SEVERANCE AGREEMENT
                              BETWEEN
                    PEOPLES ENERGY CORPORATION
                                AND
                         MICHAEL S. REEVES
                     Executive Vice President


          THIS AGREEMENT, effective as of December 4, 1996, by and
between Peoples Energy Corporation, an Illinois corporation and
Michael S. Reeves, Executive Vice President (the "Executive").
          
                            WITNESSETH
          
          
          WHEREAS, the Executive is a valuable employee of the
Company and an integral part of the management of the Company; and
          
          WHEREAS, the Company wishes to encourage the Executive
to continue his career and services with the Company for the
period during and after an actual or threatened Change in Control;
and
          
          WHEREAS, the Board of Directors of PEC, at its meeting
on December 4, 1996, determined that it would be in the best
interests of the Company and its shareholders to assure continuity
in the management of the Company's administration and operations
in the event of a Change in Control by entering into this
Agreement with the Executive;
          
          NOW THEREFORE, it is hereby agreed by and between the
parties hereto as follows:
          1.  Definitions.
          
          "AAA" shall have the meaning set forth in paragraph 5 of
this Agreement.
          
          "Affiliate" shall mean the subsidiaries of PEC and other
entities controlled by such subsidiaries.
          
          "Agreement" shall mean this Severance Agreement.
          
          "Benefit Service" shall mean the Benefit Service as
defined in the PEC Retirement Plan.
          
          "Board" shall mean the Board of Directors of PEC.
          
          "Cause" shall mean the Executive's fraud or dishonesty
which has resulted in or is likely to result in material economic
damage to the Company as determined in good faith by a vote of at
least two-thirds of the non-employee directors of PEC at a meeting
of the Board at which the Executive is provided an opportunity to
be heard.
          
          "Change in Control" shall mean:
          
          (i) either (A) receipt by PEC of a report on Schedule
13D, or an amendment to such a report, filed with the Securities
and Exchange Commission ("SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934 (the "1934 Act") disclosing that
any person (as such term is used in Section 13(d) of the 1934 Act)
("Person"), is the beneficial owner, directly or indirectly, of
twenty (20) percent or more of the outstanding stock of PEC, or
(B) actual knowledge by PEC of facts, on the basis of which any
Person is required to file such a report on Schedule 13D, or to
make an amendment to such a report, with the SEC (or would be
required to file such a report or amendment upon the lapse of the
applicable period of time specified in Section 13 (d) of the 1934
Act) disclosing that such Person is the beneficial owner, directly
or indirectly, of twenty (20) percent or more of the outstanding
stock of PEC;
          
          (ii) purchase by any Person, other than PEC or a
wholly-owned subsidiary of the Company, of shares pursuant to a
tender or exchange offer to acquire any stock of PEC (or
securities convertible into stock) for cash, securities or any
other consideration provided that, after consummation of the
offer, such Person is the beneficial owner (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of twenty (20)
percent or more of the outstanding stock of PEC (calculated as
provided in paragraph (d) of Rule 13d-3 under the 1934 Act in the
case of rights to acquire stock);
          
          (iii) approval by the shareholders of PEC of (a) any
consolidation or merger of PEC in which PEC is not the continuing
or surviving corporation or pursuant to which shares of stock of
PEC would be converted into cash, securities or other property,
other than a consolidation or merger of PEC in which holders of
its stock immediately prior to the consolidation or merger have
substantially the same proportionate ownership of common stock of
the surviving corporation immediately after the consolidation or
merger as immediately before, or (b) any consolidation or merger
in which PEC is the continuing or surviving corporation, but in
which the common shareholders of PEC immediately prior to the
consolidation or merger do not hold at least ninety (90) percent
of the outstanding common stock of the continuing or surviving
corporation (except where such holders of common stock hold at
least ninety (90) percent of the common stock of the corporation
which owns all of the common stock of PEC), or (c) any sale,
lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all the assets of
PEC (Transfer Transaction), (except where (A) PEC owns all of the
outstanding stock of the transferee entity or (B) the holders of
PEC's common stock immediately prior to the Transfer Transaction
own at least ninety (90) percent of the outstanding stock of the
transferee entity, immediately after the Transfer Transaction), or
(d) any consolidation or merger of PEC where, after the
consolidation or merger, one Person owns one hundred (100) percent
of the shares of stock of PEC (except where the holders of PEC's
common stock immediately prior to such merger or consolidation own
at least ninety (90) percent of the outstanding stock of such
Person immediately after such consolidation or merger); or
          
          (iv) a change in the majority of the members of the
Board within a twenty-four (24) month period, unless the election
or nomination for election by PEC's shareholders of each new
director was approved by the vote of at least two-thirds of the
directors then still in office who were in office at the beginning
of the twenty-four (24) month period.
          
          "Code" shall mean the United States Internal Revenue
Code of 1986, as amended, or any successor thereto.
          
          "Company" shall mean PEC and include any Affiliate and
successor or successors to PEC.
          
          "Compensation" shall mean the sum of (i) the Executive's
annual rate of salary on the last day the Executive was an
employee of the Company, including any elective contributions made
by the Company on behalf of the Executive that are not includable
in the gross income of the Executive under Section 125 or
402(a)(8) of the Code or any successor provision thereto, and
including any amount of salary that has been deferred by the
Executive, (ii) an award equal to the average of the amounts
awarded to the Executive under the PEC STIC during the three years
preceding termination of employment, and (iii) the economic
equivalent value of any awards received by Executive under the PEC
LTIC in the calendar year preceding termination of employment (as
determined in good faith by the PEC Directors' Compensation-
Nominating Committee).
          
          "Computed Award" shall mean Computed Award as defined in
the PEC STIC.
          
          "Constructive Discharge" shall mean a good faith
determination by the Executive that there has been any (i)
material change by the Company of the Executive's functions,
duties or responsibilities which change would cause the
Executive's position with the Company to become of less dignity,
responsibility, importance, prestige or scope, including, without
limitation, the assignment to the Executive of duties and
responsibilities inconsistent with his position, (ii) assignment
or reassignment by the Company of the Executive, without the
Executive's consent, to another place of employment more than
fifty (50) miles from the Executive's current place of employment,
(iii) liquidation, dissolution, consolidation or merger of PEC, or
transfer of all or substantially all of its assets, other than a
transaction or series of transactions in which the resulting or
surviving transferee entity has, in the aggregate, a net worth at
least equal to that of PEC immediately before such transaction and
such resulting or surviving transferee entity expressly assumes
this Agreement and all obligations and undertakings hereunder, or
(iv) reduction, which is more than de minimis, in the Executive's
total compensation (Compensation, perquisites and benefits).  It
is understood and agreed by all parties hereto that a reduction in
(a) the amount the Executive receives under PEC STIC, (b) the
awards received by the Executive under the PEC LTIC, or (c) the
prerequisites or benefits of the Executive shall not be deemed a
reduction if such amount received under the PEC STIC, awards
received under the PEC LTIC, or such prerequisites or benefits are
the same as received by the Company's similarly situated officers.
An event shall not be considered Constructive Discharge unless the
Executive provides written notice to PEC specifying the event
relied upon for Constructive Discharge within six months after the
occurrence of such event.  Within thirty days of receiving such
written notice from the Executive, the Company may cure or cause
to be cured the event upon which the Executive claims a
Constructive Discharge and no Constructive Discharge shall have
been considered to have occurred with respect to such event.  PEC
and the Executive, upon mutual written agreement, may waive any of
the foregoing provisions which would otherwise constitute a
Constructive Discharge.
          
          "Coverage Period" shall mean the period commencing with
the month in which termination of employment as described in
paragraph 3.a. of this Agreement shall have occurred, and ending
thirty-six (36) months thereafter.
          
          "Effective Date" shall mean December 4, 1996.
          
          "PEC" shall mean Peoples Energy Corporation, an Illinois
corporation.
          
          "PEC Directors' Compensation-Nominating Committee" shall
mean the Peoples Energy Corporation Board of Directors'
Compensation-Nominating Committee.
          
          "PEC LTIC" shall mean the Peoples Energy Corporation
Long Term Incentive Compensation Plan as in effect on the
Effective Date, as amended from time to time or any successor
plan.
          
          "PEC Retirement Plan" shall mean the Peoples Energy
Corporation Retirement Plan as in effect on the Effective Date, as
amended from time to time, or any successor plan.
          
          "PEC SRB" shall mean the Peoples Energy Corporation
Supplemental Retirement Benefit Plan, as in effect on the
Effective Date, as amended from time to time or any successor
plan.
          
          "PEC STIC" shall mean the Peoples Energy Corporation
Short Term Incentive Compensation Plan, as in effect on the
Effective Date, as amended from time to time or any successor
plan.
          
          "PEC TAP" shall mean the Peoples Energy Corporation
Termination Allowance Plan as in effect on the Effective Date, as
amended from time to time and as enhanced as described in that
certain PEC brochure for nonunion employees titled, "Career
Transition Opportunities", dated November 1996.
          
          "Plan Year" shall mean the Plan Year as defined under
the PEC STIC.
          
          "Present Value Amount" shall mean the amount calculated
by the PEC Directors' Compensation-Nominating Committee as of the
date of the termination of the Executive's employment as described
in paragraph 3.a., using as a mortality basis the mortality basis
used by the PEC Retirement Plan for determining benefits, or if
such mortality basis is not available, a mortality basis
determined by the PEC Retirement Plan's consulting actuaries, and
assuming a discount rate equal to the average of the yield on
Thirty (30) year United States Treasury Bonds for the second
calendar month preceding the Executive's termination of employment
as described in paragraph 3.a.
          
          "Rule of Eighty-Five" shall mean the Rule of Eighty-Five
as defined under the PEC Retirement Plan.
          
          "SARs" shall mean SARs as defined under the PEC LTIC.
          
          "Stock Options" shall mean Options as defined under the
PEC LTIC.
          
          "Term" shall mean the term of this Agreement as set
forth in paragraph 2.
          
          "Trust" shall mean the Trust under Peoples Energy
Corporation Executive Deferred Compensation Plan and Supplemental
Retirement Benefit Plan, Part A and Part B, dated September 22,
1995, as amended July 1, 1996, in effect on the Effective Date, as
amended from time to time.
          
          2.  Term.  
          
              This Agreement shall be effective as of the
Effective Date and shall continue thereafter until the later of: 
(i) thirty-six (36) full calendar months following the date on
which occurs any of the events described in subparagraphs (i),
(ii) or (iv) of the definition of Change in Control in paragraph
1; or (ii) twenty-four (24) full calendar months following the
date on which the transaction that was the subject of shareholder
approval pursuant to subparagraph (iii) of the definition of
Change in Control in paragraph 1 has been completed.
          
          3.  Severance Benefit.
          
              a.  If, during the period commencing on the date of
a Change in Control and ending on the last day of the Term, the
Executive's employment hereunder is terminated by the Company for
any reason, other than Cause, death, or disability, or is
terminated by the Executive in the event of a Constructive
Discharge, then, within five (5) business days after such
termination, PEC shall pay to the Executive (if the Executive has
died before receiving all payments to which he has become entitled
hereunder to the beneficiary or estate of the Executive as
described in paragraph 14) the sum of (i) accrued but unpaid
salary and accrued but unused paid time off under the Company's
"Paid Time Off Bank" policy for all employees, effective January
1, 1997, or any successor plan, (ii) severance pay in a lump sum
cash amount equal to three (3) years of the Executive's
Compensation, and (iii) the amount determined pursuant to
paragraph 3.e.  The Executive (if the Executive has died before
receiving all payment to which he becomes entitled hereunder, the
beneficiary or the estate of the Executive as described in
paragraph 14) will be paid in cash within ten (10) business days
after termination as described in paragraph 3.a., the Present
Value Amount of the benefits accrued by the Executive under the
PEC SRB, Part A and Part B on the date of termination of
employment as described in this paragraph 3.a., determined as if
the Executive had received credit for an additional three (3)
years of Benefit Service.  For purposes of determining the
Executive's accrued benefits under the preceding sentence, such
benefits shall be determined as full benefits, without actuarial
reduction, as if the Executive qualified for the Rule of
Eighty-Five under the PEC Retirement Plan and PEC SRB (regardless
of whether the Executive so qualifies).  All non-vested Options
and SARs awarded to the Executive under the PEC LTIC shall be
deemed vested as of the earlier of the date of a Change in Control
as defined in this Agreement or Change in Control as defined in
the PEC LTIC.  The Company shall treat the Executive as employed
by the Company for purposes of exercising Stock Options and SARs
during the Coverage Period.  All non-vested restricted stock
awarded to the Executive under the PEC LTIC shall be deemed vested
and owned by the Executive as of the earlier of the date of a
Change in Control as defined in this Agreement or a Change in
Control as defined in the PEC LTIC and such stock shall be
delivered to the Executive within five (5) business days after the
date of such Change in Control.  The Executive's termination of
employment with the Company to become an employee of a corporation
which directly or indirectly owns one hundred percent (100%) of or
which is owned one hundred percent (100%) by the Company shall not
be considered a termination of employment for purposes of this
Agreement.  The subsequent termination of the Executive's
employment from such corporation, without employment at a company
that is wholly-owned by such corporation, shall be considered a
termination of employment for purposes of this Agreement.
          
          b.  During the longer of:  (i) the Coverage Period or
(ii) the period commencing with the date of the Executive's
termination of employment as described in paragraph 3a and ending
on the last day of the first month in which the Executive may
retire under the PEC Retirement Plan and be eligible to receive a
retirement annuity thereunder without actuarial reduction, the
Executive shall be entitled to all benefits under the Company's
welfare benefit plans (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended), as
if the Executive were still employed during such period, at the
same level of benefits and at the same dollar cost to the
Executive as is available to all of the Company's executives
generally and if and to the extent that equivalent benefits shall
not be payable or provided under any such plans, the Company shall
pay or provide equivalent benefits on an individual basis;
provided, however, that PEC's obligations under this paragraph
3.b. shall cease upon the date following the termination of the
Executive's employment as described in paragraph 3.a. that the
Executive is eligible to receive benefits under welfare benefit
plans (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended) provided by an
employer of the Executive other than the Company.
          
          c.  (i) If Independent Tax Counsel shall determine that
the aggregate payments made to the Executive pursuant to this
Agreement and any other payments to the Executive from the Company
which constitute "parachute payments" as defined in Section 280G
of the Code (or any successor provision thereto) ("Parachute
Payments") would be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment")
in an amount calculated at the highest marginal tax rate
applicable to the Executive for the tax year in which such
payments were paid to the Executive (determined by Independent Tax
Counsel) such that after payment by the Executive of all federal,
state and other taxes (including any Excise Tax) imposed upon the
Gross-Up Payment and any interest or penalties imposed with
respect to such taxes, the Executive retains from the Gross-Up
Payment an amount equal to the Excise Tax imposed upon the
payments.  For purposes of this paragraph 3.c., "Independent Tax
Counsel" shall mean a lawyer, a certified public accountant with a
nationally recognized accounting firm, or a compensation
consultant with a nationally recognized actuarial and benefits
consulting firm, with expertise in the area of executive
compensation tax law, who shall be selected by the Executive and
shall be reasonably acceptable to PEC, and whose fees and
disbursements shall be paid by PEC.
          
              (ii)  If Independent Tax Counsel shall determine 
that no Excise Tax is payable by the Executive, it shall furnish 
the Executive with a written opinion that the Executive has 
substantial authority not to report any Excise Tax on the 
Executive's Federal income tax return.  If the Executive is 
subsequently required to make a payment of any Excise Tax, then 
the Independent Tax Counsel shall determine in the same manner 
as a Gross-up Payment the amount (the amount of such additional 
payments are referred herein as "Gross-Up Underpayment") of such 
payment and any such Gross-Up Underpayment shall be promptly paid 
by PEC to or for the benefit of the Executive.  The fees and 
disbursements of the Independent Tax Counsel shall be paid by PEC.
          
              (iii)  The Executive shall notify PEC in writing 
within 15 days of any claim by the Internal Revenue Service that, 
if successful, would require the payment by PEC of a Gross-Up 
Payment.  If PEC notifies the Executive in writing that it desires 
to contest such claim and that it will bear the costs and provide 
the indemnification as required by this subparagraph (iii) of 
paragraph 3.c., the Executive shall:
          
                  (A) give the Company any information reasonably
requested by the Company relating to such claim,
          
                  (B) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an
attorney selected by the Company,
          
                  (C) cooperate with the Company in good faith in
order to effectively contest such claim, and
          
                  (D) permit the Company to participate in any
proceedings relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis calculated at the
highest marginal tax rate applicable to the Executive, for any
Excise Tax or federal and state income tax or other taxes,
including interest and penalties with respect thereto, imposed as
a result of such representation and payment of costs and expenses.
The Company shall control all proceedings taken in connection with
such contest; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, PEC shall
advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis calculated at the highest marginal
tax rate applicable to the Executive, from any Excise Tax or
federal and state income tax or other taxes, including interest or
penalties with respect thereto, imposed with respect to such
advance or with respect to any imputed income with respect to such
advance.
          
              (iv)    If, after the receipt by the Executive of an
amount advanced by PEC pursuant to subparagraph (iii) of paragraph
3.c., the Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall within 10 days pay to
the Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto).
          
          d.  In the event of any termination of the Executive's
employment as described in paragraph 3.a., the Executive shall be
under no obligation to seek other employment, and there shall be
no offset against amounts due the Executive under this Agreement
on account of any remuneration attributable to any subsequent
employment.
          
          e.  The Executive shall be paid the following described
amounts pursuant to subparagraph (iii) of paragraph 3.a.  If the
Executive has not received an award under the STIC for the Plan
Year in which his employment is terminated the PEC Directors'
Compensation-Nominating Committee shall determine in good faith,
specifically considering the Executive's Computed Award under the
STIC for such Plan Year, an award amount equal to a prorated award
for the portion of the Plan Year that the Executive was employed
by the Company.  If the Executive has not yet received payment of
his award amount under the STIC for the Plan Year preceding the
Executive's termination, the PEC Directors' Compensation-Nominating 
Committee shall determine in good faith, specifically considering 
the Executive's Computed Award under the STIC for such Plan Year, 
an award amount under the STIC for such Plan Year.
          
          4.  Source of Payments.
          
              All payments provided for in paragraph 3 shall be
paid in cash from the general funds of PEC; provided, however,
that such payments shall be reduced by the amount of any payments
made to the Executive or his dependents, beneficiaries or estate
from any trust or special or separate fund established or utilized
by PEC to assure such payments.  The Company shall not be required
to establish a special or separate fund or other segregation of
assets to assure such payments, and, if the Company shall make any
investments to aid it in meeting its obligations hereunder, the
Executive shall have no right, title or interest whatever in or to
any such investments except as may otherwise be expressly provided
in a separate written instrument relating to such investments. 
Nothing contained in this Agreement, and no action taken pursuant
to its provisions, shall create or be construed to create a trust
of any kind, or a fiduciary relationship between the Company and
the Executive or any other person.  To the extent that any person
acquires a right to receive payments from the Company such right
shall be no greater than the right of an unsecured creditor of the
Company.
          
          5.  Litigation Expenses:  Arbitration.
          
              a.  PEC's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the
Company may have against the Executive or others, except as set
forth in paragraph 7.  In no event shall the Executive be
obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement.  PEC agrees to pay, upon written
demand therefor by the Executive, all legal fees and expenses
which the Executive may reasonably incur as a result of any
dispute or contest (regardless of the outcome thereof) by or with
the Company or others regarding the validity or enforceability of,
or liability under, any provision of this Agreement, plus in each
case interest at the Federal long-term rate in effect under
Section 1274(d) of the Code, compounded monthly.  In any such
action brought by the Executive for damages or to enforce any
provisions of this Agreement, the Executive shall be entitled to
seek both legal and equitable relief and remedies, including,
without limitation, specific performance of the Company's
obligations hereunder, in his sole discretion.  The obligation of
the Company under this paragraph 5. shall survive the termination
for any reason of this Agreement (whether such termination is by
the Company, by the Executive, upon the expiration of this
Agreement or otherwise).
          
              b.  In the event of any dispute or difference
between the Company and the Executive with respect to the subject
matter of this Agreement and the enforcement of rights hereunder,
the Executive may, in his sole discretion by written notice to
PEC, require such dispute or difference to be submitted to
arbitration.  The arbitrator or arbitrators shall be selected by
agreement of the parties or, if they cannot agree on an arbitrator
or arbitrators within 30 days after the Executive had notified PEC
of his desire to have the question settled by arbitration, then
the arbitrator or arbitrators shall be selected by the American
Arbitration Association (the "AAA") in Illinois upon the
application of the Executive.  The determination reached in such
arbitration shall be final and binding on both parties without any
right of appeal of further dispute.  Execution of the
determination by such arbitrator may be sought in any court of
competent jurisdiction.  The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rules of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation.  Unless
otherwise agreed by the parties, any such arbitration shall take
place in Illinois, and shall be conducted in accordance with the
Rules of the AAA.
          
          6.  Tax Withholding.
          
              The Company may withhold from any payments made
under this Agreement all federal, state or other taxes, including
excise taxes as shall be required pursuant to any law or
governmental regulation or ruling.
          
          7.  Waiver and Releases.
          
              a.  In consideration of the covenants under this
Agreement, including, but not limited to, paragraphs 3 and 5, the
Executive hereby waives, releases and forever discharges the
Company from any and all claims he has or may have against the
Company arising out of or relating to the following:  (a) The PEC
TAP, upon receipt by the Executive of all amounts due or owing to
the Executive under this Agreement; and (b) The PEC SRB, Part A
and Part B, provided that the amount paid to the Executive
pursuant to the second and third sentences of paragraph 3.a.
exceeds the amount of the Executive's accrued benefits under the
PEC SRB, Part A and Part B as of the date of the Executive's
termination of employment as described in paragraph 3.a.
          
              b.  In consideration of the covenants under this
Agreement, including, but not limited to, paragraphs 3 and 5, and
as a condition precedent to receiving any payments under this
Agreement, the Executive agrees to execute after the date of his
termination as described in paragraph 3.a., a release
substantially in the form of Exhibit A attached hereto and by this
reference made a part hereof.
          
          8.  Amendment of Trust and Deposit of Assets.
          
              On or before December 31, 1996, PEC shall amend the
Trust to provide that within ten (10) business days after the date
of a Change in Control, PEC shall deposit cash into the Trust,  in
an amount equal to the following:  (a) the payment obligations of
PEC under the Peoples Energy Corporation's Executive Deferred
Compensation Plan as in effect on the Effective Date, as amended
from time to time or any successor plan, and (b) the accrued
benefits of the participants, as of the date of the Change in
Control, under the PEC SRB, Part A and Part B.
          
          9.  Outplacement Services.
          
              Unless PEC offers outplacement services to the
Executive during the Coverage Period, PEC shall reimburse the
Executive for the costs of outplacement services incurred by the
Executive up to a maximum amount of Seven Thousand Dollars
($7,000).
          
          
          
          10. Entire Understanding.
          
              This Agreement contains the entire understanding
between the Company and the Executive with respect to the subject
matter hereof and supersedes any prior severance agreement between
the Company and the Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation
inuring to the Executive of any kind elsewhere provided and not
expressly provided for in this Agreement.
          
          11. Severability.
          
              If, for any reason, any one or more of the
provisions or part of a provision contained in this Agreement
shall be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provision or part of a provision of this
Agreement not held so invalid, illegal or unenforceable, and each
other provision or part of a provision shall to the full extent
consistent with law continue in full force and effect.
          
          12  Consolidation, Merger, or Sale of Assets.
          
              If PEC consolidates or merges into or with, or
transfers all or substantially all of its assets to, another
corporation the term "the Company" as used herein shall include
such other corporation and this Agreement shall continue in full
force and effect.
          
          13. Notices.
          
              All notices, requests, demands and other
communications required or permitted hereunder shall be given in
writing and shall be deemed to have been duly given if delivered
or mailed, postage prepaid, first class with return receipt as
follows:
          
              a.  to PEC:
          
                   Peoples Energy Corporation
                   130 East Randolph Drive
                   Chicago, Illinois  60601
                   Attention:  E. P. Cassidy, Secretary
          
              b.  to the Executive:
          
                   Michael S. Reeves
                   Executive Vice President
                   Peoples Energy Corporation
                   130 East Randolph Drive
                   Chicago, Illinois  60601
          
or to such other address as either party shall have previously
specified in writing to the other.
          
          14. No attachment.
          
              Except as required by law and as expressly provided
in his paragraph 14, no right to receive payments under this
Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation or to execution, attachment, levy or similar process
or assignment by operation of law, and any attempt, voluntary or
involuntary, to effect any such action shall be null, void and of
no effect.  Notwithstanding the preceding sentence, the Executive
may, by giving notice to PEC during the Executive's lifetime,
designate a beneficiary or beneficiaries to whom the severance
benefits described in paragraph 3.a. shall be transferred in the
event of the Executive's death.  Any such designation may be
revoked or changed by the Executive at any time and from time to
time by similar notice.  If there is no such designated
beneficiary living upon the death of the Executive or if all such
designated beneficiaries die prior to the receipt by the Executive
of the referenced severance benefits, such severance benefits
shall be transferred to the Executive's surviving spouse or, if
none, then such severance benefits will be transferred to the
estate or personal representative of the Executive.  If the
Company, after reasonable inquiry, is unable to determine within
twelve months after the Executive's death whether any designated
beneficiary of the Executive did in fact survive the Executive,
such beneficiary shall be conclusively presumed to have died prior
to the Executive's death.
          
          15. Binding Agreement.
          
              This Agreement shall be binding upon, and shall
inure to the benefit of, the Executive and the Company and their
respective permitted successors and assigns.
          
          16. Modification and Waiver.
          
              This Agreement may not be modified or amended except
by an instrument in writing signed by the parties hereto.  No term
or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of
any provision of this Agreement except by written instrument
signed by the party charged with such waiver or estoppel.  No such
written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate
only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as
to any act other than that specifically waived.
          
          17. Headings of No Effect.
          
              The paragraph headings contained in this Agreement
are included solely for convenience of reference and shall not in
any way affect the meaning or interpretation of any of the
provisions of this Agreement.
          
          18. Governing Law.
          
              This Agreement and its validity, interpretation,
performance, and enforcement shall be governed by the laws of the
State of Illinois without giving effect to the choice of law
provisions in effect in such State.
          
          
          
          
          
          
          
          
          
              IN WITNESS WHEREOF, PEC has caused this Agreement to
be executed by its officers thereunto duly authorized, and the
Executive has signed this Agreement, all effective as of the date
first above written.
          
                  PEOPLES ENERGY CORPORATION
          
          
                  By: /s/ HOMER J. LIVINGSTON, JR.  
                  ---------------------------------------
                       Director and Chairman of the
                       Compensation-Nominating Committee
                       of the Board of Directors
          
          
                  By: /s/ MICHAEL S. REEVES
                  ---------------------------------
                          Michael S. Reeves
                          Executive Vice President
          








                             EXHIBIT A
                      TO SEVERANCE AGREEMENT
              BETWEEN PEOPLES ENERGY CORPORATION AND
                 EXECUTIVE, DATED DECEMBER 4, 1996

                         RELEASE AGREEMENT


          This Agreement is entered into on this ____ day of

_______________, between Michael S. Reeves, Executive Vice

President ("Executive") and Peoples Energy Corporation on behalf of

Peoples Energy Corporation and any affiliate and successor or

successors to Peoples Energy Corporation.

          1.   In consideration of the benefits to be paid and
provided to the Executive under that certain Severance Agreement
between Peoples Energy Corporation ("PEC") and the Executive, dated
as of December 4, 1996, ("Severance Agreement") Executive waives,
releases and forever discharges PEC (including its current and
former affiliated companies, and their current and former officers,
directors, employees and agents) from all claims which he may have
against PEC (including its current and former affiliated companies,
and their current and former officers, directors, employees and
agents) arising out of the Americans With Disabilities Act, the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act
of 1964, the Illinois Human Rights Act, or any other federal, state
or local statute, regulation, ordinance, or doctrine of common law
prohibiting discrimination on the basis of disability or age or
race or gender or on any other substantially similar basis.

          2.   The Executive acknowledges that, prior to his
execution of this Agreement, he was encouraged to review it with
counsel or anyone else of his choosing.  Executive states that he
understands its meaning and that he knowingly, freely and
voluntarily executes it.

          The Company encourages the Executive to consult with an
attorney regarding this Agreement.  If after review, the Executive
wishes to accept, he should sign the document and return it to the
Secretary of Peoples Energy Corporation.  This Release will not
become effective until seven days thereafter, and if the Executive
changes his mind within that period, he may revoke this Release by
notifying the Secretary of Peoples Energy Corporation.  The
Executive understands and agrees that no benefits will be paid or
provided to the Executive under the Severance Agreement prior to
the receipt by PEC of this release executed by the Executive.

PEOPLES ENERGY CORPORATION:

By: ___________________________________ _______________________
                                                         Date



By: ___________________________________ ________________________
            Michael S. Reeves                            Date