| **UNITED                STATES**                                                                                |
|-----------------------------------------------------------------------------------------------------------------|
| **SECURITIES                AND EXCHANGE COMMISSION**                                                           |
| **Washington,                D.C. 20549**                                                                       |
|                                                                                                            |
| **FORM                10-Q**                                                                                    |
| (Mark                One)                                                                                       |   |
|                                                                                                            |   |   |
| [                  ]                                                                                  | QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) |
| OF                THE SECURITIES EXCHANGE ACT OF 1934                                                           |
| For                the Quarterly Period Ended __________________                                                |
| OR                                                                                                              |
| [X]                                                                                                             | TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) |
| OF                THE SECURITIES EXCHANGE ACT OF 1934                                                           |
| **For                the Transition Period From OCTOBER 1, 2006 to DECEMBER 31,                2006** |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Exact                Name of Registrant as                                                                                 |                                 |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|--------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Specified                in Charter, State of                                                                              |                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Incorporation,                Address of                                                                                   |                                 |
| Commission                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Principal                Executive                                                                                         | IRS                Employer          |
| File                Number                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Office                and Telephone Number                                                                                 | Identification                Number |
| 1-5540                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | **PEOPLES                ENERGY CORPORATION**                                                                              | 36-2642766                           |
| 2-26983                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **THE                PEOPLES GAS LIGHT AND COKE COMPANY**                                                                  | 36-1613900                           |
| 2-35965                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | **NORTH                SHORE GAS COMPANY**                                                                                 | 36-1558720                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                       |                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (Illinois                Corporations)                                                                                     |                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 130                East Randolph Drive, 24th                Floor                                                          |                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Chicago,                Illinois 60601-6207                                                                                |                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Telephone                (312) 240-4000                                                                                    |                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                                                                                                       |                                 |
| Indicate                by check mark whether the registrants (1) have filed all reports                required                to be filed by Section 13 or 15(d) of the Securities Exchange Act                of 1934                during the preceding 12 months (or for such shorter period that the                registrants were required to file such reports), and (2) have been                subject                to such filing requirements for the past 90 days. Yes [x] No [ ] |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Indicate                by a check mark whether the registrant is a large accelerated filer,                an                accelerated filer or a non-accelerated filer. See definition of                “accelerated filer and large accelerated filer” in Rule 12b-2 of the                Exchange Act. (Check One):                                                                                                                                                              |
| Peoples                Energy Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Large                accelerated filer [ X ] Accelerated filer [ ] Non-accelerated filer                [                ] |
| The                Peoples Gas Light and Coke Company                                                                                                                                                                                                                                                                                                                                                                                                                                                | Large                accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer                [ X                ] |
| North                Shore Gas Company                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Large                accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer                [ X                ] |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Indicate                by check mark whether the registrant is a shell company (as defined                in                Rule 12b-2 of the Exchange Act).                                                                                                                                                                                                                                                                                                                                        |
| Peoples                Energy Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Yes                [ ] No [ X ]                                                                                            |
| The                Peoples Gas Light and Coke Company                                                                                                                                                                                                                                                                                                                                                                                                                                                | Yes                [ ] No [ X ]                                                                                            |
| North                Shore Gas Company                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Yes                [ ] No [ X ]                                                                                            |

| Indicate                the number of shares outstanding of each of the issuer's classes                of common                stock as of the latest practicable date (January 31,                2007):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| Peoples                Energy Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Common                Stock, no par value, 38,669,460 shares outstanding |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| The                Peoples Gas Light and Coke Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Common                Stock, no par value, 25,357,566 shares outstanding (all of which                are owned                beneficially and of record by Peoples Energy                Corporation) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| North                Shore Gas Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Common                Stock, no par value, 3,625,887 shares outstanding (all of which are                owned                beneficially and of record by Peoples Energy                Corporation) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| This                combined Form 10-Q is separately filed by Peoples Energy Corporation,                The                Peoples Gas Light and Coke Company, and North Shore Gas Company.                Information contained herein relating to any individual company is                filed                by such company on its own behalf. Each company makes no representation                as                to information relating to the other companies. **The                Peoples Gas Light and Coke Company and North Shore Gas Company meet                the                conditions set forth in General Instruction H(1)(a) and (b) of Form                10-Q                and are therefore filing this Form 10-Q with the reduced disclosure                format                permitted by General Instruction H(2) of Form                10-Q.** |

----

**Part      I - Financial Information**

**Item      1. Financial Statements**

| **Peoples                Energy Corporation**                                                                                           |
|-----------------------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                STATEMENTS OF OPERATIONS**                                                                                |
| (Unaudited)                                                                                                                             |
|                                                                                                                                    |   |   |   |   |   |   |   |
|                                                                                                                                    |   |   | Transition |   |   | Three                Months |   |
|                                                                                                                                         |   |   | Period                Ended |   |   | Ended |   |
|                                                                                                                                         |   |   | December                31, |   |   | December                31, |   |
|                                                                                                                                    |   |   | 2006 |   |   | 2005 |   |
| *(In                Thousands, Except Per-Share Amounts)*                                                                               |   |   |   |   |   |   |   |
| **Revenues**                                                                                                                            |   | $ | 746,899 |   | $ | 1,052,386 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Operating                Expenses:**                                                                                                  |   |   |   |   |   |   |   |
| Cost                of energy sold                                                                                                      |   |   | 500,264 |   |   | 796,427 |   |
| Gas                charge settlement                                                                                                    |   |   | - |   |   | 91,668 |   |
| Operation                and maintenance, excluding merger                                                                              |   |   |   |   |   |   |   |
| and                environmental costs                                                                                                  |   |   | 83,925 |   |   | 87,363 |   |
| Merger                costs                                                                                                             |   |   | 9,321 |   |   | - |   |
| Environmental                costs                                                                                                      |   |   | 12,994 |   |   | 11,296 |   |
| Depreciation,                depletion and amortization                                                                                 |   |   | 30,400 |   |   | 28,985 |   |
| Taxes,                other than income taxes                                                                                           |   |   | 52,061 |   |   | 68,718 |   |
| Impairments                and losses on property sales                                                                                 |   |   | - |   |   | 93 |   |
| **Total                Operating Expenses**                                                                                             |   |   | 688,965 |   |   | 1,084,550 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |
| Equity                investment income                                                                                                 |   |   | - |   |   | 9,652 |   |
| **Operating                Income (Loss)**                                                                                              |   |   | 57,934 |   |   | (22,512 | ) |
|                                                                                                                                    |   |   |   |   |   |   |   |
| Other                income                                                                                                             |   |   | 1,946 |   |   | 1,351 |   |
| Other                expense                                                                                                            |   |   | 33 |   |   | 38 |   |
| Interest                expense                                                                                                         |   |   | 18,123 |   |   | 13,223 |   |
| **Income                (Loss) from Continuing Operations Before Income                Taxes**                                          |   |   | 41,724 |   |   | (34,422 | ) |
|                                                                                                                                    |   |   |   |   |   |   |   |
| Income                tax expense (benefit)                                                                                             |   |   | 17,852 |   |   | (16,097 | ) |
| **Income                (Loss) from Continuing Operations**                                                                             |   |   | 23,872 |   |   | (18,325 | ) |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Loss                from Discontinued Operations, net of income tax                benefit**                                          |   |   |   |   |   |   |   |
| **of                $(109) and $(763), respectively**                                                                                   |   |   | (165 | ) |   | (1,156 | ) |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Net                Income (Loss)**                                                                                                    |   | $ | 23,707 |   | $ | (19,481 | ) |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Average                Shares of Common Stock Outstanding**                                                                           |   |   |   |   |   |   |   |
| Basic                                                                                                                                   |   |   | 38,548 |   |   | 38,245 |   |
| Diluted                                                                                                                                 |   |   | 38,752 |   |   | 38,378 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Earnings                (Loss) Per Share of Common Stock**                                                                            |   |   |   |   |   |   |   |
| Basic,                continuing operations                                                                                             |   | $ | 0.61 |   | $ | (0.48 | ) |
| Basic,                discontinued operations                                                                                           |   |   | - |   |   | (0.03 | ) |
| Total                - basic earnings per share                                                                                         |   | $ | 0.61 |   | $ | (0.51 | ) |
|                                                                                                                                    |   |   |   |   |   |   |   |
| Diluted,                continuing operations                                                                                           |   | $ | 0.61 |   | $ | (0.48 | ) |
| Diluted,                discontinued operations                                                                                         |   |   | - |   |   | (0.03 | ) |
| Total                - diluted earnings per share                                                                                       |   | $ | 0.61 |   | $ | (0.51 | ) |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Dividends                Declared Per Share**                                                                                         |   | $ | 0.545 |   | $ | 0.545 |   |
|                                                                                                                                    |   |
| *The                Notes to Consolidated Financial Statements are an integral part of                these                statements.* |

----

| **Peoples                  Energy Corporation**                                                                                               |
|-----------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                  BALANCE SHEETS**                                                                                              |
| (Unaudited)                                                                                                                                   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                               |   |   | December                  31, |   |   | September                  30, |   |   | December                  31, |   |
| *(In                  Thousands)*                                                                                                             |   |   | 2006 |   |   | 2006 |   |   | 2005 |   |
| **ASSETS**                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| **CURRENT                  ASSETS:**                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents                                                                                                    |   | $ | 4,342 |   | $ | 42,115 |   | $ | 17,512 |   |
| Deposits                  with broker or trustee                                                                                              |   |   | 43,779 |   |   | 103,584 |   |   | 30,640 |   |
| Receivables                  -                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Customers,                  net of reserve for uncollectible accounts                                                                         |   |   |   |   |   |   |   |   |   |   |
| of                  $35,521, $43,971, and $36,868, respectively                                                                               |   |   | 468,802 |   |   | 220,969 |   |   | 668,331 |   |
| Other                                                                                                                                         |   |   | 3,372 |   |   | 4,812 |   |   | 2,626 |   |
| Derivative                  assets, at fair value - current                                                                                   |   |   | 53,960 |   |   | 49,116 |   |   | 75,975 |   |
| Materials                  and supplies, at average cost                                                                                      |   |   | 9,989 |   |   | 9,670 |   |   | 10,890 |   |
| Gas                  in storage                                                                                                               |   |   | 184,767 |   |   | 238,251 |   |   | 236,052 |   |
| Gas                  costs recoverable through rate adjustments                                                                               |   |   | 996 |   |   | 6,679 |   |   | 7,354 |   |
| Regulatory                  assets of utility subsidiaries                                                                                    |   |   | 176,286 |   |   | 193,989 |   |   | 24,919 |   |
| Other                                                                                                                                         |   |   | 44,796 |   |   | 46,237 |   |   | 53,751 |   |
| Assets                  of discontinued operations                                                                                            |   |   | 84,496 |   |   | 84,471 |   |   | 125,630 |   |
| **Total                  Current Assets**                                                                                                     |   |   | 1,075,585 |   |   | 999,893 |   |   | 1,253,680 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **CAPITAL                  INVESTMENTS:**                                                                                                     |   |   |   |   |   |   |   |   |   |   |
| Property,                  plant and equipment                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Utility                  plant                                                                                                                |   |   | 2,755,176 |   |   | 2,733,008 |   |   | 2,647,600 |   |
| Oil                  and gas                                                                                                                  |   |   | 835,551 |   |   | 792,862 |   |   | 574,744 |   |
| Other                                                                                                                                         |   |   | 24,798 |   |   | 24,522 |   |   | 22,278 |   |
| Total                  property, plant and equipment                                                                                          |   |   | 3,615,525 |   |   | 3,550,392 |   |   | 3,244,622 |   |
| Less                  - Accumulated depreciation, depletion and amortization                                                                  |   |   | 1,394,965 |   |   | 1,367,503 |   |   | 1,290,848 |   |
| Net                  property, plant and equipment                                                                                            |   |   | 2,220,560 |   |   | 2,182,889 |   |   | 1,953,774 |   |
| Investment                  in equity investees                                                                                               |   |   | 250 |   |   | 250 |   |   | - |   |
| Other                  investments                                                                                                            |   |   | 12,248 |   |   | 12,527 |   |   | 13,496 |   |
| **Total                  Capital Investments - Net**                                                                                          |   |   | 2,233,058 |   |   | 2,195,666 |   |   | 1,967,270 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **OTHER                  ASSETS:**                                                                                                            |   |   |   |   |   |   |   |   |   |   |
| Prepaid                  pension costs                                                                                                        |   |   | 68,393 |   |   | 182,319 |   |   | 152,319 |   |
| Noncurrent                  regulatory assets of utility subsidiaries                                                                         |   |   | 567,938 |   |   | 404,713 |   |   | 321,895 |   |
| Derivative                  assets, at fair value - noncurrent                                                                                |   |   | 19,118 |   |   | 17,148 |   |   | 6,496 |   |
| Deferred                  charges and other                                                                                                   |   |   | 22,060 |   |   | 22,675 |   |   | 49,333 |   |
| **Total                  Other Assets**                                                                                                       |   |   | 677,509 |   |   | 626,855 |   |   | 530,043 |   |
|                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |
| **Total                  Assets**                                                                                                             |   | $ | 3,986,152 |   | $ | 3,822,414 |   | $ | 3,750,993 |   |
|                                                                                                                                          |   |
| *The                  Notes to Consolidated Financial Statements are an integral part                  of these                  statements.* |   |

----

| **Peoples                  Energy Corporation**                                                                                               |
|-----------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                  BALANCE SHEETS**                                                                                              |
| (Unaudited)                                                                                                                                   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                               |   |   | December                  31, |   |   | September                  30, |   |   | December                  31, |   |
| *(In                  Thousands, Except Shares)*                                                                                              |   |   | 2006 |   |   | 2006 |   |   | 2005 |   |
| **LIABILITIES                  AND CAPITALIZATION**                                                                                           |   |   |   |   |   |   |   |   |   |   |
| **CURRENT                  LIABILITIES:**                                                                                                     |   |   |   |   |   |   |   |   |   |   |
| Commercial                  paper                                                                                                             |   | $ | 384,112 |   | $ | 309,744 |   | $ | 177,269 |   |
| Accounts                  payable                                                                                                             |   |   | 296,631 |   |   | 211,112 |   |   | 418,029 |   |
| Regulatory                  liabilities of utility subsidiaries                                                                               |   |   | 11,209 |   |   | 11,250 |   |   | 5,165 |   |
| Dividends                  payable                                                                                                            |   |   | 21,025 |   |   | 20,974 |   |   | 20,870 |   |
| Customer                  deposits                                                                                                            |   |   | 36,729 |   |   | 35,168 |   |   | 33,735 |   |
| Customer                  credit balances                                                                                                     |   |   | 83,473 |   |   | 89,676 |   |   | 49,206 |   |
| Accrued                  taxes                                                                                                                |   |   | 49,837 |   |   | 3,963 |   |   | 62,511 |   |
| Gas                  deliverable to customers                                                                                                 |   |   | 68,688 |   |   | 87,141 |   |   | 46,718 |   |
| Derivative                  liabilities, at fair value - current                                                                              |   |   | 174,358 |   |   | 214,518 |   |   | 151,475 |   |
| Other                  accrued liabilities                                                                                                    |   |   | 41,920 |   |   | 43,904 |   |   | 88,049 |   |
| Gas                  costs refundable through rate adjustments                                                                                |   |   | 16,161 |   |   | 62,153 |   |   | 1,219 |   |
| Accrued                  interest                                                                                                             |   |   | 17,598 |   |   | 12,439 |   |   | 15,953 |   |
| Temporary                  LIFO liquidation credit                                                                                            |   |   | - |   |   | - |   |   | 14,282 |   |
| Deferred                  credit related to discontinued operations                                                                           |   |   | - |   |   | - |   |   | 2,201 |   |
| **Total                  Current Liabilities**                                                                                                |   |   | 1,201,741 |   |   | 1,102,042 |   |   | 1,086,682 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **DEFERRED                  CREDITS AND OTHER LIABILITIES:**                                                                                  |   |   |   |   |   |   |   |   |   |   |
| Deferred                  income taxes                                                                                                        |   |   | 454,330 |   |   | 461,046 |   |   | 432,478 |   |
| Investment                  tax credits                                                                                                       |   |   | 26,038 |   |   | 26,148 |   |   | 26,259 |   |
| Derivative                  liabilities, at fair value - noncurrent                                                                           |   |   | 17,659 |   |   | 22,671 |   |   | 55,192 |   |
| Environmental                                                                                                                                 |   |   | 264,000 |   |   | 269,200 |   |   | 281,708 |   |
| Asset                  retirement obligations                                                                                                 |   |   | 114,036 |   |   | 112,331 |   |   | - |   |
| Pension,                  postretirement and other                                                                                            |   |   | 159,889 |   |   | 92,820 |   |   | 171,359 |   |
| **Total                  Deferred Credits and Other Liabilities**                                                                             |   |   | 1,035,952 |   |   | 984,216 |   |   | 966,996 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **CAPITALIZATION:**                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| Long-term                  debt                                                                                                               |   |   | 894,429 |   |   | 894,702 |   |   | 895,210 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| Common                  Stockholders' Equity:                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Common                  stock, no par value -                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Authorized                  60,000,000 shares                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Issued                  38,821,035, 38,731,880 and                                                                                            |   |   |   |   |   |   |   |   |   |   |
| 38,535,868                  shares, respectively                                                                                              |   |   | 427,207 |   |   | 423,085 |   |   | 412,935 |   |
| Treasury                  stock - 243,100 shares                                                                                              |   |   | (6,677 | ) |   | (6,677 | ) |   | (6,677 | ) |
| Retained                  earnings                                                                                                            |   |   | 447,049 |   |   | 444,444 |   |   | 505,821 |   |
| Accumulated                  other comprehensive loss                                                                                         |   |   | (13,549 | ) |   | (19,398 | ) |   | (109,974 | ) |
| **Total                  Common Stockholders' Equity**                                                                                        |   |   | 854,030 |   |   | 841,454 |   |   | 802,105 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Total                  Capitalization**                                                                                                     |   |   | 1,748,459 |   |   | 1,736,156 |   |   | 1,697,315 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Total                  Liabilities and Capitalization**                                                                                     |   | $ | 3,986,152 |   | $ | 3,822,414 |   | $ | 3,750,993 |   |
|                                                                                                                                          |   |
| *The                  Notes to Consolidated Financial Statements are an integral part                  of these                  statements.* |

----

| **Peoples                  Energy Corporation**                                                                                               |
|-----------------------------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                  STATEMENTS OF CASH FLOWS**                                                                                    |
| (Unaudited)                                                                                                                                   |
|                                                                                                                                          |   |   |   |   |   |   |   |
|                                                                                                                                               |   |   | Transition |   |   | Three                  Months |   |
|                                                                                                                                               |   |   | Period                  Ended |   |   | Ended |   |
|                                                                                                                                               |   |   | December                  31, |   |   | December                  31, |   |
| *(In                  Thousands)*                                                                                                             |   |   | 2006 |   |   | 2005 |   |
| **Operating                  Activities:**                                                                                                    |   |   |   |   |   |   |   |
| Net                  income (loss)                                                                                                            |   | $ | 23,707 |   | $ | (19,481 | ) |
| Adjustments                  to reconcile net income to cash provided by operations:                                                          |   |   |   |   |   |   |   |
| Depreciation,                  depletion and amortization                                                                                     |   |   | 31,822 |   |   | 30,437 |   |
| Deferred                  income taxes and investment tax credits—net                                                                   |   |   | (5,293 | ) |   | (20,998 | ) |
| Gas                  charge settlement                                                                                                        |   |   | - |   |   | 91,668 |   |
| Change                  in undistributed earnings from equity investments                                                                     |   |   | 50 |   |   | (1,769 | ) |
| Mark-to-market                  gain or loss included in net income                                                                           |   |   | (14,286 | ) |   | (4,142 | ) |
| Pension                  funding less than expense                                                                                            |   |   | 3,117 |   |   | 5,721 |   |
| Other                  adjustments                                                                                                            |   |   | 4,442 |   |   | (16,261 | ) |
| Net                  changes in:                                                                                                              |   |   |   |   |   |   |   |
| Receivables—net                                                                                                                         |   |   | (246,393 | ) |   | (420,472 | ) |
| Gas                  in storage, excluding fair value adjustments                                                                             |   |   | 62,537 |   |   | 7,587 |   |
| Gas                  costs recoverable/refundable through rate adjustments                                                                    |   |   | (40,309 | ) |   | 2,180 |   |
| Accounts                  payable                                                                                                             |   |   | 90,610 |   |   | 166,390 |   |
| Gas                  deliverable to customers                                                                                                 |   |   | (18,453 | ) |   | (9,411 | ) |
| Other                  accrued liabilities                                                                                                    |   |   | (2,065 | ) |   | (21,320 | ) |
| Accrued                  interest                                                                                                             |   |   | 5,159 |   |   | 4,479 |   |
| Accrued                  taxes                                                                                                                |   |   | 45,874 |   |   | 36,415 |   |
| Other                                                                                                                                         |   |   | (9,091 | ) |   | 5,715 |   |
| **Net                  Cash Provided by (Used in) Operating Activities**                                                                      |   |   | (68,572 | ) |   | (163,262 | ) |
|                                                                                                                                          |   |   |   |   |   |   |   |
| **Investing                  Activities:**                                                                                                    |   |   |   |   |   |   |   |
| Capital                  spending                                                                                                             |   |   | (69,452 | ) |   | (38,033 | ) |
| Return                  of capital investments                                                                                                |   |   | - |   |   | 23,643 |   |
| Decrease                  (increase) in deposits with broker or trustee,                                                                      |   |   |   |   |   |   |   |
| excluding                  fair value adjustments                                                                                             |   |   | 48,151 |   |   | 11,353 |   |
| Other                                                                                                                                         |   |   | 88 |   |   | 61 |   |
| **Net                  Cash Provided By (Used in) Investing Activities**                                                                      |   |   | (21,213 | ) |   | (2,976 | ) |
|                                                                                                                                          |   |   |   |   |   |   |   |
| **Financing                  Activities:**                                                                                                    |   |   |   |   |   |   |   |
| Proceeds                  from (payment of) overdraft facility                                                                                |   |   | (5,091 | ) |   | 15,428 |   |
| Issuance                  of commercial paper                                                                                                 |   |   | 74,368 |   |   | 169,121 |   |
| Retirement                  of long-term debt                                                                                                 |   |   | (155 | ) |   | (450 | ) |
| Proceeds                  from issuance of common stock                                                                                       |   |   | 3,866 |   |   | 2,261 |   |
| Dividends                  paid on common stock                                                                                               |   |   | (20,976 | ) |   | (20,796 | ) |
| **Net                  Cash Provided by (Used in) Financing Activities**                                                                      |   |   | 52,012 |   |   | 165,564 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |
| **Net                  Increase (Decrease) in Cash and Cash Equivalents**                                                                     |   |   | (37,773 | ) |   | (674 | ) |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                                         |   |   | 42,115 |   |   | 18,186 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                                               |   | $ | 4,342 |   | $ | 17,512 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |
| **Supplemental                  information:**                                                                                                |   |   |   |   |   |   |   |
| Income                  taxes paid, net of refunds                                                                                            |   | $ | 297 |   | $ | - |   |
| Interest                  paid, net of amounts capitalized                                                                                    |   | $ | 12,443 |   | $ | 7,962 |   |
|                                                                                                                                          |
| *The                  Notes to Consolidated Financial Statements are an integral part                  of these                  statements.* |

----

| **The                  Peoples Gas Light and Coke Company**                                                                                   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                  STATEMENTS OF OPERATIONS**                                                                                    |
| (Unaudited)                                                                                                                                   |
|                                                                                                                                          |   |   |   |   |   |   |   |
|                                                                                                                                               |   |   | Transition |   |   | Three                  Months |   |
|                                                                                                                                               |   |   | Period                  Ended |   |   | Ended |   |
|                                                                                                                                               |   |   | December                  31, |   |   | December                  31, |   |
|                                                                                                                                          |   |   | 2006 |   |   | 2005 |   |
| *(In                  Thousands)*                                                                                                             |   |   |   |   |   |   |   |
| **Revenues**                                                                                                                                  |   | $ | 419,364 |   | $ | 613,525 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |
| **Operating                  Expenses:**                                                                                                      |   |   |   |   |   |   |   |
| Gas                  costs                                                                                                                    |   |   | 251,724 |   |   | 426,860 |   |
| Gas                  charge settlement                                                                                                        |   |   | - |   |   | 74,668 |   |
| Operation                  and maintenance, excluding                                                                                         |   |   |   |   |   |   |   |
| environmental                  costs                                                                                                          |   |   | 59,553 |   |   | 65,012 |   |
| Environmental                  costs                                                                                                          |   |   | 12,532 |   |   | 10,502 |   |
| Depreciation                  and amortization                                                                                                |   |   | 14,400 |   |   | 13,699 |   |
| Taxes,                  other than income taxes                                                                                               |   |   | 44,303 |   |   | 58,591 |   |
| **Total                  Operating Expenses**                                                                                                 |   |   | 382,512 |   |   | 649,332 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |
| **Operating                  Income (Loss)**                                                                                                  |   |   | 36,852 |   |   | (35,807 | ) |
|                                                                                                                                          |   |   |   |   |   |   |   |
| Other                  income                                                                                                                 |   |   | 1,253 |   |   | 1,004 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |
| Other                  expense                                                                                                                |   |   | 32 |   |   | 107 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |
| Interest                  expense                                                                                                             |   |   | 7,414 |   |   | 6,279 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |
| **Income                  (Loss) Before Income Taxes**                                                                                        |   |   | 30,659 |   |   | (41,189 | ) |
|                                                                                                                                          |   |   |   |   |   |   |   |
| Income                  tax expense (benefit)                                                                                                 |   |   | 11,573 |   |   | (16,949 | ) |
|                                                                                                                                          |   |   |   |   |   |   |   |
| **Net                  Income (Loss)**                                                                                                        |   | $ | 19,086 |   | $ | (24,240 | ) |
|                                                                                                                                          |
| *The                  Notes to Consolidated Financial Statements are an integral part                  of these                  statements.* |

----

| **The                Peoples Gas Light and Coke Company**                                                                               |
|-----------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                BALANCE SHEETS**                                                                                          |
| (Unaudited)                                                                                                                             |
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                         |   |   | December                31, |   |   | September                30, |   |   | December                31, |   |
|                                                                                                                                    |   |   | 2006 |   |   | 2006 |   |   | 2005 |   |
| *(In                Thousands)*                                                                                                         |   |   |   |   |   |   |   |   |   |   |
| **ASSETS**                                                                                                                              |   |   |   |   |   |   |   |   |   |   |
| **CURRENT                ASSETS:**                                                                                                      |   |   |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents                                                                                                |   | $ | - |   | $ | 30,770 |   | $ | - |   |
| Deposits                with broker or trustee                                                                                          |   |   | 4,666 |   |   | 5,107 |   |   | 1,179 |   |
| Receivables                -                                                                                                            |   |   |   |   |   |   |   |   |   |   |
| Customers,                net of reserve for uncollectible accounts                                                                     |   |   |   |   |   |   |   |   |   |   |
| of                $32,752, $40,631 and $33,516, respectively                                                                            |   |   | 261,928 |   |   | 99,955 |   |   | 402,212 |   |
| Intercompany                receivables                                                                                                 |   |   | 5,080 |   |   | 6,285 |   |   | 30,328 |   |
| Other                                                                                                                                   |   |   | 204 |   |   | 211 |   |   | 90 |   |
| Materials                and supplies, at average cost                                                                                  |   |   | 8,974 |   |   | 8,575 |   |   | 9,682 |   |
| Gas                in storage, at last-in, first-out cost                                                                               |   |   | 89,417 |   |   | 127,745 |   |   | 96,437 |   |
| Gas                costs recoverable through rate adjustments                                                                           |   |   | - |   |   | 4,514 |   |   | 7,329 |   |
| Regulatory                assets                                                                                                        |   |   | 154,783 |   |   | 169,077 |   |   | 22,793 |   |
| Other                                                                                                                                   |   |   | 26,627 |   |   | 26,218 |   |   | 9,768 |   |
| **Total                Current Assets**                                                                                                 |   |   | 551,679 |   |   | 478,457 |   |   | 579,818 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| **CAPITAL                INVESTMENTS:**                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Property,                plant and equipment                                                                                            |   |   | 2,379,427 |   |   | 2,358,448 |   |   | 2,283,061 |   |
| Less                - Accumulated depreciation and amortization                                                                         |   |   | 958,084 |   |   | 946,227 |   |   | 914,386 |   |
| Net                property, plant and equipment                                                                                        |   |   | 1,421,343 |   |   | 1,412,221 |   |   | 1,368,675 |   |
| Other                investments                                                                                                        |   |   | 1,339 |   |   | 1,361 |   |   | 1,484 |   |
| **Total                Capital Investments - Net**                                                                                      |   |   | 1,422,682 |   |   | 1,413,582 |   |   | 1,370,159 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| **OTHER                ASSETS:**                                                                                                        |   |   |   |   |   |   |   |   |   |   |
| Prepaid                pension costs                                                                                                    |   |   | 78,179 |   |   | 184,660 |   |   | 153,260 |   |
| Noncurrent                regulatory assets                                                                                             |   |   | 464,322 |   |   | 317,898 |   |   | 256,266 |   |
| Deferred                charges and other                                                                                               |   |   | 17,679 |   |   | 18,257 |   |   | 36,289 |   |
| **Total                Other Assets**                                                                                                   |   |   | 560,180 |   |   | 520,815 |   |   | 445,815 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| **Total                Assets**                                                                                                         |   | $ | 2,534,541 |   | $ | 2,412,854 |   | $ | 2,395,792 |   |
|                                                                                                                                    |   |
| *The                Notes to Consolidated Financial Statements are an integral part of                these                statements.* |

----

| **The                  Peoples Gas Light and Coke Company**                                                                                   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                  BALANCE SHEETS**                                                                                              |
| (Unaudited)                                                                                                                                   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                               |   |   | December                  31, |   |   | September                  30, |   |   | December                  31, |   |
|                                                                                                                                          |   |   | 2006 |   |   | 2006 |   |   | 2005 |   |
| *(In                  Thousands, Except Shares)*                                                                                              |   |   |   |   |   |   |   |   |   |   |
| **LIABILITIES                  AND CAPITALIZATION**                                                                                           |   |   |   |   |   |   |   |   |   |   |
| **CURRENT                  LIABILITIES:**                                                                                                     |   |   |   |   |   |   |   |   |   |   |
| Commercial                  paper                                                                                                             |   | $ | 80,319 |   | $ | - |   | $ | 119,933 |   |
| Accounts                  payable                                                                                                             |   |   | 127,524 |   |   | 81,385 |   |   | 206,264 |   |
| Intercompany                  payables                                                                                                        |   |   | 86,258 |   |   | 167,391 |   |   | 11,581 |   |
| Regulatory                  liabilities                                                                                                       |   |   | 11,209 |   |   | 11,249 |   |   | 5,690 |   |
| Customer                  deposits                                                                                                            |   |   | 33,394 |   |   | 32,123 |   |   | 30,764 |   |
| Customer                  credit balances                                                                                                     |   |   | 69,557 |   |   | 76,416 |   |   | 41,076 |   |
| Accrued                  taxes                                                                                                                |   |   | 58,964 |   |   | 17,457 |   |   | 55,868 |   |
| Gas                  deliverable to customers                                                                                                 |   |   | 71,286 |   |   | 80,840 |   |   | 42,269 |   |
| Derivative                  liabilities, at fair value - current                                                                              |   |   | 31,957 |   |   | - |   |   | - |   |
| Other                  accrued liabilities                                                                                                    |   |   | 17,606 |   |   | 17,481 |   |   | 62,793 |   |
| Gas                  costs refundable through rate adjustments                                                                                |   |   | 13,477 |   |   | 49,726 |   |   | 30 |   |
| Accrued                  interest                                                                                                             |   |   | 6,002 |   |   | 5,993 |   |   | 5,308 |   |
| Dividends                  payable                                                                                                            |   |   | - |   |   | - |   |   | 8,200 |   |
| Temporary                  LIFO liquidation credit                                                                                            |   |   | - |   |   | - |   |   | 10,615 |   |
| **Total                  Current Liabilities**                                                                                                |   |   | 607,553 |   |   | 540,061 |   |   | 600,391 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **DEFERRED                  CREDITS AND OTHER LIABILITIES:**                                                                                  |   |   |   |   |   |   |   |   |   |   |
| Deferred                  income taxes                                                                                                        |   |   | 346,119 |   |   | 353,245 |   |   | 346,669 |   |
| Investment                  tax credits                                                                                                       |   |   | 23,184 |   |   | 23,284 |   |   | 23,407 |   |
| Derivative                  liabilities, at fair value - noncurrent                                                                           |   |   | 226 |   |   | - |   |   | - |   |
| Environmental                                                                                                                                 |   |   | 193,600 |   |   | 201,300 |   |   | 217,828 |   |
| Asset                  retirement obligations                                                                                                 |   |   | 92,403 |   |   | 91,071 |   |   | - |   |
| Pension,                  postretirement and other                                                                                            |   |   | 119,639 |   |   | 65,788 |   |   | 124,988 |   |
| **Total                  Deferred Credits and Other Liabilities**                                                                             |   |   | 775,171 |   |   | 734,688 |   |   | 712,892 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **CAPITALIZATION:**                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| Long-term                  debt                                                                                                               |   |   | 502,000 |   |   | 502,000 |   |   | 502,000 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| Common                  Stockholder's Equity:                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Common                  stock, without par value -                                                                                            |   |   |   |   |   |   |   |   |   |   |
| Authorized                  40,000,000 shares                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Outstanding                  25,357,566, 25,357,566 and                                                                                       |   |   |   |   |   |   |   |   |   |   |
| 24,817,566                  shares, respectively                                                                                              |   |   | 219,242 |   |   | 219,242 |   |   | 165,307 |   |
| Retained                  earnings                                                                                                            |   |   | 431,777 |   |   | 418,291 |   |   | 437,007 |   |
| Accumulated                  other comprehensive loss                                                                                         |   |   | (1,202 | ) |   | (1,428 | ) |   | (21,805 | ) |
| **Total                  Common Stockholder's Equity**                                                                                        |   |   | 649,817 |   |   | 636,105 |   |   | 580,509 |   |
| **Total                  Capitalization**                                                                                                     |   |   | 1,151,817 |   |   | 1,138,105 |   |   | 1,082,509 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Total                  Liabilities and Capitalization**                                                                                     |   | $ | 2,534,541 |   | $ | 2,412,854 |   | $ | 2,395,792 |   |
|                                                                                                                                          |   |
| *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)                                                                                                                             |
|                                                                                                                                    |   |   |   |   |   |   |   |
|                                                                                                                                         |   |   | Transition |   |   | Three                Months |   |
|                                                                                                                                         |   |   | Period                Ended |   |   | Ended |   |
|                                                                                                                                         |   |   | December                31, |   |   | December                31, |   |
|                                                                                                                                    |   |   | 2006 |   |   | 2005 |   |
| *(In                Thousands)*                                                                                                         |   |   |   |   |   |   |   |
| **Operating                Activities:**                                                                                                |   |   |   |   |   |   |   |
| Net                income (loss)                                                                                                        |   | $ | 19,086 |   | $ | (24,240 | ) |
| Adjustments                to reconcile net income to cash provided by operations:                                                      |   |   |   |   |   |   |   |
| Depreciation                and amortization                                                                                            |   |   | 15,574 |   |   | 14,897 |   |
| Deferred                income taxes and investment tax credits—net                                                               |   |   | (5,712 | ) |   | (19,067 | ) |
| Gas                charge settlement                                                                                                    |   |   | - |   |   | 74,668 |   |
| Pension                funding less than expense                                                                                        |   |   | 1,510 |   |   | 2,805 |   |
| Other                adjustments                                                                                                        |   |   | 6,501 |   |   | 5,277 |   |
| Net                changes in:                                                                                                          |   |   | - |   |   |   |   |
| Receivables—net                                                                                                                   |   |   | (161,966 | ) |   | (288,354 | ) |
| Intercompany                receivables                                                                                                 |   |   | 1,205 |   |   | 11,089 |   |
| Gas                in storage                                                                                                           |   |   | 38,328 |   |   | 9,805 |   |
| Gas                costs recoverable/refundable through rate adjustments                                                                |   |   | (31,735 | ) |   | (440 | ) |
| Accounts                payable                                                                                                         |   |   | 47,375 |   |   | 108,856 |   |
| Intercompany                accounts payable                                                                                            |   |   | (22,071 | ) |   | (10,992 | ) |
| Gas                deliverable to customers                                                                                             |   |   | (9,606 | ) |   | (9,187 | ) |
| Other                accrued liabilities                                                                                                |   |   | 97 |   |   | (1,021 | ) |
| Accrued                interest                                                                                                         |   |   | 9 |   |   | (251 | ) |
| Accrued                taxes                                                                                                            |   |   | 41,506 |   |   | 31,779 |   |
| Other                                                                                                                                   |   |   | (8,091 | ) |   | 3,319 |   |
| **Net                Cash Provided by (Used in) Operating Activities**                                                                  |   |   | (67,990 | ) |   | (91,057 | ) |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Investing                Activities:**                                                                                                |   |   |   |   |   |   |   |
| Capital                spending                                                                                                         |   |   | (24,800 | ) |   | (16,034 | ) |
| Intercompany                note receivable                                                                                             |   |   | - |   |   | (9,875 | ) |
| Decrease                (increase) in deposits with broker or trustee,                                                                  |   |   |   |   |   |   |   |
| excluding                fair value adjustments                                                                                         |   |   | (11,539 | ) |   | (1,895 | ) |
| Other                                                                                                                                   |   |   | (9 | ) |   | 26 |   |
| **Net                Cash Provided by (Used in) Investing Activities**                                                                  |   |   | (36,348 | ) |   | (27,778 | ) |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Financing                Activities:**                                                                                                |   |   |   |   |   |   |   |
| Proceeds                from (payment of) overdraft facility                                                                            |   |   | (1,236 | ) |   | (662 | ) |
| Issuance                of commercial paper                                                                                             |   |   | 80,319 |   |   | 119,933 |   |
| Issuance                of short-term debt                                                                                              |   |   | 85 |   |   | - |   |
| Retirement                of short-term debt                                                                                            |   |   | - |   |   | (360 | ) |
| Issuance                of long-term debt                                                                                               |   |   | - |   |   | (76 | ) |
| Dividends                paid on common stock                                                                                           |   |   | (5,600 | ) |   | - |   |
| **Net                Cash Provided by (Used in) Financing Activities**                                                                  |   |   | 73,568 |   |   | 118,835 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                                                                 |   |   | (30,770 | ) |   | - |   |
| **Cash                and Cash Equivalents at Beginning of Period**                                                                     |   |   | 30,770 |   |   | - |   |
| **Cash                and Cash Equivalents at End of Period**                                                                           |   | $ | - |   | $ | - |   |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Supplemental                information:**                                                                                            |   |   |   |   |   |   |   |
| Income                taxes paid, net of refunds                                                                                        |   | $ | (2,228 | ) | $ | - |   |
| Interest                paid, net of amounts capitalized                                                                                |   | $ | 6,901 |   | $ | 6,065 |   |
|                                                                                                                                    |   |   |
| *The                Notes to Consolidated Financial Statements are an integral part of                these                statements.* |

----

| **North                  Shore Gas Company**                                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                  STATEMENTS OF OPERATIONS**                                                                                    |
| (Unaudited)                                                                                                                                   |
|                                                                                                                                          |   |   |   |   |   |   |   |
|                                                                                                                                               |   |   | Transition |   |   | Three                  Months |   |
|                                                                                                                                          |   |   | Period                  Ended |   |   | Ended |   |
|                                                                                                                                               |   |   | December                  31, |   |   | December                  31, |   |
|                                                                                                                                          |   |   | 2006 |   |   | 2005 |   |
| *(In                  Thousands)*                                                                                                             |   |   |   |   |   |   |   |
| **Revenues**                                                                                                                                  |   | $ | 77,574 |   | $ | 115,464 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |
| **Operating                  Expenses:**                                                                                                      |   |   |   |   |   |   |   |
| Gas                  costs                                                                                                                    |   |   | 54,561 |   |   | 90,290 |   |
| Gas                  charge settlement                                                                                                        |   |   | - |   |   | 17,000 |   |
| Operation                  and maintenance, excluding                                                                                         |   |   |   |   |   |   |   |
| environmental                  costs                                                                                                          |   |   | 8,462 |   |   | 9,170 |   |
| Environmental                  costs                                                                                                          |   |   | 462 |   |   | 794 |   |
| Depreciation                                                                                                                                  |   |   | 1,539 |   |   | 1,426 |   |
| Taxes,                  other than income taxes                                                                                               |   |   | 4,606 |   |   | 5,575 |   |
| **Total                  Operating Expenses**                                                                                                 |   |   | 69,630 |   |   | 124,255 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |
| **Operating                  Income (Loss)**                                                                                                  |   |   | 7,944 |   |   | (8,791 | ) |
|                                                                                                                                          |   |   |   |   |   |   |   |
| Other                  income                                                                                                                 |   |   | 154 |   |   | 79 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |
| Other                  expense                                                                                                                |   |   | - |   |   | 24 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |
| Interest                  expense                                                                                                             |   |   | 1,085 |   |   | 977 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |
| **Income                  (Loss) Before Income Taxes**                                                                                        |   |   | 7,013 |   |   | (9,713 | ) |
|                                                                                                                                          |   |   |   |   |   |   |   |
| Income                  tax expense (benefit)                                                                                                 |   |   | 2,638 |   |   | (4,054 | ) |
|                                                                                                                                          |   |   |   |   |   |   |   |
| **Net                  Income (Loss)**                                                                                                        |   | $ | 4,375 |   | $ | (5,659 | ) |
|                                                                                                                                          |   |
| *The                  Notes to Consolidated Financial Statements are an integral part                  of these                  statements.* |

----

| **North                  Shore Gas Company**                                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                  BALANCE SHEETS**                                                                                              |
| (Unaudited)                                                                                                                                   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                          |   |   | December                  31, |   |   | September                  30, |   |   | December                  31, |   |
|                                                                                                                                          |   |   | 2006 |   |   | 2006 |   |   | 2005 |   |
| *(In                  Thousands)*                                                                                                             |   |   |   |   |   |   |   |   |   |   |
| **ASSETS**                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| **CURRENT                  ASSETS:**                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents                                                                                                    |   | $ | 92 |   | $ | 12,815 |   | $ | 1,244 |   |
| Deposits                  with broker or trustee                                                                                              |   |   | 1,894 |   |   | 1,930 |   |   | - |   |
| Receivables                  -                                                                                                                |   |   |   |   |   |   |   |   |   |   |
| Customers,                  net of reserve for uncollectible                                                                                  |   |   |   |   |   |   |   |   |   |   |
| accounts                  of $1,572, $2,127 and $1,676, respectively                                                                          |   |   | 42,956 |   |   | 12,858 |   |   | 68,932 |   |
| Intercompany                  receivables                                                                                                     |   |   | 350 |   |   | 3,625 |   |   | 1,836 |   |
| Materials                  and supplies, at average cost                                                                                      |   |   | 1,015 |   |   | 1,095 |   |   | 1,208 |   |
| Gas                  in storage, at last-in, first-out cost                                                                                   |   |   | 10,008 |   |   | 21,744 |   |   | 9,330 |   |
| Gas                  costs recoverable through rate adjustments                                                                               |   |   | 996 |   |   | 2,165 |   |   | 25 |   |
| Regulatory                  assets                                                                                                            |   |   | 21,503 |   |   | 24,912 |   |   | 2,126 |   |
| Other                                                                                                                                         |   |   | 2,188 |   |   | 2,929 |   |   | 266 |   |
| **Total                  Current Assets**                                                                                                     |   |   | 81,002 |   |   | 84,073 |   |   | 84,967 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **CAPITAL                  INVESTMENTS:**                                                                                                     |   |   |   |   |   |   |   |   |   |   |
| Property,                  plant and equipment                                                                                                |   |   | 375,749 |   |   | 374,560 |   |   | 364,539 |   |
| Less                  - Accumulated depreciation                                                                                              |   |   | 151,156 |   |   | 149,832 |   |   | 145,729 |   |
| **Net                  property, plant and equipment**                                                                                        |   |   | 224,593 |   |   | 224,728 |   |   | 218,810 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **OTHER                  ASSETS:**                                                                                                            |   |   |   |   |   |   |   |   |   |   |
| Prepaid                  pension costs                                                                                                        |   |   | - |   |   | 2,725 |   |   | - |   |
| Noncurrent                  regulatory assets                                                                                                 |   |   | 103,616 |   |   | 86,815 |   |   | 65,628 |   |
| Deferred                  charges and other                                                                                                   |   |   | 1,717 |   |   | 1,648 |   |   | 2,636 |   |
| **Total                  Other Assets**                                                                                                       |   |   | 105,333 |   |   | 91,188 |   |   | 68,264 |   |
|                                                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Total                  Assets**                                                                                                             |   | $ | 410,928 |   | $ | 399,989 |   | $ | 372,041 |   |
|                                                                                                                                          |   |
| *The                  Notes to Consolidated Financial Statements are an integral part                  of these                  statements.* |

----

| **North                Shore Gas Company**                                                                                              |
|-----------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| **CONSOLIDATED                BALANCE SHEETS**                                                                                          |
| (Unaudited)                                                                                                                             |
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                         |   |   | December                31, |   |   | September                30, |   |   | December                31, |   |
|                                                                                                                                    |   |   | 2006 |   |   | 2006 |   |   | 2005 |   |
| *(In                Thousands, Except Shares)*                                                                                          |   |   |   |   |   |   |   |   |   |   |
| **LIABILITIES                AND CAPITALIZATION**                                                                                       |   |   |   |   |   |   |   |   |   |   |
| **CURRENT                LIABILITIES:**                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Other                short-term debt - intercompany                                                                                     |   | $ | - |   | $ | - |   | $ | 9,875 |   |
| Accounts                payable                                                                                                         |   |   | 19,455 |   |   | 14,776 |   |   | 41,090 |   |
| Intercompany                payables                                                                                                    |   |   | 22,465 |   |   | 29,620 |   |   | 3,546 |   |
| Regulatory                liabilities                                                                                                   |   |   | - |   |   | 1 |   |   | - |   |
| Customer                deposits                                                                                                        |   |   | 3,010 |   |   | 2,860 |   |   | 2,769 |   |
| Customer                credit balances                                                                                                 |   |   | 12,195 |   |   | 11,808 |   |   | 6,587 |   |
| Accrued                taxes                                                                                                            |   |   | 4,876 |   |   | 1,271 |   |   | 4,233 |   |
| Gas                deliverable to customers                                                                                             |   |   | 6,407 |   |   | 6,301 |   |   | 4,449 |   |
| Derivative                liabilities, at fair value - current                                                                          |   |   | 3,226 |   |   | - |   |   | - |   |
| Other                accrued liabilities                                                                                                |   |   | 1,454 |   |   | 1,746 |   |   | 12,171 |   |
| Gas                costs refundable through rate adjustments                                                                            |   |   | 2,684 |   |   | 12,427 |   |   | 1,190 |   |
| Accrued                interest                                                                                                         |   |   | 495 |   |   | 1,317 |   |   | 460 |   |
| Dividends                payable                                                                                                        |   |   | - |   |   | - |   |   | 1,500 |   |
| Temporary                LIFO liquidation credit                                                                                        |   |   | - |   |   | - |   |   | 3,667 |   |
| **Total                Current Liabilities**                                                                                            |   |   | 76,267 |   |   | 82,127 |   |   | 91,537 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| **DEFERRED                CREDITS AND OTHER LIABILITIES:**                                                                              |   |   |   |   |   |   |   |   |   |   |
| Deferred                income taxes                                                                                                    |   |   | 45,151 |   |   | 45,745 |   |   | 36,420 |   |
| Investment                tax credits                                                                                                   |   |   | 2,854 |   |   | 2,864 |   |   | 2,852 |   |
| Derivative                liabilities, at fair value - noncurrent                                                                       |   |   | 44 |   |   | - |   |   | - |   |
| Environmental                                                                                                                           |   |   | 70,400 |   |   | 67,900 |   |   | 63,880 |   |
| Asset                retirement obligations                                                                                             |   |   | 19,541 |   |   | 19,257 |   |   | - |   |
| Pension,                postretirement and other                                                                                        |   |   | 24,826 |   |   | 11,977 |   |   | 20,319 |   |
| **Total                Deferred Credits and Other Liabilities**                                                                         |   |   | 162,816 |   |   | 147,743 |   |   | 123,471 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| **CAPITALIZATION:**                                                                                                                     |   |   |   |   |   |   |   |   |   |   |
| Long-term                debt                                                                                                           |   |   | 69,095 |   |   | 69,250 |   |   | 69,250 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| Common                Stockholder's Equity:                                                                                             |   |   |   |   |   |   |   |   |   |   |
| Common                stock, without par value -                                                                                        |   |   |   |   |   |   |   |   |   |   |
| Authorized                5,000,000 shares                                                                                              |   |   |   |   |   |   |   |   |   |   |
| Outstanding                3,625,887 shares                                                                                             |   |   | 24,757 |   |   | 24,757 |   |   | 24,757 |   |
| Retained                earnings                                                                                                        |   |   | 78,137 |   |   | 76,262 |   |   | 65,397 |   |
| Accumulated                other comprehensive loss                                                                                     |   |   | (144 | ) |   | (150 | ) |   | (2,371 | ) |
| **Total                Common Stockholder's Equity**                                                                                    |   |   | 102,750 |   |   | 100,869 |   |   | 87,783 |   |
| **Total                Capitalization**                                                                                                 |   |   | 171,845 |   |   | 170,119 |   |   | 157,033 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |
| **Total                Liabilities and Capitalization**                                                                                 |   | $ | 410,928 |   | $ | 399,989 |   | $ | 372,041 |   |
|                                                                                                                                    |   |
| *The                Notes to Consolidated Financial Statements are an integral part of                these                statements.* |

----

| **North                Shore Gas Company**                                                                                              |
|-----------------------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                STATEMENTS OF CASH FLOWS**                                                                                |
| (Unaudited)                                                                                                                             |
|                                                                                                                                    |   |   |   |   |   |   |   |
|                                                                                                                                         |   |   | Transition |   |   | Three                Months |   |
|                                                                                                                                         |   |   | Period                Ended |   |   | Ended |   |
|                                                                                                                                         |   |   | December                31, |   |   | December                31, |   |
|                                                                                                                                    |   |   | 2006 |   |   | 2005 |   |
| *(In                Thousands)*                                                                                                         |   |   |   |   |   |   |   |
| **Operating                Activities:**                                                                                                |   |   |   |   |   |   |   |
| Net                income (loss)                                                                                                        |   | $ | 4,375 |   | $ | (5,659 | ) |
| Adjustments                to reconcile net income to cash provided by operations:                                                      |   |   |   |   |   |   |   |
| Depreciation                                                                                                                            |   |   | 1,781 |   |   | 1,651 |   |
| Deferred                income taxes and investment tax credits—net                                                               |   |   | 8 |   |   | (2,812 | ) |
| Pension                funding less than expense                                                                                        |   |   | 492 |   |   | 925 |   |
| Gas                charge settlement                                                                                                    |   |   | - |   |   | 17,000 |   |
| Other                adjustments                                                                                                        |   |   | 643 |   |   | (964 | ) |
| Net                changes in:                                                                                                          |   |   |   |   |   |   |   |
| Receivables—net                                                                                                                   |   |   | (30,098 | ) |   | (54,723 | ) |
| Intercompany                receivables                                                                                                 |   |   | 3,360 |   |   | 5,642 |   |
| Gas                in storage                                                                                                           |   |   | 11,736 |   |   | 4,901 |   |
| Gas                costs recoverable/refundable through rate adjustments                                                                |   |   | (8,574 | ) |   | 2,620 |   |
| Accounts                payable                                                                                                         |   |   | 4,679 |   |   | 19,582 |   |
| Intercompany                accounts payable                                                                                            |   |   | 339 |   |   | 824 |   |
| Gas                deliverable to customers                                                                                             |   |   | 98 |   |   | (224 | ) |
| Other                accrued liabilities                                                                                                |   |   | (285 | ) |   | 166 |   |
| Accrued                interest                                                                                                         |   |   | (822 | ) |   | (824 | ) |
| Accrued                taxes                                                                                                            |   |   | 3,605 |   |   | 1,329 |   |
| Other                                                                                                                                   |   |   | 703 |   |   | 1,814 |   |
| **Net                Cash Provided by (Used in) Operating Activities**                                                                  |   |   | (7,960 | ) |   | (8,752 | ) |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Investing                Activities:**                                                                                                |   |   |   |   |   |   |   |
| Capital                spending                                                                                                         |   |   | (1,653 | ) |   | (2,053 | ) |
| Other                                                                                                                                   |   |   | (455 | ) |   | - |   |
| **Net                Cash Provided by (Used in) Investing Activities**                                                                  |   |   | (2,108 | ) |   | (2,053 | ) |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Financing                Activities:**                                                                                                |   |   |   |   |   |   |   |
| Proceeds                from (payment of) overdraft facility                                                                            |   |   | - |   |   | (371 | ) |
| Issuance                of short-term debt                                                                                              |   |   | - |   |   | 9,875 |   |
| Retirement                of long-term debt                                                                                             |   |   | (155 | ) |   | - |   |
| Dividends                paid on common stock                                                                                           |   |   | (2,500 | ) |   | (8,000 | ) |
| **Net                Cash Provided by (Used in) Financing Activities**                                                                  |   |   | (2,655 | ) |   | 1,504 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                                                                 |   |   | (12,723 | ) |   | (9,301 | ) |
| **Cash                and Cash Equivalents at Beginning of Period**                                                                     |   |   | 12,815 |   |   | 10,545 |   |
| **Cash                and Cash Equivalents at End of Period**                                                                           |   | $ | 92 |   | $ | 1,244 |   |
|                                                                                                                                    |   |   |   |   |   |   |   |
| **Supplemental                information:**                                                                                            |   |   |   |   |   |   |   |
| Income                taxes paid, net of refunds                                                                                        |   | $ | 450 |   | $ | - |   |
| Interest                paid, net of amounts capitalized                                                                                |   | $ | 1,802 |   | $ | 1,716 |   |
|                                                                                                                                    |   |
| *The                Notes to Consolidated Financial Statements are an integral part of                these                statements.* |

----

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

**1:      MERGER**

----

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

----

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

**2:      BASIS OF PRESENTATION**

**General**

| ·   | aligning                the Company's reporting cycle with that of WPS Resources in anticipation                of the merger; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------|

| ·   | aligning                the Company’s reporting cycle with that of other firms in the industry; |
|--------------------|-------------------------------------------------------------------------------------------------------|

| ·   | aligning                the Company’s reporting cycle with regulatory filing requirements; |
|--------------------|--------------------------------------------------------------------------------------------------|

| ·   | reduction                in the volatility of reserve balances and depletion rates in the                Company’s                Oil and Gas Production segment due to natural gas prices being typically                higher and fluctuating in narrower ranges at December 31 than at                September                30; and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | reduction                in mark-to-market and lower-of-cost-or-market accounting volatility                due to                natural gas prices being typically higher and fluctuating in narrower                ranges at December 31 than at September 30. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

**Discontinued      Operations**

|                                                      |   |   | December                  31, |   |   | September                  30, |   |   | December                  31, |   |
|-----------------------------------------------------------|--------|--------|-------------------------------|--------|--------|--------------------------------|--------|--------|-------------------------------|--------|
|                                                      |   |   | 2006                          |   |   | 2006                           |   |   | 2005                          |   |
| *(In                  Thousands)*                         |   |   |                          |   |   |                           |   |   |                          |   |
| Investments                  in unconsolidated affiliates |   | $      | 74,021                        |   | $      | 74,071                         |   | $      | 114,144                       |   |
| Other                  investments                        |   |   | 10,475                        |   |   | 10,400                         |   |   | 10,773                        |   |
| Property,                  plant and equipment, net       |   |   | -                             |   |   | -                              |   |   | 713                           |   |
| Total                  assets                             |   | $      | 84,496                        |   | $      | 84,471                         |   | $      | 125,630                       |   |
|                                                      |   |   |                          |   |   |                           |   |   |                          |   |
| Deferred                  credit                          |   | $      | -                             |   | $      | -                              |   | $      | 2,201                         |   |

----

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

|                                                           |   |   | Transition                    |   |   | Three                  Months |   |
|-----------------------------------------------------------|--------|--------|-------------------------------|--------|--------|-------------------------------|--------|
|                                                           |   |   | Period                  Ended |   |   | Ended                         |   |
|                                                           |   |   | December                  31, |   |   | December                  31, |   |
|                                                      |   |   | 2006                          |   |   | 2005                          |   |
| *(In                  Thousands)*                         |   |   |                          |   |   |                          |   |
| Operation                  and maintenance                |   | $      | (107                          | )      | $      | (645                          | )      |
| Taxes,                  other than income taxes           |   |   | -                             |   |   | (16                           | )      |
| Impairments                  and losses on property sales |   |   | -                             |   |   | (2,089                        | )      |
| Equity                  investment income (loss)          |   |   | (167                          | )      |   | 831                           |   |
| Loss                  before income taxes                 |   |   | (274                          | )      |   | (1,919                        | )      |
| Income                  tax benefit                       |   |   | 109                           |   |   | 763                           |   |
| Loss                  from discontinued operations,       |   |   |                          |   |   |                          |   |
| net                  of income tax benefit                |   | $      | (165                          | )      | $      | (1,156                        | )      |

**3:      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Gas      Charge Settlement**

----

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

**Gas      in Storage**

**Derivative      Instruments and Hedging      Activities**

**Cash        Flow Hedges. **

----

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

|                                                                             |   |   |                       |   |   | Interest                   |   |   | Partnership  |   |   |    |   |
|-----------------------------------------------------------------------------|--------|--------|----------------------------|--------|--------|----------------------------|--------|--------|--------------|--------|--------|---------|--------|
| **Transition                  period ended December 31, 2006**              |   |   | Commodities                |   |   | Rate                       |   |   | Transactions |   |   | Total   |   |
| *(In                  Thousands)*                                           |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| Portion                  of after-tax gains on hedging instruments          |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| determined                  to be ineffective and included in net income    |   | $      | 496                        |   | $      | -                          |   |   | N/A          |   | $      | 496     |   |
|                                                                        |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| Accumulated                  other comprehensive income (loss) after tax at |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| December                  31, 2006                                          |   | $      | (5,739                     | )      | $      | (415                       | )      | $      | (2,968       | )      | $      | (9,122  | )      |
|                                                                        |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| Portion                  of accumulated other comprehensive income (loss)   |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| expected                  to be reclassified to earnings during the next    |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| 12                  months                                                  |   | $      | (6,749                     | )      | $      | (65                        | )      |   | N/A          |   | $      | (6,814  | )      |
| Maximum                  term                                               |   |   | 75                  months |   |   | 76                  months |   |   |         |   |   |    |   |
|                                                                        |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| **Three                  months ended December 31, 2005**                   |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| *(In                  Thousands)*                                           |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| Portion                  of after-tax gains (losses) on hedging instruments |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| determined                  to be ineffective and included in net income    |   | $      | 1,177                      |   | $      | -                          |   | $      | -            |   | $      | 1,177   |   |
|                                                                        |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| Accumulated                  other comprehensive income (loss) after tax at |   |   |                       |   |   |                       |   |   |         |   |   |    |   |
| December                  31, 2005                                          |   | $      | (78,717                    | )      | $      | (481                       | )      | $      | (4,933       | )      | $      | (84,131 | )      |

**Fair      Value Hedges.**

----

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

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

|                                                                   |   |  December                  31,  |     |
|-------------------------------------------------------------------|--------|-------------------------------------------|----------|
| *(In                  Thousands)*                                 |   |                                      | 2006     |   |   | 2005 |   |
| Peoples                  Gas mark-to-market asset (liability)     |   | $                                         | (113,578 | ) | $ | 23,031 |   |
| North                  Shore Gas mark-to-market asset (liability) |   |                                      | (20,176  | ) |   | 3,108 |   |
| Other                  mark-to-market asset (liability)           |   |                                      | 3,766    |   |   | (4,189 | ) |
| **Total**                                                         |   | $                                         | (129,988 | ) | $ | 21,950 |   |

----

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

**Derivative      Summary.**

|                                                                          |   | Derivative                  Type |    |
|--------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                          |   | Cash                  Flow       |    | Fair                  Value |   |   |   |   |   |   |   |
|                                                                          |   | Hedges                           |    | Hedges |   | Mark-to-Market |   |
| *(In                  Thousands)*                                        |   |                             | 2006    |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| Value                  of contracts outstanding at October 1             |   | $                                | (23,782 | ) | $ | (202,904 | ) | $ | 8,901 |   | $ | (21,457 | ) | $ | (151,560 | ) | $ | 204,276 |   |
| Less:                  Gain (loss) on contracts realized or otherwise    |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| settled                  during the period                               |   |                             | (8,438  | ) |   | (39,065 | ) |   | 1,390 |   |   | 624 |   |   | (59,276 | ) |   | 64,592 |   |
| Plus:                  Unrealized gain (loss) on new contracts entered   |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| into                  during the period and outstanding at end of period |   | 665                              |    |   | (4,896 | ) |   | 109 |   |   | 435 |   |   | (22,921 | ) |   | (1,705 | ) |
| Plus:                  Other unrealized gain (loss), primarily changes   |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| in                  market prices on contracts outstanding at the        |   |                             |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| beginning                  of the period                                 |   |                             | 8,038   |   |   | 31,843 |   |   | 3,011 |   |   | 15,375 |   |   | (14,783 | ) |   | (116,029 | ) |
| **Value                  of contracts outstanding at December 31**       |   | $                                | (6,641  | ) | $ | (136,892 | ) | $ | 10,631 |   | $ | (6,271 | ) | $ | (129,988 | ) | $ | 21,950 |   |

----

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

| **Commodity                  Derivatives**                               |   |                               |   |                         |   |   |                              |   |
|--------------------------------------------------------------------------|--------|------------------------------------|--------|------------------------------|--------|--------|-----------------------------------|--------|
| *(Fair                  Value amounts in thousands)*                     |   |                               |   |                         |   |   |                              |   |
| ***Futures/Forwards                  (NG)***                             |   | ***Maturity***                     |   | ***Volumes******(MMbtu's)*** |   |   | ***Fair                  Value*** |   |
| *Natural                  Gas*                                           |   | Less                  than 1 Year  |   | 35,969,389                   |   | $      | (1,652                            | )      |
| *Natural                  Gas*                                           |   | 1                  - 3 Years       |   | 5,420,713                    |   |   | 1,613                             |   |
|                                                                     |   |                               |   | **41,390,102**               |   | **$**  | **(39**                           | **)**  |
| ***Options                  (NG)***                                      |   | ***Maturity***                     |   | ***Volumes******(MMbtu's)*** |   |   | ***Fair                  Value*** |   |
| *Natural                  Gas*                                           |   | Less                  than 1 Year  |   | 24,892,600                   |   | $      | (4,099                            | )      |
| *Natural                  Gas*                                           |   | 1                  - 3 Years       |   | 5,415,600                    |   |   | 927                               |   |
|                                                                     |   |                               |   | **30,308,200**               |   | **$**  | **(3,172**                        | **)**  |
| ***Swaps                  (NG)***                                        |   | ***Maturity***                     |   | ***Volumes******(MMbtu's)*** |   |   | ***Fair                  Value*** |   |
| *Natural                  Gas*                                           |   | Less                  than 1 Year  |   | 113,079,697                  |   | $      | (116,917                          | )      |
| *Natural                  Gas*                                           |   | 1                  - 3 Years       |   | 30,820,875                   |   |   | (3,782                            | )      |
| *Natural                  Gas*                                           |   | 4                  - 5 Years       |   | 5,205,000                    |   |   | 1,645                             |   |
| *Natural                  Gas*                                           |   | More                  than 5 Years |   | 4,268,750                    |   |   | 2,264                             |   |
|                                                                     |   |                               |   | **153,374,322**              |   | **$**  | **(116,790**                      | **)**  |
| ***Total                  (NG)***                                        |   | ***Maturity***                     |   | ***Volumes******(MMbtu's)*** |   |   | ***Fair                  Value*** |   |
| *Natural                  Gas*                                           |   | Less                  than 1 Year  |   | 173,941,686                  |   | $      | (122,668                          | )      |
| *Natural                  Gas*                                           |   | 1                  - 3 Years       |   | 41,657,188                   |   |   | (1,242                            | )      |
| *Natural                  Gas*                                           |   | 4                  - 5 Years       |   | 5,205,000                    |   |   | 1,645                             |   |
| *Natural                  Gas*                                           |   | More                  than 5 Years |   | 4,268,750                    |   |   | 2,264                             |   |
|                                                                     |   |                               |   | **225,072,624**              |   | **$**  | **(120,001**                      | **)**  |
| ***Swaps                  (OIL)***                                       |   | ***Maturity***                     |   | ***Volumes******(Bbl's)***   |   |   | ***Fair                  Value*** |   |
| *WTI                  Crude Oil*                                         |   | Less                  than 1 Year  |   | 154,900                      |   | $      | (3,785                            | )      |
| *WTI                  Crude Oil*                                         |   | 1                  - 3 Years       |   | 54,800                       |   |   | (556                              | )      |
|                                                                     |   |                               |   | **209,700**                  |   | **$**  | **(4,341**                        | **)**  |
| ***Futures/Forwards                  (Megawatt-hours)***                 |   | ***Maturity***                     |   | ***Amounts******(Mwh's)***   |   |   | ***Fair                  Value*** |   |
| *Megawatts*                                                              |   | Less                  than 1 Year  |   | 633,938                      |   | $      | 10                                |   |
|                                                                     |   |                               |   | **633,938**                  |   | **$**  | **10**                            |   |
| ***Grand                  Total - Fair Value of Commodity Derivatives*** |   |                               |   |                         |   | **$**  | **(124,332**                      | **)**  |
| ***Fair                  Value of Interest Rate Swap***                  |   |                               |   |                         |   |   | **(1,666**                        | **)**  |
| ***Grand                  Total - Fair Value of all Derivatives***       |   |                               |   |                         |   | **$**  | **(125,998**                      | **)**  |

----

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

**Revenue      Recognition**

|                                                  |   |   | December                  31, |   |   | September                  30, |   |   | December                  31, |   |
|--------------------------------------------------|--------|--------|-------------------------------|--------|--------|--------------------------------|--------|--------|-------------------------------|--------|
| *(In                  Thousands)*                |   |   | 2006                          |   |   | 2006                           |   |   | 2005                          |   |
| Peoples                  Gas                     |   | $      | 124,210                       |   | $      | 31,247                         |   | $      | 184,548                       |   |
| North                  Shore Gas                 |   |   | 22,099                        |   |   | 5,933                          |   |   | 35,126                        |   |
| Peoples                  Energy Services         |   |   | 58,467                        |   |   | 21,269                         |   |   | 68,212                        |   |
| **Consolidated                  Peoples Energy** |   | $      | 204,776                       |   | $      | 58,449                         |   | $      | 287,886                       |   |

|                                                |   |   | Transition                  |   |   | Three                Months |   |
|------------------------------------------------|--------|--------|-----------------------------|--------|--------|-----------------------------|--------|
|                                                |   |   | Period                Ended |   |   | Ended                       |   |
|                                                |   |   | December                31, |   |   | December                31, |   |
| *(In                Thousands)*                |   |   | 2006                        |   |   | 2005                        |   |
| Peoples                Gas                     |   | $      | 39,761                      |   | $      | 55,393                      |   |
| North                Shore Gas                 |   |   | 3,763                       |   |   | 4,958                       |   |
| **Consolidated                Peoples Energy** |   | $      | 43,524                      |   | $      | 60,351                      |   |

**Statement      of Cash Flows**

----

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

**New      Accounting Pronouncements**

----

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

**4:      BUSINESS SEGMENTS**

|                                                                                                                                                                                                                  |        |        |              |        |        |                              |        |        |           |        |        |        |        |        | Corporate |        |        |             |        |        |           |        |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|--------|------------------------------|--------|--------|-----------|--------|--------|--------|--------|--------|-----------|--------|--------|-------------|--------|--------|-----------|--------|
|                                                                                                                                                                                                                  |        |        | Gas          |        |        | Oil                  and Gas |        |        | Energy    |   |   | Energy |   |   | and       |        |        |             |        |        |           |        |
| *(In                  Thousands)*                                                                                                                                                                                |        |        | Distribution |        |        | Production                   |        |        | Marketing |        |        | Assets |        |        | Other     |        |        | Adjustments |        |        | Total     |   |
| **Transition                  Period Ended December 31, 2006**                                                                                                                                                   |   |   |         |   |   |                         |   |   |      |   |   |   |   |   |      |   |   |        |   |   |      |   |
| Revenues                  (1)                                                                                                                                                                                    |   | $      | 496,938      |   | $      | 32,410                       |   | $      | 216,319   |   | $      | 1,360  |   | $      | -         |   | $      | (128        | )      | $      | 746,899   |   |
| Cost                  of energy sold                                                                                                                                                                             |   |   | 306,285      |   |   | -                            |   |   | 194,238   |   |   | 272    |   |   | -         |   |   | (531        | )      |   | 500,264   |   |
| Operation                  and maintenance, excluding merger                                                                                                                                                     |   |   |         |   |   |                         |   |   |      |   |   |   |   |   |      |   |   |        |   |   |      |   |
| and                  environmental costs                                                                                                                                                                         |   |   | 64,729       |   |   | 10,558                       |   |   | 4,473     |   |   | 520    |   |   | 3,242     |   |   | 403         |   |   | 83,925    |   |
| Merger                  costs                                                                                                                                                                                    |   |   | -            |   |   | -                            |   |   | -         |   |   | -      |   |   | 9,321     |   |   | -           |   |   | 9,321     |   |
| Environmental                  costs                                                                                                                                                                             |   |   | 12,994       |   |   | -                            |   |   | -         |   |   | -      |   |   | -         |   |   | -           |   |   | 12,994    |   |
| Depreciation,                  depletion and amortization                                                                                                                                                        |   |   | 15,938       |   |   | 13,548                       |   |   | 333       |   |   | 91     |   |   | 490       |   |   | -           |   |   | 30,400    |   |
| Taxes,                  other than income taxes                                                                                                                                                                  |   |   | 48,909       |   |   | 2,631                        |   |   | 60        |   |   | (11    | )      |   | 472       |   |   | -           |   |   | 52,061    |   |
| Equity                  investment income (2)                                                                                                                                                                    |   |   | -            |   |   | -                            |   |   | -         |   |   | -      |   |   | -         |   |   | -           |   |   | -         |   |
| Operating                  income (loss)                                                                                                                                                                         |   | $      | 48,083       |   | $      | 5,673                        |   | $      | 17,215    |   | $      | 488    |   | $      | (13,525   | )      | $      | -           |   | $      | 57,934    |   |
| Loss                  from discontinued operations,                                                                                                                                                              |   |   |         |   |   |                         |   |   |      |   |   |   |   |   |      |   |   |        |   |   |      |   |
| net                  of income tax benefit                                                                                                                                                                       |   | $      | -            |   | $      | -                            |   | $      | -         |   | $      | (160   | )      | $      | (5        | )      | $      | -           |   | $      | (165      | )      |
|                                                                                                                                                                                                             |   |   |         |   |   |                         |   |   |      |   |   |   |   |   |      |   |   |        |   |   |      |   |
| Segment                  capital assets of continuing                                                                                                                                                            |   |   |         |   |   |                         |   |   |      |   |   |   |   |   |      |   |   |        |   |   |      |   |
| operations,                  net (3)                                                                                                                                                                             |   | $      | 1,646,186    |   | $      | 561,883                      |   | $      | 3,263     |   | $      | 5,088  |   | $      | 7,913     |   | $      | -           |   | $      | 2,224,333 |   |
| Investments                  in equity investees (4)                                                                                                                                                             |   | $      | -            |   | $      | -                            |   | $      | -         |   | $      | 250    |   | $      | -         |   | $      | -           |   | $      | 250       |   |
| Capital                  spending (5)                                                                                                                                                                            |   | $      | 26,453       |   | $      | 42,639                       |   | $      | -         |   | $      | -      |   | $      | 277       |   | $      | -           |   | $      | 69,369    |   |
| **Three                  Months Ended December 31, 2005**                                                                                                                                                        |   |   |         |   |   |                         |   |   |      |   |   |   |   |   |      |   |   |        |   |   |      |   |
| Revenues                  (1)                                                                                                                                                                                    |   | $      | 728,989      |   | $      | 27,058                       |   | $      | 294,870   |   | $      | 2,607  |   | $      | -         |   | $      | (1,138      | )      | $      | 1,052,386 |   |
| Cost                  of energy sold                                                                                                                                                                             |   |   | 517,151      |   |   | -                            |   |   | 280,339   |   |   | 336    |   |   | -         |   |   | (1,399      | )      |   | 796,427   |   |
| Gas                  charge settlement                                                                                                                                                                           |   |   | 91,668       |   |   | -                            |   |   | -         |   |   | -      |   |   | -         |   |   | -           |   |   | 91,668    |   |
| Operation                  and maintenance, excluding gas                                                                                                                                                        |   |   |         |   |   |                         |   |   |      |   |   |   |   |   |      |   |   |        |   |   |      |   |
| charge                  settlement and environmental costs                                                                                                                                                       |   |   | 70,538       |   |   | 8,105                        |   |   | 4,227     |   |   | 463    |   |   | 3,769     |   |   | 261         |   |   | 87,363    |   |
| Environmental                  costs                                                                                                                                                                             |   |   | 11,296       |   |   | -                            |   |   | -         |   |   | -      |   |   | -         |   |   | -           |   |   | 11,296    |   |
| Depreciation,                  depletion and amortization                                                                                                                                                        |   |   | 15,125       |   |   | 13,053                       |   |   | 442       |   |   | 89     |   |   | 276       |   |   | -           |   |   | 28,985    |   |
| Taxes,                  other than income taxes                                                                                                                                                                  |   |   | 64,165       |   |   | 4,091                        |   |   | 98        |   |   | 27     |   |   | 337       |   |   | -           |   |   | 68,718    |   |
| Impairments                  and losses on property sales                                                                                                                                                        |   |   | -            |   |   | -                            |   |   | -         |   |   | -      |   |   | 93        |   |   | -           |   |   | 93        |   |
| Equity                  investment income (2)                                                                                                                                                                    |   |   | -            |   |   | 9,585                        |   |   | -         |   |   | -      |   |   | 67        |   |   | -           |   |   | 9,652     |   |
| Operating                  income (loss)                                                                                                                                                                         |   | $      | (40,954      | )      | $      | 11,394                       |   | $      | 9,764     |   | $      | 1,692  |   | $      | (4,408    | )      | $      | -           |   | $      | (22,512   | )      |
| Loss                  from discontinued operations,                                                                                                                                                              |   |   |         |   |   |                         |   |   |      |   |   |   |   |   |      |   |   |        |   |   |      |   |
| net                  of income tax benefit                                                                                                                                                                       |   | $      | -            |   | $      | -                            |   | $      | -         |   | $      | (1,151 | )      | $      | (5        | )      | $      | -           |   | $      | (1,156    | )      |
|                                                                                                                                                                                                             |   |   |         |   |   |                         |   |   |      |   |   |   |   |   |      |   |   |        |   |   |      |   |
| Segment                  capital assets of continuing                                                                                                                                                            |   |   |         |   |   |                         |   |   |      |   |   |   |   |   |      |   |   |        |   |   |      |   |
| operations,                  net (3)                                                                                                                                                                             |   | $      | 1,587,735    |   | $      | 353,931                      |   | $      | 5,077     |   | $      | 5,298  |   | $      | 6,217     |   | $      | -           |   | $      | 1,958,258 |   |
| Investments                  in equity investees (4)                                                                                                                                                             |   | $      | -            |   | $      | -                            |   | $      | -         |   | $      | -      |   | $      | -         |   | $      | -           |   | $      | -         |   |
| Capital                  spending (5)                                                                                                                                                                            |   | $      | 18,087       |   | $      | 19,360                       |   | $      | 24        |   | $      | -      |   | $      | 248       |   | $      | -           |   | $      | 37,719    |   |
|                                                                                                                                                                                                             |   |   |         |   |   |                         |   |   |      |   |   |   |   |   |      |   |   |        |   |   |      |   |
| (1)                  Oil and Gas Production revenues are net of gains and losses from                  hedging                  activities.                                                                      |
| (2)                  Excludes equity investment income from discontinued operations.                  See Note                  5.                                                                               |
| (3)                  Excludes segment assets of discontinued operations at December                  31, 2006                  and 2005 of $9,573 and $10,552, respectively.                                     |
| (4)                  Excludes investments in equity investees of discontinued operations                  at                  December 31, 2006 and 2005 of $74,021 and $114,144,                  respectively. |
| (5)                  Excludes capital spending relating to assets of discontinued operations                  at                  December 31, 2006 and 2005 of $83 and $314                  respectively.      |

----

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

**5:      EQUITY INVESTMENTS**

|                                         |   |   | Transition                    |   |   | Three                  Months |   |
|-----------------------------------------|--------|--------|-------------------------------|--------|--------|-------------------------------|--------|
|                                         |   |   | Period                  Ended |   |   | Ended                         |   |
|                                         |   |   | December                  31, |   |   | December                  31, |   |
|                                    |   |   | 2006                          |   |   | 2005                          |   |
| *(In                  Thousands)*       |   |   |                          |   |   |                          |   |
| Revenues                                |   | $      | 9,419                         |   | $      | 28,599                        |   |
| Operating                  income       |   |   | 8,008                         |   |   | 14,805                        |   |
| Interest                  expense       |   |   | 6,734                         |   |   | 8,602                         |   |
| Net                  income (loss)      |   | $      | (333                          | )      | $      | 4,136                         |   |
|                                    |   |   |                          |   |   |                          |   |
| Current                  assets         |   | $      | 63,523                        |   | $      | 79,881                        |   |
| Noncurrent                  assets      |   |   | 440,180                       |   |   | 690,171                       |   |
| Current                  liabilities    |   |   | 44,167                        |   |   | 53,435                        |   |
| Noncurrent                  liabilities |   | $      | 311,494                       |   | $      | 398,028                       |   |

----

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

|                                                                            |   |                                 |   | Ownership                  Percentage |   | Equity                  Investment Income |   |
|----------------------------------------------------------------------------|--------|--------------------------------------|--------|---------------------------------------|--------|-------------------------------------------|--------|
|                                                                            |   |                                 |   |                                  |   |                                      |   |   | Transition |   | Three                  Months |   |
|                                                                            |   |                                 |   |                                  |   |                                      |   |   | Period                  Ended |   | Ended |   |
| *(In                  Thousands)*                                          |   |                                 |   | At                  December 31,      |   | December                  31,             |        | December                  31, |   |
| Investment                                                                 |   | Segment                              |   | 2006                                  |   |                                      | 2005   |   |   | 2006 |   |   | 2005 |   |
| EnerVest                                                                   |   | Oil                  and Gas         |   | 23                                    | %      |                                      | 30     | % | $ | - |   | $ | 9,585 |   |
| Trigen-Peoples                                                             |   | Corporate                  and Other |   | N/A                                   |   |                                      | N/A    |   |   | - |   |   | 67 |   |
| Equity                  investment income from                             |   |                                 |   |                                  |   |                                      |   |   |   |   |   |   |   |   |
| continuing                  operations                                     |   |                                 |   |                                  |   |                                      |   |   |   | - |   |   | 9,652 |   |
| Elwood                                                                     |   | Energy                  Assets       |   | 50                                    |   |                                      | 50     |   |   | (167 | ) |   | (476 | ) |
| SCEP                                                                       |   | Energy                  Assets       |   | N/A                                   |   |                                      | 28     |   |   | - |   |   | 1,307 |   |
| Equity                  investment income from                             |   |                                 |   |                                  |   |                                      |   |   |   |   |   |   |   |   |
| discontinued                  operations                                   |   |                                 |   |                                  |   |                                      |   |   |   | (167 | ) |   | 831 |   |
| **Total                  equity investment income**                        |   |                                 |   |                                  |   |                                      |   |   | $ | (167 | ) | $ | 10,483 |   |
|                                                                       |   |                                 |   |                                  |   |                                      |   |   |   |   |   |   |   |   |
| **Undistributed                  partnership income included in the**      |   |                                 |   |                                  |   |                                      |   |   |   |   |   |   |   |   |
| **Company's                  retained earnings at the end of each period** |   |                                 |   |                                  |   |                                      | $      | 25,411 |   | $ | 32,017 |   |

**6:      ENVIRONMENTAL MATTERS**

**A.      Former Manufactured Gas Plant**

----

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

----

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

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

----

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

**C.      Other**

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

**A.      Illinois Commerce Commission Proceedings**

----

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

**B.      Class Action**

----

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

**8.      OTHER LITIGATION**

**A.      **

**Corrosion      Control Inspection Proceeding**

**B.      **

**Builders      Class Action**

----

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

**C.      Technology License**

**9:      COMPREHENSIVE INCOME**

|                                                           |   | Transition                  Period Ended December 31, 2006 andThree                  Months Ended December 31, 2005 |   |
|----------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|--------|
|                                                                |   | Peoples                  Energy                                                                                     |   | Peoples                  Gas |   | North                  Shore Gas |   |
| *(In                  Thousands)*                              |   |                                                                                                                | 2006   |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |   | 2006 |   |   | 2005 |   |
| **Comprehensive                  income (loss)**               |   |                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income (loss)                             |   | $                                                                                                                   | 23,707 |   | $ | (19,481 | ) | $ | 19,086 |   | $ | (24,240 | ) | $ | 4,375 |   | $ | (5,659 | ) |
| Other                  comprehensive income (loss), net of tax |   |                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Minimum                  pension liability adjustment          |   |                                                                                                                | -      |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (1 | ) |
| Unrealized                  hedge gain (loss)                  |   |                                                                                                                | 10,276 |   |   | 38,492 |   |   | 226 |   |   | (323 | ) |   | 6 |   |   | 6 |   |
|                                                           |   |                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total                  comprehensive income (loss)**         |   | $                                                                                                                   | 33,983 |   | $ | 19,011 |   | $ | 19,312 |   | $ | (24,563 | ) | $ | 4,381 |   | $ | (5,654 | ) |

**10:      RETIREMENT AND POSTRETIREMENT BENEFITS**

----

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

|                                                                                                 |   |                                  |   |  Other                Postretirement |   |
|------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------------------|--------|
|                                                                                                      |   |  Pension                Benefits |   |  Benefits                            |   |
| *(In                Millions)*                                                                       |   |                                  | 2006   |                                      |   | 2006 |   |
| **Change                in benefit obligation**                                                      |   |                                  |   |                                      |   |   |   |
| Benefit                obligation at beginning of measurement period (June 30)                       |   | $                                     | 438.9  |                                      | $      | 130.1 |   |
| Service                cost                                                                          |   |                                  | 4.1    |                                      |   | 2.1 |   |
| Interest                cost                                                                         |   |                                  | 7.0    |                                      |   | 2.1 |   |
| Participant                contributions                                                             |   |                                  | -      |                                      |   | 1.6 |   |
| Actuarial                (gain)/loss                                                                 |   |                                  | 34.6   |                                      |   | 5.0 |   |
| Benefits                paid                                                                         |   |                                  | (7.8   | )                                         |   | (2.1 | ) |
| **Benefit                obligation at end of measurement period (Sept 30)**                         |   | $                                     | 476.8  |                                      | $      | 138.8 |   |
|                                                                                                 |   |                                  |   |                                      |   |   |   |
| Accumulated                benefit obligation at end of measurement period (Sept 30)                 |   | $                                     | 389.8  |                                      |   |   |   |
|                                                                                                 |   |                                  |   |                                      |   |   |   |
| **Change                in plan assets**                                                             |   |                                  |   |                                      |   |   |   |
| Fair                value of plan assets at beginning of measurement period (June                30) |   | $                                     | 495.4  |                                      | $      | 32.1 |   |
| Actual                return on plan assets                                                          |   |                                  | 20.7   |                                      |   | 0.9 |   |
| Participant                contributions                                                             |   |                                  | -      |                                      |   | 1.6 |   |
| Benefits                paid                                                                         |   |                                  | (7.8   | )                                         |   | (3.8 | ) |
| **Fair                value of plan assets at end of measurement period (Sept                30)**   |   | $                                     | 508.3  |                                      | $      | 30.8 |   |
|                                                                                                 |   |                                  |   |                                      |   |   |   |
| Funded                status at end of measurement period (Sept 30)                                  |   | $                                     | 31.5   |                                      | $      | (108.0 | ) |
| Adjustment                for Medicare Part D receivable                                             |   |                                  | -      |                                      |   | (0.9 | ) |
| **Funded                status at December 31**                                                      |   | $                                     | 31.5   |                                      | $      | (108.9 | ) |

----

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

| *(In                Millions)*                      |   |   | 2006   |   |   | 2005   |   |
|-----------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Benefit                obligation                   |   | $      | 7.8    |   | $      | 6.9    |   |
|                                                |   |   |   |   |   |   |   |
| Accumulated                benefit obligation (ABO) |   | $      | 6.8    |   | $      | 6.2    |   |
| Fair                value of plan assets            |        |        | -      |        |        | -      |        |
| ABO                in excess of plan assets         |   | $      | 6.8    |   | $      | 6.2    |   |

|                                       |   |                              |   | Other                  Postretirement |   |
|--------------------------------------------|--------|-----------------------------------|--------|---------------------------------------|--------|
|                                            |   | Pension                  Benefits |   | Benefits                              |   |
| December                  31,              |   |                              | 2006   |                                  |   | 2006 |   |
| *(In                  Millions)*           |   |                              |   |                                  |   |   |   |
| Noncurrent                  assets         |   | $                                 | 68.4   |                                  | $      | - |   |
| Current                  liabilities       |   |                              | (3.7   | )                                     |   | - |   |
| Noncurrent                  liabilities    |   |                              | (33.2  | )                                     |   | (108.9 | ) |
| **Net                  amount recognized** |   | $                                 | 31.5   |                                  | $      | (108.9 | ) |

|                                           |   |                              |   |   |     | Other                  Postretirement |   |
|------------------------------------------------|--------|-----------------------------------|--------|--------|----------|---------------------------------------|--------|
|                                                |   | Pension                  Benefits |   |   | Benefits |                                  |
| December                  31,                  |   |                              | 2006   |   |     | 2006                                  |   |
| *(In                  Millions)*               |   |                              |   |   |     |                                  |   |
| Net                  actuarial (gain)/loss     |   | $                                 | 5.6    |   | $        | 0.7                                   |   |
| Prior                  service cost            |   |                              | 1.0    |   |     | -                                     |   |
| Transition                  obligation/(asset) |   |                              | -      |   |     | 0.1                                   |   |
|                                           |   | $                                 | 6.6    |   | $        | 0.8                                   |   |

|                                           |   |                              |   |   |   |     | Other                  Postretirement |   |
|------------------------------------------------|--------|-----------------------------------|--------|--------|--------|----------|---------------------------------------|--------|
|                                                |   | Pension                  Benefits |   |        |        | Benefits |                                  |
| December                  31,                  |   |                              | 2006   |   |   |     | 2006                                  |   |
| *(In                  Millions)*               |   |                              |   |   |   |     |                                  |   |
| Regulatory                  asset              |   |                              |   |   |   |     |                                  |   |
| Net                  actuarial (gain)/loss     |   | $                                 | 102.1  |   |   | $        | 27.1                                  |   |
| Prior                  service cost            |   |                              | 31.9   |   |   |     | -                                     |   |
| Transition                  obligation/(asset) |   |                              | -      |   |   |     | 8.2                                   |   |
| Regulatory                  liability          |   |                              |   |   |   |     |                                  |   |
| Net                  actuarial (gain)/loss     |   |                              | (0.1   | )      |        |     | -                                     |   |
| Prior                  service cost            |   |                              | (0.8   | )      |        |     | -                                     |   |
| Net                  regulatory assets         |   | $                                 | 133.1  |   |   | $        | 35.3                                  |   |

----

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

|                                                                  |   |   | Before                          |   |   |        |   |   | After                           |   |
|-----------------------------------------------------------------------|--------|--------|---------------------------------|--------|--------|-------------|--------|--------|---------------------------------|--------|
|                                                                  |   |   | Application                  of |   |   |        |   |   | Application                  of |   |
|                                                                  |   |   | SFAS                  No. 158   |   |   | Adjustments |   |   | SFAS                  No. 158   |   |
| *(In                  Millions)*                                      |   |   |                            |   |   |        |   |   |                            |   |
| **ASSETS**                                                            |   |   |                            |   |   |        |   |   |                            |   |
| Prepaid                  pension costs                                |   | $      | 179.4                           |   | $      | (111.0      | )      | $      | 68.4                            |   |
| Noncurrent                  regulatory assets of utility subsidiaries |   |   | 398.6                           |   |   | 169.3       |   |   | 567.9                           |   |
| Total                  Other Assets                                   |   |   | 619.2                           |   |   | 58.3        |   |   | 677.5                           |   |
| Total                  Assets                                         |   |   | 3,927.9                         |   |   | 58.3        |   |   | 3,986.2                         |   |
|                                                                  |   |   |                            |   |   |        |   |   |                            |   |
| **LIABILITIES                  AND CAPITALIZATION**                   |   |   |                            |   |   |        |   |   |                            |   |
| **Liabilities**                                                       |   |   |                            |   |   |        |   |   |                            |   |
| Other                  accrued liabilities                            |   |   | 38.3                            |   |   | 3.6         |   |   | 41.9                            |   |
| Total                  Current Liabilities                            |   |   | 1,198.1                         |   |   | 3.6         |   |   | 1,201.7                         |   |
| Deferred                  income taxes                                |   |   | 457.2                           |   |   | (2.9        | )      |   | 454.3                           |   |
| Pension,                  postretirement and other                    |   |   | 97.9                            |   |   | 62.0        |   |   | 159.9                           |   |
| Total                  Deferred Credits and Other Liabilities         |   |   | 976.9                           |   |   | 59.1        |   |   | 1,036.0                         |   |
|                                                                  |   |   |                            |   |   |        |   |   |                            |   |
| **Capitalization**                                                    |   |   |                            |   |   |        |   |   |                            |   |
| Accumulated                  other comprehensive loss                 |   |   | (9.1                            | )      |   | (4.4        | )      |   | (13.5                           | )      |
| Total                  Common Stockholder's Equity                    |   |   | 858.4                           |   |   | (4.4        | )      |   | 854.0                           |   |
| Total                  Capitalization                                 |   |   | 1,752.9                         |   |   | (4.4        | )      |   | 1,748.5                         |   |
| Total                  Liabilities and Capitalization                 |   |   | 3,927.9                         |   |   | 58.3        |   |   | 3,986.2                         |   |

|                                                                                                 |   |                                    |   |  Other                  Postretirement |   |
|------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------------|--------|
|                                                                                                 |   |  Pension                  Benefits |   |  Benefits                              |   |
| *(In                  Millions)* Three Months Ended December 31                                      |   |  2006                              |   | 2005                                        |   | 2006 |   | 2005 |   |
| Service                  cost                                                                        |   | $                                       | 4.1    |                                        | $      | 5.2 |   | $ | 2.1 |   | $ | 1.8 |   |
| Interest                  cost                                                                       |   |                                    | 7.0    |                                        |   | 6.4 |   |   | 2.1 |   |   | 1.6 |   |
| Expected                  return on plan assets                                                      |   |                                    | (9.9   | )                                           |   | (10.2 | ) |   | (0.6 | ) |   | (0.7 | ) |
| Amortization                  of:                                                                    |   |                                    |   |                                        |   |   |   |   |   |   |   |   |   |
| Net                  transition (asset)/obligation                                                   |   |                                    | -      |                                        |   | - |   |   | 0.3 |   |   | 0.3 |   |
| Prior                  service cost                                                                  |   |                                    | 0.6    |                                        |   | 0.7 |   |   | - |   |   | - |   |
| Net                  actuarial (gain)/loss                                                           |   |                                    | 0.7    |                                        |   | 1.5 |   |   | 0.2 |   |   | 0.2 |   |
| **Net                  periodic benefit cost**                                                       |   |                                    | 2.5    |                                        |   | 3.6 |   |   | 4.1 |   |   | 3.2 |   |
|                                                                                                 |   |                                    |   |                                        |   |   |   |   |   |   |   |   |   |
| Effect                  of lump sum settlements upon retirement                                      |   |                                    | 0.6    |                                        |   | 2.2 |   |   | - |   |   | - |   |
| **Net                  benefit cost**                                                                |   | $                                       | 3.1    |                                        | $      | 5.8 |   | $ | 4.1 |   | $ | 3.2 |   |
|                                                                                                 |   |                                    |   |                                        |   |   |   |   |   |   |   |   |   |
| **Weighted-average                  assumptions used to determine net benefit**                      |   |                                    |   |                                        |   |   |   |   |   |   |   |   |   |
| **cost                  (as of September 30 for 2006 and as of June 30 for                  2005):** |   |                                    |   |                                        |   |   |   |   |   |   |   |   |   |
| Discount                  rate                                                                       |   |                                    | 6.50   | %                                           |   | 5.25 | % |   | 6.25 | % |   | 5.00 | % |
| Expected                  return on plan assets                                                      |   |                                    | 8.50   | %                                           |   | 8.75 | % |   | 8.50 | % |   | 8.75 | % |
| Rate                  of compensation increase                                                       |   |                                    | 3.75   | %                                           |   | 3.75 | % |   |   |   |   |   |   |

----

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

**11:      INCOME TAXES**

----

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

**EXECUTIVE      SUMMARY**

|                                                        |   | Transition                  Period Ended December 31, 2006 and                  Three                  Months Ended December 31, 2005 |   |
|-------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                        |   | Ongoing(non-GAAP)                                                                                                                |   | Merger                  and SettlementCharges |   | As                  Reported(GAAP) |   |
| *(In                  Thousands, except per share amounts)* |   | 2006                                                                                                                                  |   | 2005 |   | 2006 |   | 2005 |   | 2006 |   | 2005 |   |
| Operating                  Income (Loss):                   |   |                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gas                  Distribution                           |   | $                                                                                                                                     | 48,083 |   | $ | 50,714 |   | $ | - |   | $ | (91,668 | ) | $ | 48,083 |   | $ | (40,954 | ) |
| Oil                  and Gas Production                     |   |                                                                                                                                  | 5,673  |   |   | 11,394 |   |   | - |   |   | - |   |   | 5,673 |   |   | 11,394 |   |
| Energy                  Marketing                           |   |                                                                                                                                  | 17,215 |   |   | 9,764 |   |   | - |   |   | - |   |   | 17,215 |   |   | 9,764 |   |
| Energy                  Assets                              |   |                                                                                                                                  | 488    |   |   | 1,692 |   |   | - |   |   | - |   |   | 488 |   |   | 1,692 |   |
| Corporate                  and Other                        |   |                                                                                                                                  | (4,204 | ) |   | (4,408 | ) |   | (9,321 | ) |   | - |   |   | (13,525 | ) |   | (4,408 | ) |
| Total                  Operating Income (Loss)              |   | $                                                                                                                                     | 67,255 |   | $ | 69,156 |   | $ | (9,321 | ) | $ | (91,668 | ) | $ | 57,934 |   | $ | (22,512 | ) |
|                                                        |   |                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (loss) from                         |   |                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| continuing                  operations                      |   | $                                                                                                                                     | 31,840 |   | $ | 36,909 |   | $ | (7,968 | ) | $ | (55,234 | ) | $ | 23,872 |   | $ | (18,325 | ) |
| Income                  from discontinued operations,       |   |                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| net                  of income taxes                        |   |                                                                                                                                       |   |  |  |   |  |  |  |  |  |   |  |  | (165 | ) |   | (1,156 | ) |
| Net                  Income (Loss)                          |   |                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   | $ | 23,707 |   | $ | (19,481 | ) |
|                                                        |   |                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per                  Diluted Share:                         |   |                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (loss) from                         |   |                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| continuing                  operations                      |   | $                                                                                                                                     | 0.82   |   | $ | 0.96 |   | $ | (0.21 | ) | $ | (1.44 | ) | $ | 0.61 |   | $ | (0.48 | ) |
| Income                  from discontinued operations        |   |                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   | - |   |   | (0.03 | ) |
| Net                  Income (Loss)                          |   |                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   | $ | 0.61 |   | $ | (0.51 | ) |

----

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

| ·   | On                February 7, 2007,                the Illinois Commerce Commission approved the proposed merger of                Peoples                Energy and WPS Resources Corporation. The                Public Service Commission of Wisconsin (PSCW) has given its verbal                approval to the proposed merger of the companies. The transaction                will                close following the PSCW's written order, which is expected to be                issued                February 16, 2007. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Gas                Distribution segment deliveries for the period were negatively impacted                by                weather that was 8% warmer than a year ago. Estimated weather-normalized                deliveries for the period were flat from a year ago. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Oil                and Gas Production segment volumes were up slightly compared to a                year                ago, reflecting good performance from both existing and new wells                offset                by the normal decline rate of existing production. Net realized gas                prices                increased sharply from last year, offset by higher expenses and the                inclusion in the year-ago period of a $9.6 million pre-tax gain related                to                the sale of assets by the Company’s EnerVest                partnership. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Energy                Marketing results benefited from net gains associated with the impacts                of                mark-to-market (MTM), fair value hedge and lower-of-cost-or-market                (LOCOM)                accounting totaling $13.8 million for the period, compared to net                losses                of $2.2 million in the year-ago period. About $6 million of these                net                gains are expected to reverse in 2007 as the underlying transactions                are                settled. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Consistent                with the Company’s previously announced plans to exit the power generation                business, on January 17, 2007, the Company completed the sale of                substantially all of its interest in Elwood Energy, LLC (Elwood)                to                J-Power USA Development Co (J-Power). Subsequent to the sale, J-Power                informed the Company that it no longer was interested in purchasing                the                Company’s remaining power asset, a development site in Oregon (the COB                Energy Facility, or COB), as previously planned. In January, 2007,                the                Company recorded an impairment charge associated with that site which,                when combined with the Elwood transaction, resulted in a net pre-tax                gain                of approximately $20 million, in line with expectations previously                disclosed. Cash proceeds of approximately $103 million from the sale                of                Elwood were used to reduce short-term borrowing at Peoples Energy                Corporation. Financial results for power generation are reported                by the                Company as discontinued operations. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Rate      Case.**

**RESULTS      OF OPERATIONS**

**Statement      of Operations Variations**

----

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

| ·   | Decreased                bad debt expense at the Gas Distribution segment of $6.6 million                due                primarily to lower natural gas deliveries resulting from warmer weather                and their corresponding impact on                revenues. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Decreased                pension expense at corporate and the Gas Distribution segment totaling                $1.3 million due to a higher discount rate assumption to value the                pension                liability. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Increased                lease operating and general and administrative costs at the Oil and                Gas                Production segment totaling $2.5                million. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Increased                outside consulting and legal services expense of $1.1                million. |
|--------------------|--------------------------------------------------------------------------------------------------------|

----

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

**Gas      Distribution Segment.**

----

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

| **Gas                  Distribution Statistics**                                                       |
|--------------------------------------------------------------------------------------------------------|
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                   |   |   | Transition                  Period  |   |   | Three                  Months |   |   |   |   |
|                                                                                                   |   |   | Ended |   |   | Ended |   |   |   |   |
|                                                                                                   |   |   | December                  31, |   |   | December                  31, |   |   | Increase/ |   |
| **Margin                  Data***(In Thousands)*                                                       |   |   | 2006 |   |   | 2005 |   |   | (Decrease) |   |
| **Gas                  Distribution revenues:**                                                        |   |   |   |   |   |   |   |   |   |   |
| Sales                                                                                                  |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                            |   | $ | 383,269 |   | $ | 572,747 |   | $ | (189,478 | ) |
| Commercial                                                                                             |   |   | 62,445 |   |   | 93,130 |   |   | (30,685 | ) |
| Industrial                                                                                             |   |   | 8,989 |   |   | 17,574 |   |   | (8,585 | ) |
| **Total                  sales**                                                                       |   |   | 454,703 |   |   | 683,451 |   |   | (228,748 | ) |
| Transportation                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                            |   |   | 12,788 |   |   | 10,819 |   |   | 1,969 |   |
| Commercial                                                                                             |   |   | 16,060 |   |   | 15,334 |   |   | 726 |   |
| Industrial                                                                                             |   |   | 5,345 |   |   | 5,449 |   |   | (104 | ) |
| Contract                  pooling                                                                      |   |   | 3,736 |   |   | 6,649 |   |   | (2,913 | ) |
| **Total                  transportation**                                                              |   |   | 37,929 |   |   | 38,251 |   |   | (322 | ) |
| Total                  Hub revenues (3)                                                                |   |   | - |   |   | 2,813 |   |   | (2,813 | ) |
| Other                  Gas Distribution revenues                                                       |   |   | 4,306 |   |   | 4,474 |   |   | (168 | ) |
| **Total                  Gas Distribution revenues**                                                   |   |   | 496,938 |   |   | 728,989 |   |   | (232,051 | ) |
| Less:                  Gas costs                                                                       |   |   | 306,285 |   |   | 517,151 |   |   | (210,866 | ) |
| **Gross                  margin****(1)**                                                               |   |   | 190,653 |   |   | 211,838 |   |   | (21,185 | ) |
| Less:                  Revenue taxes                                                                   |   |   | 44,218 |   |   | 59,997 |   |   | (15,779 | ) |
| Environmental                  costs recovered                                                         |   |   | 12,994 |   |   | 11,296 |   |   | 1,698 |   |
| **Net                  margin****(1)**                                                                 |   | $ | 133,441 |   | $ | 140,545 |   | $ | (7,104 | ) |
| **Gas                  Distribution deliveries (MDth):**                                               |   |   |   |   |   |   |   |   |   |   |
| Gas                  sales                                                                             |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                            |   |   | 33,294 |   |   | 37,183 |   |   | (3,889 | ) |
| Commercial                                                                                             |   |   | 5,803 |   |   | 6,262 |   |   | (459 | ) |
| Industrial                                                                                             |   |   | 886 |   |   | 1,235 |   |   | (349 | ) |
| **Total                  gas sales**                                                                   |   |   | 39,983 |   |   | 44,680 |   |   | (4,697 | ) |
| Transportation                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                            |   |   | 6,778 |   |   | 6,638 |   |   | 140 |   |
| Commercial                                                                                             |   |   | 12,885 |   |   | 13,423 |   |   | (538 | ) |
| Industrial                                                                                             |   |   | 5,497 |   |   | 6,032 |   |   | (535 | ) |
| **Total                  transportation**                                                              |   |   | 25,160 |   |   | 26,093 |   |   | (933 | ) |
| **Total                  Distribution deliveries**                                                     |   |   | 65,143 |   |   | 70,773 |   |   | (5,630 | ) |
| Hub                  delivery volumes (3)                                                              |   |   | - |   |   | 5,070 |   |   | (5,070 | ) |
| Gross                  margin per Dth delivered (4)                                                    |   | $ | 2.93 |   | $ | 2.95 |   | $ | (0.02 | ) |
| Net                  margin per Dth delivered (4)                                                      |   | $ | 2.05 |   | $ | 1.95 |   | $ | 0.10 |   |
| Average                  cost per Dth of gas sold                                                      |   | $ | 7.66 |   | $ | 11.57 |   | $ | (3.91 | ) |
| Actual                  heating degree days (HDD)                                                      |   |   | 2,113 |   |   | 2,302 |   |   | (189 | ) |
| Normal                  heating degree days                  (2)                                       |   |   | 2,219 |   |   | 2,290 |   |   |   |   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |
| Actual                    heating degree days as a percentof                    normal (actual/normal) |   |   | 95 |   |   | 101 |   |   |   |   |

----

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

**Oil        and Gas Production Segment.**

|                                                                      |   |   | 2007       |   |
|---------------------------------------------------------------------------|--------|--------|------------|--------|
| Gas                hedges in place (MMbtus)                               |   |   | 10,129,000 |   |
| Gas                hedges as a percent of estimated fiscal production (1) |   |   | 40         | %      |
| Percent                of gas hedges that are swaps                       |   |   | 62         | %      |
| Average                swap price ($/MMbtu)                               |   | $      | 5.58       |   |
| Percent                of gas hedges that are no cost collars             |   |   | 38         | %      |
| Weighted                average floor price ($/MMbtu)                     |   | $      | 5.87       |   |
| Weighted                average ceiling price ($/MMbtu)                   |   | $      | 7.16       |   |
| Oil                hedges in place (MBbls)                                |   |   | 155        |   |
| Oil                hedges as a percent of estimated fiscal production (1) |   |   | 50         | %      |
| Average                hedge price ($/Bbl)                                |   | $      | 39.77      |   |

|                                                                  |   | TransitionPeriod                EndedDecember                31,2006 |   | Three                MonthsEndedDecember                31,2005 |   |
|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|
| Total                production - gas equivalent (MMcfe)(1)           |   |                                                                 | 5,931  |                                                            |   | 5,889 |   |
| Daily                average gas production (MMcfd)                   |   |                                                                 | 59.5   |                                                            |   | 58.0 |   |
| Daily                average oil production (MBd)                     |   |                                                                 | 0.8    |                                                            |   | 1.0 |   |
| Daily                average production - gas equivalent (MMcfed)(1)  |   |                                                                 | 64.5   |                                                            |   | 64.0 |   |
| Gas                production as a percentage of total production     |   |                                                                 | 92     |                                                            |   | 91 |   |
| Percent                of production hedged during the period - gas   |   |                                                                 | 61     |                                                            |   | 86 |   |
| Percent                of production hedged during the period - oil   |   |                                                                 | 60     |                                                            |   | 81 |   |
| Gas                average sales price ($/Mcf)                        |   | $                                                                    | 5.33   |                                                            | $      | 4.64 |   |
| Oil                average sales price ($/Bbl)                        |   | $                                                                    | 42.27  |                                                            | $      | 29.90 |   |
| Depreciation,                depletion and amortization rate ($/Mcfe) |   | $                                                                    | 2.26   |                                                            | $      | 2.20 |   |
| Average                lease operating expense ($/Mcfe)               |   | $                                                                    | 0.81   |                                                            | $      | 0.72 |   |
| Average                production taxes ($/Mcfe)(2)                   |   | $                                                                    | 0.43   |                                                            | $      | 0.69 |   |

----

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

**Energy          Marketing Segment.**
**-**
** **

|                                               |   | TransitionPeriod                EndedDecember                31,2006 |    |  Three                MonthsEndedDecember                31,2005 |   |
|----------------------------------------------------|--------|----------------------------------------------------------------------|---------|-----------------------------------------------------------------------|--------|
| Wholesale                gas volumes sold (MDth)   |   |                                                                 | 9,025   |                                                                  |   | 9,908 |   |
| Retail                gas volumes sold (MDth)      |   |                                                                 | 15,435  |                                                                  |   | 15,086 |   |
| Number                of retail gas customers      |   |                                                                 | 36,445  |                                                                  |   | 23,552 |   |
| Retail                electric volumes sold (Mwh)  |   |                                                                 | 532,141 |                                                                  |   | 399,715 |   |
| Number                of retail electric customers |   |                                                                 | 4,266   |                                                                  |   | 2,307 |   |

**Energy      Assets Segment.**
** **

**Discontinued      Operations.**

**Critical      Accounting Policies**

----

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

**LIQUIDITY      AND CAPITAL RESOURCES**

| *(In                Thousands)*                                    |   | TransitionPeriod                EndedDecember                31,2006 |    | Three                MonthsEndedDecember                31,2005 |   |
|--------------------------------------------------------------------|--------|----------------------------------------------------------------------|---------|-----------------------------------------------------------------|--------|
| Net                cash provided by (used in) operating activities |   | $                                                                    | (68,572 | )                                                               | $      | (163,262 | ) |
| Net                cash provided by (used in) investing activities |   | $                                                                    | (21,213 | )                                                               | $      | (2,976 | ) |
| Net                cash provided by (used in) financing activities |   | $                                                                    | 52,012  |                                                            | $      | 165,564 |   |

**Balance      Sheet Variations**

----

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

**Financial        Sources**

**Changes      in Equity Securities**

----

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

|                                                          |   |  Transition                  Period EndedDecember                  31, 2006 |       | Three                  Months EndedDecember                  31, 2005 |   |
|---------------------------------------------------------------|--------|----------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|--------|
| *(Dollars                  in Thousands)*                     |   | Shares                                                                           |       | Dollars                                                               |   | Shares |   | Dollars |   |
| **Shares                  outstanding - beginning of period** |   |                                                                             | 38,488,780 |                                                                  | $      | 416,408 |   |   | 38,157,218 |   | $ | 402,383 |   |
| **Shares                  issued:**                           |   |                                                                             |       |                                                                  |   |   |   |   |   |   |   |   |   |
| Employee                  Stock Purchase Plan                 |   |                                                                             | 5,027      |                                                                  |   | 4 |   |   | 7,992 |   |   | 260 |   |
| Long-Term                  Incentive Compensation Plans, net  |   |                                                                             | 36,455     |                                                                  |   | 1,946 |   |   | 54,509 |   |   | 986 |   |
| Directors                  Deferred Compensation Plan         |   |                                                                             | -          |                                                                  |   | 179 |   |   | - |   |   | (5 | ) |
| Direct                  Purchase and Investment Plan          |   |                                                                             | 47,673     |                                                                  |   | 1,993 |   |   | 73,049 |   |   | 2,634 |   |
| **Total                  activity for the period**            |   |                                                                             | 89,155     |                                                                  |   | 4,122 |   |   | 135,550 |   |   | 3,875 |   |
|                                                          |   |                                                                             |       |                                                                  |   |   |   |   |   |   |   |   |   |
| **Shares                  outstanding - end of period**       |   |                                                                             | 38,577,935 |                                                                  | $      | 420,530 |   |   | 38,292,768 |   | $ | 406,258 |   |

**Financial      Uses**

**Capital      Spending. **

**Dividends**

**Commitments,      Contractual Obligations and Uncertainties**

**Off-balance      Sheet Arrangements.**

----

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

**Contractual      Obligations.**

**Environmental      Matters.**

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

**Indenture      Restrictions**

**PEOPLES      GAS AND NORTH SHORE GAS DISCUSSIONS**

----

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

|                                                |   | Peoples                    Gas |    | North                    Shore Gas    |   |
|-----------------------------------------------------|--------|--------------------------------|---------|---------------------------------------|--------|
| *(In                    Thousands)*                 |   | GasDistribution                |    | Corporateand                    Other |   |  Total |   | GasDistribution |   | Corporateand                    Other |   | Total |   |
| **For                    the Three Months Ended**   |   |                           |    |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December                    31, 2006 (GAAP)         |   | $                              | 39,818  |                                  | $      | (2,966 | ) | $ | 36,852 |   | $ | 8,345 |   | $ | (401 | ) | $ | 7,944 |   |
| December                    31, 2005 (GAAP)         |   |                           | (32,543 | )                                     |   | (3,264 | ) |   | (35,807 | ) |   | (8,355 | ) |   | (436 | ) |   | (8,791 | ) |
| December                    31, 2005 (non-GAAP) (1) |   |                           | 42,125  |                                  |   | (3,264 | ) |   | 38,861 |   |   | 8,645 |   |   | (436 | ) |   | 8,209 |   |

| (1) | Ongoing                operating income (non-GAAP) for the three months ended December 31,                2005                is defined as GAAP operating (loss) adjusted to exclude the effects                of a                charge of $74.7 million and $17.0 million at Peoples Gas and North                Shore                Gas, respectively, associated with the settlement of gas charge                proceedings. See Item 2 - MD&A - Executive Summary for a discussion of                management's use of non-GAAP financial measures and a reconciliation                of                GAAP and non-GAAP earnings. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Peoples      Gas Discussion**

**Statement      of Operations Variations**

**Balance      Sheet Variations**

----

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

**North      Shore Gas Discussion**

**Statement      of Operations Variations**

**Balance      Sheet Variations**

----

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

----

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

| **The                      Peoples Gas Light and Coke Company**                                                |
|----------------------------------------------------------------------------------------------------------------|
| **Gas                      Distribution Statistics**                                                           |
|                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| **Margin                      Data***(In Thousands)*                                                           |   | Transition                      PeriodEndedDecember                      31,2006 |   | Three                          MonthsEndedDecember                        31,2005 |   |                      Increase/(Decrease) |   |
| **Gas                      Distribution revenues:**                                                            |   |   |   |   |   |   |   |   |   |   |
| Sales                                                                                                          |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                                    |   | $ | 322,191 |   | $ | 480,706 |   | $ | (158,515 | ) |
| Commercial                                                                                                     |   |   | 52,272 |   |   | 78,016 |   |   | (25,744 | ) |
| Industrial                                                                                                     |   |   | 6,960 |   |   | 14,011 |   |   | (7,051 | ) |
| **Total                      sales**                                                                           |   |   | 381,423 |   |   | 572,733 |   |   | (191,310 | ) |
| Transportation                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                                    |   |   | 12,175 |   |   | 10,249 |   |   | 1,926 |   |
| Commercial                                                                                                     |   |   | 14,055 |   |   | 13,246 |   |   | 809 |   |
| Industrial                                                                                                     |   |   | 4,592 |   |   | 4,684 |   |   | (92 | ) |
| Contract                      pooling                                                                          |   |   | 3,153 |   |   | 5,710 |   |   | (2,557 | ) |
| **Total                      transportation**                                                                  |   |   | 33,975 |   |   | 33,889 |   |   | 86 |   |
| Total                      Hub revenues (3)                                                                    |   |   | - |   |   | 2,813 |   |   | (2,813 | ) |
| Other                      Gas Distribution revenues                                                           |   |   | 3,966 |   |   | 4,090 |   |   | (124 | ) |
| **Total                      Gas Distribution revenues**                                                       |   |   | 419,364 |   |   | 613,525 |   |   | (194,161 | ) |
| Less:                      Gas costs                                                                           |   |   | 251,724 |   |   | 426,860 |   |   | (175,136 | ) |
| **Gross                      margin****(1)**                                                                   |   |   | 167,640 |   |   | 186,665 |   |   | (19,025 | ) |
| Less:                      Revenue taxes                                                                       |   |   | 40,147 |   |   | 54,793 |   |   | (14,646 | ) |
| Environmental                      costs recovered                                                             |   |   | 12,532 |   |   | 10,502 |   |   | 2,030 |   |
| **Net                      margin****(1)**                                                                     |   | $ | 114,961 |   | $ | 121,370 |   | $ | (6,409 | ) |
| **Gas                      Distribution deliveries (MDth):**                                                   |   |   |   |   |   |   |   |   |   |   |
| Gas                      sales                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                                    |   |   | 27,398 |   |   | 30,710 |   |   | (3,312 | ) |
| Commercial                                                                                                     |   |   | 4,781 |   |   | 5,169 |   |   | (388 | ) |
| Industrial                                                                                                     |   |   | 671 |   |   | 966 |   |   | (295 | ) |
| **Total                      gas sales**                                                                       |   |   | 32,850 |   |   | 36,845 |   |   | (3,995 | ) |
| Transportation                                                                                                 |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                                    |   |   | 6,480 |   |   | 6,349 |   |   | 131 |   |
| Commercial                                                                                                     |   |   | 10,841 |   |   | 11,318 |   |   | (477 | ) |
| Industrial                                                                                                     |   |   | 4,234 |   |   | 4,690 |   |   | (456 | ) |
| **Total                      transportation**                                                                  |   |   | 21,555 |   |   | 22,357 |   |   | (802 | ) |
| **Total                      Distribution deliveries**                                                         |   |   | 54,405 |   |   | 59,202 |   |   | (4,797 | ) |
| Hub                      delivery volumes                      (3)                                             |   |   | - |   |   | 5,070 |   |   | (5,070 | ) |
| Gross                      margin per Dth delivered                      (4)                                   |   | $ | 3.08 |   | $ | 3.11 |   | $ | (0.03 | ) |
| Net                      margin per Dth delivered                      (4)                                     |   | $ | 2.11 |   | $ | 2.00 |   | $ | 0.11 |   |
| Average                      cost per Dth of gas sold                                                          |   | $ | 7.66 |   | $ | 11.59 |   | $ | (3.93 | ) |
| Actual                      heating degree days (HDD)                                                          |   |   | 2,113 |   |   | 2,302 |   |   | (189 | ) |
| Normal                      heating degree days                      (2)                                       |   |   | 2,219 |   |   | 2,290 |   |   |   |   |
| Actual                        heating degree days as a percentof                        normal (actual/normal) |   |   | 95 |   |   | 101 |   |   |   |   |

----

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

| **North                      Shore Gas Company**                                                       |
|--------------------------------------------------------------------------------------------------------|
| **Gas                      Distribution Statistics**                                                   |
|                                                                                                   |   |   |   |   |   |   |   |   |   |   |
| **Margin                    Data***(In Thousands)*                                                     |   | Transition                    PeriodEndedDecember                    31,2006 |   | Three                    MonthsEndedDecember                      31,2005 |   | Increase/(Decrease) |   |
| **Gas                    Distribution revenues:**                                                      |   |   |   |   |   |   |   |   |   |   |
| Sales                                                                                                  |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                            |   | $ | 61,078 |   | $ | 92,041 |   | $ | (30,963 | ) |
| Commercial                                                                                             |   |   | 10,173 |   |   | 15,114 |   |   | (4,941 | ) |
| Industrial                                                                                             |   |   | 2,029 |   |   | 3,563 |   |   | (1,534 | ) |
| **Total                    sales**                                                                     |   |   | 73,280 |   |   | 110,718 |   |   | (37,438 | ) |
| Transportation                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                            |   |   | 613 |   |   | 570 |   |   | 43 |   |
| Commercial                                                                                             |   |   | 2,005 |   |   | 2,088 |   |   | (83 | ) |
| Industrial                                                                                             |   |   | 753 |   |   | 765 |   |   | (12 | ) |
| Contract                    pooling                                                                    |   |   | 583 |   |   | 939 |   |   | (356 | ) |
| **Total                    transportation**                                                            |   |   | 3,954 |   |   | 4,362 |   |   | (408 | ) |
| Other                    Gas Distribution revenues                                                     |   |   | 340 |   |   | 384 |   |   | (44 | ) |
| **Total                    Gas Distribution revenues**                                                 |   |   | 77,574 |   |   | 115,464 |   |   | (37,890 | ) |
| Less:                    Gas costs                                                                     |   |   | 54,561 |   |   | 90,290 |   |   | (35,729 | ) |
| **Gross                    margin****(1)**                                                             |   |   | 23,013 |   |   | 25,174 |   |   | (2,161 | ) |
| Less:                    Revenue taxes                                                                 |   |   | 4,071 |   |   | 5,204 |   |   | (1,133 | ) |
| Environmental                    costs recovered                                                       |   |   | 462 |   |   | 794 |   |   | (332 | ) |
| **Net                    margin****(1)**                                                               |   | $ | 18,480 |   | $ | 19,176 |   | $ | (696 | ) |
| **Gas                    Distribution deliveries (MDth):**                                             |   |   |   |   |   |   |   |   |   |   |
| Gas                    sales                                                                           |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                            |   |   | 5,896 |   |   | 6,473 |   |   | (577 | ) |
| Commercial                                                                                             |   |   | 1,022 |   |   | 1,093 |   |   | (71 | ) |
| Industrial                                                                                             |   |   | 215 |   |   | 269 |   |   | (54 | ) |
| **Total                    gas sales**                                                                 |   |   | 7,133 |   |   | 7,835 |   |   | (702 | ) |
| Transportation                                                                                         |   |   |   |   |   |   |   |   |   |   |
| Residential                                                                                            |   |   | 298 |   |   | 289 |   |   | 9 |   |
| Commercial                                                                                             |   |   | 2,044 |   |   | 2,105 |   |   | (61 | ) |
| Industrial                                                                                             |   |   | 1,263 |   |   | 1,342 |   |   | (79 | ) |
| **Total                    transportation**                                                            |   |   | 3,605 |   |   | 3,736 |   |   | (131 | ) |
| **Total                    Gas Distribution deliveries**                                               |   |   | 10,738 |   |   | 11,571 |   |   | (833 | ) |
| Gross                    margin per Dth delivered                                                      |   | $ | 2.14 |   | $ | 2.18 |   | $ | (0.04 | ) |
| Net                    margin per Dth delivered                                                        |   | $ | 1.72 |   | $ | 1.66 |   | $ | 0.06 |   |
| Average                    cost per Dth of gas sold                                                    |   | $ | 7.65 |   | $ | 11.52 |   | $ | (3.87 | ) |
| Actual                    heating degree days (HDD)                                                    |   |   | 2,113 |   |   | 2,302 |   |   | (189 | ) |
| Normal                    heating degree days                    (2)                                   |   |   | 2,219 |   |   | 2,290 |   |   |   |   |
| Actual                    heating degree days as a percentof                    normal (actual/normal) |   |   | 95 |   |   | 101 |   |   |   |   |

----

**FORWARD-LOOKING      INFORMATION**

| ·   | The                outcome of the pending merger between the Company and WPS Resources                Corporation; |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

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

| ·   | adverse                decisions in proceedings before the Commission, including, but not                limited                to, proceedings concerning the prudence review of the utility                subsidiaries' gas purchases; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

| ·   | changes                in the credit ratings of the Company, Peoples Gas and North Shore                Gas; |
|--------------------|--------------------------------------------------------------------------------------------------------------|

| ·   | regulatory                developments in the United States, Illinois and other states where                the                Company does business; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

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

----

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

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

**Disclosure      Controls and Procedures**

**Changes      In Internal Control Over Financial Reporting**

----

**Part      II -      Other Information**

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

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

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

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

**Item      4. **
**Submission      of Matters to a Vote of Security Holders**

|   | 1. | A                proposal to approve the Agreement and Plan of Merger dated as of                July 8,                2006 among WPS Resources Corporation, Wedge Acquisition Corp. and                Peoples                Energy Corporation. The Inspectors of Election certified the following                vote tabulations: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  **FOR** |  **AGAINST** |  **ABSTAIN** | **BROKER****NON-VOTES** |
|---------------|-------------------|-------------------|-------------------------|
| 27,113,845    | 1,172,262         | 395,401           | 0                       |

|   | 2. | A                proposal to adjourn the special meeting if necessary to permit further                solicitation of proxies in the event there are not sufficient votes                at the                time of the special meeting to approved the Agreement and Plan of                Merger                referred to in Proposal 1. The Inspectors of Election certified the                following vote tabulations: |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  **FOR** |  **AGAINST** |  **ABSTAIN** | **BROKER****NON-VOTES** |
|---------------|-------------------|-------------------|-------------------------|
| 24,480,230    | 3,761,762         | 439,516           | 0                       |

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

----

**Part      II -      Other Information**

----

**Part      II - Other Information**

----

**Part        II -        Other Information**

| **Item                6.****Exhibits** |
|----------------------------------------|
|                                   |
|                                   | **Peoples                Energy Corporation**: |
|                                   |   |   |   |   |
|                                   |   | Exhibit |   |   |
|                                   |   | Number |   | Description                of Document |
|                                   |   |   |   |   |
|                                   |   | 3(a) |   | Amendment                to Section 2.1 of the By-Laws, effective December 6,                2006. |
|                                   |   |   |   |   |
|                                   |   | 3(b) |   | By-Laws                of the Company, as amended December 6, 2006. |
|                                   |   |   |   |   |
|                                   |   | 10(a) |   | Directors                Deferred Compensation Plan (as amended and restated October 3, 2006,                as                effective January 1, 2005, and amended December 6,                2006). |
|                                   |   |   |   |   |
|                                   |   | 10(b) |   | Peoples                Energy Corporation Directors Stock and Option Plan (as amended October                3,                2006, as effective January 1, 2005). |
|                                   |   |   |   |   |
|                                   |   | 10(c) |   | Peoples                Energy Corporation 2004 Incentive Compensation Plan (as amended October                3,                2006 and effective as of January 1, 2005). |
|                                   |   |   |   |   |
|                                   |   | 10(d) |   | Peoples                Energy Corporation Long-Term Incentive Plan for Diversified Business                Units                (as amended October 3, 2006 as effective January 1,                2005). |
|                                   |   |   |   |   |
|                                   |   | 12 |   | Statement                re: Computation of Ratio of Earnings to Fixed Charges for the                Company. |
|                                   |   |   |   |   |
|                                   |   | 31(a) |   | Certification                of Thomas M. Patrick on behalf of the Company pursuant to 17 CFR                240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section                302                of the Sarbanes-Oxley Act of 2002. |
|                                   |   |   |   |   |
|                                   |   | 31(b) |   | Certification                of Thomas A. Nardi on behalf of the Company pursuant to 17 CFR                240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section                302                of the Sarbanes-Oxley Act of 2002. |
|                                   |   |   |   |   |
|                                   |   | 32(a) |   | Certification                of Thomas M. Patrick on behalf of the Company, Peoples Gas and North                Shore                Gas pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                906                of the Sarbanes-Oxley Act of 2002. |
|                                   |   |   |   |   |
|                                   |   | 32(b) |   | Certification                of Thomas A. Nardi on behalf of the Company, Peoples Gas and North                Shore                Gas pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                906                of the Sarbanes-Oxley Act of 2002. |

----

**Part        II -        Other Information**

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

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

----

| **SIGNATURES**                                                                                                                                                                                                                                                   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
| Pursuant                to the requirements of the Securities Exchange Act of 1934, as amended,                the registrant has duly caused this report to be signed on its behalf                by                the undersigned thereunto duly authorized. |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   | Peoples                Energy Corporation |
|                                                                                                                                                                                                                                                             |   | (Registrant) |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
| February                9, 2007                                                                                                                                                                                                                                  |   | By:                /s/                THOMAS A. NARDI |
| (Date)                                                                                                                                                                                                                                                           |   | Thomas                A. Nardi |
|                                                                                                                                                                                                                                                             |   | Executive                Vice Presidentand                Chief Financial Officer |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   | (Same                as above) |
|                                                                                                                                                                                                                                                             |   | Principal                Financial Officer |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
| Pursuant                to the requirements of the Securities Exchange Act of 1934, as amended,                the registrant has duly caused this report to be signed on its behalf                by                the undersigned thereunto duly authorized. |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   | The                Peoples Gas Light and Coke Company |
|                                                                                                                                                                                                                                                             |   | (Registrant) |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
| February                9, 2007                                                                                                                                                                                                                                  |   | By:                /s/                THOMAS A. NARDI |
| (Date)                                                                                                                                                                                                                                                           |   | Thomas.                A. Nardi |
|                                                                                                                                                                                                                                                             |   | Executive                Vice Presidentand                Chief Financial Officer |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   | (Same                as above) |
|                                                                                                                                                                                                                                                             |   | Principal                Financial Officer |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
| Pursuant                to the requirements of the Securities Exchange Act of 1934, as amended,                the registrant has duly caused this report to be signed on its behalf                by                the undersigned thereunto duly authorized. |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   | North                Shore Gas Company |
|                                                                                                                                                                                                                                                             |   | (Registrant) |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   |   |
| February                9, 2007                                                                                                                                                                                                                                  |   | By:                /s/                THOMAS A. NARDI |
| (Date)                                                                                                                                                                                                                                                           |   | Thomas.                A. Nardi |
|                                                                                                                                                                                                                                                             |   | Executive                Vice Presidentand                Chief Financial Officer |
|                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                             |   | (Same                as above) |
|                                                                                                                                                                                                                                                             |   | Principal                Financial Officer |

----