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

  (Mark One)

   [ X ]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934

         For the Quarterly Period Ended December 31, 1998

                                OR

  [    ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934

                   Commission File Number 1-5540


                    PEOPLES ENERGY CORPORATION
      (Exact name of registrant as specified in its charter)



           Illinois                        36-2642766
       (State or other jurisdiction of    (IRS Employer
       incorporation or organization)     Identification No.)


24th Floor, 130 East Randolph Drive, Chicago, Illinois  60601-6207
      (Address of principal executive offices)        (Zip Code)


                          (312) 240-4000
       (Registrant's telephone number, including area code)
                                 


Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes [x]   No [  ]


Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
35,481,303 shares of Common Stock, without par value, outstanding
at January 31, 1999.
<TABLE>
<CAPTION>
Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                                             Peoples Energy Corporation
                                           CONSOLIDATED STATEMENTS OF INCOME
                                                    (Unaudited)

                                                       Three Months Ended              Twelve Months Ended
                                                           December 31,                     December 31,
                                                           1998          1997            1998          1997
                                                       (Thousands, except per-share amounts)

<S>                                                     <C>           <C>           <C>              <C>
OPERATING REVENUES                                      $313,535      $385,165      $1,066,772       $1,271,484

OPERATING EXPENSES:
Cost of energy sold                                      144,693       198,023         473,652          624,811
Operation and maintenance                                 66,044        60,627         250,746          243,506
Depreciation, depletion and amortization                  20,447        18,879          78,763           74,502
Taxes, other than income taxes                            34,937        40,542         124,492          143,742
     Total Operating Expenses                            266,121       318,071         927,653        1,086,561

OPERATING INCOME                                          47,414        67,094         139,119          184,923

OTHER INCOME AND (DEDUCTIONS)                             (9,497)       (9,158)        (34,590)         (33,064)

EARNINGS BEFORE INCOME TAXES                              37,917        57,936         104,529          151,859

INCOME TAXES                                              14,547        22,393          37,279           55,402

NET INCOME                                              $ 23,370      $ 35,543      $   67,250       $   96,457

Average Shares of Common Stock Outstanding                35,457        35,133          35,338           35,043

Basic Earnings Per Share of Common Stock                $   0.66      $   1.01      $     1.90       $     2.75

Diluted Earnings Per Share of Common Stock              $   0.66      $   1.01      $     1.90       $     2.75

Dividends Declared Per Share                            $   0.48      $   0.47      $     1.92       $     1.88

The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

<TABLE>
<CAPTION>
                                           Peoples Energy Corporation

                                          CONSOLIDATED BALANCE SHEETS

                                                                                 December 31,                      December 31,
                                                                                     1998       September 30,          1997
                                                                                  (Unaudited)         1998          (Unaudited)
                                                                               (Thousands of Dollars)
PROPERTIES AND OTHER ASSETS
<S>                                                                             <C>              <C>              <C>
CAPITAL INVESTMENTS:
Property, plant and equipment, at original cost                                 $ 2,247,544      $ 2,209,957      $ 2,131,306
Less - Accumulated depreciation, depletion and amortization                         780,357          763,296          726,278
Net property, plant and equipment                                                 1,467,187        1,446,661        1,405,028
Other investments                                                                    56,619           45,150           16,301
     Total Capital Investments - Net                                              1,523,806        1,491,811        1,421,329

CURRENT ASSETS:
Cash and cash equivalents                                                            13,239           10,622           44,073
Trust fund (See Note 4A)                                                             25,693                -                -
Temporary cash investments                                                            1,091            4,393              900
Receivables -
   Customers, net of allowance for uncollectible accounts
       of $22,476, $23,395, and $26,929, respectively                                84,714           54,091          130,650
   Other                                                                             38,131           27,662           30,714
Accrued unbilled revenues                                                            82,171           23,477           80,615
Materials and supplies, at average cost                                              17,975           18,246           20,845
Gas in storage, at last-in, first-out cost                                           60,785           90,790           73,652
Gas costs recoverable through rate adjustments                                        2,261            4,462            6,584
Regulatory assets of subsidiaries                                                     7,507            7,858            7,356
Prepayments                                                                          77,856           71,114           49,352
     Total Current Assets                                                           411,423          312,715          444,741

OTHER ASSETS:
Non-current regulatory assets of subsidiaries                                        58,265           76,564           37,245
Deferred charges                                                                     23,990           23,410           21,612
     Total Other Assets                                                              82,255           99,974           58,857

     Total Properties and Other Assets                                          $ 2,017,484      $ 1,904,500      $ 1,924,927

The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>

<TABLE>

                                                Peoples Energy Corporation

                                                CONSOLIDATED BALANCE SHEETS 

                                                                               December 31,                     December 31,
                                                                                   1998      September 30,          1997
                                                                               (Unaudited)         1998         (Unaudited)
                                                                             (Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
<S>                                                                           <C>             <C>              <C>
CAPITALIZATION:
Common Stockholders' Equity:
Common stock, without par value -
   Authorized 60,000,000 shares
   Outstanding 35,481,279, 35,401,992, and
       35,161,215 shares, respectively                                        $  296,603      $   293,691      $  284,745
Retained earnings                                                                455,382          449,059         456,023
Accumulated other comprehensive income                                            (1,389)          (1,389)         (2,357)
     Total Common Stockholders' Equity                                           750,596          741,361         738,411

Long-term debt of subsidiaries, exclusive of sinking
  fund payments and maturities due within one year                               521,734          516,604         527,004
     Total Capitalization                                                      1,272,330        1,257,965       1,265,415

CURRENT LIABILITIES:
Interim loans of subsidiaries                                                     32,540            8,900          45,406
Accounts payable                                                                 156,722          123,383         152,381
Dividends payable on common stock                                                 17,031           16,977          16,526
Customer gas service and credit deposits                                          64,738           48,942          46,421
Sinking fund payments, and redemptions,
   due within one year -
   Long-term debt of subsidiaries                                                 24,905           10,400               -
Accrued taxes                                                                     53,338           24,983          52,621
Gas sales revenue refundable through rate adjustments                                771           11,028               -
Accrued interest                                                                   7,089           10,821           7,151
Temporary LIFO liquidation credit                                                      -                -           1,855
     Total Current Liabilities                                                   357,134          255,434         322,361

DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes - primarily accelerated depreciation                       269,590          270,730         254,927
Investment tax credits being amortized over
   the average lives of related property                                          32,239           32,387          33,559
Other                                                                             86,191           87,984          48,665
     Total Deferred Credits and Other Liabilities                                388,020          391,101         337,151

     Total Capitalization and Liabilities                                     $2,017,484      $ 1,904,500      $1,924,927

The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>


                                        Peoples Energy Corporation
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                (Unaudited)

                                                             Three Months Ended
                                                                December 31,
                                                              1998        1997
                                                         (Thousands of Dollars)
Operating Activities:
Net Income                                                  $23,370   $35,543
Adjustments to reconcile net income to net cash:
  Depreciation, depletion, and amortization                  20,447    18,879
  Deferred income taxes and investment tax credits - net     (1,921)    4,856
  Change in deferred credits and other liabilities           (1,159)      877
  Change in deferred charges                                 16,315    (2,555)
  Change in current assets and liabilities:
    Receivables - net                                       (41,091)  (49,892)
    Accrued unbilled revenues                               (58,694)  (57,873)
    Materials and supplies                                      271    (1,459)
    Gas in storage                                           30,005     4,191
    Gas costs recoverable                                     2,201    (1,420)
    Regulatory assets                                           351     8,502
    Prepayments                                              (6,742)   (6,451)
    Accounts payable                                         33,339     2,416
    Customer gas service and credit deposits                 15,796     1,035
    Accrued taxes                                            28,355    31,976
    Gas sales revenue refundable                            (10,256)  (14,894)
    Accrued interest                                         (3,733)   (3,649)
    Temporary LIFO liquidation credit                             -     1,856

     Net Cash Provided by (Used in) Operating Activities     46,854   (28,062)

Investing Activities:
Capital expenditures of subsidiaries - construction         (18,755)  (20,257)
Other assets                                                (20,781)       (5)
Other capital investments                                   (11,503)       (7)
Other temporary cash investments                              3,301    15,000

     Net Cash Used in Investing Activities                  (47,738)   (5,269)

Financing Activities:
Issuance of long-term debt                                   30,035         -
Trust fund                                                  (25,693)        -
Interim loans of subsidiaries - net                          23,640    57,691
Retirement of long-term debt of subsidiaries                (10,400)        -
Dividends paid on common stock                              (16,993)  (16,483)
Proceeds from issuance of common stock                        2,912     2,898

     Net Cash Provided by Financing Activities                3,501    44,106

Net Increase in Cash and Cash Equivalents                     2,617    10,775
Cash and Cash Equivalents at Beginning of Period             10,622    33,298

Cash and Cash Equivalents at End of Period                  $13,239   $44,073

The Notes to Consolidated Financial Statements are an integral part 
of these statements.






                   Peoples Energy Corporation
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           (Unaudited)


1.  BASIS OF PRESENTATION

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

   Certain footnote disclosures and other information, normally
included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or
omitted from these interim financial statements, pursuant to SEC
rules and regulations.  Therefore, the statements should be read
in conjunction with the consolidated financial statements and
related notes contained in the Company's Annual Report on Form 10-
K for the fiscal year ended September 30, 1998.  Certain items
previously reported for the prior periods have been reclassified
to conform with the presentation in the current periods.

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


2.  SIGNIFICANT ACCOUNTING POLICIES

2A Regulated Operations

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

2B Statement of Cash Flows

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

     Income taxes and interest paid were as follows:

        For the three months
        ended December 31,         1998          1997
                                         (Thousands)
         Income taxes paid          $ 65            $31
         Interest paid            13,545         13,138

2C Recovery of Gas Costs

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

   For each gas utility, the Commission conducts annual
proceedings regarding the reconciliation of revenues from the Gas
Charge and related costs incurred for gas.  In such proceedings,
costs recovered by a utility through the Gas Charge are subject
to challenge.  Such proceedings, regarding Peoples Gas and North
Shore Gas for fiscal years 1997 and 1998, are currently pending
before the Commission.

2D Oil and Gas Exploration and Production Properties

   For oil and gas activities, the Company follows the full-cost
method of accounting as prescribed by the SEC.  Under the full-
cost method, all costs directly associated with the acquisition,
exploration and development activities are capitalized, with the
principal limitation that such amounts not exceed the present
value of estimated future net revenues to be derived from the
production of proved oil and gas reserves (the full-cost
ceiling).  If net capitalized costs exceed the full-cost ceiling
at the end of any quarter, a permanent impairment of the assets
is required to be charged to earnings in that quarter.  Such a
charge would have no effect on the Company's cash flow.  At
December 31, 1998, there was no such charge to income.

2E Accounting Standards

   On October 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This Statement establishes the
standards for reporting and display of comprehensive income and
its components in a full set of financial statements. The
statement requires that all items that are required to be
recognized as components of comprehensive income be reported in a
financial statement with equal prominence as the other financial
statements. (See Note 6.)

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

   Changes in the fair value of derivatives shall be recognized
in the current period earnings, unless specific hedge accounting
criteria are met.  If an entity qualifies for hedge accounting,
the derivative's gains and losses will offset the related results
of the hedged item in the current period's income statement.
SFAS No. 133 requires that formal documentation be maintained and
that the effectiveness of the hedge be assessed quarterly.  The
Company expects to designate its derivative instruments as fair
value hedges.  The statement must be adopted no later then the
Company's fiscal year 2000. The Company does not expect the
adoption of this standard to have a material effect on its
financial condition or results of operations.

2F Hedging Activities

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

   The Company accounts for all derivative transactions through
hedge accounting.  All derivatives are designated as fair value
hedges. Realized gains or losses from derivative instruments
(through maturity or termination of the hedge) are deferred until
the underlying hedged item is sold or matures.  If the Company
determines that any portion of the underlying hedged item will
not be purchased or sold, the unmatched portion of the instrument
is marked to market and any gain or loss is recognized in the
Consolidated Statement of Income.  Recognized gains or losses are
recorded on the Consolidated Statement of Income with the
underlying hedged item.  As of December 31, 1998 the Company had
open derivative financial instruments representing hedges of
natural gas production of 2.8 Bcf.  At December 31, 1998, the
Company had deferred losses of $230,000 on the Consolidated
Balance Sheet.

3.  ENVIRONMENTAL MATTERS

Former Manufactured Gas Plant Operations

     The Company's utility subsidiaries, their predecessors, and
certain former affiliates operated facilities in the past at
multiple sites for the purpose of manufacturing gas and storing
manufactured gas (Manufactured Gas Sites). The utility 
subsidiaries are accruing and deferring the costs they incur 
for environmental activities in connection with all of the 
Manufactured Gas Sites, including related legal expenses, pending 
recovery through rates or from insurance carriers or other 
entities.  At December 31, 1998, the total of the costs deferred 
by the subsidiaries was $42.2 million.  This amount includes the 
utilities' best estimate of the costs of investigating and 
remediating the Manufactured Gas Sites.  The estimate is based 
upon a comprehensive review by the utilities and their outside 
consultants of potential costs associated with conducting 
investigative and remedial actions at the Manufactured Gas Sites 
as well as the likelihood of whether such actions will be necessary.
While each subsidiary intends to seek contribution from other 
entities for the costs incurred at the sites, the full extent of 
such contribution cannot be determined at this time.
 
  Peoples Gas and North Shore Gas have filed suit against a
number of insurance carriers for the recovery of environmental
costs relating to the utilities' former manufactured gas
operations.  The suit asks the court to declare, among other
things, that the insurers are liable under policies in effect
between 1937 and 1986 for costs incurred or to be incurred by the
utilities in connection with five of the Manufactured Gas Sites
in Chicago and Waukegan.  The utilities are also asking the court
to award damages stemming from the insurers' breach of their
contractual obligation to defend and indemnify the utilities
against these costs.  In November 1998, the utilities reached a 
settlement agreement with one of the insurance carriers.  The 
costs deferred at December 31, 1998, have been reduced by the 
proceeds of the settlement. At this time, management cannot determine
the timing and extent of the subsidiaries' recovery of costs from
the other insurance carriers.  Accordingly, the costs deferred at
December 31, 1998 have not been reduced to reflect recoveries
from other insurance carriers.

   The Company believes that the costs incurred by Peoples Gas
and by North Shore Gas for environmental activities relating to
former manufactured gas operations are recoverable from insurance
carriers or other entities or through rates for utility service.
Accordingly, management believes that the costs incurred by the
subsidiaries in connection with former manufactured gas
operations will not have a material adverse effect on the
financial position or results of operations of the utilities.
Peoples Gas and North Shore Gas are recovering the costs of
environmental activities relating to the utilities' former
manufactured gas operations, including carrying charges on the
unrecovered balances, under rate mechanisms approved by the
Commission.  At December 31, 1998, the subsidiaries had recovered
$14.7 million of such costs through rates.


4.  LONG-TERM DEBT

A.  Issuance of Bonds

   On December 18, 1998, the Illinois Development Finance
Authority issued $30,035,000 aggregate principal amount of 5.00%
Gas Supply Revenue Bonds, Series 1998, which were collateralized
by an equal amount of North Shore Gas' 30-year first mortgage
bonds, Series M.  On January 19, 1999, a portion of the proceeds
deposited with the trustee was used to redeem $24,905,000 of
previously issued gas supply revenue bonds.  The remaining
proceeds will be used for the payment of issuance costs and to
fund certain construction expenditures.

B.  Interest-Rate Adjustments

   The rate of interest on the $27.0 million principal amount of 
the City of Chicago 1993 Series B Bonds, which are secured by the 
equal principal amount of Peoples Gas' Adjustable-Rate First
and Refunding Mortgage Bonds, Series EE, is subject to adjustment
annually on December 1.  Owners of the Series B Bonds have the
right to tender such bonds at par during a limited period prior
to that date.  Peoples Gas is obligated to purchase any such
bonds tendered if they cannot be remarketed.  All Series B Bonds
that were tendered prior to December 1, 1998, have been
remarketed.  The interest rate on the Series B Bonds will be
3.20 percent for the period December 1, 1998, through
November 30, 1999.

   Peoples Gas classifies these adjustable-rate bonds as long-
term liabilities, since it would refinance them on a long-term
basis if they could not be remarketed.  In order to ensure its
ability to do so, on February 1, 1994, Peoples Gas established a
three year line of credit with The Northern Trust Company, which
has since been extended to January 31, 2001.

C.  Bonds Redeemed

   On October 1, 1998, Peoples Gas redeemed, from general
corporate funds, $10.4 million aggregate principal amount of the
City of Joliet 1984 Series C Bonds, which were secured by Peoples
Gas' Adjustable-Rate First and Refunding Mortgage Bonds, Series
W.


5.  EARNINGS PER SHARE

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

                     Average Common Stock Shares (in
                               thousands)
                     Three Months           12-Months
                         Ended                Ended
December 31,         1998    1997         1998    1997
As reported         35,457    35,133        35,338    35,043
shares

Effects of              20        24            19        24
options

Diluted shares      35,477    35,157        35,357    35,067

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

6.  COMPREHENSIVE INCOME

   The Company has adopted SFAS No. 130, "Reporting Comprehensive
Income," in fiscal 1999. This statement requires the reporting of
comprehensive income in addition to net income.  Comprehensive
income is the total of net income and all other nonowner changes
in equity (other comprehensive income).   Comprehensive income
includes net income plus the effect of the additional pension
liability not yet recognized as net periodic pension cost. The
Company has reported accumulated other comprehensive income in
the Company's Consolidated Balance Sheet.

   Comprehensive income for the three and twelve months ended
December 31, 1998 and 1997 is as follows:

                                       Three Months Ended   12 Months Ended
                                         December 31,        December 31,
                                         1998     1997     1998      1997
Net income                             $23,370  $35,543  $67,250   $96,457

Other comprehensive income
  Minimum pension liability                  -        -     1,604   (2,645)
  Income tax (expense)/benefit               -        -      (636)   1,049
Other comprehensive income, net of tax       -        -       968   (1,596)

Comprehensive Income                   $23,370  $35,543   $68,218  $94,861

                              
                                

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

RESULTS OF OPERATIONS

Net Income

   Net income decreased $12.2 million, to $23.4 million, and
$29.2 million, to $67.3 million, for the  three- and 12-month
periods ended December 31, 1998, respectively, due to weather
that was  warmer in the current periods.
<TABLE>
<CAPTION>
   A summary of variations affecting income between periods is
presented below, with explanations of significant differences
following:

                                                  Three Months Ended     12 Months Ended
                                                  December 31, 1998      December 31, 1998
                                                Over the Prior Period   Over the Prior Period
(Thousands of dollars)                               Amount  Percent     Amount    Percent
<S>                                                <C>         <C>     <C>          <C>
Operating revenues                                 $ (71,630)  (18.6)  $ (204,712)  (16.1)
Cost of energy sold                                  (53,330)  (26.9)    (151,159)  (24.2)
Operation and maintenance expenses                     5,417     8.9        7,240     3.0
Depreciation, depeletion and amortization expense      1,568     8.3        4,261     5.7
Taxes, other than income taxes                        (5,605)  (13.8)     (19,250)  (13.4)
Other income and deductions                             (339)    3.7       (1,526)    4.6
Income taxes                                          (7,846)  (35.0)     (18,123)  (32.7)
Net income                                         $ (12,173)  (34.2)  $  (29,207)  (30.3)

</TABLE>


Operating Revenues

   Gross revenues of Peoples Gas and North Shore Gas are affected
by changes in the unit cost of the subsidiaries' gas purchases
and do not include the cost of gas supplies for customers who
purchase gas directly from producers and marketers rather than
from the subsidiaries.  The direct customer purchases have no
effect on net income because the utilities provide transportation
service for such gas volumes and recover margins similar to those
applicable to conventional gas sales.  Changes in the unit cost
of gas do not significantly affect net income because the
utilities' tariffs provide for dollar-for-dollar recovery of gas
costs.  (See Note 2C of the Notes to Consolidated Financial
Statements.)  The utilities' tariffs also provide for dollar-for-
dollar recovery of the cost of revenue taxes and certain other
charges imposed by the State of Illinois and various
municipalities.

   Operating revenues decreased $71.6 million, to $313.5 million,
and $204.7 million, to $1.1 billion, for the current three- and
12- month periods, respectively, due to weather that was warmer
in the current  periods and to lower unit costs of gas in the
current periods.  Partially offsetting these negative effects
were increased revenues from the Company's diversified energy
businesses.

Cost of Energy Sold

   Cost of energy sold decreased $53.3 million, to $144.7
million, and $151.2 million, to $473.7 million, for the current
three- and 12-month periods ended December 31, 1998, respectively,
due to reduced sales resulting from warmer weather in the current
periods and lower unit costs of gas in the current periods.



Operation and Maintenance Expenses

   Operation and maintenance expenses increased $5.4 million, to
$66.0 million, for the current three-month period, due primarily
to a reduction in pension credits and to increases in the costs
of outside professional services.  Partially offsetting these
increases were reductions in the provision for uncollectible
accounts and in the cost of group insurance.

   Operation and maintenance expenses increased $7.2 million, to
$250.7 million, for the current 12-month period, due principally
to a reduction in pension credits.  Other increases affecting the
period were higher costs for outside professional services and
increased advertising expense.  Offsetting these effects were a
decrease in the provision for uncollectible accounts and
decreases in other operation and maintenance expenses.

Depreciation, Depletion and Amortization Expense

   Depreciation, depletion and amortization expense increased
$1.6 million, to $20.4 million, and $4.3 million, to $78.8
million, for the current three- and 12-month periods,
respectively, due mainly to depreciable property additions and
depletion expense attributable to new oil and gas operations.

Taxes, Other Than Income Taxes

   Taxes, other than income taxes, decreased $5.6 million, to
$34.9 million and $19.3 million, to $124.5 million, for the
current three- and 12-month periods, respectively, primarily as a
result of the decrease in revenue taxes associated with the
decline in operating revenues attributable to the warmer weather
and to lower unit costs of gas experienced during the current
periods.  Partially offsetting this decrease in taxes was the
increase in other taxes in the current periods due to the new
Supplemental Low Income Energy Assistance Charge and Renewable
Energy Resource and Coal Technology Assessment Charge which
became effective on January 1, 1998.

Other Income and Deductions

   Other income and deductions increased $339,000 and $1.5
million, for the current three- and 12-month periods,
respectively, due primarily to decreases in interest income and
increases in interest on commercial paper and on budget plan
balances, partially offset by increases in the allowance for
funds used during construction.

Income Taxes

   Income taxes decreased $7.8 million, to $14.5 million, and
$18.1 million, to $37.3 million, for the current three- and 12-
month periods, respectively, due primarily to lower pre-tax
income. Partially offsetting the decline in income taxes in the
current 12-month period was the effect of a prior period accrual
adjustment.


Other Matters

Accounting Standards.  In October 1998, the Company adopted SFAS
130, "Reporting Comprehensive Income."(See Notes 2E and 6 of the
Notes to Consolidated Financial Statements.)

Fixed Gas Charge Filing.  On October 26, 1998, Peoples Gas and
North Shore Gas made filings with the Commission under which the
price for natural gas would be set at a fixed level for at least
the next five years.  By eliminating the monthly price
fluctuations, Peoples Gas and North Shore Gas could shield
customers from price increases, although gas bills would still
reflect customers' increased usage during colder weather.  As
Peoples Gas and North Shore Gas would assume and manage this
risk, they would have an opportunity to earn a profit on this
initiative.

Investment in Diversified Energy Businesses.  The Company  has  a
financial  goal  to derive 25% of its earnings  from  diversified
energy businesses by the end of 2002.

   In accordance with this goal, Peoples Energy Production, a
subsidiary of Peoples Energy Ventures, as of December 31, 1998,
had invested $2.8 million in EnerVest Energy Partners and an
additional $17.1 million to acquire a portfolio of oil and gas
properties in the U.S.

   Peoples Energy Resources entered into a commitment with
Dominion Energy, Inc. to develop and operate a jointly-owned 
600 megawatt electric generating peaking facility.  The total
estimated cost of the project is $206 million and the facility is
scheduled begin operation in June 1999.  As of December 31, 1998,
Peoples Energy Resources had invested $27.5 million in the
project. Additionally, Peoples Energy Resources, through its
subsidiary, Peoples Natural Gas Liquids, acquired $9.3 million in
plant assets. Peoples Natural Gas Liquids owns and operates a
plant that gasifies natural gas liquids to support the sale of
peaking services to area natural gas utilities and marketers.

   Peoples Energy Services expanded its gas marketing customer
base by buying the contract portfolios of various marketers.  It
also increased the number of its customers by participating in
gas utility pilot programs and by improving its direct sales
efforts.


<TABLE>
<CAPTION>

Operating Statistics.  The following table represents margin components:

                                                      Three Months Ended        Twelve Months Ended
                                                           December 31,               December 31,
                                                        1998         1997          1998          1997
<S>                                                  <C>          <C>          <C>           <C>
Revenues: (thousands)
 Utility Gas Sales
  Residential                                        $200,821     $268,722     $ 712,287     $ 918,796
  Commercial                                           25,298       38,008        99,456       140,846
  Industrial                                            4,502        7,371        18,078        28,045
                                                      230,621      314,101       829,821     1,087,687

 Utility Transportation
  Residential                                          11,176       10,848        36,162        36,206
  Commercial                                           13,891       14,813        46,634        47,678
  Industrial                                            7,061        7,996        26,337        29,625
  Contract Pooling                                      3,746        3,485         9,632        18,790
  Other                                                   249          433           574           433

                                                       36,123       37,575       119,339       132,732

 Other Utility Revenues                                 4,976        4,884        15,825        15,390

 Diversified Energy Revenues                           41,815       28,605       101,787        35,675



Total Operating Revenues                              313,535      385,165     1,066,772     1,271,484
Less- Cost of Energy Sold                               144,693      198,023       473,652       624,811

Gross Margin                                         $168,842     $187,142     $ 593,120     $ 646,673

Deliveries (MDth):
 Utility Gas Sales
  Residential                                          33,230       41,857       110,579       138,028
  Commercial                                            4,649        6,442        17,707        23,767
  Industrial                                              966        1,354         3,727         5,147
                                                       38,845       49,653       132,013       166,942

 Utility Transportation (a)
  Residential                                           7,587        8,156        24,285        27,252
  Commercial                                           11,665       12,641        38,823        40,408
  Industrial                                            9,822       10,568        39,289        37,993
                                                       29,074       31,365       102,397       105,653

 Total Utility Gas Sales and Transportation            67,919       81,018       234,410       272,595

                                   


  (a)  Volumes associated with contract pooling revenues are included in
     their respective customer classes.

</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

Bonds Issued.  On December 18, 1998, the Illinois Development
Finance Authority issued $30,035,000 aggregate principal amount
of 5.00% Gas Supply Revenue Bonds, Series 1998, which were
collateralized by an equal amount of North Shore Gas' 30-year
first mortgage bonds, Series M.  On January 19, 1999, a portion
of the proceeds was used to redeem $24,905,000 of previously
issued gas supply revenue bonds.  The remaining proceeds will be
used for the payment of issuance costs and to fund certain
construction expenditures.  (See Note 4A of the Notes to
Consolidated Financial Statements.)

Bonds Redeemed.  On October 1, 1998, Peoples Gas redeemed, from
general corporate funds, $10.4 million aggregate principal amount
of the City of Joliet 1984 Series C Bonds, which were secured by
Peoples Gas' Adjustable-Rate First and Refunding Mortgage Bonds,
Series W.  (See Note 4C of the Notes to Consolidated Financial
Statements.)

Environmental Matters. The Company's utility subsidiaries are
conducting environmental investigations and work at certain sites
that were the location of former manufactured gas operations.
(See Note 3 of the Notes to Consolidated Financial Statements.)

Credit Lines.  The Company has lines of credit totaling $170.0
million.  At December 31, 1998, the Company had unused credit
available of $147.3 million.  The utility subsidiaries have lines
of credit totaling $119.0 million.  At December 31, 1998, the
utility subsidiaries had unused credit available from banks of
$86.4 million.

Interest Coverage.  The fixed charges coverage ratios for Peoples
Gas for the 12-months ended December 31, 1998, and for fiscal
1998 and 1997 were 3.61, 4.15, and 5.01, respectively. The
corresponding coverage ratios for North Shore Gas for the same
periods were 4.68, 5.07, and 5.74, respectively.

Dividends.  On February 3, 1999, the Directors of the Company
voted to increase the regular quarterly dividend on the Company's
common stock to 49 cents per share from the 48 cents per share
previously in effect.  The annualized dividend rate now amounts
to $1.96 per share.

Year 2000.  The Company began its efforts to assess the Year 2000
compliance of its mainframe computer systems in March 1996.  The
Company has since developed a comprehensive Year 2000 readiness
plan that incorporates all of its information technology systems,
including computer hardware and software, and its embedded
systems equipment, including telecommunications equipment.  The
plan also includes a review by the Company of the Year 2000
compliance efforts of its key suppliers and customers and Year
2000 contingency planning.  The Company-wide Year 2000 effort
includes the Company's wholly owned subsidiaries, as well as
various joint ventures.


   For all internal information technology systems developed by
the Company, Year 2000 compliance efforts proceed through the
following phases: inventory, assessment, remediation, testing,
and implementation.  Rather than completing each phase for all
systems prior to proceeding to the next phase, the Company
progresses through all phases on a system-by-system basis,
gradually implementing each fully-compliant system.

   The Year 2000 compliance phases utilize a combination of
consultants and employees of the Company's subsidiaries.  Once a
fully-tested application has been implemented, Company employees
follow established procedures to maintain the compliance of the
implemented systems.  The Company also has retained a quality
assurance expert to ensure that any subsequent modifications to
the application do not impact its compliant status.

   As of December 31, 1998, 21 of the Company's 38 mainframe
applications have been fully remediated, tested and implemented,
one is in the testing phase, and eight have been (or are in the
process of being) eliminated.  The eight remaining mainframe
applications are scheduled to be replaced by the Company's new
mainframe customer information system and are not expected to be
remediated.  Additionally, all mainframe system modules have been
remediated and are now in the testing phase.  Many of the
Company's non-mainframe applications, spreadsheets and interfaces
have also reached the implementation stage, and most others are
in the remediation phase.  The Company expects to implement all
critical internal systems (other than the customer information
system to be used by Peoples Gas and North Shore Gas) and all non-
critical internal systems by April 30, 1999; and complete
installation and testing of the customer information system by
the end of fiscal year 1999.

   As part of its Year 2000 Project, the Company has also
contacted the vendors of its licensed or purchased hardware and
software to determine the Year 2000 compliance status of their
products.  As of December 31, 1998, the Company has received
responses from 88% of the vendors and is in the process of
replacing, upgrading or eliminating non-compliant vendor products
as appropriate.  The Company also plans to have certain products,
such as its desktop computer inventory, compliant-tested in order
to minimize the risks associated with reliance on vendor
representations.

   The Company has completed an inventory of all equipment
containing embedded systems, including telecommunications
equipment and facilities.  It has also contracted with a
consultant that has significant utility and engineering expertise
to assist with the embedded systems efforts.  The Company has
assessed the Year 2000 compliance status of its embedded systems,
and it is beginning to test, repair or replace any critical
equipment identified as not Year 2000 compliant.  The Company's
timetable for implementing compliant equipment will depend on the
availability of compliant equipment.

   The Company currently has a written conceptual contingency
plan to address risks to the Company created by the Company's or
third parties' systems and embedded technology that are not Year
2000 compliant.  It has engaged the consultant referenced above
to assist in developing detailed and comprehensive business
continuity and contingency plans to address possible failures in
the area of embedded systems equipment.  The Company expects to
complete its contingency plans for information technology and
embedded systems, including critical third party disruptions, by
April 1999, and such plans will be maintained and adjusted as
necessary on an ongoing basis.

   The Company has contacted key suppliers to determine their
Year 2000 compliance efforts.  It has received written assurances
from many key suppliers that they are making the necessary Year
2000 efforts, and it is in the process of following up with other
key suppliers that did not respond to written inquiries.  The
Company is also contacting certain of its larger customers to
determine their year 2000 readiness.

   Essential elements of the Company's business are dependent on
certain key third parties (for example, pipeline suppliers,
banks, electric utilities and telecommunication companies).  A
material failure by any such key third party could significantly
disrupt the Company's business.  The Company is in the process of
detailing and finalizing contingency plans to address potential
disruptions that may be caused by third parties.

   The Company currently estimates that it will incur expenses of
approximately $1.0 million through fiscal Year 1999 to complete
its Year 2000 compliance efforts, in addition to the $4.6 million
already incurred through December 31, 1998.  This estimate does
not include costs to repair or replace critical embedded systems
equipment that is non-compliant, which has yet to be determined.
Management does not expect the cost of the Company's Year 2000
compliance efforts to have a material adverse impact on the
financial position or results of operations of the Company.

Market Risk Management.  The Company uses market risk sensitive
financial instruments, including futures, forward contracts, and
derivatives such as swaps and options, to manage its exposure to
certain commodity price risks in its operations.  These risks
occur because of the changing prices of natural gas, crude oil,
ethane, and propane.  The Company's policy for risk management
activities stipulates that such financial instruments are only to
be used for hedging purposes.  (See Note 2F of the Notes to
Consolidated Financial Statements.)  The Company monitors and
controls derivative positions using a mark-to-market analysis.  A
sensitivity analysis has been prepared to estimate the Company's
price exposure to the market risk of its natural gas commodity
financial instruments.  As of December 31, 1998, a 10% adverse
movement in current prices would have reduced future earnings
before income taxes by approximately $504,000.

   The Company's utility subsidiaries are not currently exposed
to market risk caused by changes in commodity prices.  This is
due to current Illinois rate regulation, which allows for all
reasonably incurred costs of natural gas to be recovered from the
utilities' customers through the operation of the utilities' Gas
Charges.  However, in order to minimize the impact on customers
of severe price spikes in gas supply costs, the Company did 
initiate a gas supply price protection financial trading 
strategy.  Any gains or losses from financial trades are offset 
by related physical purchases.

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

   Peoples Energy Production has working interests in natural gas
and crude oil producing properties.  Using swaps and futures,
approximately two-thirds of calendar years 1999 and 2000's
production is hedged, thereby removing market risk on that
portion of the output.  Price movements in natural gas and crude
oil swaps and futures are highly correlated to any price changes
in the underlying physical commodities.  Therefore, a loss in the
market value of the hedged commodity would be substantially
offset by an equal gain in value resulting from the financial
transaction.  As of December 31, 1998, the exposure from non-
hedged production was immaterial to the consolidated financial
statements.

   Peoples Energy Resources and Peoples Energy Services sell
fixed price and capped price products.  Both companies reduce
risk through the use of fixed price supplier contracts and
storage assets.  As of December 31, 1998, exposure from these
activities was not material.

   The Company is also exposed to credit risk when a hedging
transaction counter party or supplier defaults on a contract to
pay for or deliver product at an agreed-upon price.  To mitigate
this risk, the Company has established procedures to determine
and monitor the creditworthiness of counter parties.

   Transactions are executed only with counter parties having
strong credit ratings.  Controls are also in place to limit
dollar exposure and transaction term based upon creditworthiness.
The Company does not expect any of the counter parties to fail to
meet their contractual obligations with these controls in place.

   The Company's utility subsidiaries utilize long-term debt as a
primary source of capital.  Both variable and fixed rate debt
instruments are utilized.  The variable interest rate on the debt
adjusts to reflect current market conditions annually on December
1.  Subject to certain restrictions on optional redemptions, the
fixed rate debt instruments can be refinanced at lower interest
rates if the Company deems it to be economical.  (See Note 4 of
the Notes to Consolidated Financial Statements.)

Forward-Looking Information.  Management's Discussion and
Analysis of Results of Operations and Financial Condition
("MD&A") contains statements that may be considered forward-
looking, such as the statement of the Company's financial goal
regarding non-utility earnings, the effect of weather on net
income, cash position and coverage ratios, the insignificant
effect on income arising from changes in revenue from customers'
gas purchases from entities other than the utility subsidiaries,
environmental matters, and the discussion concerning year 2000
compliant information systems.  These statements speak of the
Company's plans, goals, beliefs, or expectations, refer to
estimates or use similar terms.  Actual results could differ
materially, because the realization of those results is subject
to many uncertainties including:

   "    The future health of the U.S. and Illinois economies.
     
   "    The timing and extent of changes in energy commodity prices
        and interest rates.
   
   "    Litigation concerning North Shore's liability for CERCLA
        response costs relating to a former mineral processing site in
        Denver, Colorado.

   "    Regulatory developments in the U.S., Illinois and other
        states where the Company has investments.
     
   "    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 non-utility investments
        on financially acceptable terms and generating earnings from
        those investments in a reasonable time.
     
   "    The ability of various vendors and others with whom the
        Company electronically interacts to complete year 2000 systems
        modification efforts on a timely basis and in a manner that
        allows them to continue normal business transactions with the
        Company without disruption.

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

Item 3.  Quantitative and Qualitative Disclosures about Market
      Risk

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


                  PART II.   OTHER INFORMATION

Item 1. Legal Proceedings

     See Note 3 of the Notes to Consolidated Financial Statements
for a discussion pertaining to environmental matters.


Item 6. Exhibits and Reports on Form 8-K

        a. Exhibits

               Exhibit
               Number      Description of Document

                10(a)	Firm Gas Transportation Agreement Under Rate 
				Schedule FT-A or FT-G between Peoples Gas and
				Midwestern Gas Trasmission Company, dated 
				November 1, 1998.
	
	     
                10(b)	Firm Gas Transportation Agreement Under Rate 
				Schedule FT-A or FT-G between North Shore Gas
				and Midwestern Gas Trasmission Company, dated 
				November 1, 1998.

                10(c)	Rate Schedule QNT Quick Notice Transportation 
				Service Agreement Between Peoples Gas and 
				Trunkline Gas Company, dated November 1, 1998.

                10(d)	Severance Agreemnt Betweeen the Company and 
				James M. Luebbers dated as of November 1, 1998.

                10(e)	Severance Agreemnt Betweeen the Company and 
				Donald M. Field dated as of November 1, 1998.

		      27    Financial Data Schedule

        b. Reports on Form 8-K filed during the quarter ended
December 31, 1998

           None




                            SIGNATURE



   Pursuant to the requirements of the Securities Exchange Act of

1934, as amended, the registrant has duly caused this report to

be signed on its behalf by the undersigned thereunto duly

authorized.




                         Peoples Energy
                           Corporation
                          (Registrant)




February 11, 1999                By: /s/ J. M. LUEBBERS
        (Date)                             J. M. Luebbers
                                   Vice President and Controller





                         (Same as above)
                      Principal Accounting
                             Officer