   | 7,377 |   |   | 7,021 |   |   | 2,765 |   |
| Deferred                    charges and other                                                                                                       |   |   | 47,766 |   |   | 47,908 |   |   | 49,432 |   |
| **Total                    Other Assets**                                                                                                           |   |   | 521,178 |   |   | 529,812 |   |   | 453,275 |   |
|                                                                                                                                                     |   |   |   |   |   |   |   |   |   |   |
| **Total                    Assets**                                                                                                                 |   | $ | 3,782,769 |   | $ | 3,537,791 |   | $ | 3,322,160 |   |
|                                                                                                                                                |   |
| *The                    Notes to Consolidated Financial Statements are an integral part                    of these                    statements.* |

----

| **Peoples                    Energy Corporation**                                                                                                   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                    BALANCE SHEETS**                                                                                                  |
| (Unaudited)                                                                                                                                         |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                     |   |   |  March                    31, |   |   | September                    30, |   |   | March                    31, |   |
| *(In                    Thousands, Except Shares)*                                                                                                  |   |   | 2006 |   |   | 2005 |   |   | 2005 |   |
| **CAPITALIZATION                    AND LIABILITIES**                                                                                               |   |   |   |   |   |   |   |   |   |   |
| **CAPITALIZATION:**                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Common                    Stockholders' Equity:                                                                                                     |   |   |   |   |   |   |   |   |   |   |
| Common                    stock, no par value -                                                                                                     |   |   |   |   |   |   |   |   |   |   |
| Authorized                    60,000,000 shares                                                                                                     |   |   |   |   |   |   |   |   |   |   |
| Issued                    38,600,116, 38,400,318 and                                                                                                |   |   |   |   |   |   |   |   |   |   |
| 38,211,596                    shares, respectively                                                                                                  |   | $ | 415,570 |   | $ | 409,060 |   | $ | 400,407 |   |
| Treasury                    stock - 243,100 shares                                                                                                  |   |   | (6,677 | ) |   | (6,677 | ) |   | (6,677 | ) |
| Retained                    earnings                                                                                                                |   |   | 518,025 |   |   | 546,237 |   |   | 583,435 |   |
| Accumulated                    other comprehensive loss                                                                                             |   |   | (82,947 | ) |   | (148,466 | ) |   | (99,363 | ) |
| **Total                    Common Stockholders' Equity**                                                                                            |   |   | 843,971 |   |   | 800,154 |   |   | 877,802 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Long-term                    debt                                                                                                                   |   |   | 894,261 |   |   | 895,583 |   |   | 895,647 |   |
| **Total                    Capitalization**                                                                                                         |   |   | 1,738,232 |   |   | 1,695,737 |   |   | 1,773,449 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **CURRENT                    LIABILITIES:**                                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Commercial                    paper                                                                                                                 |   |   | 166,190 |   |   | 8,148 |   |   | - |   |
| Accounts                    payable                                                                                                                 |   |   | 237,912 |   |   | 236,212 |   |   | 220,807 |   |
| Regulatory                    liabilities of utility subsidiaries                                                                                   |   |   | - |   |   | 198,550 |   |   | 27,006 |   |
| Dividends                    payable                                                                                                                |   |   | 20,902 |   |   | 20,791 |   |   | 20,693 |   |
| Customer                    deposits                                                                                                                |   |   | 37,283 |   |   | 29,803 |   |   | 30,711 |   |
| Customer                    credit balances                                                                                                         |   |   | 22,718 |   |   | 59,635 |   |   | 24,368 |   |
| Accrued                    taxes                                                                                                                    |   |   | 30,173 |   |   | 26,096 |   |   | 73,197 |   |
| Gas                    deliverable to customers                                                                                                     |   |   | 40,120 |   |   | 56,129 |   |   | 15,924 |   |
| Derivative                    liabilities, at fair value - current                                                                                  |   |   | 152,377 |   |   | 186,854 |   |   | 84,948 |   |
| Other                    accrued liabilities                                                                                                        |   |   | 35,099 |   |   | 54,370 |   |   | 29,871 |   |
| Gas                    charge settlement                                                                                                            |   |   | 115,849 |   |   | 13,332 |   |   | 11,100 |   |
| Gas                    costs refundable through rate adjustments                                                                                    |   |   | 52,985 |   |   | 293 |   |   | 7,241 |   |
| Accrued                    interest                                                                                                                 |   |   | 11,915 |   |   | 11,474 |   |   | 11,461 |   |
| Temporary                    LIFO liquidation credit                                                                                                |   |   | 194,377 |   |   | - |   |   | 174,377 |   |
| Deferred                    credit related to discontinued operations                                                                               |   |   | 2,201 |   |   | 2,201 |   |   | 2,201 |   |
| **Total                    Current Liabilities**                                                                                                    |   |   | 1,120,101 |   |   | 903,888 |   |   | 733,905 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **DEFERRED                    CREDITS AND LONG-TERM LIABILITIES:**                                                                                  |   |   |   |   |   |   |   |   |   |   |
| Deferred                    income taxes                                                                                                            |   |   | 455,661 |   |   | 446,382 |   |   | 416,197 |   |
| Investment                    tax credits                                                                                                           |   |   | 26,149 |   |   | 26,373 |   |   | 26,176 |   |
| Derivative                    liabilities, at fair value - noncurrent                                                                               |   |   | 37,789 |   |   | 68,895 |   |   | 44,655 |   |
| Environmental                                                                                                                                       |   |   | 273,900 |   |   | 282,411 |   |   | 195,193 |   |
| Pension                                                                                                                                             |   |   | 52,407 |   |   | 42,593 |   |   | 72,827 |   |
| Other                                                                                                                                               |   |   | 78,530 |   |   | 71,512 |   |   | 59,758 |   |
| **Total                    Deferred Credits and Other Liabilities**                                                                                 |   |   | 924,436 |   |   | 938,166 |   |   | 814,806 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **Total                    Capitalization and Liabilities**                                                                                         |   | $ | 3,782,769 |   | $ | 3,537,791 |   | $ | 3,322,160 |   |
|                                                                                                                                                |   |
| *The                    Notes to Consolidated Financial Statements are an integral part                    of these                    statements.* |

----

| **Peoples                    Energy Corporation**                                                                                                   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                    STATEMENTS OF CASH FLOWS**                                                                                        |
| (Unaudited)                                                                                                                                         |
|                                                                                                                                                |   |   |   |   |   |   |   |
|                                                                                                                                                     |   | Six                    Months Ended |
|                                                                                                                                                     |   | March                    31, |
| *(In                    Thousands)*                                                                                                                 |   |   | 2006 |   |   | 2005 |   |
| **Operating                    Activities:**                                                                                                        |   |   |   |   |   |   |   |
| Net                    income                                                                                                                       |   | $ | 13,689 |   | $ | 73,648 |   |
| Adjustments                    to reconcile net income to cash provided by operations:                                                              |   |   |   |   |   |   |   |
| Depreciation,                    depletion and amortization                                                                                         |   |   | 61,359 |   |   | 62,075 |   |
| Deferred                    income taxes and investment tax credits—net                                                                       |   |   | (6,150 | ) |   | 3,693 |   |
| Gas                    charge settlement                                                                                                            |   |   | 107,330 |   |   | - |   |
| Change                    in undistributed earnings from equity investments                                                                         |   |   | 4,959 |   |   | 3,472 |   |
| Mark-to-market                    (gain) loss included in net income                                                                                |   |   | 4,224 |   |   | 341 |   |
| Pension                    funding less than expense                                                                                                |   |   | 10,613 |   |   | 18,024 |   |
| Other                    adjustments                                                                                                                |   |   | 892 |   |   | 21,944 |   |
| Net                    changes in:                                                                                                                  |   |   |   |   |   |   |   |
| Receivables—net                                                                                                                               |   |   | (400,394 | ) |   | (323,341 | ) |
| Gas                    in storage, excluding fair value adjustments                                                                                 |   |   | 141,174 |   |   | 111,692 |   |
| Gas                    costs recoverable/refundable through rate adjustments                                                                        |   |   | 61,288 |   |   | 27,812 |   |
| Accounts                    payable                                                                                                                 |   |   | (10,629 | ) |   | 67,419 |   |
| Gas                    deliverable to customers                                                                                                     |   |   | (16,009 | ) |   | (19,999 | ) |
| Other                    accrued liabilities                                                                                                        |   |   | (20,095 | ) |   | (22,082 | ) |
| Accrued                    interest                                                                                                                 |   |   | 441 |   |   | 154 |   |
| Accrued                    taxes                                                                                                                    |   |   | 4,077 |   |   | 47,141 |   |
| Temporary                    LIFO liquidation                                                                                                       |   |   | 194,377 |   |   | 174,377 |   |
| Prepayments                    and other                                                                                                            |   |   | (33,354 | ) |   | (17,849 | ) |
| **Net                    Cash Provided by (Used in) Operating Activities**                                                                          |   |   | 117,792 |   |   | 228,521 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |
| **Investing                    Activities:**                                                                                                        |   |   |   |   |   |   |   |
| Capital                    spending                                                                                                                 |   |   | (231,266 | ) |   | (68,066 | ) |
| Return                    of capital investments                                                                                                    |   |   | 24,635 |   |   | 13,070 |   |
| Decrease                    (increase) in deposits with broker or trustee,                                                                          |   |   |   |   |   |   |   |
| excluding                    fair value adjustments                                                                                                 |   |   | 9,336 |   |   | (8,993 | ) |
| Proceeds                    from sale of assets                                                                                                     |   |   | 2,562 |   |   | - |   |
| Other                                                                                                                                               |   |   | (5,065 | ) |   | 3,219 |   |
| **Net                    Cash Provided By (Used in) Investing Activities**                                                                          |   |   | (199,798 | ) |   | (60,770 | ) |
|                                                                                                                                                |   |   |   |   |   |   |   |
| **Financing                    Activities:**                                                                                                        |   |   |   |   |   |   |   |
| Proceeds                    from (payment of) overdraft facility                                                                                    |   |   | 12,328 |   |   | 8,679 |   |
| Issuance                    of commercial paper                                                                                                     |   |   | 158,042 |   |   | - |   |
| Retirement                    of commercial paper                                                                                                   |   |   | - |   |   | (55,625 | ) |
| Issuance                    of long-term debt                                                                                                       |   |   | - |   |   | (212 | ) |
| Retirement                    of long-term debt                                                                                                     |   |   | (1,322 | ) |   | (1,731 | ) |
| Proceeds                    from issuance of common stock                                                                                           |   |   | 4,692 |   |   | 7,501 |   |
| Dividends                    paid on common stock                                                                                                   |   |   | (41,665 | ) |   | (40,816 | ) |
| **Net                    Cash Provided by (Used in) Financing Activities**                                                                          |   |   | 132,075 |   |   | (82,204 | ) |
|                                                                                                                                                |   |   |   |   |   |   |   |
| **Net                    Increase (Decrease) in Cash and Cash Equivalents**                                                                         |   |   | 50,069 |   |   | 85,547 |   |
| **Cash                    and Cash Equivalents at Beginning of Period**                                                                             |   |   | 18,186 |   |   | 7,228 |   |
| **Cash                    and Cash Equivalents at End of Period**                                                                                   |   | $ | 68,255 |   | $ | 92,775 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |
| **Supplemental                    information:**                                                                                                    |   |   |   |   |   |   |   |
| Income                    taxes paid, net of refunds                                                                                                |   | $ | 27,969 |   | $ | 19,680 |   |
| Interest                    paid, net of amounts capitalized                                                                                        |   | $ | 26,441 |   | $ | 24,680 |   |
|                                                                                                                                                |   |
| *The                    Notes to Consolidated Financial Statements are an integral part                    of these                    statements.* |

----

| **The                    Peoples Gas Light and Coke Company**                                                                                       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                    STATEMENTS OF OPERATIONS**                                                                                        |
| (Unaudited)                                                                                                                                         |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                     |   | Three                    Months Ended | Six                    Months Ended |
|                                                                                                                                                     |   | March                    31, | March                    31, |
|                                                                                                                                                |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| *(In                    Thousands)*                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Revenues**                                                                                                                                        |   | $ | 694,163 |   | $ | 627,485 |   | $ | 1,307,689 |   | $ | 1,066,337 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                    Expenses:**                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gas                    costs                                                                                                                        |   |   | 485,194 |   |   | 403,722 |   |   | 912,054 |   |   | 676,155 |   |
| Gas                    charge settlement                                                                                                            |   |   | 28,362 |   |   | - |   |   | 103,030 |   |   | - |   |
| Operation                    and maintenance, excluding                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| restructuring                    and environmental costs                                                                                            |   |   | 69,083 |   |   | 65,900 |   |   | 134,095 |   |   | 123,850 |   |
| Restructuring                    costs                                                                                                              |   |   | - |   |   | 1,512 |   |   | - |   |   | 8,467 |   |
| Environmental                    costs                                                                                                              |   |   | 13,124 |   |   | 13,337 |   |   | 23,626 |   |   | 21,943 |   |
| Depreciation                    and amortization                                                                                                    |   |   | 13,964 |   |   | 15,383 |   |   | 27,663 |   |   | 30,659 |   |
| Taxes,                    other than income taxes                                                                                                   |   |   | 68,045 |   |   | 64,837 |   |   | 126,637 |   |   | 109,983 |   |
| Losses                    (gains) on property sales                                                                                                 |   |   | (170 | ) |   | - |   |   | (170 | ) |   | 122 |   |
| **Total                    Operating Expenses**                                                                                                     |   |   | 677,602 |   |   | 564,691 |   |   | 1,326,935 |   |   | 971,179 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                    Income (Loss)**                                                                                                      |   |   | 16,561 |   |   | 62,794 |   |   | (19,246 | ) |   | 95,158 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                    income                                                                                                                     |   |   | 992 |   |   | 794 |   |   | 1,996 |   |   | 1,611 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                    expense                                                                                                                    |   |   | 116 |   |   | 39 |   |   | 223 |   |   | 59 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                    expense                                                                                                                 |   |   | 6,991 |   |   | 6,121 |   |   | 13,270 |   |   | 12,063 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Income                    (Loss) Before Income Taxes**                                                                                            |   |   | 10,446 |   |   | 57,428 |   |   | (30,743 | ) |   | 84,647 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                    tax expense (benefit)                                                                                                     |   |   | 2,838 |   |   | 21,788 |   |   | (14,111 | ) |   | 31,738 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net                    Income (Loss)**                                                                                                            |   | $ | 7,608 |   | $ | 35,640 |   | $ | (16,632 | ) | $ | 52,909 |   |
|                                                                                                                                                |   |
| *The                    Notes to Consolidated Financial Statements are an integral part                    of these                    statements.* |

----

| **The                    Peoples Gas Light and Coke Company**                                                                                       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                    BALANCE SHEETS**                                                                                                  |
| (Unaudited)                                                                                                                                         |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                |   |   | March                  31,  |   |   | September                    30, |   |   | March                    31, |   |
|                                                                                                                                                |   |   | 2006 |   |   | 2005 |   |   | 2005 |   |
| *(In                    Thousands)*                                                                                                                 |   |    |
| **ASSETS**                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **CAPITAL                    INVESTMENTS:**                                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Property,                    plant and equipment                                                                                                    |   | $ | 2,297,428 |   | $ | 2,271,716 |   | $ | 2,282,555 |   |
| Less                    - Accumulated depreciation and amortization                                                                                 |   |   | 924,406 |   |   | 904,200 |   |   | 927,753 |   |
| Net                    property, plant and equipment                                                                                                |   |   | 1,373,022 |   |   | 1,367,516 |   |   | 1,354,802 |   |
| Other                    investments                                                                                                                |   |   | 1,454 |   |   | 1,548 |   |   | 1,631 |   |
| **Total                    Capital Investments - Net**                                                                                              |   |   | 1,374,476 |   |   | 1,369,064 |   |   | 1,356,433 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **CURRENT                    ASSETS:**                                                                                                              |   |   |   |   |   |   |   |   |   |   |
| Cash                    and cash equivalents                                                                                                        |   |   | 35,580 |   |   | - |   |   | 52,001 |   |
| Short-term                    investments                                                                                                           |   |   | - |   |   | - |   |   | 7,700 |   |
| Deposits                    with broker or trustee                                                                                                  |   |   | 709 |   |   | 38 |   |   | - |   |
| Receivables                    -                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Customers,                    net of reserve for uncollectible accounts                                                                             |   |   |   |   |   |   |   |   |   |   |
| of                    $46,310, $31,947 and $31,915, respectively                                                                                    |   |   | 435,655 |   |   | 113,946 |   |   | 349,337 |   |
| Intercompany                    receivables                                                                                                         |   |   | 3,865 |   |   | 189,794 |   |   | 25,006 |   |
| Other                                                                                                                                               |   |   | 130 |   |   | 2 |   |   | 83 |   |
| Materials                    and supplies, at average cost                                                                                          |   |   | 9,484 |   |   | 9,238 |   |   | 9,281 |   |
| Gas                    in storage, at last-in, first-out cost                                                                                       |   |   | 30,992 |   |   | 106,242 |   |   | 22,094 |   |
| Gas                    costs recoverable through rate adjustments                                                                                   |   |   | - |   |   | 6,889 |   |   | - |   |
| Regulatory                    assets                                                                                                                |   |   | 80,775 |   |   | 28,061 |   |   | 18,115 |   |
| Other                                                                                                                                               |   |   | 13,915 |   |   | 9,127 |   |   | 17,787 |   |
| **Total                    Current Assets**                                                                                                         |   |   | 611,105 |   |   | 463,337 |   |   | 501,404 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **OTHER                    ASSETS:**                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Prepaid                    pension costs                                                                                                            |   |   | 153,410 |   |   | 153,110 |   |   | 166,365 |   |
| Noncurrent                    regulatory assets                                                                                                     |   |   | 247,659 |   |   | 256,180 |   |   | 181,664 |   |
| Deferred                    charges and other                                                                                                       |   |   | 35,274 |   |   | 35,490 |   |   | 36,205 |   |
| **Total                    Other Assets**                                                                                                           |   |   | 436,343 |   |   | 444,780 |   |   | 384,234 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **Total                    Assets**                                                                                                                 |   | $ | 2,421,924 |   | $ | 2,277,181 |   | $ | 2,242,071 |   |
|                                                                                                                                                |   |
| *The                    Notes to Consolidated Financial Statements are an integral part                    of these                    statements.* |

----

| **The                    Peoples Gas Light and Coke Company**                                                                                       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                    BALANCE SHEETS**                                                                                                  |
| (Unaudited)                                                                                                                                         |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                |   |   | March                  31, |   |   | September                    30, |   |   | March                    31, |   |
|                                                                                                                                                |   |   | 2006 |   |   | 2005 |   |   | 2005 |   |
| *(In                    Thousands, Except Shares)*                                                                                                  |   |    |
| **CAPITALIZATION                    AND LIABILITIES**                                                                                               |   |   |   |   |   |   |   |   |   |   |
| **CAPITALIZATION:**                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Common                    Stockholder's Equity:                                                                                                     |   |   |   |   |   |   |   |   |   |   |
| Common                    stock, without par value -                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Authorized                    40,000,000 shares                                                                                                     |   |   |   |   |   |   |   |   |   |   |
| Outstanding                    24,817,566 shares                                                                                                    |   | $ | 165,307 |   | $ | 165,307 |   | $ | 165,307 |   |
| Retained                    earnings                                                                                                                |   |   | 437,415 |   |   | 469,447 |   |   | 498,537 |   |
| Accumulated                    other comprehensive loss                                                                                             |   |   | (22,412 | ) |   | (21,482 | ) |   | (19,254 | ) |
| **Total                    Common Stockholder's Equity**                                                                                            |   |   | 580,310 |   |   | 613,272 |   |   | 644,590 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Long-term                    debt                                                                                                                   |   |   | 502,000 |   |   | 502,000 |   |   | 502,000 |   |
| **Total                    Capitalization**                                                                                                         |   |   | 1,082,310 |   |   | 1,115,272 |   |   | 1,146,590 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **CURRENT                    LIABILITIES:**                                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Other                    short-term debt - intercompany                                                                                             |   |   | - |   |   | 360 |   |   | - |   |
| Accounts                    payable                                                                                                                 |   |   | 116,069 |   |   | 98,069 |   |   | 112,856 |   |
| Intercompany                    payables                                                                                                            |   |   | 67,839 |   |   | 22,573 |   |   | 9,601 |   |
| Regulatory                    liabilities                                                                                                           |   |   | - |   |   | 166,745 |   |   | 22,159 |   |
| Customer                    deposits                                                                                                                |   |   | 34,141 |   |   | 27,314 |   |   | 28,326 |   |
| Customer                    credit balances                                                                                                         |   |   | 18,783 |   |   | 49,873 |   |   | 19,767 |   |
| Accrued                    taxes                                                                                                                    |   |   | 53,066 |   |   | 24,089 |   |   | 72,777 |   |
| Gas                    deliverable to customers                                                                                                     |   |   | 36,806 |   |   | 51,456 |   |   | 13,470 |   |
| Other                    accrued liabilities                                                                                                        |   |   | 16,758 |   |   | 17,315 |   |   | 16,398 |   |
| Gas                    charge settlement                                                                                                            |   |   | 111,649 |   |   | 13,332 |   |   | 11,100 |   |
| Gas                    costs refundable through rate adjustments                                                                                    |   |   | 44,808 |   |   | 29 |   |   | 5,096 |   |
| Accrued                    interest                                                                                                                 |   |   | 5,918 |   |   | 5,559 |   |   | 5,688 |   |
| Dividends                    payable                                                                                                                |   |   | 7,200 |   |   | - |   |   | 11,900 |   |
| Temporary                    LIFO liquidation credit                                                                                                |   |   | 153,866 |   |   | - |   |   | 138,012 |   |
| **Total                    Current Liabilities**                                                                                                    |   |   | 666,903 |   |   | 476,714 |   |   | 467,150 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **DEFERRED                    CREDITS AND LONG-TERM LIABILITIES:**                                                                                  |   |   |   |   |   |   |
| Deferred                    income taxes                                                                                                            |   |   | 350,855 |   |   | 365,016 |   |   | 368,467 |   |
| Investment                    tax credits                                                                                                           |   |   | 23,303 |   |   | 23,514 |   |   | 23,355 |   |
| Environmental                                                                                                                                       |   |   | 209,300 |   |   | 217,611 |   |   | 143,304 |   |
| Pension                                                                                                                                             |   |   | 31,364 |   |   | 26,342 |   |   | 49,001 |   |
| Other                                                                                                                                               |   |   | 57,889 |   |   | 52,712 |   |   | 44,204 |   |
| **Total                    Deferred Credits and Other Liabilities**                                                                                 |   |   | 672,711 |   |   | 685,195 |   |   | 628,331 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **Total                    Capitalization and Liabilities**                                                                                         |   | $ | 2,421,924 |   | $ | 2,277,181 |   | $ | 2,242,071 |   |
|                                                                                                                                                |   |
| *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)                                                                                                                                         |
|                                                                                                                                                |   |   |   |   |   |   |   |
|                                                                                                                                                     |   | Six                    Months Ended |
|                                                                                                                                                     |   | March                    31, |
|                                                                                                                                                |   |   | 2006 |   |   | 2005 |   |
| *(In                    Thousands)*                                                                                                                 |   |   |   |   |   |   |   |
| **Operating                    Activities:**                                                                                                        |   |   |   |   |   |   |   |
| Net                    income (loss)                                                                                                                |   | $ | (16,632 | ) | $ | 52,909 |   |
| Adjustments                    to reconcile net income to cash provided by operations:                                                              |   |   |   |
| Depreciation                    and amortization                                                                                                    |   |   | 30,027 |   |   | 33,011 |   |
| Deferred                    income taxes and investment tax credits—net                                                                       |   |   | (14,095 | ) |   | (12,168 | ) |
| Gas                    charge settlement                                                                                                            |   |   | 103,030 |   |   | - |   |
| Pension                    funding less than expense                                                                                                |   |   | 4,721 |   |   | 8,724 |   |
| Other                    adjustments                                                                                                                |   |   | 10,507 |   |   | 39,125 |   |
| Net                    changes in:                                                                                                                  |   |   |   |   |   |   |   |
| Receivables—net                                                                                                                               |   |   | (326,737 | ) |   | (238,720 | ) |
| Intercompany                    receivables                                                                                                         |   |   | 12,721 |   |   | 2,259 |   |
| Gas                    in storage                                                                                                                   |   |   | 75,250 |   |   | 85,181 |   |
| Gas                    costs recoverable/refundable through rate adjustments                                                                        |   |   | 51,668 |   |   | 23,017 |   |
| Accounts                    payable                                                                                                                 |   |   | 7,152 |   |   | 59,659 |   |
| Intercompany                    accounts payable                                                                                                    |   |   | (11,981 | ) |   | (27,075 | ) |
| Gas                    deliverable to customers                                                                                                     |   |   | (14,650 | ) |   | (18,993 | ) |
| Other                    accrued liabilities                                                                                                        |   |   | (1,239 | ) |   | (39,033 | ) |
| Accrued                    interest                                                                                                                 |   |   | 359 |   |   | 156 |   |
| Accrued                    taxes                                                                                                                    |   |   | 28,977 |   |   | 50,233 |   |
| Temporary                    LIFO liquidation                                                                                                       |   |   | 153,866 |   |   | 138,012 |   |
| Other                                                                                                                                               |   |   | (25,469 | ) |   | (32,929 | ) |
| **Net                    Cash Provided by (Used in) Operating Activities**                                                                          |   |   | 67,475 |   |   | 123,368 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |
| **Investing                    Activities:**                                                                                                        |   |   |   |   |   |   |   |
| Capital                    spending                                                                                                                 |   |   | (36,483 | ) |   | (31,390 | ) |
| Proceeds                    from sale of assets                                                                                                     |   |   | 1,349 |   |   | - |   |
| Other                                                                                                                                               |   |   | 951 |   |   | (4,921 | ) |
| **Net                    Cash Provided by (Used in) Investing Activities**                                                                          |   |   | (34,183 | ) |   | (36,311 | ) |
|                                                                                                                                                |   |   |   |   |   |   |   |
| **Financing                    Activities:**                                                                                                        |   |   |   |   |   |   |   |
| Proceeds                    from (payment of) overdraft facility                                                                                    |   |   | 10,848 |   |   | 10,050 |   |
| Intercompany                    loan payable                                                                                                        |   |   | (360 | ) |   | - |   |
| Retirement                    of commercial paper                                                                                                   |   |   | - |   |   | (31,000 | ) |
| Issuance                    of long-term debt                                                                                                       |   |   | - |   |   | (212 | ) |
| Dividends                    paid on common stock                                                                                                   |   |   | (8,200 | ) |   | (13,900 | ) |
| **Net                    Cash Provided by (Used in) Financing Activities**                                                                          |   |   | 2,288 |   |   | (35,062 | ) |
|                                                                                                                                                |   |   |   |   |   |   |   |
| **Net                    Increase (Decrease) in Cash and Cash Equivalents**                                                                         |   |   | 35,580 |   |   | 51,995 |   |
| **Cash                    and Cash Equivalents at Beginning of Period**                                                                             |   |   | - |   |   | 6 |   |
| **Cash                    and Cash Equivalents at End of Period**                                                                                   |   | $ | 35,580 |   | $ | 52,001 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |
| **Supplemental                    information:**                                                                                                    |   |   |   |   |   |   |   |
| Income                    taxes paid, net of refunds                                                                                                |   | $ | 4,121 |   | $ | 22,227 |   |
| Interest                    paid, net of amounts capitalized                                                                                        |   | $ | 11,825 |   | $ | 11,162 |   |
|                                                                                                                                                |   |
| *The                    Notes to Consolidated Financial Statements are an integral part                    of these                    statements.* |

----

| **North                    Shore Gas Company**                                                                                                      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                    STATEMENTS OF INCOME**                                                                                            |
| (Unaudited)                                                                                                                                         |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                     |   |  Three                    Months Ended | Six                    Months Ended |
|                                                                                                                                                     |   |  March                    31, | March                    31, |
|                                                                                                                                                |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| *(In                    Thousands)*                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Revenues**                                                                                                                                        |   | $ | 127,194 |   | $ | 115,147 |   | $ | 242,657 |   | $ | 195,243 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                    Expenses:**                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gas                    costs                                                                                                                        |   |   | 98,301 |   |   | 84,454 |   |   | 188,592 |   |   | 141,625 |   |
| Gas                    charge settlement (credit)                                                                                                   |   |   | (12,700 | ) |   | - |   |   | 4,300 |   |   | - |   |
| Operation                    and maintenance, excluding                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| restructuring                    and environmental costs                                                                                            |   |   | 9,529 |   |   | 8,976 |   |   | 18,699 |   |   | 17,078 |   |
| Restructuring                    costs                                                                                                              |   |   | - |   |   | 40 |   |   | - |   |   | 561 |   |
| Environmental                    costs                                                                                                              |   |   | 909 |   |   | 808 |   |   | 1,703 |   |   | 1,184 |   |
| Depreciation                                                                                                                                        |   |   | 1,379 |   |   | 1,733 |   |   | 2,805 |   |   | 3,450 |   |
| Taxes,                    other than income taxes                                                                                                   |   |   | 6,500 |   |   | 6,790 |   |   | 12,074 |   |   | 11,645 |   |
| **Total                    Operating Expenses**                                                                                                     |   |   | 103,918 |   |   | 102,801 |   |   | 228,173 |   |   | 175,543 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                    Income**                                                                                                             |   |   | 23,276 |   |   | 12,346 |   |   | 14,484 |   |   | 19,700 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                    income                                                                                                                     |   |   | 171 |   |   | 159 |   |   | 251 |   |   | 208 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                    expense                                                                                                                    |   |   | 33 |   |   | 30 |   |   | 57 |   |   | 67 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                    expense                                                                                                                 |   |   | 973 |   |   | 934 |   |   | 1,949 |   |   | 1,872 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Income                    Before Income Taxes**                                                                                                   |   |   | 22,441 |   |   | 11,541 |   |   | 12,729 |   |   | 17,969 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                    tax expense                                                                                                               |   |   | 8,612 |   |   | 4,416 |   |   | 4,558 |   |   | 6,751 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net                    Income**                                                                                                                   |   | $ | 13,829 |   | $ | 7,125 |   | $ | 8,171 |   | $ | 11,218 |   |
|                                                                                                                                                |   |
| *The                    Notes to Consolidated Financial Statements are an integral part                    of these                    statements.* |

----

| **North                    Shore Gas Company**                                                                                                      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                    BALANCE SHEETS**                                                                                                  |
| (Unaudited)                                                                                                                                         |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                     |   |   |  March                    31, |   |   | September                    30, |   |   | March                    31, |   |
|                                                                                                                                                |   |   | 2006 |   |   | 2005 |   |   | 2005 |   |
| *(In                    Thousands)*                                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| **ASSETS**                                                                                                                                          |   |    |
| **CAPITAL                    INVESTMENTS:**                                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Property,                    plant and equipment                                                                                                    |   | $ | 366,160 |   | $ | 362,912 |   | $ | 359,596 |   |
| Less                    - Accumulated depreciation                                                                                                  |   |   | 146,434 |   |   | 144,504 |   |   | 144,631 |   |
| **Net                    property, plant and equipment**                                                                                            |   |   | 219,726 |   |   | 218,408 |   |   | 214,965 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **CURRENT                    ASSETS:**                                                                                                              |   |   |   |   |   |   |   |   |   |   |
| Cash                    and cash equivalents                                                                                                        |   |   | 23,251 |   |   | 10,545 |   |   | 34,119 |   |
| Short-term                    investments                                                                                                           |   |   | 7,000 |   |   | - |   |   | - |   |
| Receivables                    -                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Customers,                    net of reserve for uncollectible                                                                                      |   |   |   |   |   |   |   |   |   |   |
| accounts                    of $2,371, $1,455 and $1,610, respectively                                                                              |   |   | 60,941 |   |   | 14,209 |   |   | 50,686 |   |
| Intercompany                    receivables                                                                                                         |   |   | 447 |   |   | 39,815 |   |   | 5,152 |   |
| Materials                    and supplies, at average cost                                                                                          |   |   | 1,201 |   |   | 1,230 |   |   | 1,204 |   |
| Gas                    in storage, at last-in, first-out cost                                                                                       |   |   | 3,556 |   |   | 14,231 |   |   | 2,068 |   |
| Gas                    costs recoverable through rate adjustments                                                                                   |   |   | 12 |   |   | 1,719 |   |   | 12 |   |
| Regulatory                    assets                                                                                                                |   |   | 11,982 |   |   | 2,001 |   |   | 2,882 |   |
| Other                                                                                                                                               |   |   | 429 |   |   | 371 |   |   | 1,920 |   |
| **Total                    Current Assets**                                                                                                         |   |   | 108,819 |   |   | 84,121 |   |   | 98,043 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **OTHER                    ASSETS:**                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Noncurrent                    regulatory assets                                                                                                     |   |   | 66,457 |   |   | 65,983 |   |   | 52,680 |   |
| Deferred                    charges and other                                                                                                       |   |   | 2,927 |   |   | 2,677 |   |   | 2,723 |   |
| **Total                    Other Assets**                                                                                                           |   |   | 69,384 |   |   | 68,660 |   |   | 55,403 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **Total                    Assets**                                                                                                                 |   | $ | 397,929 |   | $ | 371,189 |   | $ | 368,411 |   |
|                                                                                                                                                |   |
| *The                    Notes to Consolidated Financial Statements are an integral part                    of these                    statements.* |

----

| **North                    Shore Gas Company**                                                                                                      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                    BALANCE SHEETS**                                                                                                  |
| (Unaudited)                                                                                                                                         |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                     |   |   |  March                    31, |   |   | September                    30, |   |   | March                    31, |   |
|                                                                                                                                                |   |   | 2006 |   |   | 2005 |   |   | 2005 |   |
| *(In                    Thousands, Except Shares)*                                                                                                  |   |   |   |   |   |   |   |   |   |   |
| **CAPITALIZATION                    AND LIABILITIES**                                                                                               |   |   |   |   |   |   |   |   |   |   |
| **CAPITALIZATION:**                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Common                    Stockholder's Equity:                                                                                                     |   |   |   |   |   |   |   |   |   |   |
| Common                    stock, without par value -                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Authorized                    5,000,000 shares                                                                                                      |   |   |   |   |   |   |   |   |   |   |
| Outstanding                    3,625,887 shares                                                                                                     |   | $ | 24,757 |   | $ | 24,757 |   | $ | 24,757 |   |
| Retained                    earnings                                                                                                                |   |   | 77,726 |   |   | 80,555 |   |   | 85,676 |   |
| Accumulated                    other comprehensive loss                                                                                             |   |   | (2,365 | ) |   | (2,376 | ) |   | (2,032 | ) |
| **Total                    Common Stockholder's Equity**                                                                                            |   |   | 100,118 |   |   | 102,936 |   |   | 108,401 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Long-term                    debt                                                                                                                   |   |   | 69,250 |   |   | 69,250 |   |   | 69,250 |   |
| **Total                    Capitalization**                                                                                                         |   |   | 169,368 |   |   | 172,186 |   |   | 177,651 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **CURRENT                    LIABILITIES:**                                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Accounts                    payable                                                                                                                 |   |   | 16,048 |   |   | 21,879 |   |   | 13,898 |   |
| Intercompany                    payables                                                                                                            |   |   | 13,842 |   |   | 2,722 |   |   | 2,410 |   |
| Regulatory                    liabilities                                                                                                           |   |   | - |   |   | 32,485 |   |   | 4,846 |   |
| Customer                    deposits                                                                                                                |   |   | 2,939 |   |   | 2,489 |   |   | 2,386 |   |
| Customer                    credit balances                                                                                                         |   |   | 3,146 |   |   | 8,761 |   |   | 3,820 |   |
| Accrued                    taxes                                                                                                                    |   |   | 10,362 |   |   | 2,904 |   |   | 6,731 |   |
| Gas                    deliverable to customers                                                                                                     |   |   | 3,315 |   |   | 4,673 |   |   | 2,454 |   |
| Other                    accrued liabilities                                                                                                        |   |   | 3,790 |   |   | 3,504 |   |   | 1,184 |   |
| Gas                    charge settlement                                                                                                            |   |   | 4,200 |   |   | - |   |   | - |   |
| Gas                    costs refundable through rate adjustments                                                                                    |   |   | 8,177 |   |   | 264 |   |   | 2,145 |   |
| Accrued                    interest                                                                                                                 |   |   | 1,309 |   |   | 1,284 |   |   | 1,279 |   |
| Dividends                    payable                                                                                                                |   |   | 1,500 |   |   | - |   |   | 2,800 |   |
| Temporary                    LIFO liquidation credit                                                                                                |   |   | 40,511 |   |   | - |   |   | 36,365 |   |
| **Total                    Current Liabilities**                                                                                                    |   |   | 109,139 |   |   | 80,965 |   |   | 80,318 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **DEFERRED                    CREDITS AND LONG-TERM LIABILITIES:**                                                                                  |   |   |   |   |   |   |
| Deferred                    income taxes                                                                                                            |   |   | 38,582 |   |   | 39,061 |   |   | 36,592 |   |
| Investment                    tax credits                                                                                                           |   |   | 2,846 |   |   | 2,859 |   |   | 2,820 |   |
| Environmental                                                                                                                                       |   |   | 64,600 |   |   | 64,800 |   |   | 51,889 |   |
| Pension                                                                                                                                             |   |   | 5,143 |   |   | 3,293 |   |   | 12,012 |   |
| Other                                                                                                                                               |   |   | 8,251 |   |   | 8,025 |   |   | 7,129 |   |
| **Total                    Deferred Credits and Other Liabilities**                                                                                 |   |   | 119,422 |   |   | 118,038 |   |   | 110,442 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| **Total                    Capitalization and Liabilities**                                                                                         |   | $ | 397,929 |   | $ | 371,189 |   | $ | 368,411 |   |
|                                                                                                                                                |   |
| *The                    Notes to Consolidated Financial Statements are an integral part                    of these                    statements.* |

----

| **North                    Shore Gas Company**                                                                                                      |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                    STATEMENTS OF CASH FLOWS**                                                                                        |
| (Unaudited)                                                                                                                                         |
|                                                                                                                                                |   |   |   |   |   |   |   |
|                                                                                                                                                     |   | Six                    Months Ended |
|                                                                                                                                                     |   | March                    31, |
|                                                                                                                                                |   |   | 2006 |   |   | 2005 |   |
| *(In                    Thousands)*                                                                                                                 |   |   |   |   |   |   |   |
| **Operating                    Activities:**                                                                                                        |   |   |   |   |   |   |   |
| Net                    income                                                                                                                       |   | $ | 8,171 |   | $ | 11,218 |   |
| Adjustments                    to reconcile net income to cash provided by operations:                                                              |   |   |   |   |   |   |   |
| Depreciation                                                                                                                                        |   |   | 3,257 |   |   | 3,863 |   |
| Deferred                    income taxes and investment tax credits—net                                                                       |   |   | (200 | ) |   | 696 |   |
| Pension                    funding less than expense                                                                                                |   |   | 1,850 |   |   | 2,289 |   |
| Gas                    charge settlement                                                                                                            |   |   | 4,300 |   |   | - |   |
| Other                    adjustments                                                                                                                |   |   | 475 |   |   | (1,714 | ) |
| Net                    changes in:                                                                                                                  |   |   |   |   |   |   |   |
| Receivables—net                                                                                                                               |   |   | (46,474 | ) |   | (37,194 | ) |
| Intercompany                    receivables                                                                                                         |   |   | 5,254 |   |   | 14,602 |   |
| Gas                    in storage                                                                                                                   |   |   | 10,675 |   |   | 12,853 |   |
| Gas                    costs recoverable/refundable through rate adjustments                                                                        |   |   | 9,620 |   |   | 4,795 |   |
| Accounts                    payable                                                                                                                 |   |   | (5,460 | ) |   | 5,167 |   |
| Intercompany                    accounts payable                                                                                                    |   |   | 1,201 |   |   | (3,810 | ) |
| Gas                    deliverable to customers                                                                                                     |   |   | (1,358 | ) |   | (1,006 | ) |
| Other                    accrued liabilities                                                                                                        |   |   | 286 |   |   | (4,877 | ) |
| Accrued                    interest                                                                                                                 |   |   | 25 |   |   | 9 |   |
| Accrued                    taxes                                                                                                                    |   |   | 7,458 |   |   | 5,052 |   |
| Temporary                    LIFO liquidations                                                                                                      |   |   | 40,511 |   |   | 36,365 |   |
| Other                                                                                                                                               |   |   | (5,439 | ) |   | (3,456 | ) |
| **Net                    Cash Provided by (Used in) Operating Activities**                                                                          |   |   | 34,152 |   |   | 44,852 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |
| **Investing                    Activities:**                                                                                                        |   |   |   |   |   |   |   |
| Capital                    spending                                                                                                                 |   |   | (4,575 | ) |   | (3,714 | ) |
| Short-term                    investments                                                                                                           |   |   | (7,000 | ) |   | - |   |
| Other                                                                                                                                               |   |   | - |   |   | 25 |   |
| **Net                    Cash Provided by (Used in) Investing Activities**                                                                          |   |   | (11,575 | ) |   | (3,689 | ) |
|                                                                                                                                                |   |   |   |   |   |   |   |
| **Financing                    Activities:**                                                                                                        |   |   |   |   |   |   |   |
| Proceeds                    from (payment of) overdraft facility                                                                                    |   |   | (371 | ) |   | (156 | ) |
| Retirement                    of short-term debt                                                                                                    |   |   | - |   |   | (3,810 | ) |
| Retirement                    of long-term debt                                                                                                     |   |   | - |   |   | (80 | ) |
| Dividends                    paid on common stock                                                                                                   |   |   | (9,500 | ) |   | (3,000 | ) |
| **Net                    Cash Provided by (Used in) Financing Activities**                                                                          |   |   | (9,871 | ) |   | (7,046 | ) |
|                                                                                                                                                |   |   |   |   |   |   |   |
| **Net                    Increase (Decrease) in Cash and Cash Equivalents**                                                                         |   |   | 12,706 |   |   | 34,117 |   |
| **Cash                    and Cash Equivalents at Beginning of Period**                                                                             |   |   | 10,545 |   |   | 2 |   |
| **Cash                    and Cash Equivalents at End of Period**                                                                                   |   | $ | 23,251 |   | $ | 34,119 |   |
|                                                                                                                                                |   |   |   |   |   |   |   |
| **Supplemental                    information:**                                                                                                    |   |   |   |   |   |   |   |
| Income                    taxes paid, net of refunds                                                                                                |   | $ | 465 |   | $ | 3,970 |   |
| Interest                    paid, net of amounts capitalized                                                                                        |   | $ | 1,781 |   | $ | 1,824 |   |
|                                                                                                                                                |   |
| *The                    Notes to Consolidated Financial Statements are an integral part                    of these                    statements.* |

----

**Notes          to Consolidated Financial Statements (Unaudited)**

**1:        BASIS OF PRESENTATION**

**General**

**Discontinued        Operations**

----

**Notes            to Consolidated Financial Statements (Unaudited)**

|                                                           |   |   | March                  31, |   |   | September                  30, |   |   | March                  31, |   |
|-----------------------------------------------------------|--------|--------|----------------------------|--------|--------|--------------------------------|--------|--------|----------------------------|--------|
|                                                      |   |   | 2006                       |   |   | 2005                           |   |   | 2005                       |   |
| *(In                  Thousands)*                         |   |   |                       |   |   |                           |   |   |                       |   |
| Investments                  in unconsolidated affiliates |   | $      | 106,425                    |   | $      | 115,168                        |   | $      | 105,724                    |   |
| Other                  investments                        |   |   | 10,249                     |   |   | 12,245                         |   |   | 11,060                     |   |
| Property,                  plant and equipment, net       |   |   | 43                         |   |   | 906                            |   |   | 917                        |   |
| Total                  assets                             |   | $      | 116,717                    |   | $      | 128,319                        |   | $      | 117,701                    |   |
|                                                      |   |   |                       |   |   |                           |   |   |                       |   |
| Deferred                  credit                          |   | $      | 2,201                      |   | $      | 2,201                          |   | $      | 2,201                      |   |

|                                                              |   | Three                  Months Ended | Six                  Months Ended |
|--------------------------------------------------------------|--------|-------------------------------------|-----------------------------------|
|                                                              |   | March                  31,          | March                  31,        |
|                                                         |   |                                | 2006                              |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| *(In                  Thousands)*                            |   |                                |                              |   |   |   |   |   |   |   |   |   |   |
| Operation                  and maintenance                   |   | $                                   | (776                              | ) | $ | (503 | ) | $ | (1,420 | ) | $ | (1,025 | ) |
| Taxes,                  other than income taxes              |   |                                | 6                                 |   |   | (20 | ) |   | (8 | ) |   | (11 | ) |
| Impairments                  and losses on property sales    |   |                                | (50                               | ) |   | (143 | ) |   | (2,139 | ) |   | (143 | ) |
| Equity                  investment income                    |   |                                | 122                               |   |   | 2,891 |   |   | 952 |   |   | 2,431 |   |
| Income                  (loss) before income taxes           |   |                                | (698                              | ) |   | 2,225 |   |   | (2,615 | ) |   | 1,252 |   |
| Income                  tax expense (benefit)                |   |                                | (277                              | ) |   | 884 |   |   | (1,039 | ) |   | 498 |   |
| Income                  (loss) from discontinued operations, |   |                                |                              |   |   |   |   |   |   |   |   |   |   |
| net                  of income taxes                         |   | $                                   | (421                              | ) | $ | 1,341 |   | $ | (1,576 | ) | $ | 754 |   |

**Change        In Segment Reporting**

----

**Notes            to Consolidated Financial Statements            (Unaudited)**

|                                                           |   |  **Fiscal                    2006** |                        |  **Fiscal                    2005** |   |
|----------------------------------------------------------------|--------|------------------------------------------|-----------------------------|------------------------------------------|--------|
| *(In                    Thousands, except per share amounts)*  |   |                                     | Mar.                    31, |                                     |   | Dec.                    31, |   |   | Sep.                    30, |   |   | Jun.                    30, |   |   | Mar.                    31, |   |   | Dec.                    31, |   |
| For                    the Quarter Ended                       |   |                                     | 2006                        |                                     |   | 2005 |   |   | 2005 |   |   | 2005 |   |   | 2005 |   |   | 2004 |   |
| Operating                    Income (Loss):                    |   |                                     |                        |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gas                    Distribution                            |   | $                                        | 42,921                      |                                     | $      | (40,954 | ) | $ | (6,778 | ) | $ | 17,251 |   | $ | 77,187 |   | $ | 49,674 |   |
| Oil                    and Gas Production                      |   |                                     | 8,801                       |                                     |   | 11,394 |   |   | (2,769 | ) |   | 5,854 |   |   | 5,177 |   |   | 8,591 |   |
| Energy                    Marketing                            |   |                                     | 10,324                      |                                     |   | 9,764 |   |   | (77 | ) |   | 1,329 |   |   | 9,857 |   |   | 2,364 |   |
| Energy                    Assets                               |   |                                     | 1,450                       |                                     |   | 1,692 |   |   | 502 |   |   | (311 | ) |   | 566 |   |   | 972 |   |
| Corporate                    and Other                         |   |                                     | (4,064                      | )                                        |   | (4,408 | ) |   | 2,775 |   |   | (4,265 | ) |   | (4,267 | ) |   | (14,215 | ) |
| Total                    Operating Income (Loss)               |   | $                                        | 59,432                      |                                     | $      | (22,512 | ) | $ | (6,347 | ) | $ | 19,858 |   | $ | 88,520 |   | $ | 47,386 |   |
|                                                           |   |                                     |                        |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                    (loss) from continuing operations    |   |                                     | 33,591                      |                                     |   | (18,325 | ) |   | (10,880 | ) |   | 4,835 |   |   | 49,831 |   |   | 23,062 |   |
| Income                    (loss) from discontinued operations, |   |                                     |                        |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net                    of taxes                                |   |                                     | (421                        | )                                        |   | (1,156 | ) |   | 8,566 |   |   | 1,964 |   |   | 1,341 |   |   | (586 | ) |
| Net                    Income (Loss)                           |   | $                                        | 33,170                      |                                     | $      | (19,481 | ) | $ | (2,314 | ) | $ | 6,799 |   | $ | 51,172 |   | $ | 22,476 |   |
|                                                           |   |                                     |                        |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per                    Diluted Share:                          |   |                                     |                        |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                    (loss) from continuing operations    |   | $                                        | 0.87                        |                                     | $      | (0.48 | ) | $ | (0.28 | ) | $ | 0.13 |   | $ | 1.31 |   | $ | 0.61 |   |
| Income                    (loss) from discontinued operations  |   |                                     | (0.01                       | )                                        |   | (0.03 | ) |   | 0.22 |   |   | 0.05 |   |   | 0.03 |   |   | (0.02 | ) |
| Net                    Income (Loss)                      |   | $                                        | 0.86                        |                                     | $      | (0.51 | ) | $ | (0.06 | ) | $ | 0.18 |   | $ | 1.34 |   | $ | 0.59 |   |

**2:        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Gas        Charge Settlement**

----

**Notes            to Consolidated Financial Statements (Unaudited)**

|                                                                                                                 |   |   | Total   |   |   | Peoples                    Gas |   |   | North                    Shore Gas |   |
|-----------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------------------------------|--------|--------|------------------------------------|--------|
| *(Dollars                    in Thousands)*                                                                     |   |   |    |   |   |                           |   |   |                               |   |
| Refund                                                                                                          |   | $      | 100,000 |   | $      | 96,000                         |   | $      | 4,000                              |   |
| Payment                    to Illinois Attorney General and City of Chicago                                     |   |   | 5,000   |   |   | 4,800                          |   |   | 200                                |   |
| Hub                    fiscal 2005 revenues                                                                     |   |   | 10,662  |   |   | 10,662                         |   |   | -                                  |   |
| Bad                    debt expense                                                                             |   |   | 5,000   |   |   | 4,900                          |   |   | 100                                |   |
| Amounts                    recognized prior to fiscal 2006                                                      |   |   | (13,332 | )      |   | (13,332                        | )      |   | -                                  |   |
|                                                                                                            |   |   |    |   |   |                           |   |   |                               |   |
| Gas                    charge settlement per consolidated statements of income                                  |   | $      | 107,330 |   | $      | 103,030                        |   | $      | 4,300                              |   |
| Add:                                                                                                            |   |   |    |   |   |                           |   |   |                               |   |
|  Amounts                    recognized prior to fiscal 2006                                                |   |   | 13,332  |   |   | 13,332                         |   |   | -                                  |   |
|  Interest                    on Hub fiscal 2005 revenues refundable                                        |   |   | 187     |   |   | 187                            |   |   | -                                  |   |
| Less:                                                                                                           |   |   |    |   |   |                           |   |   |                               |   |
|  Addition                    to reserve for uncollectible accounts                                         |   |   | 5,000   |   |   | 4,900                          |   |   | 100                                |   |
|                                                                                                            |   |   |    |   |   |                           |   |   |                               |   |
| Gas                    charge settlement liability per consolidated balance                    sheets |   | $      | 115,849 |   | $      | 111,649                        |   | $      | 4,200                              |   |

----

**Notes            to Consolidated Financial Statements            (Unaudited)**

**Gas        in Storage**

**Derivative        Instruments and Hedging Activities**

**Cash        Flow Hedges. **

----

**Notes            to Consolidated Financial Statements            (Unaudited)**

|                                                                               |   |   |                         |   |   | Interest                     |   |   | Partnership  |   |   |    |   |
|-------------------------------------------------------------------------------|--------|--------|------------------------------|--------|--------|------------------------------|--------|--------|--------------|--------|--------|---------|--------|
| **Periods                    ended March 31, 2006**                           |   |   | Commodities                  |   |   | Rate                         |   |   | Transactions |   |   | Total   |   |
| *(In                    Thousands)*                                           |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| Portion                    of after-tax gains on hedging instruments          |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| determined                    to be ineffective and included in net income    |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| -                    three months ended                                       |   | $      | 2,419                        |   | $      | -                            |   |   | N/A          |   | $      | 2,419   |   |
| -                    six months ended                                         |   | $      | 3,596                        |   | $      | -                            |   |   | N/A          |   | $      | 3,596   |   |
|                                                                          |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| Accumulated                    other comprehensive income (loss) after tax at |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| March                    31, 2006                                             |   | $      | (55,249                      | )      | $      | (464                         | )      | $      | (3,177       | )      | $      | (58,890 | )      |
|                                                                          |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| Portion                    of accumulated other comprehensive income (loss)   |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| expected                    to be reclassified to earnings during the next    |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| 12                    months based on prices at March 31, 2006                |   | $      | (36,402                      | )      | $      | (65                          | )      |   | N/A          |   | $      | (36,467 | )      |
| Maximum                    term                                               |   |   | 54                    months |   |   | 85                    months |   |   |         |   |   |    |   |
|                                                                          |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| **Periods                    ended March 31, 2005**                           |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| *(In                    Thousands)*                                           |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| Portion                    of after-tax gains (losses) on hedging instruments |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| determined                    to be ineffective and included in net income    |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| -                    three months ended                                       |   | $      | (133                         | )      | $      | -                            |   |   | N/A          |   | $      | (133    | )      |
| -                    six months ended                                         |   | $      | 139                          |   | $      | -                            |   |   | N/A          |   | $      | 139     |   |
|                                                                          |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| Accumulated                    other comprehensive income (loss) after tax at |   |   |                         |   |   |                         |   |   |         |   |   |    |   |
| March                    31, 2005                                             |   | $      | (72,351                      | )      | $      | (530                         | )      | $      | (4,975       | )      | $      | (77,856 | )      |

**Fair        Value Hedges.**

----

**Notes            to Consolidated Financial Statements            (Unaudited)**

**Mark-To-Market        Derivative Instruments. **

|                                                                   |   |   | March                  31, |   |   | September                  30, |   |   | March                  31, |   |
|-------------------------------------------------------------------|--------|--------|----------------------------|--------|--------|--------------------------------|--------|--------|----------------------------|--------|
| *(In                  Thousands)*                                 |   |   | 2006                       |   |   | 2005                           |   |   | 2005                       |   |
| Peoples                  Gas mark-to-market asset (liability)     |   | $      | (51,337                    | )      | $      | 172,549                        |   | $      | 17,962                     |   |
| North                  Shore Gas mark-to-market asset (liability) |   |   | (8,970                     | )      |   | 33,754                         |   |   | 4,083                      |   |
| Other                  mark-to-market asset (liability)           |   |   | (6,120                     | )      |   | (2,027                         | )      |   | (29                        | )      |
| **Total**                                                         |   | $      | (66,427                    | )      | $      | 204,276                        |   | $      | 22,016                     |   |

----

**Notes            to Consolidated Financial Statements            (Unaudited)**

**Derivative      Summary.**

|                                                                     |   | Derivative                  Type |
|--------------------------------------------------------------------------|--------|----------------------------------|
|                                                                          |   | Cash                  Flow       | Fair                  Value |   |   |   |   |   |   |
|                                                                          |   | Hedges                           | Hedges | Mark-to-Market |
| Fiscal                  Quarter *(In                  Thousands)*        |   |                             | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| Value                  of contracts outstanding at January 1             |   | $                                | (136,892 | ) | $ | (54,157 | ) | $ | (6,271 | ) | $ | 1,024 |   | $ | 21,950 |   | $ | (22,779 | ) |
| Less:                  Gain (loss) on contracts realized or otherwise    |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| settled                  during the period                               |   |                             | (23,920 | ) |   | (3,459 | ) |   | 3,748 |   |   | - |   |   | (11,032 | ) |   | (11,958 | ) |
| Plus:                  Unrealized gain (loss) on new contracts entered   |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| into                  during the period and outstanding at end of period |   |                             | (761 | ) |   | (6,790 | ) |   | 251 |   |   | 59 |   |   | (13,482 | ) |   | 13,765 |   |
| Plus:                  Other unrealized gain (loss), primarily changes   |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| in                  market prices on contracts outstanding at the        |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| beginning                  of the period                                 |   |                             | 22,232 |   |   | (63,463 | ) |   | 8,525 |   |   | (2,088 | ) |   | (85,927 | ) |   | 19,072 |   |
| **Value                  of contracts outstanding at March 31**          |   | $                                | (91,501 | ) | $ | (120,951 | ) | $ | (1,243 | ) | $ | (1,005 | ) | $ | (66,427 | ) | $ | 22,016 |   |
|                                                                     |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                          |   | Derivative                  Type |
|                                                                          |   | Cash                  Flow       | Fair                  Value |   |   |   |   |   |   |
|                                                                          |   | Hedges                           | Hedges | Mark-to-Market |
| Fiscal                  Year-to-Date*(In Thousands)*                     |   |                             | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| Value                  of contracts outstanding at October 1             |   | $                                | (202,904 | ) | $ | (89,306 | ) | $ | (21,457 | ) | $ | 908 |   | $ | 204,276 |   | $ | 27,678 |   |
| Less:                  Gain (loss) on contracts realized or otherwise    |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| settled                  during the period                               |   |                             | (62,652 | ) |   | (22,850 | ) |   | 4,372 |   |   | (113 | ) |   | 53,560 |   |   | (1,605 | ) |
| Plus:                  Unrealized gain (loss) on new contracts entered   |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| into                  during the period and outstanding at end of period |   |                             | (9,135 | ) |   | (11,105 | ) |   | 746 |   |   | (69 | ) |   | (53,570 | ) |   | 20,406 |   |
| Plus:                  Other unrealized gain (loss), primarily changes   |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| in                  market prices on contracts outstanding at the        |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| beginning                  of the period                                 |   |                             | 57,886 |   |   | (43,390 | ) |   | 23,840 |   |   | (1,957 | ) |   | (163,573 | ) |   | (27,673 | ) |
| **Value                  of contracts outstanding at March 31**          |   | $                                | (91,501 | ) | $ | (120,951 | ) | $ | (1,243 | ) | $ | (1,005 | ) | $ | (66,427 | ) | $ | 22,016 |   |

----

**Notes              to Consolidated Financial Statements              (Unaudited)**

| *(Fair                  Value amounts in thousands)*                     |   |
|--------------------------------------------------------------------------|--------|
| ***Futures/Forwards***                                                   |   |   | ***Maturity*** |   |   | ***Volumes******(Mmbtus*** | ***)*** |   | ***Fair                  Value*** |   |
| *Natural                  Gas*                                           |   |   | Less                  than 1 Year |   |   | 38,096,207 |   | $ | (5,419 | ) |
| *Natural                  Gas*                                           |   |   | 1                  to 3 Years |   |   | 489,261 |   |   | 8 |   |
|                                                                     |   |   |   |   |   | **38,585,468** |   | **$** | **(5,411** | **)** |
|                                                                     |   |   |   |   |   |   |   |   |   |   |
| ***Options***                                                            |   |   | ***Maturity*** |   |   | ***Volumes******(Mmbtus*** | ***)*** |   | ***Fair                  Value*** |   |
| *Natural                  Gas*                                           |   |   | Less                  than 1 Year |   |   | 44,425,000 |   | $ | (26,719 | ) |
| *Natural                  Gas*                                           |   |   | 1                  to 3 Years |   |   | 9,763,000 |   |   | (6,419 | ) |
|                                                                     |   |   |   |   |   | **54,188,000** |   | **$** | **(33,138** | **)** |
|                                                                     |   |   |   |   |   |   |   |   |   |   |
| ***Swaps***                                                              |   |   | ***Maturity*** |   |   | ***Volumes******(Mmbtus*** | ***)*** |   | ***Fair                  Value*** |   |
| *Natural                  Gas*                                           |   |   | Less                  than 1 Year |   |   | 102,736,352 |   | $ | (83,334 | ) |
| *Natural                  Gas*                                           |   |   | 1                  to 3 Years |   |   | 21,152,211 |   |   | (21,205 | ) |
| *Natural                  Gas*                                           |   |   | 4                  to 5 Years |   |   | 82,909 |   |   | (55 | ) |
|                                                                     |   |   |   |   |   | **123,971,472** |   | **$** | **(104,594** | **)** |
|                                                                     |   |   |   |   |   |   |   |   |   |   |
| ***Total                  (Natural Gas)***                               |   |   | ***Maturity*** |   |   | ***Volumes******(Mmbtus*** | ***)*** |   | ***Fair                  Value*** |   |
| *Natural                  Gas*                                           |   |   | Less                  than 1 Year |   |   | 185,257,559 |   | $ | (115,472 | ) |
| *Natural                  Gas*                                           |   |   | 1                  to 3 Years |   |   | 31,404,472 |   |   | (27,616 | ) |
| *Natural                  Gas*                                           |   |   | 4                  to 5 Years |   |   | 82,909 |   |   | (55 | ) |
|                                                                     |   |   |   |   |   | **216,744,940** |   | **$** | **(143,143** | **)** |
|                                                                     |   |   |   |   |   |   |   |   |   |   |
| ***Futures/Forwards                  (Propane)***                        |   |   | ***Maturity*** |   |   | ***Volumes******(Mmbtus*** | ***)*** |   | ***Fair                  Value*** |   |
| *Propane*                                                                |   |   | Less                  than 1 Year |   |   | 2,100,000 |   | $ | (195 | ) |
|                                                                     |   |   |   |   |   | **2,100,000** |   | **$** | **(195** | **)** |
|                                                                     |   |   |   |   |   |   |   |   |   |   |
| ***Swaps                  (Oil)***                                       |   |   | ***Maturity*** |   |   | ***Volumes******(Bbls*** | ***)*** |   | ***Fair                  Value*** |   |
| *WTI                  Crude Oil*                                         |   |   | Less                  than 1 Year |   |   | 274,000 |   | $ | (10,190 | ) |
| *WTI                  Crude Oil*                                         |   |   | 1                  to 3 Years |   |   | 164,700 |   |   | (3,654 | ) |
|                                                                     |   |   |   |   |   | **438,700** |   | **$** | **(13,844** | **)** |
| ***Grand                  Total - Fair Value of Commodity Derivatives*** |        |   |   |  |   |   |  | **$** | **(157,182** | )  |
|                                                                     |   |   |   |   |   |   |   |   |  |   |
|  ***Fair                Value of Interest Rate Swap***              |   |   |   |   |   |   |   | ** $** | **(1,989 ** | **)**  |
|                                                                     |   |   |   |   |   |   |   |   |  |   |
|  ***Grand                Total - Fair Value of all Derivatives***   |   |   |   |   |   |   |   | ** $** | **(159,171 ** | **)**  |

----

**Notes            to Consolidated Financial Statements            (Unaudited)**

**Revenue      Recognition**

|                                             |   |   | March                31, |   |   | September                  30, |   |   | March                  31, |   |
|--------------------------------------------------|--------|--------|--------------------------|--------|--------|--------------------------------|--------|--------|----------------------------|--------|
| *(In                  Thousands)*                |   |   | 2006                     |   |   | 2005                           |   |   | 2005                       |   |
| Peoples                  Gas                     |   | $      | 100,640                  |   | $      | 32,282                         |   | $      | 94,408                     |   |
| North                  Shore Gas                 |   |   | 18,792                   |   |   | 6,136                          |   |   | 17,085                     |   |
| Peoples                  Energy Services         |   |   | 42,528                   |   |   | 19,362                         |   |   | 36,779                     |   |
| **Consolidated                  Peoples Energy** |   | $      | 161,960                  |   | $      | 57,780                         |   | $      | 148,272                    |   |

|                                                |   | Three                Months Ended | Six                Months Ended |
|------------------------------------------------|--------|-----------------------------------|---------------------------------|
|                                                |   | March                31,          | March                31,        |
| *(In                Thousands)*                |   |                              | 2006                            |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| Peoples                Gas                     |   | $                                 | 64,125                          |   | $ | 60,187 |   | $ | 119,517 |   | $ | 101,755 |   |
| North                Shore Gas                 |   |                              | 5,754                           |   |   | 5,963 |   |   | 10,712 |   |   | 10,003 |   |
| **Consolidated                Peoples Energy** |   | $                                 | 69,879                          |   | $ | 66,150 |   | $ | 130,229 |   | $ | 111,758 |   |

**Statement      of Cash Flows**

----

**Notes              to Consolidated Financial Statements              (Unaudited)**

**3:      BUSINESS SEGMENTS**

|                                                                                                                                                                                                                                         |   |               |      |                             |   |            |   |         |    | Corporate   |   |              |   |        |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|----------------------------------|--------|-----------------|--------|--------------|---------|-------------|--------|-------------------|--------|-------------|--------|
|                                                                                                                                                                                                                                         |   | Gas                |      | Oil                      and Gas |   | Energy          |   | Energy       |    | and         |   |              |   |        |   |
| *(In                      Thousands)*                                                                                                                                                                                                        |   |  Distribution |      |  Production                 |   |  Marketing |   |  Assets |    |  Other |   |  Adjustments |   |  Total |   |
| **Three                      Months Ended March 31, 2006**                                                                                                                                                                                   |   |               |      |                             |   |            |   |         |    |        |   |              |   |        |   |   |   |   |   |   |   |   |
| Revenues                      (1)                                                                                                                                                                                                            |   | $                  | 821,357   |                             | $      | 37,281          |   | $            | 317,353 |        | $      | 7,791             |   | $           | -      |   | $ | (3,754 | ) | $ | 1,180,028 |   |
| Cost                      of energy sold                                                                                                                                                                                                     |   |               | 583,495   |                             |   | -               |   |         | 301,044 |        |   | 5,791             |   |        | -      |   |   | (3,690 | ) |   | 886,640 |   |
| Gas                      charge settlement                                                                                                                                                                                                   |   |               | 15,662    |                             |   | -               |   |         | -       |        |   | -                 |   |        | -      |   |   | - |   |   | 15,662 |   |
| Operation                        and maintenance, excluding environmental costs                                                                                                                                                              |   |               | 75,528    |                             |   | 9,108           |   |         | 5,400   |        |   | 447               |   |        | 3,028  |   |   | (64 | ) |   | 93,447 |   |
| Environmental                      costs                                                                                                                                                                                                     |   |               | 14,033    |                             |   | -               |   |         | -       |        |   | -                 |   |        | -      |   |   | - |   |   | 14,033 |   |
| Depreciation,                      depletion and amortization                                                                                                                                                                                |   |               | 15,343    |                             |   | 13,363          |   |         | 440     |        |   | 88                |   |        | 297    |   |   | - |   |   | 29,531 |   |
| Taxes,                      other than income taxes                                                                                                                                                                                          |   |               | 74,545    |                             |   | 4,026           |   |         | 145     |        |   | 15                |   |        | 739    |   |   | - |   |   | 79,470 |   |
| Losses                      (gains) on property sales                                                                                                                                                                                        |   |               | (170      | )                                |   | 8               |   |         | -       |        |   | -                 |   |        | -      |   |   | - |   |   | (162 | ) |
| Equity                      investment income (loss) (2)                                                                                                                                                                                     |   |               | -         |                             |   | (1,975          | )      |         | -       |        |   | -                 |   |        | -      |   |   | - |   |   | (1,975 | ) |
| Operating                      income (loss)                                                                                                                                                                                                 |   | $                  | 42,921    |                             | $      | 8,801           |   | $            | 10,324  |        | $      | 1,450             |   | $           | (4,064 | ) | $ | - |   | $ | 59,432 |   |
| Income                      (loss) from discontinued operations,                                                                                                                                                                             |   |               |      |                             |   |            |   |         |    |        |   |              |   |        |   |   |   |   |   |   |   |   |
| net                      of income taxes                                                                                                                                                                                                     |   | $                  | -         |                             | $      | -               |   | $            | -       |        | $      | (421              | )      | $           | -      |   | $ | - |   | $ | (421 | ) |
| Segment                      capital assets of continuing operations,                                                                                                                                                                        |   |               |      |                             |   |            |   |         |    |        |   |              |   |        |   |   |   |   |   |   |   |   |
| net                      (3), (6)                                                                                                                                                                                                            |   | $                  | 1,592,997 |                             | $      | 508,806         |   | $            | 4,745   |        | $      | 5,224             |   | $           | 7,286  |   | $ | - |   | $ | 2,119,058 |   |
| Investments                      in equity investees (4)                                                                                                                                                                                     |   | $                  | -         |                             | $      | -               |   | $            | -       |        | $      | -                 |   | $           | -      |   | $ | - |   | $ | - |   |
| Capital                      spending (5)                                                                                                                                                                                                    |   | $                  | 23,431    |                             | $      | 168,688         |   | $            | 105     |        | $      | 15                |   | $           | 1,370  |   | $ | - |   | $ | 193,609 |   |
| **Three                      Months Ended March 31, 2005**                                                                                                                                                                                   |   |               |      |                             |   |            |   |         |    |        |   |              |   |        |   |   |   |   |   |   |   |   |
| Revenues                      (1)                                                                                                                                                                                                            |   | $                  | 742,442   |                             | $      | 27,631          |   | $            | 254,600 |        | $      | 5,209             |   | $           | -      |   | $ | (2,976 | ) | $ | 1,026,906 |   |
| Cost                      of energy sold                                                                                                                                                                                                     |   |               | 488,176   |                             |   | -               |   |         | 239,165 |        |   | 3,785             |   |        | -      |   |   | (3,411 | ) |   | 727,715 |   |
| Operation                      and maintenance, excluding                                                                                                                                                                                    |   |               |      |                             |   |            |   |         |    |        |   |              |   |        |   |   |   |   |   |   |   |   |
| restructuring                      and environmental costs                                                                                                                                                                                   |   |               | 74,190    |                             |   | 8,392           |   |         | 4,861   |        |   | 705               |   |        | 1,621  |   |   | 435 |   |   | 90,204 |   |
| Restructuring                      costs                                                                                                                                                                                                     |   |               | -         |                             |   | -               |   |         | -       |        |   | -                 |   |        | 1,956  |   |   | - |   |   | 1,956 |   |
| Environmental                      costs                                                                                                                                                                                                     |   |               | 14,145    |                             |   | -               |   |         | -       |        |   | -                 |   |        | -      |   |   | - |   |   | 14,145 |   |
| Depreciation,                      depletion and amortization                                                                                                                                                                                |   |               | 17,117    |                             |   | 11,040          |   |         | 433     |        |   | 122               |   |        | 245    |   |   | - |   |   | 28,957 |   |
| Taxes,                      other than income taxes                                                                                                                                                                                          |   |               | 71,627    |                             |   | 3,152           |   |         | 284     |        |   | 31                |   |        | 712    |   |   | - |   |   | 75,806 |   |
| Equity                      investment income (2)                                                                                                                                                                                            |   |               | -         |                             |   | 130             |   |         | -       |        |   | -                 |   |        | 267    |   |   | - |   |   | 397 |   |
| Operating                      income (loss)                                                                                                                                                                                                 |   | $                  | 77,187    |                             | $      | 5,177           |   | $            | 9,857   |        | $      | 566               |   | $           | (4,267 | ) | $ | - |   | $ | 88,520 |   |
| Income                      (loss) from discontinued operations,                                                                                                                                                                             |   |               |      |                             |   |            |   |         |    |        |   |              |   |        |   |   |   |   |   |   |   |   |
| net                      of income taxes                                                                                                                                                                                                     |   | $                  | -         |                             | $      | -               |   | $            | -       |        | $      | 1,346             |   | $           | (5     | ) | $ | - |   | $ | 1,341 |   |
| Segment                      capital assets of continuing operations,                                                                                                                                                                        |   |               |      |                             |   |            |   |         |    |        |   |              |   |        |   |   |   |   |   |   |   |   |
| net                      (3)                                                                                                                                                                                                                 |   | $                  | 1,570,015 |                             | $      | 326,957         |   | $            | 6,452   |        | $      | 5,740             |   | $           | 4,127  |   | $ | - |   | $ | 1,913,291 |   |
| Investments                      in equity investees (4)                                                                                                                                                                                     |   | $                  | -         |                             | $      | 10,024          |   | $            | -       |        | $      | -                 |   | $           | 3,628  |   | $ | - |   | $ | 13,652 |   |
| Capital                      spending (5)                                                                                                                                                                                                    |   | $                  | 17,442    |                             | $      | 18,584          |   | $            | 60      |        | $      | 408               |   | $           | 201    |   | $ | - |   | $ | 36,695 |   |
| (1)                      Oil and Gas Production revenues are net of gains and losses                      from hedging                      activities.                                                                                      |
| (2)                      Excludes equity investment income from discontinued operations.                      See Note                      5.                                                                                               |
| (3)                      Excludes segment assets of discontinued operations at March                      31, 2006 and                      2005 of $9,366 and $11,020, respectively.                                                        |
| (4)                      Excludes investments in equity investees of discontinued operations                      at                      March 31, 2006 and 2005 of $106,425 and $105,724,                      respectively.               |
| (5)                      Excludes capital spending relating to assets of discontinued                      operations                      three months ended at March 31, 2006 and 2005 of $102 and $96,                      respectively. |
| (6)                      Includes $139 million acquisition of oil and gas properties                      by the Oil and                      Gas Production segment in February 2006.                                                       |   |               |      |                             |   |            |

----

**Notes            to Consolidated Financial Statements            (Unaudited)**

|                                                                                                                                                                                                                                |   |               |      |                           |   |            |   |         |    |        |   |              |   | Corporate   |    |   |   |   |   |   |      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|--------------------------------|--------|-----------------|--------|--------------|---------|-------------|--------|-------------------|--------|-------------|---------|--------|--------|--------|--------|--------|-----------|
|                                                                                                                                                                                                                                |   | Gas                |      | Oil                    and Gas |   |  Energy    |   |  Energy |    |  and   |   |              |   |        |    |   |   |
| *(In                    Thousands)*                                                                                                                                                                                                 |   |  Distribution |      |  Production               |   |  Marketing |   |  Assets |    |  Other |   |  Adjustments |   |  Total |    |
| **Six                    Months Ended March 31, 2006**                                                                                                                                                                              |   |               |      |                           |   |            |   |         |    |        |   |              |   |        |    |   |   |   |   |   |      |   |
| Revenues                    (1)                                                                                                                                                                                                     |   | $                  | 1,550,346 |                           | $      | 64,339          |   | $            | 612,223 |        | $      | 10,398            |   | $           | -       |   | $      | (4,892 | )      | $      | 2,232,414 |   |
| Cost                    of energy sold                                                                                                                                                                                              |   |               | 1,100,646 |                           |   | -               |   |         | 581,382 |        |   | 6,127             |   |        | -       |   |   | (5,088 | )      |   | 1,683,067 |   |
| Gas                    charge settlement                                                                                                                                                                                            |   |               | 107,330   |                           |   | -               |   |         | -       |        |   | -                 |   |        | -       |   |   | -      |   |   | 107,330   |   |
| Operation                    and maintenance, excluding                                                                                                                                                                             |   |               |      |                           |   |            |   |         |    |        |   |              |   |        |    |   |   |   |   |   |      |   |
| environmental                    costs                                                                                                                                                                                              |   |               | 146,065   |                           |   | 17,213          |   |         | 9,626   |        |   | 911               |   |        | 6,800   |   |   | 196    |   |   | 180,811   |   |
| Environmental                    costs                                                                                                                                                                                              |   |               | 25,329    |                           |   | -               |   |         | -       |        |   | -                 |   |        | -       |   |   | -      |   |   | 25,329    |   |
| Depreciation,                    depletion and amortization                                                                                                                                                                         |   |               | 30,468    |                           |   | 26,416          |   |         | 882     |        |   | 177               |   |        | 573     |   |   | -      |   |   | 58,516    |   |
| Taxes,                    other than income taxes                                                                                                                                                                                   |   |               | 138,711   |                           |   | 8,117           |   |         | 244     |        |   | 43                |   |        | 1,075   |   |   | -      |   |   | 148,190   |   |
| Losses                    (gains) on property sales                                                                                                                                                                                 |   |               | (170      | )                              |   | 8               |   |         | -       |        |   | -                 |   |        | 93      |   |   | -      |   |   | (69       | ) |
| Equity                    investment income (2)                                                                                                                                                                                     |   |               | -         |                           |   | 7,610           |   |         | -       |        |   | -                 |   |        | 67      |   |   | -      |   |   | 7,677     |   |
| Operating                    income (loss)                                                                                                                                                                                          |   | $                  | 1,967     |                           | $      | 20,195          |   | $            | 20,089  |        | $      | 3,140             |   | $           | (8,474  | )      | $      | -      |   | $      | 36,917    |   |
| Income                    (loss) from discontinued operations,                                                                                                                                                                      |   |               |      |                           |   |            |   |         |    |        |   |              |   |        |    |   |   |   |   |   |      |   |
| net                    of income taxes                                                                                                                                                                                              |   | $                  | -         |                           | $      | -               |   | $            | -       |        | $      | (1,566            | )      | $           | (10     | )      | $      | -      |   | $      | (1,576    | ) |
| Segment                    capital assets of continuing operations,                                                                                                                                                                 |   |               |      |                           |   |            |   |         |    |        |   |              |   |        |    |   |   |   |   |   |      |   |
| net                    (3), (6)                                                                                                                                                                                                     |   | $                  | 1,592,997 |                           | $      | 508,806         |   | $            | 4,745   |        | $      | 5,224             |   | $           | 7,286   |   | $      | -      |   | $      | 2,119,058 |   |
| Investments                    in equity investees (4)                                                                                                                                                                              |   | $                  | -         |                           | $      | -               |   | $            | -       |        | $      | -                 |   | $           | -       |   | $      | -      |   | $      | -         |   |
| Capital                    spending (5)                                                                                                                                                                                             |   | $                  | 41,058    |                           | $      | 188,047         |   | $            | 130     |        | $      | 15                |   | $           | 1,618   |   | $      | -      |   | $      | 230,868   |   |
| **Six                    Months Ended March 31, 2005**                                                                                                                                                                              |   |               |      |                           |   |            |   |         |    |        |   |              |   |        |    |   |   |   |   |   |      |   |
| Revenues                    (1)                                                                                                                                                                                                     |   | $                  | 1,262,500 |                           | $      | 56,831          |   | $            | 442,147 |        | $      | 7,726             |   | $           | -       |   | $      | (4,887 | )      | $      | 1,764,317 |   |
| Cost                    of energy sold                                                                                                                                                                                              |   |               | 817,780   |                           |   | -               |   |         | 420,062 |        |   | 4,480             |   |        | -       |   |   | (5,715 | )      |   | 1,236,607 |   |
| Operation                    and maintenance, excluding                                                                                                                                                                             |   |               |      |                           |   |            |   |         |    |        |   |              |   |        |    |   |   |   |   |   |      |   |
| restructuring                    and environmental costs                                                                                                                                                                            |   |               | 138,871   |                           |   | 14,605          |   |         | 8,696   |        |   | 1,426             |   |        | 4,606   |   |   | 828    |   |   | 169,032   |   |
| Restructuring                    costs                                                                                                                                                                                              |   |               | -         |                           |   | -               |   |         | -       |        |   | -                 |   |        | 13,163  |   |   | -      |   |   | 13,163    |   |
| Environmental                    costs                                                                                                                                                                                              |   |               | 23,128    |                           |   | -               |   |         | -       |        |   | -                 |   |        | -       |   |   | -      |   |   | 23,128    |   |
| Depreciation,                    depletion and amortization                                                                                                                                                                         |   |               | 34,109    |                           |   | 23,626          |   |         | 864     |        |   | 243               |   |        | 451     |   |   | -      |   |   | 59,293    |   |
| Taxes,                    other than income taxes                                                                                                                                                                                   |   |               | 121,628   |                           |   | 6,046           |   |         | 355     |        |   | 40                |   |        | 791     |   |   | -      |   |   | 128,860   |   |
| Losses                    (gains) on property sales                                                                                                                                                                                 |   |               | 122       |                           |   | -               |   |         | (50     | )           |   | -                 |   |        | -       |   |   | -      |   |   | 72        |   |
| Equity                    investment income (2)                                                                                                                                                                                     |   |               | -         |                           |   | 1,215           |   |         | -       |        |   | -                 |   |        | 529     |   |   | -      |   |   | 1,744     |   |
| Operating                    income (loss)                                                                                                                                                                                          |   | $                  | 126,862   |                           | $      | 13,769          |   | $            | 12,220  |        | $      | 1,537             |   | $           | (18,482 | )      | $      | -      |   | $      | 135,906   |   |
| Income                    (loss) from discontinued operations,                                                                                                                                                                      |   |               |      |                           |   |            |   |         |    |        |   |              |   |        |    |   |   |   |   |   |      |   |
| net                    of income taxes                                                                                                                                                                                              |   | $                  | -         |                           | $      | -               |   | $            | -       |        | $      | 763               |   | $           | (9      | )      | $      | -      |   | $      | 754       |   |
| Segment                    capital assets of continuing operations,                                                                                                                                                                 |   |               |      |                           |   |            |   |         |    |        |   |              |   |        |    |   |   |   |   |   |      |   |
| net                    (3)                                                                                                                                                                                                          |   | $                  | 1,570,015 |                           | $      | 326,957         |   | $            | 6,452   |        | $      | 5,740             |   | $           | 4,127   |   | $      | -      |   | $      | 1,913,291 |   |
| Investments                    in equity investees (4)                                                                                                                                                                              |   | $                  | -         |                           | $      | 10,024          |   | $            | -       |        | $      | -                 |   | $           | 3,628   |   | $      | -      |   | $      | 13,652    |   |
| Capital                    spending (5)                                                                                                                                                                                             |   | $                  | 35,104    |                           | $      | 31,582          |   | $            | 130     |        | $      | 408               |   | $           | 206     |   | $      | -      |   | $      | 67,430    |   |
| (1)                    Oil and Gas Production revenues are net of gains and losses from                    hedging                    activities.                                                                                   |
| (2)                    Excludes equity investment income from discontinued operations.                    See Note                    5.                                                                                            |
| (3)                    Excludes segment assets of discontinued operations at March 31,                    2006 and                    2005 of $9,366 and $11,020, respectively.                                                     |
| (4)                    Excludes investments in equity investees of discontinued operations                    at                    March 31, 2006 and 2005 of $106,425 and $105,724,                    respectively.              |
| (5)                    Excludes capital spending relating to assets of discontinued                    operations                    six months ended at March 31, 2006 and 2005 of $398 and $636,                    respectively. |
| (6)                    Includes $139 million acquisition of oil and gas properties by                    the Oil and                    Gas Production segment in February 2006.                                                    |   |               |      |                           |   |            |

----

**Notes              to Consolidated Financial Statements (Unaudited)**

**4:      RESTRUCTURING COSTS**

**5:      EQUITY INVESTMENTS**

----

**Notes            to Consolidated Financial Statements (Unaudited)**

|                                    |   | Three                  Months Ended  | Six                  Months Ended |
|-----------------------------------------|--------|-------------------------------------------|-----------------------------------|
|                                    |   | March                  31,           | March                  31,        |
| *(In                  Thousands)*       |   |                                      | 2006                              |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| Revenues                                |   | $                                         | 16,758                            |   | $ | 38,633 |   | $ | 72,332 |   | $ | 66,414 |   |
| Operating                  income       |   |                                      | 11,118                            |   |   | 16,321 |   |   | 53,622 |   |   | 31,248 |   |
| Interest                  expense       |   |                                      | 8,113                             |   |   | 9,298 |   |   | 16,444 |   |   | 18,851 |   |
| Net                  income             |   | $                                         | 1,105                             |   | $ | 7,803 |   | $ | 33,286 |   | $ | 4,126 |   |
|                                    |   |                                      |                              |   |   |   |   |   |   |   |   |   |   |
| Current                  assets         |   | $                                         | 48,630                            |   | $ | 41,217 |   | $ | 48,630 |   | $ | 41,217 |   |
| Noncurrent                  assets      |   |                                      | 603,866                           |   |   | 715,071 |   |   | 603,866 |   |   | 715,071 |   |
| Current                  liabilities    |   |                                      | 88,232                            |   |   | 45,291 |   |   | 88,232 |   |   | 45,291 |   |
| Noncurrent                  liabilities |   | $                                         | 316,433                           |   | $ | 431,224 |   | $ | 316,433 |   | $ | 431,224 |   |

|                                                                   |   |                                 |   |                      | Ownership                  Percentage |                      |   | Equity                  Investment Income (Loss) |
|------------------------------------------------------------------------|--------|--------------------------------------|--------|---------------------------|---------------------------------------|---------------------------|--------|--------------------------------------------------|
|                                                                   |   |                                 |   |                      |                                  |                      |   |                                             |   | Three                  Months Ended |   | Six                  Months Ended |
| *(In                  Thousands)*                                      |   |                                 |   |                      | At                  March 31,         |                      |   | March                  31,                       |   | March                  31, |
| Investment                                                             |   | Segment                              |   |                      | 2006                                  |                      | 2005   |                                             |   | 2006 |   | 2005 |   | 2006 |   | 2005 |
| EnerVest                                                               |   | Oil                  and Gas         |   |                      | 23                                    | %                         | 30     | %                                                |   | $                  (1,975) |   | $                  130 |   | $                  7,610 |   | $                  1,215 |
| Trigen-Peoples                                                         |   | Corporate                  and Other |   |                      | 0                                     |                      | 50     |                                             |   | - |   | 267 |   | 67 |   | 529 |
| Equity                  investment income (loss) from                  |   |                                 |   |                      |                                  |                      |   |                                             |   |   |   |   |   |   |
| continuing                  operations                                 |   |                                 |   |                      |                                  |                      |   | (1,975)                                          |   | 397 |   | 7,677 |   | 1,744 |
|                                                                   |   |                                 |   |                      |                                  |                      |   |                                             |   |   |   |   |   |   |   |   |
| Elwood                                                                 |   | Energy                  Assets       |   |                      | 50                                    |                      | 50     |                                             |   | (1,167) |   | 1,528 |   | (1,644) |   | (314) |
| SCEP                                                                   |   | Energy                  Assets       |   |                      | 27                                    |                      | 29     |                                             |   | 1,289 |   | 1,363 |   | 2,596 |   | 2,745 |
| Equity                  investment income from                         |   |                                 |   |                      |                                  |                      |   |                                             |   |   |   |   |   |   |
| discontinued                  operations                               |   |                                 |   |                      |                                  |                      |   | 122                                              |   | 2,891 |   | 952 |   | 2,431 |
| Total                  equity investment income (loss)                 |   |                                 |   |                      |                                  |                      |   | $                  (1,853)                       |   | $                  3,288 |   | $                  8,629 |   | $                  4,175 |
| Undistributed                  partnership income included in the      |   |                                 |   |                      |                                  |                      |   |                                             |   |   |   |
| Company's                  retained earnings at the end of each period |   |                                 |   | $                  25,290 |                                  | $                  16,627 |   | $                  25,290                        |   | $                  16,627 |

**6:      ENVIRONMENTAL MATTERS**

**A.      Former Manufactured Gas Plant Operations**

----

**Notes            to Consolidated Financial Statements (Unaudited)**

----

**Notes            to Consolidated Financial Statements (Unaudited)**

----

**Notes            to Consolidated Financial Statements            (Unaudited)**

**B.      Former Mineral Processing Site in Denver, Colorado**

**7:      GAS CHARGE RECONCILIATION PROCEEDINGS AND RELATED MATTERS **

**A.      Illinois Commerce Commission Proceedings**

----

**Notes            to Consolidated Financial Statements            (Unaudited)**

| (i)   | Peoples              Gas and North Shore Gas agreed to refund the total sum of $100 million              to              their customers (the “Refund”). In its orders approving the Agreement, the              Commission determined that $96 million will be refunded to customers              of              Peoples Gas and $4 million will be refunded to customers of North Shore              Gas. The orders require the utilities to issue the refunds within thirty              days after entry of the orders. Pursuant to the orders, on April 6,              2006,              Peoples Gas and North Shore Gas filed informational statements with              the              Commission showing the amount of the refund to various customer classes. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (ii)   | Peoples                Energy agrees to pay to the City and the AG, jointly $5 million.                The                Company also agrees to pay up to $5 million per year over the next                five                years towards the funding of conservation and weatherization programs                for                low and moderate-income residential dwellings (“Conservation Programs”).                The five subsequent payments of up to $5 million shall be paid based                upon                Conservation Programs to be developed by the City of Chicago and/or                the                Illinois Attorney General. The Conservation Programs will have the                purpose                of providing energy and natural gas conservation programs for residents                within Peoples Gas' and North Shore Gas' service areas and will have                the                goal of reducing those residents' energy usage and costs. Peoples                Gas and                North Shore Gas will not seek recovery in any future rate or                reconciliation cases of any amounts associated with the                Conservation. |
|------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (iii)   | Peoples              Gas and North Shore Gas agreed to forgive all outstanding bad debt              from              fiscal years 2000-2005 existing as of March 6, 2006, estimated at $207              million, remove the bad debt from customers' records and to not use              any              forgiven indebtedness as a reason to deny gas service. Peoples Gas              and              North Shore Gas have written off the estimated $207 million in prior              periods. The Agreement does not affect the ability of Peoples Gas and              North Shore Gas to recover any future bad debts as specifically authorized              by the Commission now or in the future. |
|-------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (iv)   | Peoples              Gas and North Shore Gas will cooperate with Chicago and the AG to identify              those customers of Peoples Gas and North Shore Gas who were not receiving              gas as of the date of the Agreement (approximately 12,000 customers)              that              are financial hardship cases. The hardship cases may be identified              by              either the utilities or the AG and Chicago. Following identification,              Peoples Gas and North Shore Gas will reconnect the hardship cases.              Peoples              Gas and North Shore Gas will also forgive all outstanding debt for              such              customers, as described in paragraph (iii) above. |
|------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (v)   | Peoples              Gas and North Shore Gas agree to credit fiscal 2005 and fiscal 2006              revenues derived from the provision of gas hub services as an offset              to              utility customers' gas charges and to account for such revenues received              from gas hub services in the same manner in all future gas charge              reconciliation cases. The fiscal 2006 revenues are being credited in              fiscal 2006. The fiscal 2005 revenues are expected to be credited to              customers following an order in the fiscal 2005 gas charge reconciliation              case. For fiscal 2005 and 2006, only Peoples Gas had hub revenues. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (vi)   | Peoples              Gas and North Shore Gas agreed to implement recommendations proposed              by              the Commission's staff and the intervenors to conduct internal and              external audits of their gas procurement practices. |
|------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Notes            to Consolidated Financial Statements (Unaudited)**

**B.      Illinois Attorney General and the City of Chicago      Lawsuits**

**C.      Class Action**

**D.      CFTC Subpoena**

----

**Notes            to Consolidated Financial Statements (Unaudited)**

**8:      OTHER LITIGATION**

**A.      Oil and Gas Production Royalties Dispute**

**B.      Corrosion Control Inspection Proceeding**

**C.        Builders Class Action**

**9:      COMPREHENSIVE INCOME**

|                                                    |   | Three                  Months Ended March 31, |
|---------------------------------------------------------|--------|-----------------------------------------------|
|                                                    |   | Peoples                  Energy               | Peoples                  Gas | North                  Shore Gas |
| *(In                  Thousands)*                       |   |                                          | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| **Comprehensive                  income**               |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income                             |   | $                                             | 33,170 |   | $ | 51,172 |   | $ | 7,608 |   | $ | 35,640 |   | $ | 13,829 |   | $ | 7,125 |   |
| Other                  comprehensive income, net of tax |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized                  hedge gain (loss)           |   |                                          | 27,027 |   |   | (40,466 | ) |   | (607 | ) |   | 11 |   |   | 6 |   |   | 6 |   |
|                                                    |   |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total                  comprehensive income**         |   | $                                             | 60,197 |   | $ | 10,706 |   | $ | 7,001 |   | $ | 35,651 |   | $ | 13,835 |   | $ | 7,131 |   |

----

**Notes            to Consolidated Financial Statements (Unaudited)**

|                                                                |   | Six                  Months Ended March 31, |
|----------------------------------------------------------------|--------|---------------------------------------------|
|                                                           |   | Peoples                  Energy             | Peoples                  Gas | North                  Shore Gas |
| *(In                  Thousands)*                              |   |                                        | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| **Comprehensive                  income (loss)**               |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income (loss)                             |   | $                                           | 13,689 |   | $ | 73,648 |   | $ | (16,632 | ) | $ | 52,909 |   | $ | 8,171 |   | $ | 11,218 |   |
| Other                  comprehensive income (loss), net of tax |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Minimum                  pension liability adjustment          |   |                                        | - |   |   | (13,609 | ) |   | - |   |   | (12,195 | ) |   | - |   |   | (708 | ) |
| Unrealized                  hedge gain (loss)                  |   |                                        | 65,519 |   |   | (20,447 | ) |   | (930 | ) |   | 21 |   |   | 11 |   |   | 11 |   |
|                                                           |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total                  comprehensive income (loss)**         |   | $                                           | 79,208 |   | $ | 39,592 |   | $ | (17,562 | ) | $ | 40,735 |   | $ | 8,182 |   | $ | 10,521 |   |

**10:      RETIREMENT AND POSTRETIREMENT BENEFITS**

----

**Notes            to Consolidated Financial Statements (Unaudited)**

|                                                                                                        |   |                                    |     |   |   |   |   | Other                  Postretirement |
|-------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|----------|--------|--------|--------|--------|---------------------------------------|
|                                                                                                        |   |  Pension                  Benefits | Benefits |
| (In                  Millions) Three Months Ended March 31                                                  |   |                                    | 2006     |   |   | 2005   |   |                                  | 2006 |   |   | 2005 |   |
| Service                  cost                                                                               |   | $                                       | 5.2      |   | $      | 4.0    |   | $                                     | 1.8 |   | $ | 1.0 |   |
| Interest                  cost                                                                              |   |                                    | 6.4      |   |   | 6.8    |   |                                  | 1.6 |   |   | 2.3 |   |
| Expected                  return on plan assets                                                             |   |                                    | (10.2    | )      |   | (10.8  | )      |                                  | (0.7 | ) |   | (0.9 | ) |
| Amortization                  of:                                                                           |   |                                    |     |   |   |   |   |                                  |   |   |   |   |   |
| Net                  transition (asset)/obligation                                                          |   |                                    | -        |   |   | (0.2   | )      |                                  | 0.3 |   |   | 0.7 |   |
| Prior                  service cost                                                                         |   |                                    | 0.7      |   |   | 0.7    |   |                                  | - |   |   | - |   |
| Net                  actuarial (gain)/loss                                                                  |   |                                    | 1.5      |   |   | 0.5    |   |                                  | 0.2 |   |   | 0.5 |   |
| **Net                  periodic benefit cost**                                                              |   |                                    | 3.6      |   |   | 1.0    |   |                                  | 3.2 |   |   | 3.6 |   |
|                                                                                                        |   |                                    |     |   |   |   |   |                                  |   |   |   |   |   |
| Effect                  of lump sum settlements upon retirement-restructuring (See Note                  4) |   |                                    | -        |   |   | 1.2    |   |                                  | - |   |   | - |   |
| Effect                  of lump sum settlements upon retirement-other                                       |   |                                    | 2.2      |   |   | 1.5    |   |                                  | - |   |   | 0.4 |   |
| **Net                  benefit cost**                                                                       |   | $                                       | 5.8      |   | $      | 3.7    |   | $                                     | 3.2 |   | $ | 4.0 |   |
|                                                                                                        |   |                                    |     |   |   |   |   |                                  |   |   |   |   |   |
|                                                                                                        |   |                                    |     |   |   |   |   | Other                  Postretirement |
|                                                                                                        |   | Pension                  Benefits  | Benefits |
| (In                  Millions) Six Months Ended March 31                                                    |   |                                    | 2006     |   |   | 2005   |   |                                  | 2006 |   |   | 2005 |   |
| Service                  cost                                                                               |   | $                                       | 10.4     |   | $      | 7.9    |   | $                                     | 3.6 |   | $ | 2.6 |   |
| Interest                  cost                                                                              |   |                                    | 12.8     |   |   | 13.6   |   |                                  | 3.2 |   |   | 4.4 |   |
| Expected                  return on plan assets                                                             |   |                                    | (20.4    | )      |   | (21.5  | )      |                                  | (1.4 | ) |   | (1.7 | ) |
| Amortization                  of:                                                                           |   |                                    |     |   |   |   |   |                                  |   |   |   |   |   |
| Net                  transition (asset)/obligation                                                          |   |                                    | -        |   |   | (0.4   | )      |                                  | 0.6 |   |   | 1.1 |   |
| Prior                  service cost                                                                         |   |                                    | 1.4      |   |   | 1.4    |   |                                  | - |   |   | - |   |
| Net                  actuarial (gain)/loss                                                                  |   |                                    | 3.0      |   |   | 1.0    |   |                                  | 0.4 |   |   | 0.9 |   |
| **Net                  periodic benefit cost**                                                              |   |                                    | 7.2      |   |   | 2.0    |   |                                  | 6.4 |   |   | 7.3 |   |
|                                                                                                        |   |                                    |     |   |   |   |   |                                  |   |   |   |   |   |
| Effect                  of lump sum settlements upon retirement-restructuring (See Note                  4) |   |                                    | -        |   |   | 9.2    |   |                                  | - |   |   | - |   |
| Effect                  of lump sum settlements upon retirement-other                                       |   |                                    | 4.4      |   |   | 2.9    |   |                                  | - |   |   | - |   |
| Curtailment                  recognition (See Note 4)                                                       |   |                                    | -        |   |   | 5.1    |   |                                  | - |   |   | 0.4 |   |
| **Net                  benefit cost**                                                                       |   | $                                       | 11.6     |   | $      | 19.2   |   | $                                     | 6.4 |   | $ | 7.7 |   |
|                                                                                                        |   |                                    |     |   |   |   |   |                                  |   |   |   |   |   |
| **Weighted-average                  assumptions used to determine net benefit cost:**                       |   |                                    |     |   |   |   |   |                                  |   |   |   |   |   |
| Discount                  rate (1)                                                                          |   |                                    | 5.25     | %      |   | 6.13   | %      |                                  | 5.00 | % |   | 6.02 | % |
| Expected                  return on plan assets                                                             |   |                                    | 8.75     | %      |   | 8.75   | %      |                                  | 8.75 | % |   | 8.75 | % |
| Rate                  of compensation increase                                                              |   |                                    | 3.75     | %      |   | 3.75   | %      |                                  |   |   |   |   |   |

| (1)   | For                  plans impacted by the September 2004 restructuring, a 6.00% discount                  rate                  was utilized for valuing the                  plan re-measurement at August 31,                  2004. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

**EXECUTIVE      SUMMARY**

|                                                                |   |  Three                    Months Ended March 31, |
|----------------------------------------------------------------|--------|-------------------------------------------------------|
|                                                                |   |                                                  |   |   |   |   |   | Restructuring |   |   |   |   |   |   |
|                                                                |   |  Ongoing                                         | and                    Settlement | As                    Reported |
|                                                                |   |  (non-GAAP)                                      | Charges | (GAAP) |
| *(In                    Thousands, except per share amounts)*  |   |                                                  | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| Operating                    Income (Loss):                    |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gas                    Distribution                            |   | $                                                     | 58,583 |   | $ | 77,187 |   | $ | (15,662 | ) |   |   |   | $ | 42,921 |   | $ | 77,187 |   |
| Oil                    and Gas Production                      |   |                                                  | 8,801 |   |   | 5,177 |   |   |   |   |   |   |   |   | 8,801 |   |   | 5,177 |   |
| Energy                    Marketing                            |   |                                                  | 10,324 |   |   | 9,857 |   |   |   |   |   |   |   |   | 10,324 |   |   | 9,857 |   |
| Energy                    Assets                               |   |                                                  | 1,450 |   |   | 566 |   |   |   |   |   |   |   |   | 1,450 |   |   | 566 |   |
| Corporate                    and Other                         |   |                                                  | (4,064 | ) |   | (2,311 | ) |   |   |   | $ | (1,956 | ) |   | (4,064 | ) |   | (4,267 | ) |
| Total                    Operating Income (Loss)               |   | $                                                     | 75,094 |   | $ | 90,476 |   | $ | (15,662 | ) | $ | (1,956 | ) | $ | 59,432 |   | $ | 88,520 |   |
|                                                           |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                    (loss) from continuing operations    |   | $                                                     | 43,028 |   | $ | 51,010 |   | $ | (9,437 | ) | $ | (1,179 | ) |   | 33,591 |   |   | 49,831 |   |
| Income                    (loss) from discontinued operations, |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net                    of taxes                                |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   | (421 | ) |   | 1,341 |   |
| Net                    Income                                  |   |                                                  |   |   |   |   |   |   |   |   |   |   |   | $ | 33,170 |   | $ | 51,172 |   |
|                                                           |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per                    Diluted Share:                          |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                    (loss) from continuing operations    |   | $                                                     | 1.12 |   | $ | 1.34 |   | $ | (0.25 | ) | $ | (0.03 | ) | $ | 0.87 |   | $ | 1.31 |   |
| Income                    (loss) from discontinued operations  |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |   | (0.01 | ) |   | 0.03 |   |
| Net                    Income                                  |   |                                                  |   |   |   |   |   |   |   |   |   |   |   | $ | 0.86 |   | $ | 1.34 |   |

----

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

|                                                              |   |  Six                  Months Ended March 31, |
|--------------------------------------------------------------|--------|---------------------------------------------------|
|                                                              |   |                                              |   |   |   |   |   | Restructuring |   |   |   |   |   |   |
|                                                              |   |  Ongoing                                     | and                  Settlement | As                  Reported |
|                                                              |   |  (non-GAAP)                                  | Charges | (GAAP) |
| *(In                  Thousands, except per share amounts)*  |   |                                              | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| Operating                  Income (Loss):                    |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gas                  Distribution                            |   | $                                                 | 109,297 |   | $ | 126,862 |   | $ | (107,330 | ) |   |   |   | $ | 1,967 |   | $ | 126,862 |   |
| Oil                  and Gas Production                      |   |                                              | 20,195 |   |   | 13,769 |   |   |   |   |   |   |   |   | 20,195 |   |   | 13,769 |   |
| Energy                  Marketing                            |   |                                              | 20,089 |   |   | 12,220 |   |   |   |   |   |   |   |   | 20,089 |   |   | 12,220 |   |
| Energy                  Assets                               |   |                                              | 3,140 |   |   | 1,537 |   |   |   |   |   |   |   |   | 3,140 |   |   | 1,537 |   |
| Corporate                  and Other                         |   |                                              | (8,474 | ) |   | (5,319 | ) |   |   |   | $ | (13,163 | ) |   | (8,474 | ) |   | (18,482 | ) |
| Total                  Operating Income (Loss)               |   | $                                                 | 144,247 |   | $ | 149,069 |   | $ | (107,330 | ) | $ | (13,163 | ) | $ | 36,917 |   | $ | 135,906 |   |
|                                                         |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (loss) from continuing operations    |   | $                                                 | 79,937 |   | $ | 80,825 |   | $ | (64,672 | ) | $ | (7,931 | ) |   | 15,265 |   |   | 72,894 |   |
| Income                  (loss) from discontinued operations, |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net                  of taxes                                |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   | (1,576 | ) |   | 754 |   |
| Net                  Income                                  |   |                                              |   |   |   |   |   |   |   |   |   |   |   | $ | 13,689 |   | $ | 73,648 |   |
|                                                         |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per                  Diluted Share:                          |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (loss) from continuing operations    |   | $                                                 | 2.08 |   | $ | 2.13 |   | $ | (1.68 | ) | $ | (0.21 | ) | $ | 0.40 |   | $ | 1.92 |   |
| Income                  (loss) from discontinued operations  |   |                                              |   |   |   |   |   |   |   |   |   |   |   |   | (0.04 | ) |   | 0.02 |   |
| Net                  Income                                  |   |                                              |   |   |   |   |   |   |   |   |   |   |   | $ | 0.36 |   | $ | 1.94 |   |

| ·   | As                previously announced, the Illinois Commerce Commission (ICC) approved                an                amended settlement agreement related to the utilities' gas charges                for                fiscal years 2001 through 2004. As a result of the amended settlement,                the                Company recorded a $15.7 million pre-tax charge in the second quarter.                This is in addition to the $91.7 million pre-tax charge recorded                in the                first quarter and $13.3 million recognized in prior fiscal years. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Pursuant                to the amended settlement agreement Hub revenues are treated as a                reduction of gas costs recoverable from customers. The impact of                this                change related to pre-fiscal 2006 Hub revenue is included in the                settlement charge. Beginning in the second quarter of fiscal 2006,                Hub                revenues are recorded as a credit to customers' gas charges, including                $2.8 million previously reported as revenue in the fiscal 2006 first                quarter. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | In                connection with the Company's plans, announced during the second                quarter,                to exit the power generation business, financial results for power                generation are now being reported as discontinued operations. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Gas                distribution deliveries for the quarter were negatively impacted                by 15%                warmer than normal weather. In addition, utility deliveries continue                to be                impacted by customer conservation. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Oil                and gas production volumes for the quarter increased 7% from a year                ago.                The higher production levels reflect strong performance on both existing                and new wells and the impact of the Company's second quarter acquisition                of certain oil and gas properties in East Texas, North Louisiana,                and                Mississippi. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Energy                Marketing operating income increased substantially from the year-ago                periods, driven by higher wholesale margins. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Effective                in fiscal 2006, the Company's business segments were reorganized                and will                be reported as follows: Gas Distribution (including Peoples Gas hub                operations, formerly included as part of Midstream Services), Oil                and Gas                Production, Energy Assets, Energy Marketing (both retail and wholesale                activity, formerly included as Retail Energy Services and part of                Midstream Services, respectively) and Corporate and Other. All periods                have been reclassified to conform with the current                presentation. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Rate      Case.**

----

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

**Earnings      Outlook. **
** **

**Earnings      Outlook Table**

|                                                               |   | EPS                    Impact |
|---------------------------------------------------------------|--------|-------------------------------|
|                                                          |   |                          |   |   |   |   |   |   |
| Original                    FY 2006 earnings outlook          |   | $                             | 2.25 |   | - | $ | 2.45 |   |
| Reclassification                    of power generation       |   |                          |   |   |   |   |   |   |
| to                    discontinued operations                 |   |                          | (0.23 | ) | - |   | (0.23 | ) |
| Adjusted                    original FY 2006 outlook          |   | $                             | 2.00 |   |   | $ | 2.20 |   |
|                                                          |   |                          |   |   |   |   |   |   |
| Warmer                    than normal weather/conservation    |   |                          | (0.30 | ) | - |   | (0.35 | ) |
| Change                    in treatment of Hub revenue         |   |                          | (0.14 | ) | - |   | (0.14 | ) |
| Higher                    interest expense                    |   |                          | (0.03 | ) | - |   | (0.05 | ) |
| Other,                    net                                 |   |                          | (0.04 | ) | - |   | (0.06 | ) |
|                                                          |   |                          |   |   |   |   |   |   |
| FY                    2006 outlook from continuing operations |   | $                             | 1.40 |   | - | $ | 1.65 |   |
| Income                    from discontinued operations*       |   |                          | 0.23 |   | - |   | 0.23 |   |
| Net                    Income - (non-GAAP)                    |   | $                             | 1.65 |   | - | $ | 1.90 |   |
| Settlement                    charge                          |   |                          | (1.68 | ) | - |   | (1.68 | ) |
| Net                    Income - (GAAP)                        |   | $                             | (0.05 | ) | - | $ | 0.20 |   |

**RESULTS      OF OPERATIONS**

**Income      Statement Variations**

----

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

| ·   | Increased                bad debt expense at the Gas Distribution segment of $1.9 million                and $6.6                million due to high natural gas prices and their corresponding impact                on                revenues |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Increased                pension expense at Corporate and the Gas Distribution segment totaling                $3.0 million and $5.5 million due to a lower discount rate assumption                to                value the pension liability and pension                cost |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Increased                direct labor costs at Corporate and the Gas Distribution segment                totaling                $2.4 million for the six months ended March 31, 2006, offset by a                $1.9                million decrease in insurance, primarily weather                insurance. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

**Segment      Discussion**

**Gas      Distribution Segment.**

----

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

| **Gas                  Distribution Statistics**                 |
|------------------------------------------------------------------|
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                  |   | Three                  Months Ended | Six                  Months Ended | Increase/Decrease |
|                                                                  |   | March                  31, | March                  31, |   | Three                  Months |   |   | Six                  Months |   |
| **Margin                  Data***(In Thousands)*                 |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |   | Ended |   |   | Ended |   |
| **Gas                  Distribution revenues:**                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   | $ | 643,437 |   | $ | 577,615 |   | $ | 1,216,184 |   | $ | 982,491 |   | $ | 65,822 |   | $ | 233,693 |   |
| Commercial                                                       |   |   | 105,810 |   |   | 93,889 |   |   | 198,941 |   |   | 156,792 |   |   | 11,921 |   |   | 42,149 |   |
| Industrial                                                       |   |   | 18,905 |   |   | 17,086 |   |   | 36,479 |   |   | 28,689 |   |   | 1,819 |   |   | 7,790 |   |
| **Total                  sales**                                 |   |   | 768,152 |   |   | 688,590 |   |   | 1,451,604 |   |   | 1,167,972 |   |   | 79,562 |   |   | 283,632 |   |
| Transportation                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   |   | 12,912 |   |   | 12,960 |   |   | 23,730 |   |   | 22,637 |   |   | (48 | ) |   | 1,093 |   |
| Commercial                                                       |   |   | 18,730 |   |   | 19,345 |   |   | 34,063 |   |   | 33,567 |   |   | (615 | ) |   | 496 |   |
| Industrial                                                       |   |   | 6,054 |   |   | 6,951 |   |   | 11,504 |   |   | 12,426 |   |   | (897 | ) |   | (922 | ) |
| Contract                  pooling                                |   |   | 13,869 |   |   | 7,551 |   |   | 20,518 |   |   | 11,572 |   |   | 6,318 |   |   | 8,946 |   |
| **Total                  transportation**                        |   |   | 51,565 |   |   | 46,807 |   |   | 89,815 |   |   | 80,202 |   |   | 4,758 |   |   | 9,613 |   |
| Total                  Hub revenues                              |   |   | (2,813 | ) |   | 3,626 |   |   | - |   |   | 5,904 |   |   | (6,439 | ) |   | (5,904 | ) |
| Other                  Gas Distribution revenues (1)             |   |   | 4,453 |   |   | 3,419 |   |   | 8,927 |   |   | 8,422 |   |   | 1,034 |   |   | 505 |   |
| **Total                  Gas Distribution revenues**             |   |   | 821,357 |   |   | 742,442 |   |   | 1,550,346 |   |   | 1,262,500 |   |   | 78,915 |   |   | 287,846 |   |
| Less:                  Gas costs                                 |   |   | 583,495 |   |   | 488,176 |   |   | 1,100,646 |   |   | 817,780 |   |   | 95,319 |   |   | 282,866 |   |
| **Gross                  margin****(2)**                         |   |   | 237,862 |   |   | 254,266 |   |   | 449,700 |   |   | 444,720 |   |   | (16,404 | ) |   | 4,980 |   |
| Less:                  Revenue taxes                             |   |   | 69,136 |   |   | 65,706 |   |   | 129,133 |   |   | 111,670 |   |   | 3,430 |   |   | 17,463 |   |
| Environmental                  costs recovered                   |   |   | 14,033 |   |   | 14,145 |   |   | 25,329 |   |   | 23,128 |   |   | (112 | ) |   | 2,201 |   |
| **Net                  margin****(2)**                           |   | $ | 154,693 |   | $ | 174,415 |   | $ | 295,238 |   | $ | 309,922 |   | $ | (19,722 | ) | $ | (14,684 | ) |
| **Gas                  Distribution deliveries (MDth):**         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gas                  sales                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   |   | 46,052 |   |   | 53,764 |   |   | 83,234 |   |   | 88,801 |   |   | (7,712 | ) |   | (5,567 | ) |
| Commercial                                                       |   |   | 7,903 |   |   | 9,131 |   |   | 14,165 |   |   | 14,924 |   |   | (1,228 | ) |   | (759 | ) |
| Industrial                                                       |   |   | 1,480 |   |   | 1,759 |   |   | 2,715 |   |   | 2,905 |   |   | (279 | ) |   | (190 | ) |
| **Total                  gas sales**                             |   |   | 55,435 |   |   | 64,654 |   |   | 100,114 |   |   | 106,630 |   |   | (9,219 | ) |   | (6,516 | ) |
| Transportation                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   |   | 8,300 |   |   | 9,110 |   |   | 14,937 |   |   | 15,327 |   |   | (810 | ) |   | (390 | ) |
| Commercial                                                       |   |   | 16,438 |   |   | 17,715 |   |   | 29,862 |   |   | 30,204 |   |   | (1,277 | ) |   | (342 | ) |
| Industrial                                                       |   |   | 6,609 |   |   | 7,802 |   |   | 12,641 |   |   | 13,964 |   |   | (1,193 | ) |   | (1,323 | ) |
| **Total                  transportation**                        |   |   | 31,347 |   |   | 34,627 |   |   | 57,440 |   |   | 59,495 |   |   | (3,280 | ) |   | (2,055 | ) |
| **Total                  Distribution deliveries**               |   |   | 86,782 |   |   | 99,281 |   |   | 157,554 |   |   | 166,125 |   |   | (12,499 | ) |   | (8,571 | ) |
| Gross                  margin per Dth delivered                  |   | $ | 2.77 |   | $ | 2.52 |   | $ | 2.85 |   | $ | 2.64 |   | $ | 0.25 |   | $ | 0.21 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  margin per Dth delivered                    |   | $ | 1.81 |   | $ | 1.72 |   | $ | 1.87 |   | $ | 1.83 |   | $ | 0.09 |   | $ | 0.04 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average                  cost per Dth of gas sold                |   | $ | 10.53 |   | $ | 7.55 |   | $ | 10.99 |   | $ | 7.67 |   | $ | 2.98 |   | $ | 3.32 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Actual                  heating degree days (HDD)                |   |   | 2,741 |   |   | 3,080 |   |   | 5,043 |   |   | 5,163 |   |   | (339 | ) |   | (120 | ) |
| Normal                  heating degree days                  (3) |   |   | 3,225 |   |   | 3,254 |   |   | 5,515 |   |   | 5,533 |   |   |   |   |   |   |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Actual                  heating degree days as a percent         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of                  normal (actual/normal)                       |   |   | 85 |   |   | 95 |   |   | 91 |   |   | 93 |   |   |   |   |   |   |   |

| (1)   | Includes              accruals for weather insurance              recoveries. |
|-----------------|-------------------------------------------------------------------------------|

| (2)   | As              used above, net margin is not a financial measure computed under GAAP.              Gross margin is the GAAP measure most closely related to net margin.              Management believes net margin to be useful in understanding the Gas              Distribution segment's operations because the utility subsidiaries              are              allowed, under their tariffs, to recover gas costs, revenue taxes and              environmental costs from their customers on a dollar-for-dollar              basis. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | The              normal heating degree days for fiscal 2005 were based on the 30-year              average of monthly total heating degree days at Chicago's O'Hare              International Airport for the years 1970-1999. The normal heating degree              days for fiscal 2006 were based on the 30-year average of monthly total              heating degree days at Chicago's O'Hare International Airport for the              years 1975-2004. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

**Oil      and Gas Production Segment.**

|                                                                      |   | Remaining                  |   |                       |
|---------------------------------------------------------------------------|--------|----------------------------|--------|----------------------------|
|                                                                      |   | Fiscal                2006 |   | Fiscal                2007 |
| Gas                hedges in place (MMbtus)                               |   | 8,157,000                  |   | 12,705,000                 |
| Gas                hedges as a percent of estimated fiscal production (1) |   | 65%-70%                    |   | 50%-60%                    |
| Percent                of gas hedges that are swaps                       |   | 61%                        |   | 63%                        |
| Average                swap price ($/MMbtu)                               |   | $5.09                      |   | $                5.37      |
| Percent                of gas hedges that are no cost collars             |   | 39%                        |   | 37%                        |
| Weighted                average floor price ($/MMbtu)                     |   | $4.54                      |   | $                5.62      |
| Weighted                average ceiling price ($/MMbtu)                   |   | $5.56                      |   | $                6.77      |
| Oil                hedges in place (MBbls)                                |   | 150                        |   | 182                        |
| Oil                hedges as a percent of estimated fiscal production (1) |   | 75%-80%                    |   | 45%-55%                    |
| Average                hedge price ($/Bbl)                                |   | $27.65                     |   | $                37.50     |

----

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

|                                                                          |   | Three                Months EndedMarch                31, | Six                Months EndedMarch                31, |
|--------------------------------------------------------------------------|--------|-----------------------------------------------------------|---------------------------------------------------------|
|                                                                     |   |                                                      | 2006                                                    |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| Total                production - gas equivalent (MMcfe)(1)              |   |                                                      | 6,447                                                   |   |   | 6,003 |   |   | 12,336 |   |   | 12,504 |   |
| Daily                average gas production (MMcfd)                      |   |                                                      | 64.9                                                    |   |   | 59.1 |   |   | 61.4 |   |   | 60.8 |   |
| Daily                average oil production (MBd)                        |   |                                                      | 1.1                                                     |   |   | 1.3 |   |   | 1.1 |   |   | 1.3 |   |
| Daily                average production - gas equivalent (MMcfed)(1)     |   |                                                      | 71.6                                                    |   |   | 66.7 |   |   | 67.8 |   |   | 68.7 |   |
| Gas                production as a percentage of total production        |   |                                                      | 91                                                      |   |   | 89 |   |   | 91 |   |   | 89 |   |
| Percent                of production hedged during the period - gas      |   |                                                      | 64                                                      |   |   | 95 |   |   | 74 |   |   | 95 |   |
| Percent                of production hedged during the period - oil(2)   |   |                                                      | 74                                                      |   |   | 96 |   |   | 77 |   |   | 89 |   |
| Gas                net realized price ($/Mcf) (3)                        |   | $                                                         | 5.94                                                    |   | $ | 4.62 |   | $ | 5.28 |   | $ | 4.52 |   |
| Oil                net realized price ($/Bbl) (3)                        |   | $                                                         | 25.64                                                   |   | $ | 26.94 |   | $ | 27.63 |   | $ | 28.56 |   |
| Depreciation,                depletion and amortization rate ($/Mcfe)(4) |   | $                                                         | 2.06                                                    |   | $ | 1.83 |   | $ | 2.13 |   | $ | 1.88 |   |
| Average                lease operating expense ($/Mcfe)                  |   | $                                                         | 0.73                                                    |   | $ | 0.90 |   | $ | 0.71 |   | $ | 0.67 |   |
| Average                production taxes ($/Mcfe)                         |   | $                                                         | 0.60                                                    |   | $ | 0.50 |   | $ | 0.64 |   | $ | 0.47 |   |

| (1)   | Oil              production is converted to gas equivalents based on a conversion of              six              Mcf of gas per barrel of oil. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Due              to higher than anticipated hedge percentages, a small amount of open              hedges were dedesignated in fiscal 2005, reflecting current production              estimates. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Reflects              the impact of all hedges, including mark-to-market derivatives as well              as              basis differentials, transportation, gathering and mmbtu/mcf conversion              and are not NYMEX-equivalent prices. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | 2006              increase due to production mix and the addition of unproved capital              and              costs associated with the development of unproved              reserves. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Energy      Marketing Segment. **

----

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

|                                               |   | Three                Months EndedMarch                31, |   |  Six                Months EndedMarch                31, |
|----------------------------------------------------|--------|-----------------------------------------------------------|--------|---------------------------------------------------------------|
|                                               |   | 2006                                                      |   |                                                          | 2005 |   |   | 2006 |   | 2005 |
| Wholesale                gas volumes sold (MDth)   |   | 14,015                                                    |   |                                                          | 14,895 |   |   | 23,923 |   | 25,802 |
| Retail                gas volumes sold (MDth)      |   | 17,939                                                    |   |                                                          | 20,654 |   |   | 33,025 |   | 35,442 |
| Number                of retail gas customers      |   | 23,884                                                    |   |                                                          | 24,473 |   |   | 23,884 |   | 24,473 |
| Retail                electric volumes sold (Mwh)  |   | 417                                                       |   |                                                          | 331 |   |   | 817 |   | 664 |
| Number                of retail electric customers |   | 2,657                                                     |   |                                                          | 2,003 |   |   | 2,657 |   | 2,003 |

**Energy      Assets Segment.**

**,      **

**Critical      Accounting Policies**

----

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

**LIQUIDITY      AND CAPITAL RESOURCES**

|                                                                    |   | Six                Months EndedMarch                31, |
|--------------------------------------------------------------------|--------|---------------------------------------------------------|
| *(In                Thousands)*                                    |   |                                                    | 2006 |   |   | 2005 |   |
| Net                cash provided by (used in) operating activities |   | $                                                       | 117,792 |   | $ | 228,521 |   |
| Net                cash provided by (used in) investing activities |   | $                                                       | (199,798 | ) | $ | (60,770 | ) |
| Net                cash provided by (used in) financing activities |   | $                                                       | 132,075 |   | $ | (82,204 | ) |

**Balance      Sheet Variations**

----

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

**Financial      Sources**

----

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

**Changes      in Equity Securities**

|                                                          |   | Three                  Months Ended | Six                  Months Ended |
|---------------------------------------------------------------|--------|-------------------------------------|-----------------------------------|
|                                                               |   | March                  31, 2006     | March                  31, 2006   |
| *(Dollars                  in Thousands)*                     |   |                                | Shares                            |   |   | Dollars |   |   | Shares |   |   | Dollars |   |
| **Shares                  outstanding - beginning of period** |   |                                | 38,292,768                        |   | $ | 406,258 |   |   | 38,157,218 |   | $ | 402,383 |   |
| **Shares                  issued:**                           |   |                                |                              |   |   |   |   |   |   |   |   |   |   |
| Employee                  Stock Purchase Plan                 |   |                                | -                                 |   |   | - |   |   | 7,992 |   |   | 260 |   |
| Long-Term                  Incentive Compensation Plans, net  |   |                                | (3,410                            | ) |   | 110 |   |   | 51,099 |   |   | 1,096 |   |
| Directors                  Deferred Compensation Plan         |   |                                | 3,056                             |   |   | 168 |   |   | 3,056 |   |   | 162 |   |
| Direct                  Purchase and Investment Plan          |   |                                | 64,602                            |   |   | 2,357 |   |   | 137,651 |   |   | 4,992 |   |
| **Total                  activity for the period**            |   |                                | 64,248                            |   |   | 2,635 |   |   | 199,798 |   |   | 6,510 |   |
|                                                          |   |                                |                              |   |   |   |   |   |   |   |   |   |   |
| **Shares                  outstanding - end of period**       |   |                                | 38,357,016                        |   | $ | 408,893 |   |   | 38,357,016 |   | $ | 408,893 |   |

**Financial      Uses**

**Capital      Spending. **

----

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

**Gas      Charge Settlement. **

**Dividends**

**Overall      Financing Requirements**

**Commitments,      Contractual Obligations and Uncertainties**

**Off-Balance      Sheet Arrangements.**

**Contractual      Obligations.**

**Environmental      Matters.**

----

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

**Gas      Charge Reconciliation Proceedings and Related Matters.**

**Indenture      Restrictions**

----

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

**PEOPLES      GAS AND NORTH SHORE GAS DISCUSSIONS**

|                                          |   |  Peoples                Gas |         |  North                Shore Gas |
|-----------------------------------------------|--------|----------------------------------|--------------|--------------------------------------|
|                                               |   |                             | Gas          |                                 |   | Corporate |   |   |   |   |   | Gas |   |   | Corporate |   |   |   |
| *(In                Thousands)*               |   |                             | Distribution |                                 |   | and                Other |   |   | Total |   |   | Distribution |   |   | and                Other |   |   | Total |
| **For                the Three Months Ended** |   |                             |         |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| March                31, 2006 (GAAP)          |   | $                                | 19,330       |                                 | $ | (2,769 | ) | $ | 16,561 |   | $ | 23,651 |   | $ | (375 | ) |  $ | 23,276 |
| March                31, 2006 (non-GAAP) (1)  |   |                             | 47,692       |                                 |   | (2,769 | ) |   | 44,923 |   |   | 10,951 |   |   | (375 | ) |   | 10,576 |
| March                31, 2005 (GAAP)          |   |                             | 66,119       |                                 |   | (3,325 | ) |   | 62,794 |   |   | 12,628 |   |   | (282 | ) |   | 12,346 |
| March                31, 2005 (non-GAAP) (1)  |   |                             | 66,119       |                                 |   | (1,813 | ) |   | 64,306 |   |   | 12,628 |   |   | (242 | ) |   | 12,386 |
|                                          |   |                             |         |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **For                the Six Months Ended**   |   |                             |         |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| March                31, 2006 (GAAP)          |   | $                                | (13,213      | )                                    | $ | (6,033 | ) | $ | (19,246 | ) | $ | 15,295 |   | $ | (811 | ) | $ | 14,484 |
| March                31, 2006 (non-GAAP) (2)  |   |                             | 89,817       |                                 |   | (6,033 | ) |   | 83,784 |   |   | 19,595 |   |   | (811 | ) |   | 18,784 |
| March                31, 2005 (GAAP)          |   |                             | 107,453      |                                 |   | (12,295 | ) |   | 95,158 |   |   | 20,771 |   |   | (1,071 | ) |   | 19,700 |
| March                31, 2005 (non-GAAP) (2)  |   |                             | 107,453      |                                 |   | (3,828 | ) |   | 103,625 |   |   | 20,771 |   |   | (510 | ) |   | 20,261 |

| (1)   | Fiscal              2006 ongoing operating income (non-GAAP) is defined as GAAP operating              (loss) adjusted to exclude the effects of a charge of $28.4 million              and              ($12.7) million at Peoples Gas and North Shore Gas, respectively,              associated with the settlement of gas charge proceedings. Fiscal 2005              ongoing operating income (non-GAAP) is defined as GAAP operating income              adjusted to exclude the effects of pension expense related restructuring              costs of $1.5 million and $40 thousand at Peoples Gas and North Shore              Gas,              respectively. See Item 2- MD&A- Executive Summary for a discussion of              management's use of non-GAAP financial measures and a reconciliation              of              GAAP and non-GAAP earnings. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Fiscal              2006 year to date ongoing operating income (non-GAAP) is defined as              GAAP              operating (loss) adjusted to exclude the effects of a charge of $103.0              million and $4.3 million at Peoples Gas and North Shore Gas, respectively,              associated with the settlement of gas charge proceedings. Fiscal 2005              year              to date ongoing operating income (non-GAAP) is defined as GAAP operating              income adjusted to exclude the effects of pension expense related              restructuring costs of $8.5 million and $0.6 million at Peoples Gas              and              North Shore Gas, respectively. See Item 2- MD&A- Executive Summary for              a discussion of management's use of non-GAAP financial measures and              a              reconciliation of GAAP and non-GAAP              earnings. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Peoples      Gas Discussion**

**Income      Statement Variations**

----

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

**Balance      Sheet Variations**

**North      Shore Gas Discussion**

**Income      Statement Variations**

----

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

**Balance      Sheet Variations**

----

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

| **The                  Peoples Gas Light and Coke Company**      |
|------------------------------------------------------------------|
| **Gas                  Distribution Statistics**                 |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                             |   | Three                  Months Ended | Six                  Months Ended | Increase/Decrease |
|                                                                  |   | March                  31, | March                  31, |   | Three                  Months |   |   | Six                  Months |   |
| **Margin                  Data***(In Thousands)*                 |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |   | Ended |   |   | Ended |   |
| **Gas                  Distribution revenues:**                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   | $ | 542,917 |   | $ | 486,740 |   | $ | 1,023,622 |   | $ | 827,716 |   | $ | 56,177 |   | $ | 195,906 |   |
| Commercial                                                       |   |   | 88,796 |   |   | 78,431 |   |   | 166,813 |   |   | 131,251 |   |   | 10,365 |   |   | 35,562 |   |
| Industrial                                                       |   |   | 14,643 |   |   | 13,096 |   |   | 28,654 |   |   | 22,265 |   |   | 1,547 |   |   | 6,389 |   |
| **Total                  sales**                                 |   |   | 646,356 |   |   | 578,267 |   |   | 1,219,089 |   |   | 981,232 |   |   | 68,089 |   |   | 237,857 |   |
| Transportation                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   |   | 12,236 |   |   | 12,349 |   |   | 22,485 |   |   | 21,542 |   |   | (113 | ) |   | 943 |   |
| Commercial                                                       |   |   | 16,328 |   |   | 16,970 |   |   | 29,574 |   |   | 29,397 |   |   | (642 | ) |   | 177 |   |
| Industrial                                                       |   |   | 5,227 |   |   | 6,121 |   |   | 9,911 |   |   | 10,848 |   |   | (894 | ) |   | (937 | ) |
| Contract                  pooling                                |   |   | 12,778 |   |   | 6,861 |   |   | 18,488 |   |   | 10,535 |   |   | 5,917 |   |   | 7,953 |   |
| **Total                  transportation**                        |   |   | 46,569 |   |   | 42,301 |   |   | 80,458 |   |   | 72,322 |   |   | 4,268 |   |   | 8,136 |   |
| Total                  Hub revenues                              |   |   | (2,813 | ) |   | 3,626 |   |   | - |   |   | 5,904 |   |   | (6,439 | ) |   | (5,904 | ) |
| Other                  Gas Distribution revenues                 |   |   | 4,051 |   |   | 3,291 |   |   | 8,142 |   |   | 6,879 |   |   | 760 |   |   | 1,263 |   |
| **Total                  Gas Distribution revenues**             |   |   | 694,163 |   |   | 627,485 |   |   | 1,307,689 |   |   | 1,066,337 |   |   | 66,678 |   |   | 241,352 |   |
| Less:                  Gas costs                                 |   |   | 485,194 |   |   | 403,722 |   |   | 912,054 |   |   | 676,155 |   |   | 81,472 |   |   | 235,899 |   |
| **Gross                  margin****(1)**                         |   |   | 208,969 |   |   | 223,763 |   |   | 395,635 |   |   | 390,182 |   |   | (14,794 | ) |   | 5,453 |   |
| Less:                  Revenue taxes                             |   |   | 63,152 |   |   | 59,508 |   |   | 117,946 |   |   | 101,163 |   |   | 3,644 |   |   | 16,783 |   |
| Environmental                  costs recovered                   |   |   | 13,124 |   |   | 13,337 |   |   | 23,626 |   |   | 21,943 |   |   | (213 | ) |   | 1,683 |   |
| **Net                  margin****(1)**                           |   | $ | 132,693 |   | $ | 150,918 |   | $ | 254,063 |   | $ | 267,076 |   | $ | (18,225 | ) | $ | (13,013 | ) |
| **Gas                  Distribution deliveries (MDth):**         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gas                  sales                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   |   | 38,064 |   |   | 44,645 |   |   | 68,775 |   |   | 73,599 |   |   | (6,581 | ) |   | (4,824 | ) |
| Commercial                                                       |   |   | 6,505 |   |   | 7,522 |   |   | 11,674 |   |   | 12,321 |   |   | (1,017 | ) |   | (647 | ) |
| Industrial                                                       |   |   | 1,116 |   |   | 1,323 |   |   | 2,082 |   |   | 2,214 |   |   | (207 | ) |   | (132 | ) |
| **Total                  gas sales**                             |   |   | 45,685 |   |   | 53,490 |   |   | 82,531 |   |   | 88,134 |   |   | (7,805 | ) |   | (5,603 | ) |
| Transportation                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   |   | 7,928 |   |   | 8,751 |   |   | 14,277 |   |   | 14,718 |   |   | (823 | ) |   | (441 | ) |
| Commercial                                                       |   |   | 13,864 |   |   | 15,141 |   |   | 25,182 |   |   | 25,816 |   |   | (1,277 | ) |   | (634 | ) |
| Industrial                                                       |   |   | 5,153 |   |   | 6,242 |   |   | 9,843 |   |   | 10,952 |   |   | (1,089 | ) |   | (1,109 | ) |
| **Total                  transportation**                        |   |   | 26,945 |   |   | 30,134 |   |   | 49,302 |   |   | 51,486 |   |   | (3,189 | ) |   | (2,184 | ) |
| **Total                  Distribution deliveries**               |   |   | 72,630 |   |   | 83,624 |   |   | 131,833 |   |   | 139,620 |   |   | (10,994 | ) |   | (7,787 | ) |
| Gross                  margin per Dth delivered                  |   | $ | 2.92 |   | $ | 2.63 |   | $ | 3.00 |   | $ | 2.75 |   | $ | 0.29 |   | $ | 0.25 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  margin per Dth delivered                    |   | $ | 1.87 |   | $ | 1.76 |   | $ | 1.93 |   | $ | 1.87 |   | $ | 0.11 |   | $ | 0.06 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average                  cost per Dth of gas sold                |   | $ | 10.62 |   | $ | 7.55 |   | $ | 11.05 |   | $ | 7.67 |   | $ | 3.07 |   | $ | 3.38 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Actual                  heating degree days (HDD)                |   |   | 2,741 |   |   | 3,080 |   |   | 5,043 |   |   | 5,163 |   |   | (339 | ) |   | (120 | ) |
| Normal                  heating degree days                  (2) |   |   | 3,225 |   |   | 3,254 |   |   | 5,515 |   |   | 5,533 |   |   |   |   |   |   |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Actual                  heating degree days as a percent         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of                  normal (actual/normal)                       |   |   | 85 |   |   | 95 |   |   | 91 |   |   | 93 |   |   |   |   |   |   |   |

| (1)   | As              used above, net margin is not a financial measure computed under GAAP.              Gross margin is the GAAP measure most closely related to net margin.              Management believes net margin to be useful in understanding the Gas              Distribution segment's operations because the utility subsidiaries              are              allowed, under their tariffs, to recover gas costs, revenue taxes and              environmental costs from their customers on a dollar-for-dollar              basis. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | The              normal heating degree days for fiscal 2005 were based on the 30-year              average of monthly total heating degree days at Chicago's O'Hare              International Airport for the years 1970-1999. The normal heating degree              days for fiscal 2006 were based on the 30-year average of monthly total              heating degree days at Chicago's O'Hare International Airport for the              years 1975-2004. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

| **North                  Shore Gas Company**                     |
|------------------------------------------------------------------|
| **Gas                  Distribution Statistics**                 |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                             |   | Three                  Months Ended | Six                  Months Ended | Increase/Decrease |
|                                                                  |   | March                  31, | March                  31, |   | Three                  Months |   |   | Six                  Months |   |
| **Margin                  Data***(In Thousands)*                 |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |   | Ended |   |   | Ended |   |
| **Gas                  Distribution revenues:**                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   | $ | 100,520 |   | $ | 90,875 |   | $ | 192,562 |   | $ | 154,775 |   | $ | 9,645 |   | $ | 37,787 |   |
| Commercial                                                       |   |   | 17,014 |   |   | 15,458 |   |   | 32,128 |   |   | 25,541 |   |   | 1,556 |   |   | 6,587 |   |
| Industrial                                                       |   |   | 4,262 |   |   | 3,990 |   |   | 7,825 |   |   | 6,424 |   |   | 272 |   |   | 1,401 |   |
| **Total                  sales**                                 |   |   | 121,796 |   |   | 110,323 |   |   | 232,515 |   |   | 186,740 |   |   | 11,473 |   |   | 45,775 |   |
| Transportation                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   |   | 676 |   |   | 611 |   |   | 1,245 |   |   | 1,095 |   |   | 65 |   |   | 150 |   |
| Commercial                                                       |   |   | 2,402 |   |   | 2,375 |   |   | 4,489 |   |   | 4,170 |   |   | 27 |   |   | 319 |   |
| Industrial                                                       |   |   | 827 |   |   | 830 |   |   | 1,593 |   |   | 1,578 |   |   | (3 | ) |   | 15 |   |
| Contract                  pooling                                |   |   | 1,091 |   |   | 690 |   |   | 2,030 |   |   | 1,037 |   |   | 401 |   |   | 993 |   |
| **Total                  transportation**                        |   |   | 4,996 |   |   | 4,506 |   |   | 9,357 |   |   | 7,880 |   |   | 490 |   |   | 1,477 |   |
| Other                  Gas Distribution revenues                 |   |   | 402 |   |   | 318 |   |   | 785 |   |   | 623 |   |   | 84 |   |   | 162 |   |
| **Total                  Gas Distribution revenues**             |   |   | 127,194 |   |   | 115,147 |   |   | 242,657 |   |   | 195,243 |   |   | 12,047 |   |   | 47,414 |   |
| Less:                  Gas costs                                 |   |   | 98,301 |   |   | 84,454 |   |   | 188,592 |   |   | 141,625 |   |   | 13,847 |   |   | 46,967 |   |
| **Gross                  margin****(1)**                         |   |   | 28,893 |   |   | 30,693 |   |   | 54,065 |   |   | 53,618 |   |   | (1,800 | ) |   | 447 |   |
| Less:                  Revenue taxes                             |   |   | 5,984 |   |   | 6,198 |   |   | 11,187 |   |   | 10,507 |   |   | (214 | ) |   | 680 |   |
| Environmental                  costs recovered                   |   |   | 909 |   |   | 808 |   |   | 1,703 |   |   | 1,185 |   |   | 101 |   |   | 518 |   |
| **Net                  margin****(1)**                           |   | $ | 22,000 |   | $ | 23,687 |   | $ | 41,175 |   | $ | 41,926 |   | $ | (1,687 | ) | $ | (751 | ) |
| **Gas                  Distribution deliveries (MDth):**         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gas                  sales                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   |   | 7,988 |   |   | 9,119 |   |   | 14,459 |   |   | 15,202 |   |   | (1,131 | ) |   | (743 | ) |
| Commercial                                                       |   |   | 1,398 |   |   | 1,609 |   |   | 2,491 |   |   | 2,603 |   |   | (211 | ) |   | (112 | ) |
| Industrial                                                       |   |   | 364 |   |   | 436 |   |   | 633 |   |   | 691 |   |   | (72 | ) |   | (58 | ) |
| **Total                  gas sales**                             |   |   | 9,750 |   |   | 11,164 |   |   | 17,583 |   |   | 18,496 |   |   | (1,414 | ) |   | (913 | ) |
| Transportation                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   |   | 372 |   |   | 359 |   |   | 660 |   |   | 609 |   |   | 13 |   |   | 51 |   |
| Commercial                                                       |   |   | 2,574 |   |   | 2,574 |   |   | 4,680 |   |   | 4,388 |   |   | - |   |   | 292 |   |
| Industrial                                                       |   |   | 1,456 |   |   | 1,560 |   |   | 2,798 |   |   | 3,012 |   |   | (104 | ) |   | (214 | ) |
| **Total                  transportation**                        |   |   | 4,402 |   |   | 4,493 |   |   | 8,138 |   |   | 8,009 |   |   | (91 | ) |   | 129 |   |
| **Total                  Gas Distribution deliveries**           |   |   | 14,152 |   |   | 15,657 |   |   | 25,721 |   |   | 26,505 |   |   | (1,505 | ) |   | (784 | ) |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross                  margin per Dth delivered                  |   | $ | 2.04 |   | $ | 1.96 |   | $ | 2.10 |   | $ | 2.02 |   | $ | 0.08 |   | $ | 0.08 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  margin per Dth delivered                    |   | $ | 1.55 |   | $ | 1.51 |   | $ | 1.60 |   | $ | 1.58 |   | $ | 0.04 |   | $ | 0.02 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average                  cost per Dth of gas sold                |   | $ | 10.08 |   | $ | 7.56 |   | $ | 10.73 |   | $ | 7.66 |   | $ | 2.52 |   | $ | 3.07 |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Actual                  heating degree days (HDD)                |   |   | 2,741 |   |   | 3,080 |   |   | 5,043 |   |   | 5,163 |   |   | (339 | ) |   | (120 | ) |
| Normal                  heating degree days                  (2) |   |   | 3,225 |   |   | 3,254 |   |   | 5,515 |   |   | 5,533 |   |   |   |   |   |   |   |
|                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Actual                  heating degree days as a percent         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of                  normal (actual/normal)                       |   |   | 85 |   |   | 95 |   |   | 91 |   |   | 93 |   |   |   |   |   |   |   |

| (1)   | As              used above, net margin is not a financial measure computed under GAAP.              Gross margin is the GAAP measure most closely related to net margin.              Management believes net margin to be useful in understanding the Gas              Distribution segment's operations because the utility subsidiaries              are              allowed, under their tariffs, to recover gas costs, revenue taxes and              environmental costs from their customers on a dollar-for-dollar              basis. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | The              normal heating degree days for fiscal 2005 were based on the 30-year              average of monthly total heating degree days at Chicago's O'Hare              International Airport for the years 1970-1999. The normal heating degree              days for fiscal 2006 were based on the 30-year average of monthly total              heating degree days at Chicago's O'Hare International Airport for the              years 1975-2004. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**FORWARD-LOOKING      INFORMATION**

| ·   | The                outcome of rate increase proceedings to be filed with the Commission                by                the utility subsidiaries; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | adverse                decisions in proceedings before the Commission concerning the prudence                review of the utility subsidiaries' gas                purchases; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | adverse                changes in the Commission's approved rate mechanisms for recovery                of                environmental remediation costs at former manufactured gas sites                of the                Company's subsidiaries, or adverse decisions by the Commission with                respect to the prudence of costs actually                incurred; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                future health of the United States and Illinois                economies; |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | the                timing and extent of changes in interest rates and energy commodity                prices, including but not limited to the effect of gas prices on                cost of                gas supplies, accounts receivable and the provision for uncollectible                accounts, interest expense and earnings from the Oil and Gas Production                segment; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                effectiveness of the Company's derivative instruments and hedging                activities and their impact on our future results of                operations; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | adverse                resolution of material litigation; |
|--------------------|-----------------------------------------------------------|

| ·   | effectiveness                of the Company's risk management policies and the creditworthiness                of                customers and counterparties; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | changes              in the credit ratings of the Company, Peoples Gas and North Shore              Gas; |
|--------------------|----------------------------------------------------------------------------------------------------------|
| ·   | regulatory                developments in the United States, Illinois and other states where                the                Company does business; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| ·   | operational                factors affecting the Company's Gas Distribution, Oil and Gas Production                and Energy Assets segments; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Aquila,                Inc.'s financial ability to perform under its power sales agreements                with                Elwood; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                Company's ability to complete its divestment of its power generation                assets during the fiscal year on advantageous                terms; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| ·   | weather-related                energy demand; |
|--------------------|-----------------------------------------------|

| ·   | terrorist                activities; and |
|--------------------|------------------------------------------|

| ·   | the                application of, or changes in, accounting rules or interpretations,                including, but not limited to the impact of mark-to market accounting                treatment for some of the Company's derivative contracts used by                the                Company to manage commodity price basis, and other                risks. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**ITEM      3. **
**Quantitative      and Qualitative Disclosures about Market Risk**

**ITEM      4. **
**Controls      and Procedures**

**Disclosure      Controls and Procedures**

**Changes      In Internal Control Over Financial Reporting**

----

**Part              II - Other Information**

**Item      1. **
**Legal      Proceedings**

**Item      1A. **
**Risk      Factors**

**Item      2. **
**Unregistered      Sales of Equity Securities and Use of Proceeds**

**Item      3. **
**Defaults      Upon Senior Securities**

| **Item                4.****Submission                of Matters to a Vote of Security Holders** |
|--------------------------------------------------------------------------------------------------|
|                                                                                             |
| **Peoples                Energy Corporation**:                                                   |
|                                                                                             |
|                                                                                             | a. | Peoples                Energy held its Annual Meeting of Shareholders on February 24,                2006. |
|                                                                                             |   |   |   |   |   |
|                                                                                             | b. | The                following matters were voted upon at the Annual Meeting of                Shareholders. |

|   |   | 1. | The                election of nominees for directors who will serve for a one-year                term or                until their respective successors shall be duly elected. The Inspectors                of                Election certified the following vote                tabulations: |
|--------|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                           | **FOR**    | **WITHHELD** |
|------------------------------------------------|------------|--------------|
| Keith                E. Bailey                 | 32,199,041 | 805,867      |
| James                R. Boris             | 32,220,989 | 785,059      |
| William                J. Brodsky         | 32,213,983 | 792,064      |
| Pastora                San Juan Cafferty  | 32,113,950 | 885,240      |
| Diana                S. Ferguson               | 32,201,429 | 803,784      |
| John                W. Higgins            | 32,216,272 | 787,461      |
| Dipak                C. Jain              | 32,087,604 | 917,087      |
| Michael                E. Lavin           | 32,203,376 | 794,817      |
| Homer                J. Livingston, Jr.        | 32,090,054 | 907,904      |
| Thomas                M. Patrick          | 32,040,556 | 963,827      |
| Richard                P. Toft            | 32,114,502 | 888,957      |

|   |   | 2.     | A                recommendation of the appointment by the Audit Committee of Deloitte&                Touche LLP as the independent public accountants for the Company                and its                subsidiaries for the fiscal year ending September 30, 2006. The Inspectors                of Election certified the following vote tabulations: |
|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |                                                                                                                                                                                                                                                                                                                                                             |   |

|  **FOR** |   |  **AGAINST** |   |  **ABSTAIN** |   | **BROKER****NON-VOTES** |
|---------------|--------|-------------------|--------|-------------------|--------|-------------------------|
| 32,196,415    |   | 415,927           |   | 390,732           |   | 0                       |

----

**Part              II - Other Information**

**Item      5. **
**Other      Information**

| **Item                6.****Exhibits** |
|----------------------------------------|
|                                   |   |   |   |   |   |
|                                   | **Peoples                Energy Corporation**: |
|                                   |   |   |   |   |   |
|                                   |   |   | Exhibit |   |   |
|                                   |   |   | Number |   | Description                of Document |
|                                   |   |   |   |   |   |
|                                   |   |   | 3 |   | By-Laws                of the Company, as amended December 2, 2005 |
|                                   |   |   |   |   |   |
|                                   |   |   | 10.1 |   | Order                of the Illinois Commerce Commission in Docket No. 01-0706 for North                Shore                Gas |
|                                   |   |   |   |   |   |
|                                   |   |   | 10.2 |   | Order                of the Illinois Commerce Commission in Docket No. 02-0726 for North                Shore                Gas |
|                                   |   |   |   |   |   |
|                                   |   |   | 10.3 |   | Order                of the Illinois Commerce Commission in Docket No. 02-0727 for Peoples                Gas |
|                                   |   |   |   |   |   |
|                                   |   |   | 10.4 |   | Order                of the Illinois Commerce Commission in Docket No. 03-0704 for North                Shore                Gas |
|                                   |   |   |   |   |   |
|                                   |   |   | 10.5 |   | Order                of the Illinois Commerce Commission in Docket No. 03-0705 for Peoples                Gas |
|                                   |   |   |   |   |   |
|                                   |   |   | 10.6 |   | Order                of the Illinois Commerce Commission in Docket No. 04-0682 for North                Shore                Gas |
|                                   |   |   |   |   |   |
|                                   |   |   | 10.7 |   | Order                of the Illinois Commerce Commission in Docket No. 04-0683 for Peoples                Gas |
|                                   |   |   |   |   |   |
|                                   |   |   | 12 |   | Statement                re: Computation of Ratio of Earnings to Fixed Charges for the                Company |
|                                   |   |   |   |   |   |
|                                   |   |   | 31(a) |   | Certification                of Thomas M. Patrick on behalf of the Company pursuant to 17 CFR                240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section                302                of the Sarbanes-Oxley Act of 2002. |
|                                   |   |   |   |   |   |
|                                   |   |   | 31(b) |   | Certification                of Thomas A. Nardi on behalf of the Company pursuant to 17 CFR                240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section                302                of the Sarbanes-Oxley Act of 2002. |
|                                   |   |   |   |   |   |
|                                   |   |   | 32(a) |   | Certification                of Thomas M. Patrick on behalf of the Company, Peoples Gas and North                Shore                Gas pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                906                of the Sarbanes-Oxley Act of 2002. |
|                                   |   |   |   |   |   |
|                                   |   |   | 32(b) |   | Certification                of Thomas A. Nardi on behalf of the Company, Peoples Gas and North                Shore                Gas pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                906                of the Sarbanes-Oxley Act of 2002. |

----

**Part              II - Other Information**

|   | **The                Peoples Gas Light and Coke Company**: |
|--------|------------------------------------------------------------|
|   |                                                       |   |   |   |   |
|   |                                                       |   | Exhibit |   |   |
|   |                                                       |   | Number |   | Description                of Document |
|   |                                                       |   | 31(a) |   | Certification                of Thomas M. Patrick on behalf of Peoples Gas pursuant to 17 CFR                240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section                302                of the Sarbanes-Oxley Act of 2002. |
|   |                                                       |   |   |   |   |
|   |                                                       |   | 31(b) |   | Certification                of Thomas A. Nardi on behalf of Peoples Gas pursuant to 17 CFR                240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section                302                of the Sarbanes-Oxley Act of 2002. |
|   |                                                       |   |   |   |   |
|   |                                                       |   | 32(a) |   | Certification                of Thomas M. Patrick on behalf of the Company, Peoples Gas and North                Shore                Gas pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                906                of the Sarbanes-Oxley Act of 2002. |
|   |                                                       |   |   |   |   |
|   |                                                       |   | 32(b) |   | Certification                of Thomas A. Nardi on behalf of the Company, Peoples Gas and North                Shore                Gas pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                906                of the Sarbanes-Oxley Act of 2002. |

|   | **North                Shore Gas Company**: |
|--------|---------------------------------------------|
|   |                                        |   |   |   |   |
|   |                                        |   | Exhibit |   |   |
|   |                                        |   | Number |   | Description                of Document |
|   |                                        |   |   |   |   |
|   |                                        |   | 31(a) |   | Certification                of Thomas M. Patrick on behalf of North Shore Gas pursuant to 17                CFR                240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section                302                of the Sarbanes-Oxley Act of 2002. |
|   |                                        |   |   |   |   |
|   |                                        |   | 31(b) |   | Certification                of Thomas A. Nardi on behalf of North Shore Gas pursuant to 17 CFR                240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section                302                of the Sarbanes-Oxley Act of 2002. |
|   |                                        |   |   |   |   |
|   |                                        |   | 32(a) |   | Certification                of Thomas M. Patrick on behalf of the Company, Peoples Gas and North                Shore                Gas pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                906                of the Sarbanes-Oxley Act of 2002. |
|   |                                        |   |   |   |   |
|   |                                        |   | 32(b) |   | Certification                of Thomas A. Nardi on behalf of the Company, Peoples Gas and North                Shore                Gas pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                906                of the Sarbanes-Oxley Act of 2002. |

----

| **SIGNATURES**                                                                                                                                                                                                                                                   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
| 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. |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   | Peoples                Energy Corporation |
|                                                                                                                                                                                                                                                             |   | (Registrant) |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
| May                10, 2006                                                                                                                                                                                                                                      |   | By:                /s/                THOMAS A. NARDI |
| (Date)                                                                                                                                                                                                                                                           |   | Thomas                A. Nardi |
|                                                                                                                                                                                                                                                             |   | Executive                Vice Presidentand                Chief Financial Officer |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   | (Same                as above) |
|                                                                                                                                                                                                                                                             |   | Principal                Financial Officer |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
| 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. |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   | The                Peoples Gas Light and Coke Company |
|                                                                                                                                                                                                                                                             |   | (Registrant) |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
| May                10, 2006                                                                                                                                                                                                                                      |   | By:                /s/                THOMAS A. NARDI |
| (Date)                                                                                                                                                                                                                                                           |   | Thomas.                A. Nardi |
|                                                                                                                                                                                                                                                             |   | Executive                Vice Presidentand                Chief Financial Officer |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   | (Same                as above) |
|                                                                                                                                                                                                                                                             |   | Principal                Financial Officer |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
| 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. |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   | North                Shore Gas Company |
|                                                                                                                                                                                                                                                             |   | (Registrant) |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
| May                10, 2006                                                                                                                                                                                                                                      |   | By:                /s/                THOMAS A. NARDI |
| (Date)                                                                                                                                                                                                                                                           |   | Thomas.                A. Nardi |
|                                                                                                                                                                                                                                                             |   | Executive                 Vice Presidentand                Chief Financial Officer |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   | (Same                as above) |
|                                                                                                                                                                                                                                                             |   | Principal                Financial Officer |