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

|(Mark One)                                   |                                                  
|-------------------------------------------- | -------------------------------------------------
|                                             |                                                  
|[ X ]                                        | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) 
|OF THE SECURITIES EXCHANGE ACT OF 1934      
|                                             |                                                  
|For the Quarterly Period Ended JUNE 30, 2000
|                                             |                                                  
|OR                                          
|                                             |                                                  
|[ ]                                          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
|OF THE SECURITIES EXCHANGE ACT OF 1934      

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

|Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date (July 31, 2000):                                                                                                                                                                                                       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                   
|Peoples Energy Corporation                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                   
|The Peoples Gas Light and Coke Company                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                   
|North Shore Gas Company                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                   
|This combined Form 10-Q is separately filed by Peoples Energy Corporation, The Peoples Gas Light and Coke Company, and North Shore Gas Company. Information contained herein relating to any individual company is filed by such company on
its own behalf. Each company makes no representation as to information relating to the other companies.



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



|Peoples Energy Corporation                                                              
|----------------------------------------------------------------------------------------
|                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|PROPERTIES AND OTHER ASSETS                                                             
|                                                                                        
|CAPITAL INVESTMENTS:                                                                    
|Property, plant and equipment, at original cost                                         
|Less - Accumulated depreciation, depletion and amortization                             
|Net property, plant and equipment                                                       
|Other investments                                                                       
|Total Capital Investments - Net                                                         
|                                                                                        
|CURRENT ASSETS:                                                                         
|Cash and cash equivalents                                                               
|Special deposits                                                                        
|Temporary cash investments                                                              
|Receivables -                                                                           
|Customers, net of allowance for uncollectible accounts                                  
|of $26,339, $22,546, and $22,498, respectively                                          
|Other                                                                                   
|Accrued unbilled revenues                                                               
|Materials and supplies, at average cost                                                 
|Gas in storage                                                                          
|Gas costs recoverable through rate adjustments                                          
|Regulatory assets of subsidiaries                                                       
|Prepayments                                                                             
|Total Current Assets                                                                    
|                                                                                        
|OTHER ASSETS:                                                                           
|Non-current regulatory assets of subsidiaries                                           
|Deferred charges                                                                        
|Total Other Assets                                                                      
|                                                                                        
|Total Properties and Other Assets                                                       
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.



|Peoples Energy Corporation                                                              
|----------------------------------------------------------------------------------------
|                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|CAPITALIZATION AND LIABILITIES                                                          
|                                                                                        
|CAPITALIZATION:                                                                         
|Common Stockholders' Equity:                                                            
|Common stock, without par value -                                                       
|Authorized 60,000,000 shares                                                            
|Outstanding 35,296,205, 35,489,242, and                                                 
|35,489,242 shares, respectively                                                         
|Capital in excess of par value of stock                                                 
|Retained earnings                                                                       
|Treasury Stock                                                                          
|Accumulated other comprehensive income                                                  
|Total Common Stockholders' Equity                                                       
|                                                                                        
|Long-term debt of subsidiaries, exclusive of sinking                                    
|fund payments and maturities due within one year (See Note 5)                           
|Total Capitalization                                                                    
|                                                                                        
|CURRENT LIABILITIES:                                                                    
|Short-term debt and current maturities                                                  
|due within on year (See Note 5)                                                         
|Accounts payable                                                                        
|Dividends payable on common stock                                                       
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Gas sales revenue refundable through rate adjustments                                   
|Temporary LIFO Liquidation Credit                                                       
|Accrued interest                                                                        
|Total Current Liabilities                                                               
|                                                                                        
|DEFERRED CREDITS AND OTHER LIABILITIES:                                                 
|Deferred income taxes                                                                   
|Investment tax credits being amortized over                                             
|the average lives of related property                                                   
|Other                                                                                   
|Total Deferred Credits and Other Liabilities                                            
|                                                                                        
|Total Capitalization and Liabilities                                                    
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.



|Peoples Energy Corporation                                                              
|----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                   
|(Unaudited)                                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Operating Activities:                                                                   
|Net Income                                                                              
|Adjustments to reconcile net income to net cash:                                        
|Depreciation, depletion, and amortization                                               
|Per statement of income                                                                 
|Charged to other accounts                                                               
|Deferred income taxes and investment tax credits - net                                  
|Change in deferred credits and other liabilities                                        
|Change in other assets                                                                  
|Distribution greater than (less than) income from                                       
|equity affiliates                                                                       
|Change in current assets and liabilities:                                               
|Receivables - net                                                                       
|Accrued unbilled revenues                                                               
|Materials and supplies                                                                  
|Gas in storage                                                                          
|Gas costs recoverable through rate adjustments                                          
|Regulatory assets of subsidiaries                                                       
|Prepayments                                                                             
|Accounts payable                                                                        
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Gas sales revenue refundable through rate adjustments                                   
|Accrued interest                                                                        
|Temporary LIFO Liquidation                                                              
|Net Cash Provided by (Used in) Operating Activities                                     
|                                                                                        
|Investing Activities:                                                                   
|Capital spending                                                                        
|Special deposit                                                                         
|Other temporary cash investments                                                        
|Other assets                                                                            
|Net Cash Used in Investing Activities                                                   
|                                                                                        
|Financing Activities:                                                                   
|Net borrowings (repayments) of short-term debt                                          
|Issuance of long-term debt of subsidiaries                                              
|Retirement of long-term debt of subsidiaries                                            
|Dividends paid on common stock                                                          
|Proceeds from issuance of common stock                                                  
|Treasury stock purchases                                                                
|Net Cash Provided by Financing Activities                                               
|                                                                                        
|Net Increase in Cash and Cash Equivalents                                               
|Cash and Cash Equivalents at Beginning of Period                                        
|Cash and Cash Equivalents at End of Period                                              
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.



|PART I.  FINANCIAL INFORMATION                                                          
|----------------------------------------------------------------------------------------
|Item 1.                                                                                 
|The Peoples Gas Light and Coke Company                                                  
|CONSOLIDATED STATEMENTS OF INCOME                                                       
|(Unaudited)                                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Operating Revenues                                                                      
|                                                                                        
|Operating Expenses:                                                                     
|Gas costs                                                                               
|Operation and maintenance                                                               
|Depreciation and amortization                                                           
|Taxes, other than income taxes                                                          
|Total Operating Expenses                                                                
|                                                                                        
|Operating Income                                                                        
|                                                                                        
|Other Income and (Deductions)                                                           
|                                                                                        
|Interest Expense                                                                        
|                                                                                        
|Earnings Before Income Taxes                                                            
|                                                                                        
|Income Taxes                                                                            
|                                                                                        
|Net Income Applicable                                                                   
|to Common Stock                                                                         
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.



|The Peoples Gas Light and Coke Company                                                  
|----------------------------------------------------------------------------------------
|                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|PROPERTIES AND OTHER ASSETS                                                             
|                                                                                        
|CAPITAL INVESTMENTS:                                                                    
|Property, plant and equipment, at original cost                                         
|Less - Accumulated depreciation and amortization                                        
|Net property, plant and equipment                                                       
|Other investments                                                                       
|Total Capital Investments - Net                                                         
|                                                                                        
|CURRENT ASSETS:                                                                         
|Cash and cash equivalents                                                               
|Temporary cash investments                                                              
|Receivables -                                                                           
|Customers, net of allowance for uncollectible accounts                                  
|of $24,253, $21,167, and $21,460, respectively                                          
|Other                                                                                   
|Accrued unbilled revenues                                                               
|Materials and supplies, at average cost                                                 
|Gas in storage, at last-in, first-out cost                                              
|Gas costs recoverable through rate adjustments                                          
|Regulatory assets                                                                       
|Prepayments                                                                             
|Total Current Assets                                                                    
|                                                                                        
|OTHER ASSETS:                                                                           
|Non-current regulatory assets                                                           
|Deferred charges                                                                        
|Total Other Assets                                                                      
|                                                                                        
|Total Properties and Other Assets                                                       
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.



|The Peoples Gas Light and Coke Company                                                  
|----------------------------------------------------------------------------------------
|                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|CAPITALIZATION AND LIABILITIES                                                          
|                                                                                        
|CAPITALIZATION:                                                                         
|Common Stockholder's Equity:                                                            
|Common stock, without par value -                                                       
|Authorized 40,000,000 shares                                                            
|Outstanding 24,817,566 shares                                                           
|Retained earnings                                                                       
|Accumulated other comprehensive income                                                  
|Total Common Stockholder's Equity                                                       
|                                                                                        
|Long-term debt, exclusive of sinking fund                                               
|payments and maturities due within one year (See Note 5)                                
|Total Capitalization                                                                    
|                                                                                        
|CURRENT LIABILITIES:                                                                    
|Short-term debt and current maturities                                                  
|due within one year (See Note 5)                                                        
|Accounts payable                                                                        
|Dividends payable on common stock                                                       
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Gas sales revenue refundable through rate adjustments                                   
|Temporary LIFO Liquidation Credit                                                       
|Accrued interest                                                                        
|Total Current Liabilities                                                               
|                                                                                        
|DEFERRED CREDITS AND OTHER LIABILITIES:                                                 
|                                                                                        
|Deferred income taxes                                                                   
|Investment tax credits being amortized over                                             
|the average lives of related property                                                   
|Other                                                                                   
|Total Deferred Credits and Other Liabilities                                            
|                                                                                        
|Total Capitalization and Liabilities                                                    
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.



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



|Part I.  FINANCIAL INFORMATION                                                          
|----------------------------------------------------------------------------------------
|
|Item 1.  Financial Statements                                                           
|                                                                                        
|North Shore Gas Company                                                                 
|CONSOLIDATED STATEMENTS OF INCOME                                                       
|(Unaudited)                                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Operating Revenues                                                                      
|                                                                                        
|Operating Expenses:                                                                     
|Gas costs                                                                               
|Operation and maintenance                                                               
|Depreciation                                                                            
|Taxes - other than income taxes                                                         
|Total Operating Expenses                                                                
|                                                                                        
|Operating Income                                                                        
|                                                                                        
|Other Income and (Deductions)                                                           
|                                                                                        
|Interest Expense                                                                        
|                                                                                        
|Earnings Before Income Taxes                                                            
|                                                                                        
|Income Taxes                                                                            
|                                                                                        
|Net Income Applicable                                                                   
|to Common Stock                                                                         
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.



|North Shore Gas Company                                                                 
|----------------------------------------------------------------------------------------
|                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|PROPERTIES AND OTHER ASSETS                                                             
|                                                                                        
|CAPITAL INVESTMENTS:                                                                    
|Property, plant and equipment, at original cost                                         
|Less - Accumulated depreciation                                                         
|Net property, plant and equipment                                                       
|Other investments                                                                       
|Total Capital Investments - Net                                                         
|                                                                                        
|CURRENT ASSETS:                                                                         
|Cash and cash equivalents                                                               
|Temporary cash investments                                                              
|Receivables -                                                                           
|Customers, net of allowance for uncollectible                                           
|accounts of $1,036, $790, and $778, respectively                                        
|Other                                                                                   
|Accrued unbilled revenues                                                               
|Materials and supplies, at average cost                                                 
|Gas in storage, at last-in, first-out cost                                              
|Gas costs recoverable through rate adjustments                                          
|Regulatory assets                                                                       
|Prepayments                                                                             
|Total Current Assets                                                                    
|                                                                                        
|OTHER ASSETS:                                                                           
|Non-current regulatory assets                                                           
|Deferred charges                                                                        
|Total Other Assets                                                                      
|                                                                                        
|Total Properties and Other Assets                                                       
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.



|North Shore Gas Company                                                                 
|----------------------------------------------------------------------------------------
|                                                                                        
|CONSOLIDATED BALANCE SHEETS                                                             
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|CAPITALIZATION AND LIABILITIES                                                          
|                                                                                        
|CAPITALIZATION:                                                                         
|Common Stockholder's Equity:                                                            
|Common stock, without par value -                                                       
|Authorized 5,000,000 shares                                                             
|Outstanding 3,625,887 shares                                                            
|Retained earnings                                                                       
|Total Common Stockholder's Equity                                                       
|                                                                                        
|Long-term debt, exclusive of sinking fund                                               
|payments and maturities due within one year (See Note 5)                                
|Total Capitalization                                                                    
|                                                                                        
|CURRENT LIABILITIES:                                                                    
|Accounts payable                                                                        
|Dividends payable on common stock                                                       
|Customer gas service and credit deposits                                                
|Accrued taxes                                                                           
|Gas sales revenue refundable through rate adjustments                                   
|Temporary LIFO liquidation                                                              
|Accrued interest                                                                        
|Total Current Liabilities                                                               
|                                                                                        
|DEFERRED CREDITS AND OTHER LIABILITIES:                                                 
|                                                                                        
|Deferred income taxes                                                                   
|Investment tax credits being amortized over                                             
|the average lives of related property                                                   
|Other                                                                                   
|Total Deferred Credits and Other Liabilities                                            
|                                                                                        
|Total Capitalization and Liabilities                                                    
|                                                                                        
|The Notes to Consolidated Financial Statements are an integral part of these statements.



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



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



1. BASIS OF PRESENTATION

This Quarterly Report on Form 10-Q is a combined report of Peoples Energy Corporation (the Company), The Peoples Gas Light and Coke Company (Peoples Gas) and North Shore Gas Company (North Shore Gas). The accompanying consolidated financial
statements and Notes to Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries, Peoples Gas, North Shore Gas, Peoples District Energy Corporation, Peoples Energy Services Corporation, Peoples Energy
Resources Corp., Peoples Energy Ventures Corporation, and Peoples NGV Corp., and comprise the assets, liabilities, revenues, expenses, and underlying common stockholders' equity of these companies. Income is principally derived from the Company's utility
subsidiaries, Peoples Gas and North Shore Gas. Significant intercompany balances and transactions have been eliminated. Investments for which the Company's subsidiaries have at least a 20-percent interest, but less than a majority ownership, and
partnerships in which the Company has less than a majority interest are accounted for under the equity method. The statements have been prepared by the Company in conformity with the rules and regulations of the Securities and Exchange Commission (SEC)
and reflect all adjustments that are, in the opinion of management, necessary to present fairly the results for the interim periods herein and to prevent the information from being misleading.

Certain footnote disclosures and other information, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted from these interim financial statements, pursuant to
SEC rules and regulations. Therefore, the statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's, Peoples Gas' and North Shore Gas' Annual Report on Form 10-K for the fiscal year
ended September 30, 1999. Certain items previously reported for the prior periods have been reclassified to conform with the presentation in the current period.

The business of the Company's utility subsidiaries is influenced by seasonal weather conditions because a large element of the utilities' customer load consists of gas used for space heating. Weather-related deliveries can, therefore, have a
significant positive or negative impact on net income. Accordingly, the results of operations for the interim periods presented are not indicative of the results to be expected for all or any part of the balance of the current fiscal year.

2. SIGNIFICANT ACCOUNTING POLICIES

2A.	Regulated Operations

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

2B.	Statement of Cash Flows

For purposes of the balance sheet and the statement of cash flows, the Company considers all short-term liquid investments with maturities of three months or less to be cash equivalents.

Income taxes and interest paid (excluding capitalized interest of $793,000 and $2.2 million for the Company and Peoples Gas with respect to the nine months ended June 30, 2000 and 1999, respectively) were as follows:



|For the nine months        |  | The Company |  | Peoples Gas |  | North Shore Gas
|-------------------------- |  | ----------- |  | ----------- |  | ---------------
|ended June 30, (Thousands) |  | 2000        |  | 1999        |  | 2000           
|                           |  |             |  |             |  |                
|Income taxes paid          |  | $22,874     |  | $18,987     |  | $16,733        
|                           |  |             |  |             |  |                
|Interest paid              |  | 42,175      |  | 32,462      |  | 29,021         

2C.	Recovery of Gas Costs

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

For each gas distribution utility, the Commission conducts an annual proceeding regarding the reconciliation of revenues from the Gas Charge and related costs incurred for gas. In such proceedings, costs recovered by a utility through the Gas
Charge are subject to challenge. Such proceedings, regarding Peoples Gas and North Shore Gas for fiscal year 1999, are currently pending before the Commission.

2D.	Oil and Gas Exploration and Production Properties

For oil and gas activities, the Company follows the full-cost method of accounting as prescribed by the SEC. Under the full-cost method, all costs directly associated with acquisition, exploration and development activities are capitalized, with
the principal limitation that such amounts not exceed the present value of estimated future net revenues to be derived from the production of proved oil and gas reserves (the full-cost ceiling). If net capitalized costs exceed the full-cost ceiling at the
end of any quarter, a permanent impairment of the assets is required to be charged to earnings in that quarter. Such a charge would have no effect on the Company's cash flow. At June 30, 2000 and 1999, there was no such charge to income.

2E.	Accounting Standards

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and was amended in June 1999 by SFAS No. 137, and further amended in June 2000 by SFAS No. 138. This
statement establishes accounting and reporting standards for derivative financial instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either
assets or liabilities on the consolidated balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and resulting designation.

Changes in the fair value of derivatives will be recognized in the current period earnings, unless specific hedge accounting criteria are met. If an entity qualifies for hedge accounting, the derivative's gains and losses will offset the related
results of the hedged item in the current period's income statement. SFAS No. 133 requires that formal documentation be maintained and that the effectiveness of the hedge be assessed quarterly. The statement, as amended by SFAS No. 137, must be adopted no
later than October 1, 2000. The Company has preliminarily assessed the impact of adopting the standard and is in the process of preparing for the adoption. The Company does not expect the adoption of this standard to have a material effect on its
financial condition or results of operations.

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

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

2F.	Hedging Activities

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

The Company is accounting for all current derivative transactions through hedge accounting. Realized gains or losses from derivative instruments (through maturity or termination of the hedge) are deferred until the underlying hedged item is sold
or matures. If the Company determines that any portion of the underlying hedged item will not be purchased or sold, the unmatched portion of the instrument is marked to market and any gain or loss is recognized on the Consolidated Statement of Income.
Recognized gains or losses are recorded on the Consolidated Statement of Income with the underlying hedged item. As of June 30, 2000 and 1999, the Company had open derivative financial instruments representing hedges of equivalent natural gas production
of 34.9 Bcf and 4.5 Bcf, respectively. At June 30, 2000, the Company had no deferred gains or losses on the Consolidated Balance Sheet. At June 30, 1999, the Company had a deferred gain of $13,000 on the Consolidated Balance Sheet.

2G.	Accounting for Gas Supply Contracts

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

3: BUSINESS SEGMENTS

The Company is presenting below information about its operating segments for the three-, nine- and 12-month periods ending June 30, 2000 and 1999, according to SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information."
The Company has six business segments: Gas Distribution, Power Generation, Midstream Services, Retail Energy Services, Oil and Gas Production, and Other. Operating income also includes the effect of corporate activities and consolidating adjustments.
Peoples Gas is primarily active in the Gas Distribution segment, but it is also involved in activities reported in the Midstream Services and Retail Energy Services segments. North Shore Gas is active in the Gas Distribution segment only.

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

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

The Power Generation segment is engaged in the development, construction, operation, and ownership of gas-fired electric generation facilities for sales to electric utilities and marketers. The Company and Dominion Resources Inc. are equal
investors in Elwood Energy, which owns and operates a 600-megawatt (MW) peaking facility near Chicago, Illinois. Expansion of that facility has begun and will more than double the peaking capacity of the jointly owned plant. The Company and Enron North
America Corp. have announced a commitment to cooperate in developing a portfolio of at least 800-megawatts of natural gas-fired power generation in the Chicago area.

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

The Retail Energy Services segment markets gas and electricity and provides energy management and other services to retail customers. Peoples Gas' home services activity is also part of this segment.

The Oil and Gas Production segment is active in the development and production of oil and gas reserves in selected basins in the United States. The Company targets on-shore prospects with proved producing oil and gas reserves and the potential for
enhancement through drilling programs. Certain producing properties owned by the Company qualify for Section 29 income tax credits.

The Company is involved in other activities such as district heating and cooling and the development of fueling stations for natural gas vehicles. These and other activities do not fall under the above segments and are reported in the Other
segment. In July 2000, the Company invested as a limited partner in EnerTech Capital Partners II L.P. This investment provides venture capital for energy-related and telecommunication entities, the opportunity for attractive financial returns and research
and development information with the industry. The Company has committed a maximum of $5 million to this investment.

|                                              | Peoples Energy Corporation
|--------------------------------------------- | --------------------------
|                                              |                           
|(Thousands)                                   | Gas                       
|Three Months Ended 06-30-00                   | Distribution              
|Operating Revenues                            | $    199,715              
|Depreciation, Depletion and Amortization      | 22,222                    
|Operating Income (Loss)                       | 25,966                    
|Equity Investment Income                      | -                         
|Operating Income and Equity Investment Income | 25,966                    
|Segment Assets                                | 1,495,661                 
|Investments in Equity Investees               | -                         
|Capital Spending                              | $      25,440             
|                                              |                           
|                                              |                           
|                                              | Gas                       
|Three Months Ended 06-30-99                   | Distribution              
|Operating Revenues                            | $    168,625              
|Depreciation, Depletion and Amortization      | 19,493                    
|Operating Income (Loss)                       | 15,623                    
|Equity Investment Income                      | -                         
|Operating Income and Equity Investment Income | 15,623                    
|Segment Assets                                | 1,468,749                 
|Investments in Equity Investees               | -                         
|Capital Spending                              | $      31,184             
|                                              |                           
|                                              |                           
|                                              | Gas                       
|Nine Months Ended 06-30-00                    | Distribution              
|Operating Revenues                            | $    968,985              
|Depreciation, Depletion and Amortization      | 63,122                    
|Operating Income (Loss)                       | 182,272                   
|Equity Investment Income                      | -                         
|Operating Income and Equity Investment Income | 182,272                   
|Segment Assets                                | 1,495,661                 
|Investments in Equity Investees               | -                         
|Capital Spending                              | $      77,094             
|                                              |                           
|                                              |                           
|                                              | Gas                       
|Nine Months Ended 06-30-99                    | Distribution              
|Operating Revenues                            | $    859,324              
|Depreciation, Depletion and Amortization      | 57,899                    
|Operating Income (Loss)                       | 160,957                   
|Equity Investment Income                      | -                         
|Operating Income and Equity Investment Income | 160,957                   
|Segment Assets                                | 1,468,749                 
|Investments in Equity Investees               | -                         
|Capital Spending                              | $      64,299             
|                                              |                           
|                                              |                           
|                                              | Gas                       
|12 Months Ended 06-30-00                      | Distribution              
|Operating Revenues                            | $ 1,089,786               
|Depreciation, Depletion and Amortization      | 83,126                    
|Operating Income (Loss)                       | 176,166                   
|Equity Investment Income                      | -                         
|Operating Income and Equity Investment Income | 176,166                   
|Segment Assets                                | 1,495,661                 
|Investments in Equity Investees               | -                         
|Capital Spending                              | $    111,442              
|                                              |                           
|                                              |                           
|                                              | Gas                       
|12 Months Ended 06-30-99                      | Distribution              
|Operating Revenues                            | $    968,068              
|Depreciation, Depletion and Amortization      | 77,105                    
|Operating Income (Loss)                       | 149,782                   
|Equity Investment Income                      | -                         
|Operating Income and Equity Investment Income | 149,782                   
|Segment Assets                                | 1,468,749                 
|Investments in Equity Investees               | -                         
|Capital Spending                              | $    138,450              



The following table reconciles total segment assets and investments in equity investees to the Company's consolidated total assets at June 30, 2000 and 1999 as follows:

|                                  |  | June 30,   
|--------------------------------- |  | -----------
|                                  |  | 2000       
|                                  |  | (Thousands)
|                                  |  |            
|Segment Assets                    |  | $ 1,608,052
|Investments in Equity Investees   |  | 130,670    
|Other Investments not included in |  |            
|above Categories                  |  | 12,031     
|Total Capital Investments - Net   |  | 1,750,753  
|                                  |  |            
|Current Assets                    |  | 558,395    
|Other Assets                      |  | 97,928     
|Total Assets                      |  | $ 2,407,076



The following table reconciles total segment operating income and equity investment income to the Company's consolidated net income for the three, nine and 12 months ended June 30, 2000 and 1999 as follows:

|                                              |  | Three Months Ended |  | Nine Months Ended |  | 12 Months Ended
|--------------------------------------------- |  | ------------------ |  | ----------------- |  | ---------------
|                                              |  | June 30,           |  | June 30,          |  | June 30,       
|                                              |  | 2000               |  | 1999              |  | 2000           
|                                              |  | (Thousands)       
|                                              |  |                    |  |                   |  |                
|Operating income and equity investment income |  | $  25,735          |  | $  12,561         |  | $ 187,713      
|Other income and (deductions)                 |  | 1,948              |  | 4,747             |  | 3,491          
|Interest expense                              |  | 13,224             |  | 10,129            |  | 38,303         
|Income taxes                                  |  | 3,607              |  | 187               |  | 55,051         
|Net Income                                    |  | $  10,852          |  | $    6,992        |  | $  97,850      



|                              |  |  |  |  | Peoples Gas       |  |  | North Shore Gas   
|----------------------------- |  |  |  |  | ----------------- |  |  | ------------------
|                              |  |  |  |  |                   |  |  |                   
|(Thousands)                   |  |  |  |  | Gas               |  |  | Midstream         
|Three Months Ended 06-30-00   |  |  |  |  | Distribution      |  |  | Services          
|Operating Revenues            |  |  |  |  | $        171,063  |  |  | $            577  
|Depreciation and Amortization |  |  |  |  | 19,985            |  |  | -                 
|Operating Income (Loss)       |  |  |  |  | 23,193            |  |  | (15)              
|Segment Assets                |  |  |  |  | 1,291,945         |  |  | -                 
|Capital Spending              |  |  |  |  | $          22,168 |  |  | $                -
|                              |  |  |  |  |                   |  |  |                   
|                              |  |  |  |  |                   |  |  |                   
|                              |  |  |  |  | Gas               |  |  | Midstream         
|Three Months Ended 06-30-99   |  |  |  |  | Distribution      |  |  | Services          
|Operating Revenues            |  |  |  |  | $        146,778  |  |  | $            463  
|Depreciation and Amortization |  |  |  |  | 17,375            |  |  | -                 
|Operating Income (Loss)       |  |  |  |  | 12,700            |  |  | 463               
|Segment Assets                |  |  |  |  | 1,268,188         |  |  | -                 
|Capital Spending              |  |  |  |  | $          27,138 |  |  | $                -
|                              |  |  |  |  |                   |  |  |                   
|                              |  |  |  |  |                   |  |  |                   
|                              |  |  |  |  | Gas               |  |  | Midstream         
|Nine Months Ended 06-30-00    |  |  |  |  | Distribution      |  |  | Services          
|Operating Revenues            |  |  |  |  | $        821,467  |  |  | $         5,016   
|Depreciation and Amortization |  |  |  |  | 56,486            |  |  | -                 
|Operating Income (Loss)       |  |  |  |  | 149,819           |  |  | 4,389             
|Segment Assets                |  |  |  |  | 1,291,945         |  |  | -                 
|Capital Spending              |  |  |  |  | $          68,329 |  |  | $                -
|                              |  |  |  |  |                   |  |  |                   
|                              |  |  |  |  |                   |  |  |                   
|                              |  |  |  |  | Gas               |  |  | Midstream         
|Nine Months Ended 06-30-99    |  |  |  |  | Distribution      |  |  | Services          
|Operating Revenues            |  |  |  |  | $        739,664  |  |  | $         4,583   
|Depreciation and Amortization |  |  |  |  | 51,582            |  |  | -                 
|Operating Income (Loss)       |  |  |  |  | 135,783           |  |  | 4,583             
|Segment Assets                |  |  |  |  | 1,268,188         |  |  | -                 
|Capital Spending              |  |  |  |  | $          84,857 |  |  | $                -
|                              |  |  |  |  |                   |  |  |                   
|                              |  |  |  |  |                   |  |  |                   
|                              |  |  |  |  | Gas               |  |  | Midstream         
|12 Months Ended 06-30-00      |  |  |  |  | Distribution      |  |  | Services          
|Operating Revenues            |  |  |  |  | $        926,208  |  |  | $         6,415   
|Depreciation and Amortization |  |  |  |  | 74,348            |  |  | -                 
|Operating Income (Loss)       |  |  |  |  | 144,485           |  |  | 5,788             
|Segment Assets                |  |  |  |  | 1,291,945         |  |  | -                 
|Capital Spending              |  |  |  |  | $        126,156  |  |  | $                -
|                              |  |  |  |  |                   |  |  |                   
|                              |  |  |  |  |                   |  |  |                   
|                              |  |  |  |  | Gas               |  |  | Midstream         
|12 Months Ended 06-30-99      |  |  |  |  | Distribution      |  |  | Services          
|Operating Revenues            |  |  |  |  | $        834,337  |  |  | $         4,698   
|Depreciation and Amortization |  |  |  |  | 68,790            |  |  | -                 
|Operating Income (Loss)       |  |  |  |  | 124,777           |  |  | 4,698             
|Segment Assets                |  |  |  |  | 1,268,188         |  |  | -                 
|Capital Spending              |  |  |  |  | $          97,524 |  |  | $                -



The following table reconciles total segment assets to Peoples Gas' consolidated total assets at June 30, 2000 and 1999 as follows:

|                                |  | June 30,   
|------------------------------- |  | -----------
|                                |  | 2000       
|                                |  | (Thousands)
|                                |  |            
|Segment Assets                  |  | $ 1,291,944
|Other Investments               |  | 10,332     
|Total Capital Investments - Net |  | 1,302,276  
|                                |  |            
|Current Assets                  |  | 371,412    
|Other Assets                    |  | 65,565     
|Total Assets                    |  | $ 1,739,253



The following table reconciles total segment operating income to Peoples Gas' consolidated net income for the three, nine and 12 months ended June 30, 2000 and 1999 as follows:

|                              |  | Three Months Ended |  | Nine Months Ended |  | 12 Months Ended
|----------------------------- |  | ------------------ |  | ----------------- |  | ---------------
|                              |  | June 30,           |  | June 30,          |  | June 30,       
|                              |  | 2000               |  | 1999              |  | 2000           
|                              |  | (Thousands)       
|                              |  |                    |  |                   |  |                
|Operating income              |  | $  23,260          |  | $  13,151         |  | $154,257       
|Other income and (deductions) |  | 1,173              |  | 3,151             |  | 2,436          
|Interest expense              |  | 7,850              |  | 7,866             |  | 25,646         
|Income taxes                  |  | 5,863              |  | 983               |  | 49,446         
|Net Income                    |  | $  10,720          |  | $    7,453        |  | $  81,601      



The following table reconciles total segment assets to North Shore Gas' consolidated total assets at June 30, 2000 and 1999 as follows:

|                                |  | June 30,   
|------------------------------- |  | -----------
|                                |  | 2000       
|                                |  | (Thousands)
|                                |  |            
|Segment Assets                  |  | $  203,716 
|Other Investments               |  | 22         
|Total Capital Investments - Net |  | 203,738    
|                                |  |            
|Current Assets                  |  | 36,386     
|Other Assets                    |  | 24,632     
|Total Assets                    |  | $  264,756 



The following table reconciles total segment operating income to North Shore Gas' consolidated net income for the three, nine and 12 months ended June 30, 2000 and 1999 as follows:

|                              |  | Three Months Ended |  | Nine Months Ended |  | 12 Months Ended
|----------------------------- |  | ------------------ |  | ----------------- |  | ---------------
|                              |  | June 30,           |  | June 30,          |  | June 30,       
|                              |  | 2000               |  | 1999              |  | 2000           
|                              |  | (Thousands)       
|                              |  |                    |  |                   |  |                
|Operating income              |  | $    2,264         |  | $    2,923        |  | $  22,956      
|Other income and (deductions) |  | 176                |  | 360               |  | 265            
|Interest expense              |  | 1,259              |  | 1,310             |  | 3,866          
|Income taxes                  |  | 401                |  | 509               |  | 7,477          
|Net Income                    |  | $      780         |  | $    1,464        |  | $  11,878      



4. ENVIRONMENTAL MATTERS

4A. Former Manufactured Gas Plant Operations

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

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

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

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

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

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

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

The utility subsidiaries are accruing and deferring the costs they incur in connection with all of the Manufactured Gas Sites, including related legal expenses, pending recovery through rates or from insurance carriers or other entities. At June
30, 2000, the total of the costs deferred (stated in current year dollars) for Peoples Gas was $30.5 million; for North Shore Gas the total was $19.9 million; and for the Company on a consolidated basis the total deferred was $50.4 million. This amount
includes management's best estimate of the costs of investigating and remediating the Manufactured Gas Sites. The estimate is based upon a comprehensive review by management and its outside consultants of potential costs associated with conducting
investigative and remedial actions at the Manufactured Gas Sites as well as the likelihood of whether such actions will be necessary. While each subsidiary intends to seek contribution from other entities for the costs incurred at the sites, the full
extent of such contributions cannot be determined at this time.

Peoples Gas and North Shore Gas have filed suit against a number of insurance carriers for the recovery of environmental costs relating to the utilities' former manufactured gas operations. The suit asks the court to declare, among other things,
that the insurers are liable under policies in effect between 1937 and 1986 for costs incurred or to be incurred by the utilities in connection with five of their Manufactured Gas Sites in Chicago and Waukegan. The utilities are also asking the court to
award damages stemming from the insurers' breach of their contractual obligation to defend and indemnify the utilities against these costs. In November 1998, the utilities reached a settlement agreement with one of the insurance carriers. The costs
deferred at June 30, 2000 have been reduced by the proceeds of the settlement. At this time, management cannot determine the timing and extent of the subsidiaries' recovery of costs from the other insurance carriers. Accordingly, the costs deferred at
June 30, 2000 have not been reduced to reflect recoveries from other insurance carriers.

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

4B. Former Mineral Processing Site in Denver, Colorado

In 1994, North Shore Gas received a demand from the S.W. Shattuck Chemical Company, Inc. (Shattuck), a responsible party under CERCLA, for reimbursement, indemnification, and contribution for response costs incurred at a former mineral processing
site in Denver, Colorado. Shattuck is a wholly owned subsidiary of Salomon, Inc. (Salomon). The demand alleges that North Shore Gas is a successor to the liability of a former entity that was allegedly responsible during the period 1934-1941 for the
disposal of mineral processing wastes containing radium and other hazardous substances at the site. In 1992, the EPA issued the Record of Decision (ROD) for the Denver site. The remedy selected in the ROD consisted of the on-site stabilization,
solidification and capping of soils containing radioactive wastes. In 1997, the remedial action was completed. The cost of the remedy at the site has been estimated by Shattuck to be approximately $31 million. Salomon has provided financial assurance for
the performance of the remediation of the site.

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

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

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

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

5. LONG-TERM DEBT AND SHORT-TERM DEBT

5A. Issuance of Bonds

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

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

5B. Interest Rate Adjustments

The rate of interest on the $27 million aggregate principal amount of the City of Chicago 1993 Series B Bonds, which are secured by an equal principal amount of Peoples Gas' adjustable-rate First and Refunding Mortgage Bonds, Series EE, is subject
to adjustment annually on December 1. Owners of the Series B Bonds have the right to tender such bonds at par during a limited period prior to that date. Peoples Gas is obligated to purchase any such bonds tendered if they cannot be remarketed. Therefore,
these bonds are classified as short-term debt on the balance sheet. All Series B Bonds that were tendered prior to December 1, 1999 have been remarketed. The interest rate on the Series B Bonds will be 4.05% for the period December 1, 1999 through
November 30, 2000.

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

5C. Bonds Redeemed

On October 1, 1998, Peoples Gas redeemed, from general corporate funds, $10.4 million aggregate principal amount of the City of Joliet 1984 Series C Bonds, which were secured by Peoples Gas' adjustable-rate First and Refunding Mortgage Bonds,
Series W. On January 19, 1999, North Shore Gas redeemed, using a portion of the bond issuance proceeds deposited with the trustee, $24,905,000 aggregate principal amount of the Illinois Development Finance Authority Gas Supply Revenue Bonds, Series 1992,
which were secured by North Shore Gas' First Mortgage Bonds, Series K.

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

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

5D. Commercial Paper

As of June 30, 2000, the Company's consolidated commercial paper outstanding was $352.0 million, including $68.0 million for Peoples Gas.

6. EARNINGS PER SHARE

Shares used to compute diluted earnings per share for the Company are as follows:



|                   |  | Average Common Stock Shares (Thousands)
|------------------ |  | ---------------------------------------
|                   |  | Three Months Ended                     
|June 30,           |  | 2000                                   
|As reported shares |  | 35,328                                 
|Effects of options |  | 2                                      
|Diluted shares     |  | 35,330                                 

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

7. COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income," requires the reporting of comprehensive income in addition to net income. Comprehensive income is the total of net income and all other nonowner changes in equity (other comprehensive income).
Comprehensive income includes net income plus the effect of the additional pension liability not yet recognized as net periodic pension cost. The Company and Peoples Gas have reported accumulated other comprehensive income in their respective Consolidated
Balance Sheets.

Comprehensive income for the Company for the three, nine and 12 months ended June 30, 2000 and 1999 is as follows:

|                                       | Three Months Ended           |          | Nine Months Ended |          | 12 Months Ended
|-------------------------------------- | ---------------------------- | -------- | ----------------- | -------- | ---------------
|                                       |                              | June 30, |                   | June 30, |                
|(Thousands)                            | 2000                         | 1999     |                   | 2000     | 1999           
|Net income                             | $ 10,852                     | $6,992   |                   | $97,850  | $96,444        
|                                       |                              |          |                   |          |                
|Other comprehensive income             |                              |          |                   |          |                
|                                       | Minimum pension liability    | -        | -                 |          | -              
|                                       | Income tax (expense)/benefit | -        | -                 |          | -              
|Other comprehensive income, net of tax | -                            | -        |                   | -        | -              
|                                       |                              |          |                   |          |                
|Comprehensive income                   | $10,852                      | $6,992   |                   | $97,850  | $96,444        



Comprehensive income for Peoples Gas for the three, nine and 12 months ended June 30, 2000 and 1999 is as follows:

|                                       | Three Months Ended           |          | Nine Months Ended |          | 12 Months Ended
|-------------------------------------- | ---------------------------- | -------- | ----------------- | -------- | ---------------
|                                       |                              | June 30, |                   | June 30, |                
|(Thousands)                            | 2000                         | 1999     |                   | 2000     | 1999           
|Net income                             | $10,720                      | $7,453   |                   | $81,601  | $83,581        
|                                       |                              |          |                   |          |                
|Other comprehensive income             |                              |          |                   |          |                
|                                       | Minimum pension liability    | -        | -                 |          | -              
|                                       | Income tax (expense)/benefit | -        | -                 |          | -              
|Other comprehensive income, net of tax | -                            | -        |                   | -        | -              
|                                       |                              |          |                   |          |                
|Comprehensive income                   | $10,720                      | $7,453   |                   | $81,601  | $83,581        



8. ELIMINATION OF DECOMMISSIONING RESERVE

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



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

RESULTS OF OPERATIONS

The Company is reporting operating income and equity investment income for each of its six business segments: Gas Distribution, Power Generation, Midstream Services, Retail Energy Services, Oil and Gas Production and Other. (See Note 3 of the
Notes to Consolidated Financial Statements.) Peoples Gas is primarily active in the Gas Distribution segment, but it is also involved in activities reported in the Midstream Services and Retail Energy Services segments. North Shore Gas is active in the
Gas Distribution segment only.

Net Income

Net income for the Company for the three months ended June 30, 2000, increased $3.9 million to $10.9 million. Results for the quarter were positively impacted by settlement accounting and net periodic benefit costs (pension benefit accounting),
earnings growth in the diversified segments and weather that was 15-percent colder than the year-ago period. Partially offsetting these positive impacts were the effects of a state income tax refund received in the prior period and an increase in
depreciation expense.

Net income for the Company for the nine months ended June 30, 2000, increased $1.4 million to $97.9 million. Year to date results include the impact of pension benefit accounting and growth in diversified earnings. Warmer than normal weather
negatively effected both periods. However, the effects of 14-percent warmer than normal weather in the current period were substantially mitigated due to the impact of a weather insurance policy. Partially offsetting these positive effects were the
elimination in the prior period of the decommissioning liability associated with the Peoples Gas' 1995 retirement of its synthetic natural gas plant and the effects of a state income tax refund in the prior period.

Net income for the Company for the 12 months ended June 30, 2000, increased $8.8 million to $94.0 million, primarily due to pension benefit accounting, increases in the earnings of diversified business segments, and slightly colder weather in the
current period. Partially offsetting these positive effects were the elimination in the prior period of the decommissioning liability and the effects of a state income tax refund in the prior period.

Net income for Peoples Gas increased $3.3 million to $10.7 million, for the three months ended June 30, 2000. The increase was primarily due to pension benefit accounting and to weather that was 15-percent colder than during last year's third
quarter. Partially offsetting these positive impacts were the effects of a state income tax refund received in the prior period, an increase in depreciation expense, and a decrease in normalized gas deliveries.

Net income for Peoples Gas for the nine months ended June 30, 2000 decreased by $2.0 million to $81.6 million. The decrease was primarily due to the elimination in the prior period of the decommissioning liability associated with the retirement of
its synthetic natural gas plant, the state income tax refund received in the prior period, an increase in depreciation expense, and a reduction in normalized gas deliveries. These effects were partially offset by pension benefit accounting and a reduction
in the provision for uncollectible accounts.

Net income for Peoples Gas increased $2.5 million to $76.2 million, for the 12 months ended June 30, 2000. The increase was primarily due to pension benefit accounting, the effect of slightly colder weather in the current period, a reduction in
costs associated with liability insurance, and a decrease in the provision for uncollectible accounts. Partially offsetting these positive impacts were the elimination in the prior period of the decommissioning liability, the effect of the state income
tax refund received in the prior period, an increase in depreciation expense, and a decline in normalized gas deliveries.

Net income for North Shore Gas decreased $684,000 to $780,000, for the three months ended June 30, 2000. The decrease was primarily due to higher costs associated with a new customer information system, the effects of a state income tax refund
received in the prior period, higher labor costs, and an increase in certain environmental costs not associated with Manufactured Gas Sites. Partially offsetting these effects was the impact of colder weather in the current period.

Net income for North Shore Gas for the nine months ended June 30, 2000 decreased by $1.7 million to $11.9 million. The decrease was primarily due to higher costs associated with a new customer information system, the effects of a state income tax
refund received in the prior period, higher labor costs, and an increase in certain environmental costs not associated with Manufactured Gas Sites. Partially offsetting these effects were increased normalized gas deliveries in the current period.

Net income for North Shore Gas decreased $2.0 million to $10.8 million, for the 12 months ended June 30, 2000. The decrease was primarily due to higher costs associated with a new customer information system, the effects of a state income tax
refund received in the prior period, higher labor costs, an increase in depreciation expense, and an increase in certain environmental costs not associated with Manufactured Gas Sites. Partially offsetting these effects was an increase in normalized gas
deliveries and slightly colder weather in the current period.

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

|                                                    |  | Three Months Ended | Nine Months Ended | 12 Months Ended
|--------------------------------------------------- |  | ------------------ | ----------------- | ---------------
|                                                    |  | June 30, 2000      | June 30, 2000     | June 30, 2000  
|(Thousands)                                         |  | Amount             |                   | Percent        
|Operating Income and Equity Investment Income       |  |                    |                   |                
|Gas Distribution                                    |  | $     10,343       |                   | 66.2           
|Power Generation                                    |  | 2,364              |                   | 219.3          
|Midstream Services                                  |  | (1,585)            |                   | (302.5)        
|Retail Energy Services                              |  | 1,746              |                   | 65.9           
|Oil and Gas Production                              |  | 2,191              |                   | 184.9          
|Other                                               |  | 166                |                   | 60.8           
|Corporate and Adjustments                           |  | (2,051)            |                   | (265.2)        
|Total Operating Income and Equity Investment Income |  | 13,174             |                   | 104.9          
|Other income and (deductions)                       |  | (2,799)            |                   | (59.0)         
|Interest expense                                    |  | 3,095              |                   | 30.6           
|Income taxes                                        |  | 3,420              |                   | 1,828.9        
|Net income applicable to common stock               |  | 3,860              |                   | 55.2           

Gas Distribution Segment

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

Gross revenues of Peoples Gas and North Shore Gas are affected by changes in the unit cost of the utilities' gas purchases and do not include the cost of gas supplies for customers who purchase gas directly from producers and marketers rather than
from the utilities. The unit cost of gas does not have a direct significant effect on operating income because the utilities' tariffs provide for dollar-for-dollar recovery of gas costs.

Weather variations affect the volumes of gas delivered for heating purposes and, therefore, can have a significant positive or negative impact on net income, cash position and coverage ratios of the Company. In order to mitigate the effect of
substantially warmer weather, the Company purchased a five-year weather insurance policy. The weather insurance policy, beginning in fiscal year 2000, allows the Company to protect earnings when weather is more than eight-percent warmer than normal. The
Company will continue to retain all upside revenue potential when weather is colder than normal.

Operating revenues for the Company increased for the three-month period, primarily due to the pass-through of higher unit costs of gas, the impact of colder weather, and the benefits associated with the weather insurance policy, partially offset
by the impact of a decline in normalized gas deliveries. Operating income for the three-month period increased by $10.3 million to $26.0 million, due primarily to pension benefit accounting and the effect of colder weather in the current period. Partially
offsetting these effects were an increase in depreciation expense and the impact of a decline in normalized gas deliveries.

Operating revenues for the Company increased for the nine- and 12-month periods due primarily to the pass-through of higher unit costs of gas and the benefits associated with the weather insurance policy, partially offset by a decline in
normalized gas deliveries. Operating income for the nine-month period increased $21.3 million, to $182.3 million, primarily due to pension benefit accounting, the net benefits associated with the weather insurance policy and a decrease in the provision
for uncollectible accounts. Partially offsetting these effects was an increase in depreciation expense and a decline in normalized gas deliveries. Operating income for the 12-month period increased $26.4 million to $176.2 million, due to pension benefit
accounting, the net benefits associated with the weather insurance policy, the effect of colder weather in the current period, a reduction in costs associated with liability insurance, and a decrease in the provision for uncollectible accounts. Partially
offsetting these effects were an increase in depreciation expense and a decline in normalized gas deliveries.

Operating revenues for Peoples Gas increased for the three-month period due to the pass-through of higher unit costs of gas and the impact of colder weather in the current period, partially offset by the impact of a decline in normalized gas
deliveries. Operating income for the three-month period increased $10.5 million to $23.2 million, due to pension benefit accounting and the effect of colder weather in the current period. Partially offsetting these effects were an increase in depreciation
expense and the impact of a decline in normalized gas deliveries.

Operating revenues for Peoples Gas for the nine-month period increased primarily due to the pass-through of higher unit costs of gas, partially offset by the decline in normalized gas deliveries. Operating income for the nine-month period
increased by $14.0 million to $149.8 million, due primarily to pension benefit accounting and a decrease in the provision for uncollectible accounts. Partially offsetting these effects were an increase in depreciation expense and a decline in normalized
gas deliveries.

For the 12-month period, operating revenues increased for Peoples Gas due to the pass-through of higher unit costs of gas and the effect of colder weather in the current period, partially offset by a decline in normalized gas deliveries. Operating
income for the 12-month period increased by $19.7 million to $144.5 million, primarily due to pension benefit accounting, the impact of slightly colder weather, a reduction in costs associated with liability insurance, and a decrease in the provision for
uncollectible accounts. Partially offsetting these impacts were higher depreciation expense and a decline in normalized gas deliveries.

Operating revenues for North Shore Gas increased for the three-month period, primarily due to the pass-through of higher unit costs of gas and the impact of colder weather. Operating income for North Shore Gas decreased $659,000 to $2.3 million,
for the three months ended, primarily due to increased costs associated with the implementation of a new customer information system, higher labor costs, and an increase in certain environmental costs not associated with Manufactured Gas sites. These
impacts were partially offset by the effect of colder weather in the current period.

Operating revenues for North Shore Gas increased for the nine-month period, primarily due to the pass-through of higher unit costs of gas and the impact of an increase in normalized gas deliveries, partially offset by the impact of warmer weather.
Operating income for North Shore Gas decreased $2.2 million, to $23.0 million, for the nine months ended, primarily due to increased costs associated with the implementation of a new customer information system, higher labor costs, an increase in certain
environmental costs not associated with Manufactured Gas Sites, and the impact of warmer weather. These effects were partially offset by increased normalized deliveries in the current period.

Operating revenues for North Shore Gas increased for the 12-month period, primarily due to the pass-through of higher unit costs of gas and the impact of an increase in normalized gas deliveries. Operating income for North Shore Gas decreased $2.8
million to $22.2 million, for the 12 months ended, primarily due to increased costs associated with the implementation of a new customer information system, higher labor costs, an increase in depreciation expense, and an increase in certain environmental
costs not associated with Manufactured Gas Sites. These impacts were partially offset by the effect of increased normalized gas deliveries in the current period.

The Company's objectives for this segment center on continuous improvement, technological advancements and customer service. Initiatives for fiscal 2000 include the enhancement of the Company's C-first customer information system which was
implemented in February, 2000, the near completion of the SureReadsm automatic meter reading system, gas supply portfolio optimization through agreements with Enron North America Corp., and continued pursuit of cost reductions and efficiency gains.

Power Generation Segment

The Company is engaged in the development, construction, operation and ownership of gas-fired electric generation facilities for sales to electric utilities and marketers. The Company and Dominion Resources Inc. are equal investors in Elwood
Energy LLC (Elwood), which owns and operates a 600MW simple-cycle peaking facility near Chicago, Illinois.  The 600MW peaking facility represents the first phase of development for potentially the largest merchant facility in Illinois.  Elwood has begun
the second phase of development which involves the installation of an additional 750MW of peaking capacity by Summer 2001.  This expansion will more than double the peaking capacity of the jointly owned plant to 1,350MW.  Elwood is also evaluating the
option to develop the third phase of the expansion involving the installation of up to 2,500MW of combined cycle generating capacity by 2003.  In 1999, Elwood received the necessary permits for the 2,500MW combined cycle expansion.  If fully developed,
Elwood will own a total of 3,850MW of generating capacity at the facility.  Separately, the Company and Enron have announced a commitment to jointly develop a portfolio of at least 800MW of natural gas-fired power generation in the Chicago area.

Operating income and equity investment income amounted to $1.3 million, $5.2 million and $13.6 million, for the three-, nine- and 12-month periods, mostly as a result of the Company's investment in the Elwood power facility that came on line in
July 1999. Equity Investment Income from Elwood was partially offset by development expenses related to the pursuit of new power projects.

The Company's objective is to own and operate more than 1,000MW of peaking capacity.  It is pursuing regional opportunities in and near the City of Chicago as well as considering the expansion of the Elwood facility, which has received regulatory
approvals for a total of 3,100MW of generating capacity. The Company expects equity investment income for fiscal 2000 to increase substantially from 1999 due to the full year impact of the initial phase of Elwood development. Annual revenues from the
contracts for the entire plant capacity are recognized based on utilization of the plant.

Midstream Services Segment

The Company performs wholesale activities that provide value to gas distribution utilities, marketers and pipelines. The Company's objective is to become the primary player in the Midwest market center. The Company operates a natural gas hub, owns
and operates a natural gas liquids (NGL) peaking facility and is active in other asset-based wholesale activities. The Company and Enron North America Corp. are equal partners in Midwest Energy Hub, LLC, which will expand the Peoples Gas hub by offering
additional hub services and peaking services, developing new products and pursuing strategic asset acquisitions. The Company is an equal partner with The Coastal Corporation in Whitecap Energy System, which is developing a pipeline to deliver natural gas
to new and existing power plants in Indiana, Illinois and Wisconsin. Whitecap will also service growth markets in existing gas utility systems.

The Company reflected a loss of $1.1 million for the current quarter as compared to operating income of $524,000 in the previous period due mainly to increased operating expenses related to business development. Also contributing were lower
margins from wholesale marketing activities, partially offset by higher revenues from hub services.

Operating income for the nine- and 12-month periods decreased $1.0 million to $7.0 million, and $2.0 million to $8.0 million due primarily to operating expenses related to business development and lower margins from wholesale marketing activities.
These effects were partially offset by higher revenues from hub services.

Retail Energy Services Segment

The Company markets gas and electricity and provides other services to retail customers. Commercial and industrial customers have been eligible to choose their gas supplier for many years, but the phased in eligibility for electric customers only
began in October 1999.

For the three, nine and 12 months ended, operating results for this segment reflects losses of $902,000, $2.5 million and $4.2 million, respectively. All periods reflected growing gross margins from electricity sales which commenced last October
and improved operating margins from the Peoples Home Services unit of Peoples Gas. Fiscal year to date and 12 months ended results also include nonrecurring revenue adjustments.

The Company's objective is to capture a major share of the regional market for energy sales. It will develop proprietary products as it participates in the Illinois electric and gas unbundling process and will continue to build the necessary
infrastructure as it grows through direct marketing efforts and customer contract acquisitions.

Oil and Gas Production Segment

The Company is active in the development and production of oil and gas reserves in selected basins in the United States. The Company targets on-shore prospects with proved producing oil and gas reserves and the potential for enhancement through
drilling programs. Certain producing properties owned by the Company qualify for Section 29 income tax credits.

For the three, nine and 12 months ended, operating income and equity investment income for the Company increased $2.2 million to $3.4 million, $4.9 million to $6.1 million, and $5.8 million to $7.1 million, respectively. The increases were due
primarily to production revenues from working interest acquisitions and drilling programs. Net income was positively impacted by tax credits associated with certain producing properties.

The Company's objective is to become a top-fifty owner of U.S. gas reserves with holdings of between 350 to 400 billion cubic feet. Toward this goal the Company owned 91.5 Bcfe in proved reserves at 12/31/99. Existing oil and gas properties will
be developed through drilling and production enhancements. The Company will continue to hedge production in order to mitigate price risk and will pursue reserve acquisitions that are consistent with its basin strategy. The Company intends to continue
development of the expertise to operate its properties.

Other Segment

The Company is involved in other activities such as district heating and cooling and the development of fueling stations for natural gas vehicles. These and other activities do not fall under the above segments. The variations for the three
reportable periods are primarily attributable to fluctuating costs associated with business development activities.

Corporate and Adjustments

This category encompasses corporate activities that support the six segments, as well as consolidating adjustments. The variations for the three reportable periods include costs associated with the corporate branding campaign.

Other Income and Deductions

Other income and deductions for the Company decreased $2.8 million to $1.9 million, $15.6 million to $3.5 million, and $15.4 million to $5.5 million, respectively, for the three, nine and 12 months ended. The decrease for the quarter was due
mainly to interest on a state income tax refund in the prior period. The decreases for the fiscal year and 12 months ended were due mainly to the elimination of the decommissioning reserve associated with the 1995 retirement of Peoples Gas' synthetic
natural gas plant as well as prior period interest on a state income tax refund.

Other income and deductions for Peoples Gas for the three months ended decreased $2.0 million to $1.2 million, primarily as a result of last year's receipt of interest income in connection with a state income tax refund and a decrease in the
allowance for other funds used during construction.

Other income and deductions for Peoples Gas for the nine and 12 months ended decreased $14.7 million to $2.4 million and $14.1 million to $4.2 million. The decreases were due primarily to the prior year's elimination of the decommissioning reserve
associated with the 1995 retirement of the Company's synthetic natural gas plant and the interest income received last year in connection with a state income tax refund.

Other income and deductions for North Shore Gas decreased $184,000, $364,000 and $387,000 for the three, nine and 12 months ended, primarily due to the interest income received last year in connection with a state income tax refund. Also affecting
the nine- and 12-month periods was the interest income on bond proceeds held by the trustee.

Interest Expense

For the three-, nine- and 12-month periods, interest expense for the Company increased $3.1 million to $13.2 million, $7.9 million to $38.3 million, and $9.0 million to $48.7 million, respectively, due primarily to an increase in interest on
short-term debt. Partially offsetting this effect were decreases in interest on long-term debt due to refinancing and interest on budget accounts. Also contributing to the increase in the nine- and 12-month periods was an increase in carrying charges on
an environmental insurance recovery.

Interest expense for Peoples Gas for the nine and 12 months ended increased $801,000 to $25.6 million and $527,000 to $33.4 million, respectively. These increases were due mainly to an increase in short-term debt outstanding and an increase in
short-term interest rates. Partially offsetting these impacts was a decrease in interest on long-term debt due to a refinancing, and to lower interest expense on budget plan balances.

Interest expense for North Shore Gas for the nine- and 12-month periods decreased $155,000 to $3.9 million and $113,000 to $5.1 million, respectively, due primarily to a decrease in interest expense on long-term debt and a reduction in interest
expense on budget plan balances. Partially offsetting these effects was an increase in carrying charges on the environmental insurance recoveries.

Income Taxes

For the three and 12 months ended, income taxes for the Company increased $3.4 million to $3.6 million and $3.2 million to $51.0 million due mainly to higher pre-tax income. For the nine-month period, income taxes decreased $1.6 million to $55.1
million due mainly to lower pre-tax income. Also contributing to these effects were tax credits associated with an oil and gas production reserve acquisition in December 1999 and a state tax refund received in June, 1999.

For the three and 12 months ended, income taxes for Peoples Gas increased $4.9 million to $5.9 million and $3.7 million to $44.7 million, respectively. The increases were due primarily to higher pre-tax income in the current periods and to the
state income tax refund reflected in the prior year. For the nine-month period income taxes increased by $556,000 to $49.4 million, primarily as a result of the state tax refund reflected in last year's results.

Income taxes for North Shore Gas decreased $108,000 to $401,000, $736,000 to $7.5 million, and $1.0 million to $6.7 million, respectively, for the three-, nine- and 12-month periods. The decreases were primarily due to lower pre-tax income,
partially offset by a state tax refund reflected in last year's results.

Fiscal 2000 Outlook

The Company expects earnings per share for fiscal 2000 to fall between $2.65 and $2.75. The financial target for the gas distribution segment is to achieve a 13-percent return on common equity. Gas distribution Earnings Before Interest and Taxes
(EBIT) is estimated to range between $175 million and $180 million, including the negative impacts of 14-percent warmer than normal weather ($19 million) and the positive impact of net periodic benefit costs ($21 million) and settlement accounting ($17
million). The financial target for the diversified business segments is to achieve a return of between 12 and 16-percent of total earnings, based on an estimated EBIT range of between $25 and $35 million.

Other Matters

Accounting Standards. In June 1998, as amended on May 19, 1999 by SFAS No. 137 and further amended in June 2000 by SFAS No. 138, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." See Note 2E of the Notes to Consolidated Financial Statements.

In October 1999, the Company adopted the SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." See Note 2E of the Notes to Consolidated Financial Statements.

March 2000, the Financial Accounting Standards Board issued FIN No. 44 - "Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB Opinion No. 25)".  See Note 2E of the Notes to Consolidated Financial Statements.



OPERATING STATISTICS

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

|                                    |  |  |  | Three Months Ended |  | Nine Months Ended |  | 12 Months Ended
|----------------------------------- |  |  |  | ------------------ |  | ----------------- |  | ---------------
|                                    |  |  |  | June 30,           |  | June 30,          |  | June 30,       
|                                    |  |  |  | 2000               |  | 1999              |  | 2000           
|Operating Revenues (Thousands):     |  |  |  |                    |  |                   |  |                
|Gas Distribution Sales              |  |  |  |                    |  |                   |  |                
|Residential                         |  |  |  |                    |  |                   |  |                
|Heating                             |  |  |  | $ 138,901          |  | $ 112,419         |  | $  691,798     
|Non-heating                         |  |  |  | 10,717             |  | 9,946             |  | 36,939         
|Commercial                          |  |  |  | 21,599             |  | 16,404            |  | 105,750        
|Industrial                          |  |  |  | 2,291              |  | 3,269             |  | 19,107         
|                                    |  |  |  | 173,508            |  | 142,038           |  | 853,594        
|                                    |  |  |  |                    |  |                   |  |                
|Gas Distribution Transportation     |  |  |  |                    |  |                   |  |                
|Residential                         |  |  |  | 6,311              |  | 7,303             |  | 29,086         
|Commercial                          |  |  |  | 8,400              |  | 9,182             |  | 38,044         
|Industrial                          |  |  |  | 5,283              |  | 5,623             |  | 20,306         
|Contract Pooling                    |  |  |  | 1,614              |  | 1,011             |  | 6,189          
|                                    |  |  |  |                    |  |                   |  |                
|                                    |  |  |  | 21,608             |  | 23,119            |  | 93,625         
|                                    |  |  |  |                    |  |                   |  |                
|Other Gas Distribution Revenues     |  |  |  | 2,747              |  | 2,998             |  | 8,248          
|                                    |  |  |  |                    |  |                   |  |                
|Diversified Segment Revenues        |  |  |  | 63,385             |  | 50,779            |  | 242,928        
|                                    |  |  |  |                    |  |                   |  |                
|                                    |  |  |  |                    |  |                   |  |                
|Total Operating Revenues            |  |  |  | 261,248            |  | 218,934           |  | 1,198,395      
|Less - Cost of Energy Sold          |  |  |  | 127,766            |  | 98,716            |  | 634,139        
|                                    |  |  |  |                    |  |                   |  |                
|Gross Margin                        |  |  |  | $ 133,482          |  | $ 120,218         |  | $  564,256     
|                                    |  |  |  |                    |  |                   |  |                
|Gas Distribution Deliveries (MDth): |  |  |  |                    |  |                   |  |                
|Gas Sales                           |  |  |  |                    |  |                   |  |                
|Residential                         |  |  |  |                    |  |                   |  |                
|Heating                             |  |  |  | 17,480             |  | 16,018            |  | 106,252        
|Non-heating                         |  |  |  | 660                |  | 678               |  | 2,863          
|Commercial                          |  |  |  | 3,032              |  | 2,818             |  | 17,332         
|Industrial                          |  |  |  | 272                |  | 713               |  | 3,529          
|                                    |  |  |  | 21,444             |  | 20,227            |  | 129,976        
|                                    |  |  |  |                    |  |                   |  |                
|Transportation (a)                  |  |  |  |                    |  |                   |  |                
|Residential                         |  |  |  | 3,916              |  | 4,199             |  | 21,249         
|Commercial                          |  |  |  | 7,563              |  | 6,969             |  | 35,660         
|Industrial                          |  |  |  | 7,678              |  | 8,402             |  | 28,560         
|                                    |  |  |  | 19,157             |  | 19,570            |  | 85,469         
|                                    |  |  |  |                    |  |                   |  |                
|                                    |  |  |  |                    |  |                   |  |                
|Total Gas Distribution Deliveries   |  |  |  | 40,601             |  | 39,797            |  | 215,445        
|                                    |  |  |  |                    |  |                   |  |                



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

|                                |  |  |  | Three Months Ended |  | Nine Months Ended |  | 12 Months Ended
|------------------------------- |  |  |  | ------------------ |  | ----------------- |  | ---------------
|                                |  |  |  | June 30,           |  | June 30,          |  | June 30,       
|                                |  |  |  | 2000               |  | 1999              |  | 2000           
|Operating Revenues (Thousands): |  |  |  |                    |  |                   |  |                
|Gas Sales                       |  |  |  |                    |  |                   |  |                
|Residential                     |  |  |  |                    |  |                   |  |                
|Heating                         |  |  |  | $ 117,751          |  | $  95,940         |  | $ 586,177      
|Non-heating                     |  |  |  | 10,441             |  | 9,727             |  | 36,015         
|Commercial                      |  |  |  | 18,276             |  | 14,160            |  | 89,083         
|Industrial                      |  |  |  | 1,648              |  | 2,800             |  | 15,480         
|                                |  |  |  | 148,116            |  | 122,627           |  | 726,755        
|                                |  |  |  |                    |  |                   |  |                
|Transportation                  |  |  |  |                    |  |                   |  |                
|Residential                     |  |  |  | 6,049              |  | 7,020             |  | 27,998         
|Commercial                      |  |  |  | 7,278              |  | 8,102             |  | 33,429         
|Industrial                      |  |  |  | 4,556              |  | 4,892             |  | 17,653         
|Contract Pooling                |  |  |  | 1,427              |  | 902               |  | 5,589          
|                                |  |  |  |                    |  |                   |  |                
|                                |  |  |  | 19,310             |  | 20,916            |  | 84,669         
|                                |  |  |  |                    |  |                   |  |                
|Diversified Segments            |  |  |  | 951                |  | 668               |  | 6,458          
|                                |  |  |  |                    |  |                   |  |                
|Other                           |  |  |  | 3,637              |  | 3,235             |  | 10,043         
|                                |  |  |  |                    |  |                   |  |                
|Total Operating Revenues        |  |  |  | 172,014            |  | 147,446           |  | 827,925        
|Less - Gas Costs                |  |  |  | 66,669             |  | 44,167            |  | 373,141        
|                                |  |  |  |                    |  |                   |  |                
|Gross Margin                    |  |  |  | $ 105,345          |  | $ 103,279         |  | $ 454,784      
|                                |  |  |  |                    |  |                   |  |                
|Deliveries (MDth):              |  |  |  |                    |  |                   |  |                
|Gas Sales                       |  |  |  |                    |  |                   |  |                
|Residential                     |  |  |  |                    |  |                   |  |                
|Heating                         |  |  |  | 14,526             |  | 13,283            |  | 88,792         
|Non-heating                     |  |  |  | 630                |  | 653               |  | 2,751          
|Commercial                      |  |  |  | 2,531              |  | 2,415             |  | 14,383         
|Industrial                      |  |  |  | 158                |  | 612               |  | 2,821          
|                                |  |  |  | 17,845             |  | 16,963            |  | 108,747        
|                                |  |  |  |                    |  |                   |  |                
|Transportation                  |  |  |  |                    |  |                   |  |                
|Residential                     |  |  |  | 3,784              |  | 4,070             |  | 20,595         
|Commercial                      |  |  |  | 6,433              |  | 5,991             |  | 30,823         
|Industrial                      |  |  |  | 6,462              |  | 7,141             |  | 24,184         
|                                |  |  |  | 16,679             |  | 17,202            |  | 75,602         
|                                |  |  |  |                    |  |                   |  |                
|                                |  |  |  |                    |  |                   |  |                
|Total Deliveries                |  |  |  | 34,524             |  | 34,165            |  | 184,349        
|                                |  |  |  |                    |  |                   |  |                



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

|                                |  |  |  | Three Months Ended |  | Nine Months Ended |  | 12 Months Ended
|------------------------------- |  |  |  | ------------------ |  | ----------------- |  | ---------------
|                                |  |  |  | June 30,           |  | June 30,          |  | June 30,       
|                                |  |  |  | 2000               |  | 1999              |  | 2000           
|Operating Revenues (Thousands): |  |  |  |                    |  |                   |  |                
|Gas Sales                       |  |  |  |                    |  |                   |  |                
|Residential                     |  |  |  |                    |  |                   |  |                
|Heating                         |  |  |  | $  21,150          |  | $  16,480         |  | $ 105,621      
|Non-heating                     |  |  |  | 276                |  | 219               |  | 924            
|Commercial                      |  |  |  | 3,323              |  | 2,244             |  | 16,667         
|Industrial                      |  |  |  | 643                |  | 469               |  | 3,627          
|                                |  |  |  | 25,392             |  | 19,412            |  | 126,839        
|                                |  |  |  |                    |  |                   |  |                
|Transportation                  |  |  |  |                    |  |                   |  |                
|Residential                     |  |  |  | 263                |  | 283               |  | 1,088          
|Commercial                      |  |  |  | 1,122              |  | 1,080             |  | 4,615          
|Industrial                      |  |  |  | 727                |  | 731               |  | 2,653          
|Contract Pooling                |  |  |  | 187                |  | 109               |  | 600            
|                                |  |  |  |                    |  |                   |  |                
|                                |  |  |  | 2,299              |  | 2,203             |  | 8,956          
|                                |  |  |  |                    |  |                   |  |                
|Other                           |  |  |  | 272                |  | 232               |  | 653            
|                                |  |  |  |                    |  |                   |  |                
|Total Operating Revenues        |  |  |  | 27,963             |  | 21,847            |  | 136,448        
|Less - Gas Costs                |  |  |  | 13,623             |  | 8,157             |  | 74,315         
|                                |  |  |  |                    |  |                   |  |                
|Gross Margin                    |  |  |  | $  14,340          |  | $  13,690         |  | $  62,133      
|                                |  |  |  |                    |  |                   |  |                
|Deliveries (MDth):              |  |  |  |                    |  |                   |  |                
|Gas Sales                       |  |  |  |                    |  |                   |  |                
|Residential                     |  |  |  |                    |  |                   |  |                
|Heating                         |  |  |  | 2,954              |  | 2,735             |  | 17,460         
|Non-heating                     |  |  |  | 30                 |  | 25                |  | 112            
|Commercial                      |  |  |  | 501                |  | 403               |  | 2,949          
|Industrial                      |  |  |  | 114                |  | 101               |  | 708            
|                                |  |  |  | 3,599              |  | 3,264             |  | 21,229         
|                                |  |  |  |                    |  |                   |  |                
|Transportation                  |  |  |  |                    |  |                   |  |                
|Residential                     |  |  |  | 132                |  | 129               |  | 654            
|Commercial                      |  |  |  | 1,129              |  | 978               |  | 4,836          
|Industrial                      |  |  |  | 1,217              |  | 1,261             |  | 4,377          
|                                |  |  |  | 2,478              |  | 2,368             |  | 9,867          
|                                |  |  |  |                    |  |                   |  |                
|                                |  |  |  |                    |  |                   |  |                
|Total Deliveries                |  |  |  | 6,077              |  | 5,632             |  | 31,096         
|                                |  |  |  |                    |  |                   |  |                



LIQUIDITY AND CAPITAL RESOURCES

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

On March 1, 2000, the City of Chicago issued $175 million aggregate principal amount of Adjustable Rate Gas Supply Refunding Revenue Bonds - Series 2000A, Series 2000B, Series 2000C and Series 2000D - which were collateralized by equal amounts of
Peoples Gas' Adjustable Rate 30 Year First and Refunding Mortgage Bonds - Series GG, Series HH, Series II and Series JJ, respectively. The proceeds were deposited with a trustee and used to redeem $175 million aggregate principal amount of previously
issued gas supply revenue bonds. (See Note 5A of the Notes to Consolidated Financial Statements.)

Bonds Redeemed. On October 1, 1998, Peoples Gas redeemed, from general corporate funds, $10.4 million aggregate principal amount of the City of Joliet 1984 Series C Bonds, which were secured by Peoples Gas' Adjustable-Rate First and Refunding
Mortgage Bonds, Series W. On January 19, 1999, North Shore Gas redeemed, from a portion of the proceeds deposited with the trustee, $24,905,000 aggregate principal amount of the Illinois Development Finance Authority Gas Supply Revenue Bonds, Series 1992,
which were secured by North Shore Gas' First Mortgage Bonds, Series K. On April 3, 2000, Peoples Gas redeemed $100 million aggregate principal amount of the City of Chicago 1985 Series B Bonds and City of Chicago 1985 Series C Bonds, which were secured by
Peoples Gas' First and Refunding Mortgage Bonds, Series Y and Series Z, respectively. On May 1, 2000, Peoples Gas redeemed $75 million aggregate principal amount of the City of Chicago 1990 Series A Bonds, which had been secured by Peoples Gas' First and
Refunding Mortgage Bonds, Series BB. A premium of $3.5 million was paid by the Company for current year redemptions. (See Note 5C of the Notes to Consolidated Financial Statements.)

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

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

In 1994, North Shore Gas received a demand from a responsible party under CERCLA for reimbursement, indemnification and contribution for response costs incurred at a former mineral processing site in Denver, Colorado. North Shore Gas filed a
declaratory judgment action in the District Court for the Northern District of Illinois asking the court to declare that North Shore Gas is not liable for response costs relating to the site. The defendant filed a counterclaim for costs incurred by the
defendant with respect to the site. In 1997, the District Court granted North Shore Gas' motion for summary judgment, declaring that North Shore Gas is not liable for any response costs in connection with the Denver site. On August 5, 1998, the U.S. Court
of Appeals, Seventh Circuit, reversed the District Court's decision and remanded the case for determination of what liability, if any, the former entity has and therefore North Shore Gas has for activities at the site. (See Note 4B of the Notes to
Consolidated Financial Statements.)

Credit Lines. The Company has lines of credit totaling $250.0 million. Peoples Gas and North Shore Gas have lines of credit totaling $119.0 million of which North Shore Gas may borrow up to $30.0 million.

Interest Coverage.The fixed charges coverage ratios for Peoples Gas for the 12 months ended June 30, 2000, and for fiscal 1999 and 1998 were 4.49, 4.59 and 4.15, respectively. The corresponding coverage ratios for North Shore Gas for the same
periods were 4.41, 4.77, and 5.07, respectively.

Dividends. On February 2, 2000, the Directors of the Company voted to increase the regular quarterly dividend on the Company's common stock to 50 cents per share from the 49 cents per share previously in effect. The annualized dividend rate now
amounts to $2.00 per share.

Guaranty Agreements. On December 31, 1999, Manhattan Power, LLC, a subsidiary of the Company, entered into an Acquisition Agreement with Westdeutsche Landesbank Girozentrale (WestLB), which provides the company an option to purchase a
gas-powered electric generating turbine. In conjunction with this agreement, the Company entered into a Guaranty Agreement with WestLB, whereby the Company guarantees all obligations resulting from the Acquisition Agreement. The maximum dollar amount of
this guarantee is $45.5 million.

On February 24, 2000, Calumet Power, LLC, a subsidiary of the Company, entered into an Acquisition Agreement with WestLB, which provides the Company an option to purchase gas-powered electric generating turbines. In conjunction with this
agreement, the Company entered into a Guaranty Agreement with WestLB, whereby the Company guarantees all obligations resulting from the Acquisition Agreement. The maximum dollar amount of this guarantee is $49.3 million.

Market Risk Management

Commodity Price Risk. The Company uses market risk sensitive financial instruments, including futures, forward contracts, and derivatives such as swaps and options, to manage its exposure to certain commodity price risks in its subsidiaries'
operations. These risks occur because of the changing prices of natural gas, power, crude oil, ethane, and propane. The Company's policy for risk management activities stipulates that such financial instruments are only to be used for hedging purposes.
(See Note 2F of the Notes to Consolidated Financial Statements.) The Company monitors and controls derivative and related physical positions using a mark-to-market analysis. This analysis provides information on credit exposure as well as the current
value of the portfolio.

Peoples Gas and North Shore Gas are not currently exposed to market risk caused by changes in commodity prices. This is due to current Illinois rate regulation, which allows for all reasonably incurred costs of natural gas to be recovered from the
utilities' customers through the operation of the utilities' Gas Charges.

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

The Company has working interests in natural gas and crude oil producing properties. Using swaps and options, approximately 83-percent of the production for the next twelve months is hedged, thereby removing market risk on that portion of the
output. Price movements in natural gas and crude oil swaps and futures are highly correlated to any price changes in the underlying physical commodities. Therefore, a loss in the market value of the hedged commodity would be substantially offset by an
equal gain in value resulting from the financial transaction. As of June 30, 2000 and 1999, the exposure from non-hedged production was immaterial to the consolidated financial statements. A sensitivity analysis has been prepared to estimate the Company's
price exposure to the market risk of its physical natural gas and oil reserves and related financial instruments used to mitigate the price exposure. As of June 30, 2000, an instantaneous 10-percent adverse movement in the Nymex forward curve for natural
gas and oil would have reduced future earnings before income taxes by approximately $2.5 million.

The Company sells fixed price and variable priced products as part of its retail energy services. These contracts call for physical delivery and can not be settled financially. Risk is reduced through the use of fixed price supplier contracts and
storage assets. As of June 30, 2000 and 1999, exposure from these activities was not material.

The Elwood facility is a gas-fired electric generating peaking facility. Elwood has agreed to sell all of the facility's generation capacity and energy produced at fixed demand and commodity charges under multi-year contracts. Therefore, Elwood
has no price risk on its power sales during the term of these contracts. However, it does bear fuel price risk when natural gas prices exceed its targeted weighted average cost of gas (WACOG). The partnership has implemented a comprehensive risk
management program that is intended to reduce price risk, stabilize cash flow and extract maximum value from its investment. The program includes the purchase of gas supply at or near targeted WACOG prices, limits to minimize the threat of loss through
market movements, daily review of price exposure and frequent senior management review. As of June 30, 2000, approximately 98-percent of Elwood's expected fuel needs for the 2000 summer season were hedged through the use of financial hedges.

The Company is also exposed to credit risk when a hedging transaction counterparty or supplier defaults on a contract to pay for or deliver product at agreed-upon terms and conditions. To mitigate this risk, the Company has established procedures
to determine and monitor the creditworthiness of counterparties. Transactions are executed only with counterparties having strong credit ratings. Controls are also in place to limit dollar exposure and transaction term based upon creditworthiness. The
Company does not expect any of the counterparties to fail to meet their contractual obligations with these controls in place.

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

The Company and Peoples Gas manage their interest rate risk exposure by maintaining a mix of fixed and variable rate debt. Based on the Company's current mix of $202.0 million in variable rate bonds and $352.0 million in other short-term
borrowings, assuming interest rates are 10-percent higher than the rates reported at the end of June 30, 2000, the Company's annualized interest expense would increase by approximately $3.3 million before considering the effect of income taxes.

Peoples Gas manages its interest rate risk exposure by maintaining a mix of fixed and variable rate debt. Based on the current mix of $202.0 million in variable rate bonds and $68.0 million in other short-term borrowings, assuming interest rates
are 10-percent higher than the rates reported at the end of June 30, 2000, Peoples Gas' annualized interest expense would increase by approximately $1.4 million before considering the effect of income taxes.

FORWARD LOOKING INFORMATION

The MD&A contains statements that may be considered forward-looking, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as business plans, expectations for future
development and earnings growth, and other information not of a strictly historical nature. Actual results could differ materially from such expectations, because of many uncertainties, including, but not limited to:

- General U.S. and Illinois economic conditions;
- Business and competitive conditions resulting from deregulation and consolidation of the energy industry;
- The timing and extent of changes in energy commodity prices and interest rates;
- Adverse results in material environmental litigation;
- Regulatory developments in Illinois and other states where the Company does business;
- Weather-related energy demand;
- The uncertainty of oil and gas reserve estimates; and
- The Company's success in identifying diversified energy projects on financially acceptable terms and successfully developing and operating such projects.

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



ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures About Market risk are reported under "Management's Discussion and Analysis of Results of Operations and Financial Condition - Market Risk Management," and Note 2F of the Notes to Consolidated Financial
Statements.



PART II. OTHER INFORMATION

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

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

|Item 6. Exhibits and Reports on Form 8-K
|----------------------------------------
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        
|                                        



| | The Peoples Gas Light and Coke Company:
| | ---------------------------------------
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        
| |                                        



| | North Shore Gas Company:
| | ------------------------
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         
| |                         







|SIGNATURE                                                                                                                                                                                           
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|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.
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|August 10, 2000                                                                                                                                                                                     
|(Date)                                                                                                                                                                                              
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|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.
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|August 10, 2000                                                                                                                                                                                     
|(Date)                                                                                                                                                                                              
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|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.
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|August 10, 2000                                                                                                                                                                                     
|(Date)                                                                                                                                                                                              
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|