**UNITED
                  STATES****SECURITIES
                  AND EXCHANGE COMMISSION****Washington,
                  D.C.  20549****FORM
                  10-Q**[X]
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d)OF
                  THE
                  SECURITIES EXCHANGE ACT OF 1934For
                  the
                  quarterly period ended **June 30****,
                  2007**OR[  ]
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d)OF
                  THE
                  SECURITIES EXCHANGE ACT OF 1934For
                  the
                  transition period from ________ to
                  ________
 
 Commission
                File
                  Number
              Registrant;
                  State of Incorporation;
                Address;
                  and
                  Telephone Number
              IRS
                  Employer
                Identification
                  No.2-26983
              THE
                  PEOPLES
                  GAS LIGHT AND COKE COMPANY
              36-1613900(An
                  Illinois
                  Corporation)130
                  East
                  Randolph Drive24th
                  FloorChicago,
                  Illinois  60601-6207(312)
                  240-4000
 
 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 such 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
                  by a
                  check mark whether the registrant is a large accelerated filer,
                  an
                  accelerated filer, or a non-accelerated filer.  See definition
                  of “accelerated filer and large accelerated filer” in Rule 12b-2 of the
                  Exchange Act.  (Check One):Large
                  accelerated filer
                  [  ]                                          Accelerated
                  filer
                  [  ]                                           Non-accelerated
                  filer [X]Indicate
                  by
                  check mark whether the registrant is a shell company (as defined
                  in Rule
                  12b-2 of the Exchange
                  Act).  Yes [  ]  No [X]Indicate
                  the
                  number of shares outstanding of each of the issuer's classes of
                  common
                  stock as of the latest practicable date: 25,357,566 shares of common
                  stock, without par value, outstanding at July 31, 2007, all of
                  which were held, beneficially and of record, by Peoples Energy
                  Corporation.
  
 
 **THE
        PEOPLES
        GAS LIGHT AND COKE COMPANY**
 **FORM
        10-Q
        FOR THE QUARTER ENDED JUNE 30, 2007**
 
 **CONTENTS**
 
 Page**Forward-Looking
                  Statements**
              4**PART
                  I.**
              **FINANCIAL
                  INFORMATION**Item
                  1.
              Financial
                  Statements (Unaudited)Condensed
                  Consolidated Statements of Income
              5Condensed
                  Consolidated Balance Sheets
              6Condensed
                  Consolidated Statements of Capitalization
              7Condensed
                  Consolidated Statements of Cash Flows
              8CONDENSED
                  NOTES TO FINANCIAL STATEMENTS
              9Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              24Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              34Item
                  4.
              Controls
                  and
                  Procedures
              36**PART
                  II.**
              **OTHER
                  INFORMATION**Item
                  1.
              Legal
                  Proceedings
              37Item
                  1A.
              Risk
                  Factors
              37Item
                  6.
              Exhibits
              37Signature
              
              37
 
 **EXHIBIT
                  INDEX**
              
              393.1
              Amendment
                  to
                  By-Laws adopted May 17, 2007.3.2
              By-Laws
                  of
                  The Peoples Gas Light and Coke Company, as amended and restated
                  May 17,
                  2007.12
              The
                  Peoples
                  Gas Light and Coke Company Ratio of Earnings to Fixed
                  Charges31.1
              Certification
                  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                  Act of
                  1934 for The Peoples Gas Light and Coke Company31.2
              Certification
                  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                  Act of
                  1934 for The Peoples Gas Light and Coke Company32
              Written
                  Statement of the Chief Executive Officer and Chief Financial Officer
                  Pursuant to 18 U.S.C. Section 1350 for The Peoples Gas Light and
                  Coke
                  Company
 
  -
            2 -
  **Commonly
        Used Acronyms**
 
 AG
              Illinois
                  Attorney GeneralCERCLA
              Comprehensive
                  Environmental Response, Compensation and Liability Act of 1980,
                  as
                  amendedEPA
              United
                  States
                  Environmental Protection AgencyFASB
              Financial
                  Accounting Standards BoardFERC
              Federal
                  Energy Regulatory CommissionFIN
              FASB
                  Interpretation No.ICC
              Illinois
                  Commerce CommissionIEPA
              Illinois
                  Environmental Protection AgencyLIFO
              Last-in,
                  first-outMD&A
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  OperationsMGUC
              Michigan
                  Gas
                  Utilities Corporation (a wholly-owned subsidiary of Integrys Energy
                  Group,
                  Inc.)MTM
              Mark-to-marketNSG
              North
                  Shore
                  Gas CompanyNYMEX
              New
                  York
                  Mercantile ExchangePCB
              Polychlorinated
                  biphenylPEC
              Peoples
                  Energy CorporationPGL
              The
                  Peoples
                  Gas Light and Coke CompanyRCRA
              Resource
                  Conservation and Recovery ActSEC
              Securities
                  and Exchange CommissionSFAS
              Statement
                  of
                  Financial Accounting StandardsWPSC
              Wisconsin
                  Public Service Company (a wholly-owned subsidiary of Integrys Energy
                  Group, Inc.)
 
  -
            3 -
  **Forward-Looking
        Statements**
 
 In
        this report, PGL and its subsidiaries make statements concerning expectations,
        beliefs, plans, objectives, goals, strategies, and future events or performance.
        Such statements are "forward-looking statements" within the meaning of Section
        21E of the Securities Exchange Act of 1934, as amended. Although PGL and
        its
        subsidiaries believe that these forward-looking statements and the underlying
        assumptions are reasonable, it cannot provide assurance that they will prove
        correct. Except to the extent required by the federal securities laws, PGL
        and
        its subsidiaries undertake no obligation to publicly update or revise any
        forward-looking statements, whether as a result of new information, future
        events or otherwise.
 
 In
        addition to statements regarding trends or estimates in MD&A,
        forward-looking statements included or incorporated in this report include,
        but
        are not limited to statements regarding future:
 
 ·
              Revenues
                  or
                  expenses,
 ·
              Capital
                  expenditure projections, and
 ·
              Financing
                  sources.
 
 Forward-looking
        statements involve a number of risks and uncertainties. There are many factors
        that could cause actual results to differ materially from those expressed
        or
        implied in this report. Some risk factors that could cause results different
        from any forward-looking statement include those described in Item 1A of
        our
        combined PEC, PGL and NSG Annual Report on Form 10-K, as amended, for the
        fiscal
        year ended September 30, 2006 and as such may be amended or supplemented
        in Part
        II, Item 1A of this report. Other factors include:
 
 ·
              The
                  successful combination of the operations of PEC and its subsidiaries,
                  including PGL, within Integrys Energy Group, Inc. ("Integrys")
                  (Integrys
                  was formerly known as WPS Resources
                  Corporation);
 ·
              Unexpected
                  costs or liabilities related to the merger between a subsidiary
                  of
                  Integrys and PEC;
 ·
              The
                  combined
                  company of Integrys and PEC may be unable to achieve the forecasted
                  synergies or it may take longer or cost more than expected to achieve
                  these synergies;
 ·
              Resolution
                  of
                  pending and future rate cases and negotiations (including the recovery
                  of
                  deferred costs) and other regulatory decisions impacting
                  PGL;
 ·
              The
                  impact of
                  recent and future federal and state regulatory change, including
                  legislative and regulatory initiatives regarding deregulation and
                  restructuring of the natural gas utility industry, changes in
                  environmental, tax and other laws and regulations to which PGL
                  and its
                  subsidiaries are subject, as well as changes in application of
                  existing
                  laws and regulations;
 ·
              Current
                  and
                  future litigation, regulatory investigations, proceedings or inquiries,
                  including but not limited to, manufactured gas plant site cleanup,
                  proceedings concerning the prudence review of PGL’s gas purchases and
                  costs actually incurred;
 ·
              The
                  credit
                  ratings of PGL could change in the
                  future;
 ·
              Resolution
                  of
                  audits or other tax disputes with the Internal Revenue Service,
                  Illinois
                  state revenue agencies or other taxing
                  authorities;
 ·
              The
                  effects,
                  extent and timing of additional competition or regulation in the
                  markets
                  in which PGL operates;
 ·
              The
                  impact of
                  fluctuations in commodity prices, interest rates and customer
                  demand;
 ·
              The
                  effectiveness of PGL’s derivative instruments and hedging activities and
                  their impact on its future results of
                  operations;
 ·
              Available
                  sources and costs of natural gas;
 ·
              Investment
                  performance of employee benefit plan
                  assets;
 ·
              Advances
                  in
                  technology;
 ·
              Effects
                  of
                  and changes in political, legal and economic conditions and developments
                  in the United States and Illinois;
 ·
              The
                  direct or
                  indirect effects of terrorist incidents, natural disasters or responses
                  to
                  such events;
 ·
              Financial
                  market conditions and the results of financing efforts, including
                  risks
                  associated with commodity prices (particularly natural gas), interest
                  rates and counter-party credit;
 ·
              Weather
                  and
                  other natural phenomena, in particular the effect of weather on
                  natural
                  gas sales;
 ·
              The
                  effect of
                  accounting pronouncements issued periodically by standard-setting
                  bodies;
                  and
 ·
              Other
                  factors
                  discussed elsewhere herein and in other reports filed by PGL and/or
                  Integrys from time to time with the
                  SEC.
 
 **Forward-looking
        statements are subject to assumptions and uncertainties, therefore actual
        results may differ materially from those expressed or implied by such
        forward-looking statements.**
  -
            4 -
  **PART
        I -
        FINANCIAL INFORMATION**
 
 **Item
        1.
        Financial Statements**
 
 **THE
                      PEOPLES GAS LIGHT AND COKE COMPANY****CONDENSED
                      CONSOLIDATED STATEMENTS OF INCOME (Unaudited)**
                  
                  **Three
                      Months Ended**
                  
                  
                  **Six
                      Months Ended****June
                      30,**
                  
                  
                  **June
                      30,**(Millions)
                  
                  **2007**
                  
                  
                  2006
                  
                  
                  **2007**
                  
                  
                  2006**Gas
                      operating revenues**
                  
                  **$**
                  **225.8**
                  
                  
                  $
                  173.8
                  
                  
                  **$**
                  **852.9**
                  
                  
                  $
                  806.9**Operating
                      expenses**Gas
                      purchased
                      for resale
                  
                  ****
                  **137.4**
                  
                  
                  
                  91.4
                  
                  
                  ****
                  **596.1**
                  
                  
                  
                  576.6Operating
                      and
                      maintenance expenses
                  
                  ****
                  **68.4**
                  
                  
                  
                  62.9
                  
                  
                  ****
                  **166.9**
                  
                  
                  
                  144.9Gas
                      charge
                      settlement
                  
                  ****
                  **23.0**
                  
                  
                  
                  -
                  
                  
                  ****
                  **23.0**
                  
                  
                  
                  28.4Depreciation
                      and amortization
                  
                  ****
                  **15.5**
                  
                  
                  
                  14.5
                  
                  
                  ****
                  **30.0**
                  
                  
                  
                  28.5Taxes,
                      other
                      than income taxes
                  
                  ****
                  **6.5**
                  
                  
                  
                  6.3
                  
                  
                  ****
                  **13.9**
                  
                  
                  
                  13.3**Operating
                      income (loss)**
                  
                  ****
                  **(25.0**
                  **)**
                  
                  
                  (1.3
                  )
                  
                  ****
                  **23.0**
                  
                  
                  
                  15.2Miscellaneous
                      income
                  
                  ****
                  **1.1**
                  
                  
                  
                  1.6
                  
                  
                  ****
                  **2.1**
                  
                  
                  
                  2.5Interest
                      expense
                  
                  ****
                  **(6.7**
                  **)**
                  
                  
                  (6.3
                  )
                  
                  ****
                  **(14.4**
                  **)**
                  
                  
                  (13.3
                  )**Other
                      (expense) income**
                  
                  ****
                  **(5.6**
                  **)**
                  
                  
                  (4.7
                  )
                  
                  ****
                  **(12.3**
                  **)**
                  
                  
                  (10.8
                  )Income
                      (loss)
                      before taxes
                  
                  ****
                  **(30.6**
                  **)**
                  
                  
                  (6.0
                  )
                  
                  ****
                  **10.7**
                  
                  
                  
                  4.4Income
                      tax
                      expense (benefit)
                  
                  ****
                  **(10.8**
                  **)**
                  
                  
                  (2.6
                  )
                  
                  ****
                  **2.0**
                  
                  
                  
                  0.2**Net
                      Income (Loss)**
                  
                  **$**
                  **(19.8**
                  **)**
                  
                  $
                  (3.4
                  )
                  
                  **$**
                  **8.7**
                  
                  
                  $
                  4.2The
                      accompanying condensed notes are an integral part of these
                      statements.
  -
              5 -
  **THE
                    PEOPLES GAS LIGHT AND COKE COMPANY****CONDENSED
                    CONSOLIDATED BALANCE SHEETS (Unaudited)**
                
                **June
                    30,**
                
                
                December
                    31,
                
                
                June
                    30,(Millions)
                
                **2007**
                
                
                2006
                
                
                2006**Assets****Current
                    assets**Cash
                    and cash
                    equivalents
                
                **$**
                **-**
                
                
                $
                -
                
                
                $
                75.3Customer
                    and
                    other receivables, net of reserves of $39.0, $29.1 and
                    $44.3at
                    June 30,
                    2007,  December 31, 2006 and June 30, 2006,
                    respectively
                
                ****
                **171.0**
                
                
                
                169.1
                
                
                
                141.2Receivables
                    from related parties
                
                ****
                **2.5**
                
                
                
                5.1
                
                
                
                3.6Accrued
                    unbilled revenues
                
                ****
                **25.1**
                
                
                
                97.7
                
                
                
                22.2Natural
                    gas
                    in storage, at last-in, first-out cost
                
                ****
                **58.2**
                
                
                
                89.4
                
                
                
                58.1Materials
                    and
                    supplies, at average cost
                
                ****
                **9.5**
                
                
                
                9.0
                
                
                
                9.2Regulatory
                    assets
                
                ****
                **75.6**
                
                
                
                153.2
                
                
                
                85.5Assets
                    from
                    risk management activities
                
                ****
                **3.4**
                
                
                
                1.6
                
                
                
                3.0Deferred
                    income taxes
                
                ****
                **30.2**
                
                
                
                22.6
                
                
                
                13.2Prepayments
                    and other
                
                ****
                **2.9**
                
                
                
                5.3
                
                
                
                2.3**Total
                    current assets**
                
                ****
                **378.4**
                
                
                
                553.0
                
                
                
                413.6Property,
                    plant, and equipment, net of accumulated depreciation of $978.7,
                    $958.1,
                    and$936.5
                    at
                    June 30, 2007,  December 31, 2006 and June 30, 2006,
                    respectively
                
                ****
                **1,428.8**
                
                
                
                1,421.3
                
                
                
                1,377.3Noncurrent
                    regulatory assets
                
                ****
                **720.6**
                
                
                
                464.2
                
                
                
                254.2Investments
                    and other assets
                
                ****
                **19.2**
                
                
                
                16.9
                
                
                
                35.5Prepaid
                    pension costs
                
                ****
                **79.4**
                
                
                
                78.2
                
                
                
                154.0Long-term
                    assets from risk management activities
                
                ****
                **0.5**
                
                
                
                0.1
                
                
                
                -**Total
                    assets**
                
                **$**
                **2,626.9**
                
                
                $
                2,533.7
                
                
                $
                2,234.6**Liabilities
                    and Capitalization****Current
                    liabilities**Current
                    portion of long-term debt
                
                **$**
                **50.0**
                
                
                $
                -
                
                
                $
                -Short-term
                    debt
                
                ****
                **3.6**
                
                
                
                80.3
                
                
                
                -Accounts
                    payable
                
                ****
                **157.2**
                
                
                
                193.6
                
                
                
                155.0Payables
                    to
                    related parties
                
                ****
                **45.9**
                
                
                
                94.4
                
                
                
                74.1Current
                    liabilities from risk management activities
                
                ****
                **33.0**
                
                
                
                31.9
                
                
                
                -Gas
                    costs
                    refundable through rate adjustments
                
                ****
                **14.7**
                
                
                
                13.5
                
                
                
                47.7Customer
                    deposits
                
                ****
                **32.9**
                
                
                
                33.4
                
                
                
                33.5Customer
                    credit balances
                
                ****
                **25.1**
                
                
                
                69.6
                
                
                
                48.1Other
                    deposits
                
                ****
                **19.5**
                
                
                
                11.2
                
                
                
                11.0Accrued
                    interest and taxes
                
                ****
                **31.6**
                
                
                
                65.0
                
                
                
                30.5Temporary
                    LIFO liquidation credit
                
                ****
                **30.3**
                
                
                
                -
                
                
                
                49.1Other
                
                ****
                **13.6**
                
                
                
                14.6
                
                
                
                14.2**Total
                    current liabilities**
                
                ****
                **457.4**
                
                
                
                607.5
                
                
                
                463.2**Long-term
                    liabilities and deferred credits**Deferred
                    income taxes
                
                ****
                **338.3**
                
                
                
                346.1
                
                
                
                352.5Deferred
                    investment tax credits
                
                ****
                **23.0**
                
                
                
                23.2
                
                
                
                23.2Noncurrent
                    regulatory liabilities
                
                ****
                **0.9**
                
                
                
                0.9
                
                
                
                -Environmental
                    remediation liability
                
                ****
                **453.8**
                
                
                
                193.6
                
                
                
                215.9Pension
                    and
                    postretirement benefit obligations
                
                ****
                **119.1**
                
                
                
                111.5
                
                
                
                73.7Long-term
                    liabilities from risk management activities
                
                ****
                **0.4**
                
                
                
                0.2
                
                
                
                -Asset
                    retirement obligations
                
                ****
                **95.1**
                
                
                
                92.4
                
                
                
                -Other
                
                ****
                **32.8**
                
                
                
                7.3
                
                
                
                6.6**Total
                    long-term liabilities and deferred credits**
                
                ****
                **1,063.4**
                
                
                
                775.2
                
                
                
                671.9**Commitments
                    and contingencies****Capitalization**Common
                    stock
                    equity
                
                ****
                **654.9**
                
                
                
                649.8
                
                
                
                598.3Long-term
                    debt
                
                ****
                **451.2**
                
                
                
                501.2
                
                
                
                501.2**Total
                    capitalization**
                
                ****
                **1,106.1**
                
                
                
                1,151.0
                
                
                
                1,099.5**Total
                    liabilities and capitalization**
                
                **$**
                **2,626.9**
                
                
                $
                2,533.7
                
                
                $
                2,234.6The
                    accompanying condensed notes are an integral part of these
                    statements.
 -
            6 -
  **THE
                    PEOPLES GAS LIGHT AND COKE COMPANY****CONDENSED
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                    (Unaudited)**
                **June
                    30,**
                December
                    31,
                June
                    30,(Millions,
                    except share amounts)
                
                **2007**
                2006
                2006**Long-term
                    debt**First
                    and
                    refunding mortgage bondsSeries
                
                Year
                    DueHH
                4.75%
                2030
                
                **$                
                    50.0**
                $                
                    50.0
                $                
                    50.0KK
                5.00%
                2033
                
                **50.0**
                50.0
                50.0LL
                3.05%
                2033
                
                **50.0**
                50.0
                50.0MM-2
                4.00%
                2010
                
                **50.0**
                50.0
                50.0NN-2
                4.625%
                2013
                
                **75.0**
                75.0
                75.0QQ
                4.875%
                2038
                
                **75.0**
                75.0
                75.0RR
                4.30%
                2035
                
                **50.0**
                50.0
                50.0Adjustable
                    rate refunding mortgage bondsSeries
                
                Year
                    DueOO
                
                2037
                
                **51.0**
                51.0
                51.0PP
                
                2037
                
                **51.0**
                51.0
                51.0Total
                    first
                    and refunding mortgage bonds
                **502.0**
                502.0
                502.0Unamortized
                    discount on long-term debt, net
                **(0.8)**
                (0.8)
                (0.8)Total
                
                
                
                
                
                **501.2**
                501.2
                501.2Current
                    portion
                
                
                
                **(50.0)**
                -
                -**Total
                    long-term debt**
                
                
                **451.2**
                501.2
                501.2**Common
                    stock equity**Common
                    stock,
                    without par value—Authorized
                    40,000,000 sharesOutstanding 25,357,566,
                    25,357,566 and 25,033,566 shares, respectively
                **219.2**
                219.2
                186.8Accumulated
                    other comprehensive loss
                **(0.5)**
                (1.2)
                (22.4)Retained
                    earnings
                
                
                **436.2**
                431.8
                433.9**Total
                    common stock equity**
                
                **654.9**
                649.8
                598.3**Total
                    capitalization**
                
                
                **$           
                    1,106.1**
                $           
                    1,151.0
                $           
                    1,099.5The
                    accompanying condensed notes are an integral part of these
                    statements.
  -
            7 -
  **THE
                    PEOPLES GAS LIGHT AND COKE COMPANY****CONDENSED
                    CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)**
                
                **Six
                    Months Ended****June
                    30,**(Millions)
                
                **2007**
                
                
                2006**Operating
                    Activities:**Net
                    income
                    (loss)
                
                **$**
                **8.7**
                
                
                $
                4.2Adjustments
                    to reconcile net income to cash provided by operations:Depreciation
                    and amortization
                
                ****
                **32.3**
                
                
                
                30.7Deferred
                    income taxes and investment tax credits—net
                
                ****
                **(12.7**
                **)**
                
                
                4.8Gas
                    charge
                    settlement expense
                
                ****
                **23.0**
                
                
                
                10.7Pension
                    funding less than expense
                
                ****
                **5.6**
                
                
                
                (10.4
                )Other
                    adjustments
                
                ****
                **(1.0**
                **)**
                
                
                3.4Net
                    changes
                    in:Receivables—net
                
                ****
                **77.6**
                
                
                
                242.0Receivables
                    from related parties
                
                ****
                **2.6**
                
                
                
                1.9Gas
                    in
                    storage
                
                ****
                **31.2**
                
                
                
                38.4Gas
                    costs
                    recoverable/refundable through rate adjustments
                
                ****
                **1.2**
                
                
                
                55.0Accounts
                    payable
                
                ****
                **(36.4**
                **)**
                
                
                (96.2
                )Payables
                    to
                    related parties
                
                ****
                **2.0**
                
                
                
                (1.9
                )Accrued
                    interest
                
                ****
                **-**
                
                
                
                0.4Accrued
                    taxes
                
                ****
                **(33.3**
                **)**
                
                
                (31.0
                )Temporary
                    LIFO liquidation
                
                ****
                **30.3**
                
                
                
                38.5Customer
                    credit balances
                
                ****
                **(44.4**
                **)**
                
                
                7.1Gas
                    charge
                    settlement liability
                
                ****
                **-**
                
                
                
                (87.7
                )Other
                
                ****
                **10.2**
                
                
                
                6.9**Net
                    cash provided by (used in) operating activities**
                
                ****
                **96.9**
                
                
                
                216.8**Investing
                    Activities:**Capital
                    spending
                
                ****
                **(43.2**
                **)**
                
                
                (40.7
                )Proceeds
                    from
                    sale of assets
                
                ****
                **-**
                
                
                
                1.4Intercompany
                    note receivable
                
                ****
                **-**
                
                
                
                9.9Other
                
                ****
                **0.2**
                
                
                
                1.8**Net
                    cash provided by (used in) investing activities**
                
                ****
                **(43.0**
                **)**
                
                
                (27.6
                )**Financing
                    Activities:**Retirement
                    of
                    commercial paper
                
                ****
                **(76.7**
                **)**
                
                
                (120.0
                )Intercompany
                    loan payable
                
                ****
                **27.1**
                
                
                
                -Dividends
                    paid on common stock
                
                ****
                **(4.3**
                **)**
                
                
                (15.4
                )Issuance
                    of
                    common stock
                
                ****
                **-**
                
                
                
                21.5**Net
                    cash provided by (used in) financing activities**
                
                ****
                **(53.9**
                **)**
                
                
                (113.9
                )**Net
                    increase (decrease) in cash and cash equivalents**
                
                ****
                **-**
                
                
                
                75.3**Cash
                    and cash equivalents at beginning of period**
                
                ****
                **-**
                
                
                
                -**Cash
                    and cash equivalents at end of period**
                
                **$**
                **-**
                
                
                $
                75.3The
                    accompanying condensed notes are an integral part of these
                    statements.
  -
            8 -
  **THE
        PEOPLES
        GAS LIGHT AND COKE COMPANY**
 **CONDENSED
        NOTES TO FINANCIAL STATEMENTS**
 **June
        30,
        2007**
 
 **NOTE
        1--FINANCIAL INFORMATION**
 
 We
        have prepared the condensed, consolidated financial statements of PGL and
        its
        wholly-owned subsidiaries under the rules and regulations of the
        SEC.
 
 This
        Quarterly
        Report on Form 10-Q is for PGL, a wholly-owned indirect subsidiary of
        Integrys.  These financial statements have not been
        audited.  Management believes that these financial statements include
        all adjustments (which unless otherwise noted include only normal recurring
        adjustments) necessary for a fair presentation of the financial results for
        each
        period shown.
 
 Effective
        February
        21, 2007, the previously announced merger between a wholly-owned subsidiary
        of
        Integrys and PEC was consummated (the "PEC merger"). PGL is wholly-owned by
        PEC. Effective with the merger, PGL adopted the financial statement presentation
        policies of Integrys.  Certain items previously reported for the prior
        periods have been reclassified to conform to the presentation in the current
        period:
 
 *Condensed
        Consolidated Statements of Income:*
 
 Revenues
        and taxes,
        other than income taxes, are presented net of pass-through taxes. (See Note
        3--Revenue Recognition for further discussion.)
 
 *Condensed
        Consolidated Balance Sheets:*
 
 Accrued
        unbilled
        revenues are shown separately from customer receivables, net of reserve for
        uncollectible accounts.
 
 Accrued
        interest
        and accrued taxes have been combined as one line item.
 
 Certain
        current
        liabilities have been aggregated into other current liabilities as a single
        line
        item.
 
 Postretirement
        benefit obligations have been reclassified from other long-term liabilities
        to
        pension and postretirement benefit obligations.
 
 *Condensed
        Consolidated Statements of Cash Flows:*
 
 Changes
        in
        accounting overdraft cash balances within net changes in accounts payable
        are
        presented as an operating activity rather than as a financing
        activity.
 
 Changes
        in margin
        account balances as part of deposits with a broker are presented as an operating
        activity rather than as an investing activity.
 
 The
        PGL condensed
        consolidated financial statements do not reflect, and are not required to
        reflect, any push down basis of accounting as a result of the PEC
        merger.
 
 We
        have condensed or omitted certain financial information and footnote disclosures
        normally included in our annual audited financial statements.  These
        condensed consolidated financial statements should be read along with the
        audited financial statements and notes thereto included in the combined PEC,
        PGL
        and NSG Annual Report on Form 10-K, as amended, for the fiscal year ended
        September 30, 2006.  Due to a number of factors, including seasonality
        of PGL's businesses and market price volatility, the quarterly results of
        operations and statements of financial position and cash flows should not
        be
        considered indicative of the results to be expected for the year as a
        whole.
  -
            9 -
  As
        previously disclosed in the combined PEC, PGL and NSG Transition Report on
        Form
        10-Q for the Transition Period from October 1, 2006 to December 31, 2006,
        PGL
        changed its fiscal year end from September 30 to December 31.
 
 **NOTE
        2--CASH AND CASH EQUIVALENTS**
 
 Short-term
        investments with an original maturity of three months or less are reported
        as
        cash equivalents.
 
 The
        following is
        supplemental disclosure to the PGL Condensed Consolidated Statements of Cash
        Flows:
 
 Six
                  Months
                  Ended June 30,(Millions)
              **2007**
              
              
              2006Cash
                  paid for
                  interest
              **$**
              **13.6**
              
              
              $
              11.6Cash
                  paid for
                  income taxes
              **$**
              **31.8**
              
              
              $
              2.9
 
 Under
        PGL's cash
        management practices, accounting overdraft cash balances of $15.9 million,
        $6.8
        million, and $11.9 million at June 30, 2007, December 31, 2006, and June
        30,
        2006, respectively, were reclassified to accounts payable.
 
 **NOTE
        3--REVENUE RECOGNITION**
 
 Natural
        gas sales
        and transportation revenues are recorded on the accrual basis for all gas
        delivered during the month, including an estimate for gas delivered but unbilled
        at the end of each month.
 
 In
        Illinois, delivering, supplying, furnishing or selling gas for use or
        consumption and not for resale is subject to state and, in some cases, municipal
        taxes (revenue taxes). The Illinois Public Utilities Act provides that the
        tax
        may be recovered from utility customers by adding an additional charge to
        customers’ bills. These pass-through taxes are due only to the extent they are
        collected as cash receipts as opposed to amounts billed. The revenues presented
        on the Condensed Consolidated Statements of Income exclude the billings to
        customers for these pass-through taxes.  For the three-and six-month
        periods June 30, 2006, PGL previously reported most revenue taxes on a gross
        basis, whereby the billed amounts for the recovery of these taxes were included
        in revenues, and an offsetting expense amount (net of an administrative fee)
        representing the expected cash payment of the taxes was included in taxes,
        other
        than income taxes on the statement of income. In connection with the PEC
        merger,
        beginning with the quarter ended March 31, 2007, PGL adopted the accounting
        policy of excluding such pass-through taxes from both revenues and taxes,
        other
        than income taxes.  Revenue tax amounts excluded from revenues and
        taxes, other than income taxes for the three-and six-month periods ended
        June
        30, 2006 were $16.8 and $77.9 million, respectively.
 
 **NOTE
        4--GAS
        IN STORAGE**
 
 PGL
        prices storage
        injections at the calendar year average of the costs of natural gas supply
        purchased.  Withdrawals from storage are priced on the LIFO cost
        method.  For interim periods, the difference between current projected
        replacement cost and the LIFO cost for quantities of gas temporarily withdrawn
        from storage is recorded as a temporary LIFO liquidation credit.  Due
        to seasonality requirements, PGL expects interim reductions in LIFO layers
        to be
        replenished by year end.
 
 **NOTE
        5--RISK MANAGEMENT ACTIVITIES**
 
 **Derivative
        Instruments and Hedging Activities**
 
 PGL’s
        gas supply
        costs may vary due to changes in commodity prices that affect its operations.
        To
        manage this volatility, PGL uses forward contracts and financial instruments,
        including commodity swaps and options. It is the policy of PGL to use these
        instruments solely for the purpose of managing volatility and not for any
        speculative purpose. PGL accounts for derivative financial instruments pursuant
        to SFAS
  -
            10 -
  No.
        133 “Accounting
        for Derivatives and Hedging Activities”, as amended and interpreted ("SFAS No.
        133"). Under the provisions of SFAS No. 133, all derivatives are recognized
        on
        the balance sheet at their fair value unless they qualify for the normal
        purchases and sales exception.
 
 **Mark-To-Market
        Derivative Instruments.**PGL uses derivative instruments to
        manage its cost of gas supply and mitigate price volatility. All such derivative
        instruments are measured at fair value. PGL's tariffs allow for full recovery
        from its customers of prudently incurred gas supply costs, including gains
        or
        losses on these derivative instruments. As a result, SFAS No. 71, "Accounting
        for the Effects of Certain Types of Regulation" ("SFAS No. 71"), allows for
        these MTM derivative gains or losses to be recorded as regulatory assets
        or
        regulatory liabilities. Realized gains or losses are recorded as an adjustment
        to the cost of gas supply in the period that the underlying gas purchase
        transaction takes place. The costs and benefits of this activity are passed
        through to customers under the tariffs of PGL.
 
 The
        MTM asset
        (liability) value of the above contracts for PGL at June 30, 2007, December
        31,
        2006, and June 30, 2006 was $(29.1) million, $(113.6) million, and $(58.9)
        million, respectively.
 
 **Cash
        Flow
        Hedges.**PGL uses derivatives to hedge changes in the price of gas used
        in operations. These instruments are designated as cash flow hedges, which
        allows for the effective portion of unrealized changes in value during the
        life
        of the hedge to be recorded in other comprehensive income. Realized gains
        and
        losses from commodity cash flow hedges are recorded in operating and maintenance
        expenses in the statement of income in the same month the related physical
        purchases are recorded in the statement of income. In addition, cash flow
        hedge ineffectiveness can result from differences in critical terms (such
        as
        location) between the hedging instrument and the hedged transaction and result
        in the immediate recognition of gains or losses recorded in operating and
        maintenance expenses.
 
 In
        2003, PGL entered into treasury lock agreements that hedged the 10-year treasury
        component of a portion of the total anticipated fiscal 2003 debt
        financings.  On April 24, 2003, in connection with the issuance of the
        new debt, PGL unwound its treasury lock positions resulting in a $0.7 million
        loss recorded to accumulated other comprehensive income.  This amount
        is being amortized to earnings over the 10-year term of the debt.
 
 No
        amounts from PGL cash flow hedges were determined to be ineffective for the
        three-and six-month periods ended June 30, 2007 and
        2006.  The portion of accumulated other comprehensive income (loss)
        expected to be reclassified to earnings during the next twelve months is
        $(0.3)
        million.  The maximum term of accumulated other comprehensive income
        (loss) expected to be reclassified is 70 months.
  -
            11 -
 **Summary.** The
        following table shows PGL’s assets and liabilities from all risk management
        activities. Certain commodity financial instruments are executed by PGL and
        shown as assets/liabilities from risk management activities. Other commodity
        financial instruments were previously executed by PEC on behalf of PGL and
        are
        represented on PGL's balance sheet as payables to related parties. Unrealized
        gains or losses on certain mark-to-market commodity contracts related to
        deposits with brokers are included within other receivables.
 
 Assets
                
                
                LiabilitiesJune
                    30,
                
                
                December
                    31,
                
                
                June
                    30,
                
                
                June
                    30,
                
                
                December
                    31,
                
                
                June
                    30,(Millions)
                
                2007
                
                
                2006
                
                
                2006
                
                
                2007
                
                
                2006
                
                
                2006Commodity
                    contracts
                
                $
                3.8
                
                
                $
                (5.4
                )
                
                $
                3.5
                
                
                $
                33.4
                
                
                $
                109.7
                
                
                $
                63.9**Balance
                    Sheet Presentation**CurrentAssets/liabilities
                    from risk management activities
                
                $
                3.4
                
                
                $
                1.6
                
                
                $
                3.0
                
                
                $
                33.0
                
                
                $
                31.9
                
                
                $
                -Other
                    receivables
                
                
                (0.1
                )
                
                
                (7.1
                )
                
                
                0.5
                
                
                
                -
                
                
                
                -
                
                
                
                -Payable
                    to
                    related parties
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                74.5
                
                
                
                63.9Total
                    current
                
                $
                3.3
                
                
                $
                (5.5
                )
                
                $
                3.5
                
                
                $
                33.0
                
                
                $
                106.4
                
                
                $
                63.9Long-termAssets/liabilities
                    from risk management activities
                
                $
                0.5
                
                
                $
                0.1
                
                
                $
                -
                
                
                $
                0.4
                
                
                $
                0.2
                
                
                $
                -Payable
                    to
                    related parties
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3.1
                
                
                
                -Total
                    long-term
                
                
                0.5
                
                
                
                0.1
                
                
                
                -
                
                
                
                0.4
                
                
                
                3.3
                
                
                
                -**Total**
                
                $
                3.8
                
                
                $
                (5.4
                )
                
                $
                3.5
                
                
                $
                33.4
                
                
                $
                109.7
                
                
                $
                63.9
  **NOTE
        6--LONG-TERM DEBT**
 
 The
        $50 million
        3.05% Series LL bonds which will mature February 1, 2033, were originally
        issued
        in 2003 in a term mode and for a 5 year period. PGL is obligated to purchase
        any
        such bonds tendered if they cannot be remarketed. Therefore, these bonds
        are
        subject to a mandatory tender for purchase for remarketing on February 1,
        2008.  These bonds are presented on the PGL balance sheet at June 30,
        2007 as current maturities of long-term debt.
 
 **NOTE
        7--ASSET RETIREMENT OBLIGATIONS**
 
 Under
        the
        provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations” ("SFAS
        No. 143"), and Interpretation No. 47, “Accounting for Conditional Asset
        Retirement Obligations” ("FIN 47"), PGL has recorded liabilities for legal
        obligations associated with the retirement of tangible long-lived
        assets.  PGL identified asset retirement obligations primarily related
        to distribution pipe removal (including asbestos and PCBs in pipes), asbestos
        and PCBs in buildings and removal of above ground storage tanks.  In
        accordance with SFAS No. 71, PGL establishes regulatory assets and liabilities
        to record the differences between ongoing expense recognition under SFAS
        No. 143
        and FIN 47 and the rate making practices for retirement costs authorized
        by the
        ICC.  All asset retirement obligations are recorded as other long-term
        liabilities on the balance sheet of PGL.
 
 The
        following table
        shows all changes to the asset retirement obligation liabilities of
        PGL.
 
 (Millions)Asset
                  retirement obligations at December 31, 2006
              $
              92.4Accretion
              
              2.7**Asset
                  retirement obligations at June 30, 2007**
              **$**
              **95.1**
  -
            12 -
  **NOTE
        8--INCOME TAXES**
 
 The
        effective tax
        rates were 35.4% and 44.4% for the three-month periods ended June 30, 2007
        and
        2006, respectively, and 18.5% and 3.4% for the six-month periods ended June
        30,
        2007 and 2006, respectively. PGL's provision for income taxes is calculated
        in
        accordance with APB Opinion No. 28, "Interim Financial Reporting" ("APB 28").
        The accounting rules for interim income taxes require that the year-to-date
        tax
        provision or benefit for ordinary income or loss be based on the expected
        annual
        effective tax rate for ordinary income or loss. At June 30, 2007, the expected
        annual effective tax rate for all items of income or loss for the year was
        25.4%
        and the expected annual effective tax rate for ordinary income or loss was
        32.4%. For the three-month periods ended June 30, 2007 and 2006, the effective
        tax rate differs from the federal tax rate of 35% primarily due to the effect
        of
        state income taxation offset by the permanent tax effects of employee
        benefit-related deductions. For the six-month period ended June 30, 2007
        the
        18.5% effective tax rate differs from the federal tax rate of 35% primarily
        due
        to the impact of applying an approximate 40% composite statutory tax rate
        to the
        $23 million Gas Charge settlement  (as discussed in Note 9) while a
        larger level of ordinary pretax income (excluding the $23 million charge)
        is
        taxed at a lower effective tax rate. The effective income tax rate for the
        first
        six months of calendar 2006 was not meaningful given the low level of pre-tax
        income.
 
 Effective
        January
        1, 2007, PGL adopted the provisions of FASB Interpretation No. 48 ("FIN 48"),
        "Accounting for Uncertainty in Income Taxes - an interpretation of FASB
        Statement No. 109.” The cumulative effect of adopting FIN 48 was an increase of
        less than $0.1 million to the January 1, 2007 retained earnings
        balance.
 
 At
        January 1, 2007, the amount of unrecognized tax benefits was $2.8 million.
        No
        unrecognized tax benefits would affect PGL's effective tax rate if recognized
        in
        subsequent periods. At the beginning of 2007, approximately $2.6 million
        of
        liability was accrued for the possible payment of interest and penalties
        related
        to uncertain tax positions.
 
 PGL
        records
        penalties and accrued interest related to uncertain tax positions in income
        tax
        expense.
 
 PGL
        files income
        tax returns in the U.S. federal jurisdiction and in various U.S. state
        jurisdictions. With a few exceptions (major exceptions listed below), PGL
        is no
        longer subject to U.S. federal, state and local income tax examinations by
        tax
        authorities for years prior to 2002.
 
 ·
              Illinois
                  Department of Revenue – PGL has agreed to extensions of the statutes of
                  limitations for assessing tax for tax years covering
                  2001-2004.
 ·
              United
                  States
                  Internal Revenue Service – PGL has agreed to statute extensions for tax
                  years covering 1999-2003.
 
 PGL
        has closed
        examinations for the following major jurisdictions for the following tax
        years:
 
 ·
              United
                  States
                  Internal Revenue Service – PGL has a partially agreed to audit report and
                  closing statement for an IRS examination of the 1999-2003 tax years,
                  but
                  PGL has protested one issue from the agent's report and has been
                  sent to
                  IRS appeals for potential
                  resolution.
 
 PGL
        has open
        examinations for the following major jurisdictions for the following tax
        years:
 
 ·
              United
                  States
                  Internal Revenue Service – PGL has an open examination for the 2004-2005
                  tax years.
 ·
              Illinois
                  Department of Revenue – PGL has an open examination for the 2001-2006 tax
                  years.
 
 -
            13 -
 
 **NOTE
        9--COMMITMENTS AND CONTINGENCIES**
 
 **Commodity
        and Purchase Order Commitments**
 
 PGL
        has obligations
        at June 30, 2007 related to natural gas supply and transportation contracts
        with total estimated demand payments of $294.1 million through 2017. PGL
        expects
        to recover these costs in future customer rates. Additionally, PGL has contracts
        to sell natural gas to customers.
 
 PGL
        also has
        commitments in the form of purchase orders issued to various vendors totaling
        $10.1 million at June 30, 2007.
 
 **Environmental**
 
 *Former
        Manufactured Gas Plant Sites*
 PGL,
        its
        predecessors, and certain former affiliates operated facilities in the past
        at
        multiple sites for the purposes of manufacturing gas and storing manufactured
        gas. In connection with manufacturing and storing gas, waste materials were
        produced that may have resulted in soil and groundwater contamination at
        these
        sites. Under certain laws and regulations relating to the protection of the
        environment, PGL might be required to undertake remedial action with respect
        to
        some of these materials. PGL is addressing these sites under a program
        supervised by the IEPA. As discussed below, PGL transferred certain of these
        sites to a program administered by the EPA.
 
 PGL
        is addressing
        29 manufactured gas plant sites, including several sites described in more
        detail below. Investigations have been completed at all or portions of 25
        sites.
        Remediations have been completed at all or portions of nine of these 25 sites.
        PGL has determined that remediations are not required at three of these 25
        sites.
 
 In
        June 2007, PGL transferred 11 of its largest manufactured gas plant sites
        which
        were being addressed under IEPA supervision to the EPA’s Superfund removal
        program (with the intent that they will eventually be transferred to the
        EPA
        Superfund Alternative Sites Program).  Under the EPA's programs, the
        remedy decisions at these sites will be based on risk-based criteria typically
        used at Superfund sites.
 
 WPSC,
        MGUC, PGL and
        NSG are coordinating the investigation and the cleanup of the Wisconsin,
        Illinois and Michigan manufactured gas plant sites under what is called a
        “multi-site” program.  This program involves prioritizing the work to
        be done at the sites, preparation and approval of documents common to all
        of the
        sites, and utilization of a consistent approach in selecting
        remedies.
 
 In
        2004, the owners, River Village West LLC ("River Village West"), of a property
        in the vicinity of the former Pitney Court Station filed suit against PGL
        in the
        United States District Court for the Northern District of Illinois under
        RCRA.
        The suit, River Village West LLC et al. v. The Peoples Gas Light and Coke
        Company, No. 04-C-3392 (N.D. Ill. 2004), seeks an order directing PGL to
        remediate the site.  In December 2005, PGL and the plaintiffs settled
        and the litigation has been dismissed with prejudice.  Pursuant to the
        terms of the settlement agreement, PGL agreed to remediate the site and to
        investigate and, if necessary, remediate sediments in the area of the Chicago
        River adjacent to the site.
 
 With
        respect to
        portions of certain other sites in the City of Chicago ("Chicago"), PGL has
        received demands from site owners and others asserting standing regarding
        the
        investigation or remediation of their parcels. Some of these demands seek
        to
        require PGL to perform extensive investigations or remediations. These demands
        include notice letters sent to PGL by River Village West. These letters informed
        PGL of River Village West's intent to file suit under RCRA seeking an order
        directing PGL to remediate seven former manufactured gas plant sites located
        on
        or near the Chicago River. In April 2005, River Village West filed suit against
        PGL in the United States District Court for the Northern District
        of
  -
            14 -
  Illinois
        under
        RCRA. The suit, River Village West LLC et al. v. The Peoples Gas Light and
        Coke Company, No. 05-C-2103 (N.D. Ill. 2005) ("RVW II"), seeks an order
        directing PGL to remediate three of the seven sites: the former South Station,
        the former Throop Street Station and the former Hough Place Station. PGL
        has
        filed an answer denying liability.
 
 In
        August 2006, a member of River Village West individually filed suit against
        PGL
        in the United States District Court for the Northern District of Illinois
        under
        RCRA.  The suit, Thomas A. Snitzer v. The Peoples Gas Light and
        Coke Company, No. 06-C-4465 (N.D. Ill. 2006) ("Snitzer I"), seeks an order
        directing PGL to remediate the Willow Street Station former manufactured
        gas
        plant site which is located along the Chicago River.  PGL has filed an
        answer denying liability and the court has set a scheduling order.  In
        October 2006, the same individual filed another suit in the United States
        District Court for the Northern District of Illinois under RCRA and
        CERCLA.  The suit, Thomas A. Snitzer v. The Peoples Gas Light and
        Coke Company, No. 06-C-5901 (N.D. Ill. 2006) ("Snitzer II"), seeks an order
        directing PGL to remediate the following four former manufactured gas plant
        sites, which are located on or near the Chicago River: 22nd Street
        Station,
        Division Street Station, Hawthorne Station, and North Shore Avenue
        Station.  PGL has filed an answer to the RCRA count denying liability
        and is moving to dismiss the CERCLA count.  This individual has also
        notified PGL of his intent to file suit under RCRA and CERCLA seeking an
        order
        directing PGL to remediate the following two former manufactured gas plant
        sites: Calumet Station and North Station.
 
 In
        February 2007, Snitzer I and Snitzer II were consolidated with the RVW II
        case.
        In June 2007, PGL filed a motion to dismiss, or in the alternative stay,
        the
        consolidated litigation on the basis of the transfer of the sites at issue
        in
        the litigation to the EPA-administered program referenced above.
 
 PGL
        estimated the
        future undiscounted investigation and cleanup costs for remaining work to
        be
        done at all of the Illinois  manufactured gas plant sites (i.e., those
        being addressed by both the IEPA and the EPA) as of June 30, 2007 to be
        approximately $453.8 million.  This represents a substantial increase
        from previous estimates. Effective with the current quarter ended June 30,
        2007,
        this estimate takes into account (1) the transfer of sites to the EPA, which
        allows for estimates with greater certainty for sediment cleanup and remediation
        of sites where access to the sites could not previously be obtained under
        the
        IEPA program and (2) is based on assumptions and calculation methodology
        consistent with that used by WPSC in determining its investigative and cleanup
        costs for manufactured gas plant sites.  PGL may adjust these
        estimates in the future, contingent upon remedial technology, regulatory
        requirements, remedy determinations and the assessment of natural resource
        damages.
 
 PGL
        intends to seek
        contribution from other entities for the costs incurred at the sites, but
        the
        full extent of such contributions cannot be determined at this time. PGL
        is
        recovering the costs of environmental activities relating to its former
        manufactured gas operations, including carrying charges on the unrecovered
        balances, under rate mechanisms approved by the ICC, which authorize recovery
        of
        prudently incurred costs. Costs incurred in each fiscal year are subject
        to a
        prudence review by the ICC during a reconciliation proceeding for such fiscal
        year. The related regulatory asset (stated in current year dollars),
        representing unrecovered costs (both incurred to date and estimated future
        costs) was $492.3 million at June 30, 2007. Costs are expensed in the statement
        of income in the same period they are billed to customers and recognized
        as
        revenues.
 
 Management
        believes
        that any costs incurred by PGL for environmental activities relating to former
        manufactured gas operations that are not recoverable through contributions
        from
        other entities or from insurance carriers have been prudently incurred and
        are
        therefore recoverable through rates for utility service. Accordingly, management
        believes that the costs incurred by PGL in connection with former manufactured
        gas operations will not have a material adverse effect on the financial position
        or results of operations of PGL. However, any changes in PGL's approved rate
        mechanisms for recovery of these costs, or any adverse conclusions by the
        ICC
        with respect to the prudence of costs actually incurred, could materially
        affect
        PGL’s recovery of such costs through rates.
 
 -
            15 -
 **Gas
        Charge
        Reconciliation Proceedings and Related Matters**
 
 For
        PGL, the ICC
        conducts annual proceedings regarding the reconciliation of revenues from
        the
        gas charge and related gas costs. The gas charge represents the cost of gas
        and
        transportation and storage services purchased ("Gas Charge"). In these
        proceedings, the accuracy of the reconciliation of revenues and costs is
        reviewed and the prudence of gas costs recovered through the Gas Charge is
        examined by interested parties. If the ICC were to find that the reconciliation
        was inaccurate or any gas costs were imprudently incurred, the ICC would
        order
        PGL to refund the affected amount to customers through subsequent Gas Charge
        filings. The proceedings are initiated shortly after the close of the fiscal
        year and historically take at least a year to 18 months to
        complete.
 
 The
        ICC issued
        orders on March 28, 2006, approving a settlement that resolved all proceedings
        regarding PGL for fiscal 2001 - 2004 costs.  The recommendation that
        proceedings for PGL's fiscal 2000 be reopened was made moot by approval of
        the
        settlement.  The orders, which became publicly available March 30,
        2006, adopted a January 17, 2006 Settlement Agreement and Release among and
        between PGL, the People of the State of Illinois through the AG, Chicago
        and the
        Citizens Utility Board, as amended by an Amendment and Addendum dated March
        6,
        2006 (the "Agreement").
 
 In
        its orders approving the Agreement, the ICC determined that $96 million should
        be refunded to customers of PGL.  In April 2006, the refund was
        credited to customer accounts.
 
 Pursuant
        to the
        Agreement, PGL also paid $4.8 million jointly to Chicago and the AG in
        2006.  PEC also agreed to pay up to $5 million per year over the
        next five years (the "Subsequent Payments") towards the funding of conservation
        and weatherization programs for low and moderate-income residential dwellings
        (the "Conservation Programs"). The five Subsequent Payments of up to $5 million
        will be paid based upon Conservation Programs to be developed by Chicago
        and/or
        the AG.  PGL will not seek recovery in any future rate or
        reconciliation cases of any amounts associated with the Conservation
        Programs.  In July 2007, PGL received an itemized estimated cost and
        request for payment from Chicago in the amount of $4.6 million to fund
        multiple programs for the remainder of 2007, covering weatherization and
        residential energy assistance, weatherization fairs and education campaigns,
        alternative technology and energy efficiency. PGL management has concluded
        that
        this estimated cost and request for payment constitutes sufficient evidence
        that
        Chicago has established or is taking steps to develop valid Conservation
        Programs as required under the Agreement and that it is probable Chicago
        will
        request similar levels of annual funding through 2011 (Chicago made no allowance
        for a partial year in its request for payment for 2007). Consequently, PGL
        recorded a $23 million liability and related charge to earnings in the quarter
        ended June 30, 2007 for Subsequent Payments representing its portion of the
        $25
        million in total Subsequent Payments. Of this amount, $18.4 million is included
        in other long-term liabilities and $4.6 million is included in other current
        liabilities. The remaining $2 million of the $25 million in total Subsequent
        Payments represents NSG's portion.
 
 Under
        the
        Agreement, PGL agreed to forgive all outstanding bad debt from fiscal years
        2000-2005 existing as of March 6, 2006, remove the bad debt from customers’
records and to not use any forgiven indebtedness as a reason to deny gas
        service.  PGL had written off an estimated $200 million in prior
        periods.
 
 The
        Agreement
        provides that PGL will cooperate with Chicago and the AG to identify those
        customers of PGL who were not receiving gas as of the date of the Agreement
        that
        are financial hardship cases. The hardship cases were identified by PGL,
        the AG
        and Chicago. Following identification, PGL reconnected the hardship cases.
        PGL
        forgave all outstanding debt for reconnected customers.
 
 Pursuant
        to the
        Agreement PGL agreed to implement recommendations proposed by the ICC’s staff
        and the intervenors to conduct internal and external audits of their gas
        procurement practices.  A gas supply management audit performed by a
        consulting firm retained by the ICC is in progress.  No findings or
        recommendations have yet been communicated.
 
 -
            16 -
 PGL also
        agreed to credit fiscal 2005 and fiscal 2006 revenues derived from the provision
        of gas Hub (as defined herein) services as an offset to utility customers’ gas
        charges and to account for such revenues received from gas Hub services in
        the
        same manner in all future gas charges.
 
 A
        $103.0 million charge was allocated to PGL in accordance with the orders.
        In
        anticipation of the March 28, 2006 orders from the ICC, PGL recorded estimated
        Gas Charge settlement costs for the three-month period ended December 31,
        2005 of $74.7 million.  As a result, a $28.4 million additional
        adjustment to the Gas Charge settlement was recorded in the three month period
        ended June 30, 2006.  Accrued liabilities totaling $11.5 million at
        June 30, 2007 represent 2005 Hub revenue and related interest that will be
        refunded to customers pending close of the ICC's review of 2005 Gas Charge
        reconciliation case and are included in the Condensed Consolidated Balance
        Sheets under the caption other under current liabilities.
 
 Amounts
        refunded in
        connection with the Gas Charge reconciliation cases for fiscal years 2001
        through 2004 relate to specific issues that occurred during that period and
        are
        not believed to be indicative of future actions that may be taken by the
        ICC
        with respect to current outstanding and future Gas Charge reconciliation
        cases.
 
 The
        fiscal 2005 Gas
        Charge reconciliation case was initiated in November 2005 and PGL filed direct
        testimony.  The settlement of the prior fiscal years' Gas Charge
        reconciliation proceedings does not affect this case, except for PGL's agreement
        to credit fiscal 2005 Hub revenues as an offset to utility customers’ gas
        charges.  The ICC staff and intervenor direct testimony was filed
        January 18, 2007.  The ICC staff's witnesses recommended a
        disallowance for PGL of approximately $22.2 million, of which $10.7 million
        is
        the amount of Hub revenues that PGL previously testified it would refund
        to
        customers (and was included as part of the Gas Charge settlement expensed
        through June 30, 2006).  An intervenor witness (on behalf of the
        Citizens Utility Board and Chicago) recommended a disallowance of approximately
        $11.5 million for PGL.  The majority of the proposed disallowances,
        other than the Hub revenues, are for a one-time adjustment by PGL to
        transportation customers’ bank (storage) gas liability balances. PGL filed its
        rebuttal testimony on February 22, 2007, and the ICC staff and intervenors
        filed
        their rebuttal testimony on April 25, 2007. In their rebuttal testimony,
        the ICC
        staff's witnesses reduced their recommended disallowance to about $20.5
        million.  Management cannot predict the outcome of these cases but has
        recorded liabilities at June 30, 2007 associated with the $11.5 million related
        to 2005 Hub revenues and $3.5 million primarily related to the ICC staff’s
        proposed disallowance associated with the Gas Purchase and Agency Agreement
        that
        was at issue in the fiscal 2001-2004 cases (and in effect for only one month
        after 2004), which PGL stated in its rebuttal testimony it is not contesting.
        Both amounts are inclusive of accrued interest.
 
 The
        record in this
        case was marked heard and taken on May 30, 2007, and briefing will conclude
        in
        August 2007, after which the administrative law judges will prepare a proposed
        order.
 
 The
        fiscal 2006 Gas
        Charge reconciliation case was initiated on November 21, 2006.  PGL
        filed its direct testimony on April 10, 2007.  On May 16, 2007, the
        ICC initiated a Gas Charge reconciliation case for the period of October
        2006
        through December 2006 to cover the gap created by PGL's move to a calendar
        year
        reconciliation period.  PGL's direct testimony is due October 17,
        2007.  The ICC staff moved to consolidate the new case with the fiscal
        2006 case, and the administrative law judge granted the motion in July 2007.
        There is a status hearing in the consolidated case in September
        2007.
 
 *Class
        Action*
 
 In
        February 2004, a purported class action was filed in Cook County Circuit
        Court
        against PEC, PGL and NSG by customers of PGL and NSG alleging, among other
        things, violation of the Illinois Consumer Fraud and Deceptive Business
        Practices Act related to matters at issue in the utilities’ fiscal year 2001 Gas
        Charge reconciliation proceedings. The suit, Alport et al. v. Peoples Energy
        Corporation, seeks unspecified compensatory and punitive damages. PGL and
        NSG have been dismissed as defendants
  -
            17 -
 and
        the only
        remaining counts of the suit allege violations of the Consumer Fraud and
        Deceptive Business Practices Act and that PEC acted in concert with others
        to
        commit a tortious act. PEC denies the allegations and is vigorously defending
        the suit.
 
 Based
        upon the
        settlement and dismissal of PGL's fiscal years 2001 through 2004 reconciliation
        cases by the ICC, the court on September 25, 2006 granted in part PEC's motion
        to dismiss the case by limiting the potential class members in the suit to
        those
        persons who were customers during the time that PEC’s joint venture with Enron
        was in operation and did not receive part of the settlement proceeds from
        the
        reconciliation cases. However, the court denied PEC’s motion to dismiss the case
        to the extent that the complaint seeks punitive damages (regardless of whether
        such customers received part of the settlement proceeds from the reconciliation
        cases). The plaintiffs filed a third amended complaint and a motion for class
        certification and on April 25, 2007, the court denied, without prejudice,
        plaintiffs’ motion for class certification. On June 29, 2007, PEC filed a motion
        to dismiss the proceeding for failure to join a necessary party. Plaintiffs
        filed an amended complaint on July 11, 2007. Subsequently, PEC's motion to
        delay
        responding to the amended complaint until the court rules on the motion to
        dismiss was granted. Management cannot predict the outcome of this litigation
        and has not recorded a liability associated with this contingency.
 
 **Corrosion
        Control Inspection Proceeding**
 
 State
        and federal
        law requires gas utilities to conduct periodic corrosion control inspections
        on
        natural gas pipelines.  On April 19, 2006, the ICC initiated a
        citation proceeding related to such inspections that were required to be
        performed by PGL during 2003 and 2004, but which were not completed in the
        requisite timeframe.  On November 3, 2006, PGL and all intervening
        parties filed a stipulation to settle the ICC proceeding, and the ICC staff
        separately filed in support of the stipulation.  The ICC entered an
        order approving the stipulation on December 20, 2006.  Under the
        stipulation, PGL agreed that it had not been in compliance with applicable
        regulations, and further agreed to pay a penalty of $1 million, pay for a
        consultant to conduct a comprehensive investigation of its compliance with
        ICC
        pipeline safety regulations, remain compliant with those regulations, not
        seek
        recovery in future rate cases of certain costs related to non-compliance
        and
        hold meetings with Chicago to exchange information. This order resolves only
        the
        ICC proceeding and does not constitute a release of any other potential actions
        outside of the ICC proceeding.  PGL recorded a liability of $1 million
        in September of 2006 associated with the settlement.  On March 27,
        2007, the $1 million payment was tendered to the State of Illinois. With
        respect
        to the comprehensive investigation, the ICC selected an auditor for this
        matter
        and the auditor, the ICC staff and PGL began the investigation process during
        the second quarter of 2007.
 
 On
        May 16, 2006, the AG served a subpoena requesting documents relating to PGL’s
        corrosion inspections.  PGL’s counsel has met with representatives of
        the AG’s office and provided documents relating to the
        subpoena.  Management cannot predict the outcome of this investigation
        and has not recorded a liability associated with this contingency.
 
 On
        July 10, 2006, the U.S. Attorney for the Northern District of Illinois served
        a
        grand jury subpoena on PGL requesting documents relating to PGL’s corrosion
        inspections.  PGL’s counsel has met with the U.S. Attorney’s office
        and provided documents relating to corrosion inspections.  Management
        cannot predict the outcome of this investigation and has not recorded a
        liability associated with this contingency.
 
 **Builders
        Class Action**
 
 In
        June 2005, a purported class action was filed against PEC and its utility
        subsidiaries, including PGL, by Birchwood Builders, LLC in the Circuit Court
        of
        Cook County, Illinois alleging that PGL was fraudulently and improperly charging
        fees to customers with respect to utility connections, disconnections,
        reconnections, relocations, extensions of gas service pipes and extensions
        of
        distribution gas mains and failing to return related customer
        deposits.  PGL filed two motions to dismiss the lawsuit. On January
        25, 2007, the judge entered an order dismissing the complaint, but allowing
        the
        plaintiffs the option of filing an amended complaint (except as to the
        plaintiffs’ seeking of declaratory relief, which was dismissed with
  -
            18 -
 prejudice).  The
        judge also ruled that the plaintiffs could file their claims directly with
        the
        ICC. On June 28, 2007, plaintiffs filed an amended complaint with the Circuit
        Court. PGL intends to respond by filing a motion to dismiss. A status hearing
        is
        set for August 16, 2007. PGL continues to believe it has meritorious defenses
        and intends to vigorously defend against the class action
        lawsuit.  Management cannot predict the outcome of this litigation and
        has not recorded a liability associated with this contingency.
 
 **Technology
        License**
 
 PGL
        has purchased a
        license under the patent portfolio held by Ronald A. Katz Technology Licensing,
        L.P. and licensed through its affiliate, A2D, L.P.  This non-exclusive
        license covers services offered by PGL in the energy and utility service
        fields
        of use including customer service delivery through automated systems and
        live
        agents.  The terms of the license are confidential and will not have a
        material adverse impact on PGL's financial position or results of
        operations.
 
 **Property
        Taxes**
 
 PGL
        is currently
        disputing property tax assessments in Harrison County, Texas in connection
        with
        gas PGL stores pursuant to storage service agreements with Natural Gas Pipeline
        Company of America. This matter began in 2003 when the Harrison Central
        Appraisal District (“HCAD”) issued a Notice of Appraised Value to PGL providing
        that property allegedly owned by PGL was located in Harrison County and subject
        to property tax.  The HCAD issued similar notices for tax years 2004
        through 2007. For each of these years, PGL filed an administrative protest
        to
        dispute the inclusion and/or valuation of property attributable to
        PGL.  Following adverse decisions by the Appraisal Review Board, PGL
        filed suit in state district court to review the decisions of the Appraisal
        Review Board for tax years 2003 through 2005. PGL has paid approximately
        $1.7
        million in aggregate for tax years 2003 through 2006 under protest to proceed
        with its judicial review of the Appraisal Review Board’s orders. These amounts
        have been recorded as deferred charges on PGL’s balance sheet pending resolution
        of the matter. On June 1, 2007, the trial court entered a final judgment
        in
        favor of the HCAD and against PGL for tax years 2003 through
        2005.  PGL believes it has good grounds to appeal and intends to
        appeal the trial court's decision. Management cannot predict the outcome
        of this
        litigation and has not recorded a liability associated with this loss
        contingency.
 
 **NOTE
        10--COMPREHENSIVE INCOME**
 
 SFAS
        No. 130,
“Reporting Comprehensive Income,” requires the reporting of other comprehensive
        income in addition to net income (loss).  Total comprehensive income
        includes all changes in equity during a period except those resulting from
        investments by PGL's shareholder and distributions to PGL's
        shareholder.  PGL’s total comprehensive income (loss) is:
 
 Three
                  Months
                  Ended June 30,
              
              
              Six
                  Months
                  Ended June 30,*(*Millions*)*
              
              **2007**
              
              
              2006
              
              
              **2007**
              
              
              2006Net
                  income
                  (loss)
              
              **$**
              **(19.8**
              **)**
              
              $
              (3.4
              )
              
              **$**
              **8.7**
              
              
              $
              4.2Unrealized
                  hedge gain (loss), net of tax of
                $0.1,
                  $0,
                  $(0.5) and $0.4
              
              ****
              **(0.2**
              **)**
              
              
              -
              
              
              ****
              **0.7**
              
              
              
              (0.6
              )**Total
                  comprehensive income (loss)**
              
              **$**
              **(20.0**
              **)**
              
              $
              (3.4
              )
              
              **$**
              **9.4**
              
              
              $
              3.6
 
 The
        following table
        shows the changes to accumulated other comprehensive income (loss).
 
 (Millions)December
                  31,
                  2006 balance
              **$**
              **(1.2**
              **)**Unrealized
                  hedge gain (loss)
              ****
              **0.7****June
                  30, 2007 balance**
              **$**
              **(0.5**
              **)**
 
 -
            19 -
 **NOTE
        11--EMPLOYEE BENEFIT PLANS**
 
 The
        following table
        provides the components of PGL's share of net periodic benefit cost for benefit
        plans sponsored by PEC for the three-and six-month periods ended June 30,
        2007
        and 2006:
  Other
                    PostretirementPension
                    Benefits
                
                
                BenefitsThree
                    Months
                    Ended June 30, (Millions)
                
                2007
                
                
                2006
                
                
                2007
                
                
                2006Service
                    cost
                
                $
                3.3
                
                
                $
                3.5
                
                
                $
                1.9
                
                
                $
                1.4Interest
                    cost
                
                
                5.8
                
                
                
                5.1
                
                
                
                1.7
                
                
                
                1.3Expected
                    return on plan assets
                
                
                (8.9
                )
                
                
                (9.1
                )
                
                
                (0.5
                )
                
                
                (0.6
                )Amortization
                    of:Net
                    transition (asset)/obligation
                
                
                -
                
                
                
                -
                
                
                
                0.3
                
                
                
                0.2Prior
                    service cost
                
                
                0.6
                
                
                
                0.6
                
                
                
                -
                
                
                
                -Net
                    actuarial (gain)/loss
                
                
                1.0
                
                
                
                1.1
                
                
                
                0.3
                
                
                
                0.2**Net
                    periodic benefit cost**
                
                
                1.8
                
                
                
                1.2
                
                
                
                3.7
                
                
                
                2.5Effect
                    of
                    lump sum settlements upon retirement
                
                
                1.1
                
                
                
                1.6
                
                
                
                -
                
                
                
                -**Net
                    benefit cost**
                
                $
                2.9
                
                
                $
                2.8
                
                
                $
                3.7
                
                
                $
                2.5
 
 Other
                    PostretirementPension
                    Benefits
                
                
                BenefitsSix
                    Months
                    Ended June 30, (Millions)
                
                2007
                
                
                2006
                
                
                2007
                
                
                2006Service
                    cost
                
                $
                6.5
                
                
                $
                7.0
                
                
                $
                3.8
                
                
                $
                2.7Interest
                    cost
                
                
                11.6
                
                
                
                10.2
                
                
                
                3.5
                
                
                
                2.7Expected
                    return on plan assets
                
                
                (17.9
                )
                
                
                (18.1
                )
                
                
                (0.9
                )
                
                
                (1.3
                )Amortization
                    of:Net
                    transition (asset)/obligation
                
                
                -
                
                
                
                -
                
                
                
                0.5
                
                
                
                0.5Prior
                    service cost
                
                
                1.2
                
                
                
                1.2
                
                
                
                -
                
                
                
                -Net
                    actuarial (gain)/loss
                
                
                2.1
                
                
                
                2.2
                
                
                
                0.5
                
                
                
                0.4**Net
                    periodic benefit cost**
                
                
                3.5
                
                
                
                2.5
                
                
                
                7.4
                
                
                
                5.0Effect
                    of
                    lump sum settlements upon retirement
                
                
                2.2
                
                
                
                3.3
                
                
                
                -
                
                
                
                -**Net
                    benefit cost**
                
                $
                5.7
                
                
                $
                5.8
                
                
                $
                7.4
                
                
                $
                5.0
  Retiring
        employees
        have the option of receiving retirement benefits in the form of an annuity
        or a
        lump sum payment.  PGL follows SFAS No. 88, "Employer's Accounting for
        Settlements and Curtailments of Defined Benefit Plans and for Termination
        Benefits" ("SFAS No. 88"), to account for unrecognized gains and losses related
        to the settlement of its pension plans' projected benefit obligations
        ("PBO").  During the three- and six-month periods ended June 30, 2007
        and 2006, a portion of each pension plan's PBO was settled by the payment
        of
        lump sum benefits, resulting in a settlement cost under SFAS No.
        88.
 
 Under
        the
        provisions of SFAS No. 71, amounts otherwise charged/credited to other
        comprehensive income upon application of SFAS No. 158, "Employers'
        Accounting for Defined Benefit Pension and Other Postretirement Plans - an
        amendment of FASB Statements No. 87, 88, 106, and 132(R)" ("SFAS No. 158"),
        should be recorded as a regulatory asset or liability if the utility has
        historically recovered or currently recovers pension expense under SFAS No.
        87,
“Employers’ Accounting for Pensions”, and other postretirement benefit expense
        under SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other
        Than Pensions,” in rates and there is no negative evidence that the existing
        regulatory treatment will change.  In accordance with SFAS No. 71, PGL
        recorded in regulatory assets and regulatory liabilities the net impact of
        recognizing the funded status of its plans upon implementation of SFAS No.
        158
        on December 31, 2006.
 
 -
            20 -
 The
        amount of
        pension and other postretirement benefit costs deferred as a net regulatory
        asset at June 30, 2007 was $115.9 million and $31.4 million, respectively.
        Deferred amounts are expected to be recovered in rates over the employees'
        average remaining service period.
 
 Contributions
        to
        the plans are made in accordance with legal and tax requirements and do not
        necessarily occur evenly throughout the year.  As of June 30, 2007,
        $0.5 million in contributions have been made. PGL anticipates making no
        additional contributions to its pension plans or its other postretirement
        benefits plans during the year ending December 31, 2007.
 
 PGL
        has defined
        contribution plans that allow eligible employees to contribute a portion
        of
        their income in accordance with specified guidelines.  PGL matches a
        percentage of the employee contribution up to certain limits.  The
        cost of PGL's matching contribution to the plans totaled $0.6 million and
        $0.5
        million for the three-month periods ended June 30, 2007 and 2006,
        respectively, and $1.2 million and $1.1 million for the six-month
        periods ended June 30, 2007 and 2006, respectively.
 
 **NOTE
        12--REGULATORY ENVIRONMENT**
 
 **Merger**
 
 The
        PEC merger was
        consummated effective February 21, 2007. PGL and NSG are wholly-owned by
        PEC.
 
 On
        February 7, 2007, the ICC approved the merger by accepting an agreed upon
        order
        among the active parties to the merger case. The order included Conditions
        of
        Approval regarding commitments by the applicants to:
 
 ·
              provide
                  certain reports,
 ·
              perform
                  studies of the PGL gas system,
 ·
              promote
                  and
                  hire a limited number of union employees in specific
                  areas,
 ·
              make
                  no
                  reorganization-related layoffs or position reductions within the
                  PGL union
                  workforce,
 ·
              maintain
                  PGL's operation and maintenance and capital budgets at recent
                  levels,
 ·
              file
                  a plan
                  for formation and implementation of a service
                  company,
 ·
              accept
                  certain limits on the merger-related costs that can be recovered
                  from
                  ratepayers, and
 ·
              not
                  seek cost
                  recovery for any increase in deferred tax assets that may result
                  from the
                  tax treatment of the PGL storage gas inventory in connection with
                  closing
                  the merger.
 
 The
        Conditions of
        Approval also include commitments with respect to the pending rate cases
        of PGL
        and NSG. These are the inclusion of merger synergy savings of $11.4 million
        at
        PGL in the proposed test year, the recovery of $6.2 million at PGL of the
        merger-related costs in the test year (reflecting recovery of $30.9 million
        for
        PGL of costs over 5 years), proposing a combined PGL and NSG $7.5 million
        energy
        efficiency program which will be contingent on receiving cost recovery in
        the
        rate case orders, and filing certain changes to the small volume transportation
        service programs. Finally, the order provides authority for PGL and NSG to
        recover from ratepayers in a future rate case after the pending rate cases
        up to
        an additional $9.9 million of merger costs, for a maximum potential recovery
        of
        $44.9 million. PGL and NSG must demonstrate in the future that merger synergy
        savings realized have exceeded the merger costs. At June 30, 2007, the
        regulatory asset balance representing PGL merger costs to be recovered totaled
        $4.0 million.
 
 **Rate
        Case**
 
 On
        March 9, 2007, PGL filed a request with the ICC to increase natural gas rates
        for PGL by $102.5 million for 2008. The proposed rate increase is required
        to
        allow PGL to recover its current cost of service and to earn a reasonable
        rate
        of return on its equity investment. The filing includes an 11.06% return
        on
        common equity and a common equity ratio of 56% in its regulatory capital
        structure.
 
 -
            21 -
 In
        addition, PGL filed various rider mechanisms seeking modifications of tariffs,
        primarily to reflect current operating conditions in transportation service
        and
        to provide a rate design to recover more fixed costs from fixed
        charges.
 
 The
        rate case
        process in Illinois requires receipt of a written order from the ICC within
        11
        months from the date of filing, which would be February 5, 2008.  On
        June 29, 2007, the ICC staff filed its direct testimony and on July 24, 2007,
        filed supplemental direct testimony on one issue in the PGL and NSG rate
        cases,
        which have been consolidated. The ICC staff has proposed an increase of
        $53.2 million for PGL.  The return on common equity recommended by the
        ICC staff for PGL was 9.7%.  The ICC staff did not support the
        proposed riders, to address specific costs and revenues between rate cases,
        but
        offered alternative proposals for each rider if the ICC decides to approve
        the
        riders.  Intervenors also filed direct testimony on June 29, 2007 and
        July 3, 2007.  The ICC staff filed a motion on July 24, 2007, for
        leave to file supplemental direct testimony which seeks to add an adjustment
        reducing PGL's revenue requirement by approximately $3 million. The motion
        was
        granted on July 30, 2007. Rebuttal testimony from PGL was filed on July 27,
        2007. In its rebuttal testimony, PGL decreased its requested revenue
        requirement to approximately $99 million.  Hearings are scheduled for
        September 10 through September 18, 2007 in Chicago.
 
 **NOTE
        13--SEGMENTS OF BUSINESS**
 
 Prior
        to the PEC
        merger, PGL reported all of its utility and non-utility operations within
        the
        Gas Distribution segment and reported general corporate allocations to it
        under
        the Corporate and Other segment.
 
 Effective
        with the
        quarter ended March 31, 2007, PGL’s results of operations, including allocations
        for corporate activities, are reported in the Gas Utility segment with
        non-utility operations reported in the Other segment. Corresponding items
        for
        the prior year have been restated for the change in segment
        reporting.
  **Segments
                    of Business**
                
                **Gas**
                
                
                
                
                
                **PGL****(Millions)**
                
                **Utility(1)**
                
                
                **Other(2)**
                
                
                **Consolidated****Three
                    Months Ended June 30, 2007**Revenues
                
                **$**
                **225.8**
                
                
                **$**
                **-**
                
                
                **$**
                **225.8**Operating
                    expenses
                
                ****
                **250.8**
                
                
                ****
                **-**
                
                
                ****
                **250.8**Operating
                    income
                
                ****
                **(25.0**
                **)**
                
                ****
                **-**
                
                
                ****
                **(25.0**
                **)**Net
                    income
                
                ****
                **(19.8**
                **)**
                
                ****
                **-**
                
                
                ****
                **(19.8**
                **)**Three
                    Months Ended June 30, 2006Revenues
                
                $
                173.8
                
                
                **$**
                **-**
                
                
                $
                173.8Operating
                    expenses
                
                
                175.1
                
                
                
                -
                
                
                
                175.1Operating
                    income
                
                
                (1.3
                )
                
                
                -
                
                
                
                (1.3
                )Net
                    income
                
                
                (3.4
                )
                
                
                -
                
                
                
                (3.4
                )**Six
                    Months Ended June 30, 2007**Revenues
                
                **$**
                **852.9**
                
                
                **$**
                **-**
                
                
                **$**
                **852.9**Operating
                    expenses
                
                ****
                **829.9**
                
                
                ****
                **-**
                
                
                ****
                **829.9**Operating
                    income
                
                ****
                **23.0**
                
                
                ****
                **-**
                
                
                ****
                **23.0**Net
                    income
                
                ****
                **8.7**
                
                
                ****
                **-**
                
                
                ****
                **8.7**Six
                    Months
                    Ended June 30, 2006Revenues
                
                $
                806.9
                
                
                **$**
                **-**
                
                
                $
                806.9Operating
                    expenses
                
                
                791.7
                
                
                
                -
                
                
                
                791.7Operating
                    income
                
                
                15.2
                
                
                
                -
                
                
                
                15.2Net
                    income
                
                
                4.1
                
                
                
                0.1
                
                
                
                4.2(1)
                    Includes
                    only utility operations.(2)
                    Nonutility operations are included in the Other column. Amounts
                    for all
                    categories other than net income for the six months ended June 30,
                    2006, rounded to less than $0.1 million.
  -
            22 -
 **NOTE
        14--NEW ACCOUNTING PRONOUNCEMENTS**
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” ("SFAS
        No. 157").  SFAS No. 157 defines fair value, establishes a framework
        for measuring fair value under generally accepted accounting principles,
        and
        expands disclosures about fair value measurements. SFAS No. 157 emphasizes
        that
        fair value is a market-based measurement, not an entity-specific measurement,
        and states that a fair value measurement should be determined based on the
        assumptions that market participants would use in pricing the asset or
        liability. The standard eliminates the current requirement for deferring
        "day
        one" gains on energy contracts that are not evidenced by quoted market prices
        or
        other current market transactions. The standard will be effective for PGL
        beginning January 1, 2008. PGL is currently evaluating the impact that SFAS
        No.
        157 will have on its financial statements.
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities” ("SFAS No. 159").  This
        standard permits entities to choose to measure many financial instruments
        and
        certain other items at fair value, following the provisions of SFAS No. 157.
        Included within the scope of the standard are all recognized financial assets
        and financial liabilities, except consolidated investments, consolidated
        interests in a variable interest entity, obligations for pension and certain
        other benefits, leases, and financial instruments that are classified as
        a
        component of shareholder's equity. Also included in the scope of the standard
        are firm commitments that would otherwise not be recognized at inception
        and
        that involve only financial instruments, nonfinancial insurance contracts
        and
        warranties that the insurer can settle by paying a third party to provide
        those
        goods or services, and host financial instruments resulting from separation
        of
        an embedded nonfinancial derivative instrument from a nonfinancial hybrid
        instrument. SFAS No. 159 is effective for PGL beginning January 1, 2008.
        PGL is
        currently evaluating the impact that SFAS No. 159 will have on its financial
        statements.
  -
            23 -
  **Item
                  2.**
              **Management’s
                  Discussion And Analysis Of Financial Condition And Results Of
                  Operations**
 
 
 **INTRODUCTION**
 
 PGL
        is a regulated
        utility, which purchases, stores, distributes, sells and transports natural
        gas
        to about 824,000 residential, commercial and industrial retail sales and
        transportation customers in Chicago.  PGL utilizes its storage and
        pipeline supply assets as a natural gas hub ("Hub").  This activity is
        regulated by FERC and consists of providing wholesale transportation and
        storage
        services in interstate commerce.
 
 **Strategic
        Overview**
 
 The
        focus of
        PGL’s business plan is the creation of long-term value for Integrys and its
        shareholders and for PGL's customers through growth, operational excellence,
        asset management, and the continued emphasis on reliable, competitively priced,
        and environmentally sound natural gas services. A discussion of the essential
        components of PGL's business strategy is set forth below.
 
 **Maintain
        and Grow a Strong Regulated Utility Base -**A strong regulated utility
        base is important in order to maintain a strong balance sheet, predictable
        cash
        flows, a desired risk profile, and quality credit ratings, which are critical
        to
        PGL's success.  PGL believes the merger between Integrys and PEC will
        help maintain and grow its regulated utility base. To this end, PGL continues
        to
        upgrade its gas distribution facilities, related systems, and processes to
        enhance safety, reliability, and value for customers and Integrys'
        shareholders.
 
 **Integrate
        Resources to Provide Operational Excellence -** PGL is committed to
        integrating resources and finding the best, most efficient processes while
        maintaining any and all applicable regulatory and legal restrictions. Through
        innovative ideas, embracing change, leveraging individual capabilities and
        expertise and utilizing creative solutions to meet and exceed its customers'
        expectations, PGL will provide value to Integrys shareholders and PGL customers
        and assist in lowering costs for certain activities. PGL is optimally sourcing
        work and combining resources to achieve best practices in order to achieve
        operational excellence and sustainable value for PGL's customers and Integrys
        shareholders.
 
 **Place
        Strong Emphasis on Risk Management -** PGL's risk management strategy, in
        addition to asset risk management, includes the management of market, credit,
        and operational risk through the normal course of business. Forward purchases
        and sales of natural gas allow for opportunities to secure prices in a volatile
        market.
 
 **Continued
        Emphasis on Safe, Reliable, Competitively Priced, and Environmentally Sound****Natural****Gas Services -**PGL's mission
        is to provide customers with the best value in natural gas services. By
        effectively operating its gas distribution facilities, while maintaining
        or
        exceeding environmental standards, PGL is able to provide a safe, reliable,
        and
        value priced service to its customers. PGL concentrates its efforts on improving
        and operating efficiently and effectively in order to reduce costs and maintain
        a low risk profile.
 
 ·
              PGL's
                  website
                  was recently named among the top 25 Web sites for small- to mid-size
                  businesses in 2007 by E Source, an information services company
                  based in
                  Colorado that provides unbiased independent analysis of retail
                  energy
                  markets, services, and technologies.  This recognition
                  demonstrates that PGL is focused on meeting customers' needs and
                  providing
                  services they value.
 
 ·
              PGL
                  manages
                  its operations to minimize the impact it might have on the
                  environment.
 
 -
            24 -
 
 **Rate
        Case**
 
 On
        March 9, 2007, PGL filed a request with the ICC to increase natural gas rates
        for PGL by $102.5 million for 2008. The proposed rate increase is required
        to
        allow PGL to recover its current cost of service and to earn a reasonable
        rate
        of return on its investment. The filing includes an 11.06% return on common
        equity and a common equity ratio of 56% in its regulatory capital
        structure.
 
 PGL has
        also
        proposed four "riders" that would allow changes in costs to be passed through
        between rate cases.  The four riders are:
 
 ·
              a
                  "decoupling" mechanism that would allow PGL to adjust rates going
                  forward
                  to recover or refund the difference between actual recovered non-gas
                  cost
                  revenue and authorized non-gas cost
                  revenue;
 ·
              a
                  mechanism
                  to recover the return on, and return of capital investment in excess
                  of
                  historical capital investment associated with, accelerating the
                  replacement of cast iron main;
 ·
              a
                  mechanism
                  to recover the gas cost portion of uncollectible expense based
                  on current
                  gas prices; and
 ·
              a
                  mechanism
                  to recover $6.4 million of energy efficiency costs under a program
                  to be
                  approved by the ICC.
 
 The
        rate case
        process in Illinois requires receipt of a written order from the ICC within
        11
        months from the date of filing, which would be February 5, 2008.  On
        June 29, 2007, the ICC staff filed its direct testimony and on July 24, 2007,
        filed supplemental direct testimony on one issue in the PGL and NSG rate
        cases,
        which have been consolidated. The ICC staff has proposed an increase of
        $53.2 million for PGL.  The return on common equity recommended by the
        ICC staff for PGL was 9.7%.  The ICC staff did not support the
        proposed riders to address specific costs and revenues between rate cases,
        but
        offered alternative proposals for each rider if the ICC decides to approve
        the
        riders.  Intervenors also filed direct testimony on June 29, 2007 and
        July 3, 2007. The ICC staff filed a motion, on July 24, 2007, for leave to
        file
        supplemental direct testimony which seeks to add an adjustment reducing PGL's
        revenue requirement by approximately $3 million. The motion was granted on
        July 30, 2007. Rebuttal testimony from PGL was filed on July 27, 2007. In
        its rebuttal testimony, PGL decreased its requested revenue requirement to
        approximately $99 million. Hearings are scheduled for September 10 through
        September 18, 2007 in Chicago.
 
 -
            25 -
 **RESULTS
        OF
        OPERATIONS**
 
 **Second
        Quarter 2007 Compared with Second Quarter 2006**
 
 **Overview
        of
        Operations**
 
 Net
        loss was
        $(19.8) million for the quarter ended June 30, 2007, compared to $(3.4) million
        for the quarter ended June 30, 2006. The net loss for the three-month period
        ended June 30, 2007, was due primarily to a $23.0 million pretax charge related
        to the funding of the Conservation Programs, as discussed in Note 9 of the
        Condensed Notes to Financial Statements, which is not necessarily representative
        of PGL's ongoing business.  Due to a number of factors, including the
        seasonality of PGL's businesses and market price volatility, the quarterly
        results of operations should not be considered indicative of the results
        to be
        expected for the year as a whole.
 
 Revenues
        for the
        quarter ended June 30, 2007 increased $52.0 million (29.9%) compared with
        the
        same year-ago period.  The increase was due to the impact on revenues
        of increased deliveries due to weather (approximately $20 million) that was 9.7%
        colder compared with the same year-ago period, and the impact on revenues
        of
        higher natural gas prices (approximately $29 million) that are recovered
        on a
        dollar-for-dollar basis.  Natural gas costs were 35.0% higher (on a
        per-unit basis) during the quarter ended June 30, 2007 compared to the same
        quarter in 2006.  Following regulatory practice, changes in the total
        cost of natural gas are passed on to customers.
 
 PGL's
        margin
        increased $6.0 million (7.3%) for the quarter ended June 30, 2007, compared
        to the same quarter in 2006, primarily due to the impact of increased deliveries
        due to weather (approximately $2 million) that was 9.7% colder compared with
        the
        same year-ago period and an increase in revenues related to increased utility
        environmental costs of $3.7 million recovered through the utility's
        environmental rate recovery mechanism. These costs are related to investigation
        and remediation activities at multiple sites that formerly had operations
        for
        gas manufacturing and the storage of manufactured gas (see Note 9 of the
        Condensed Notes to Financial Statements for further discussion). A similar
        expense amount is included in operating and maintenance expenses, therefore
        this
        increase in margin does not affect operating income.
 
 See
        Notes 1 and 3
        of the Condensed Notes to Financial Statements for a discussion of a change
        in
        accounting policy with regards to presenting both revenues and taxes, other
        than
        income taxes, net of certain taxes on the Condensed Consolidated Statements
        of
        Income.
 
 PGL’s
        results of
        operations for the quarters ended June 30 are shown in the following
        table:
  Three
                    Months
                    Ended June 30,**PGL
                    Results *(Millions)***
                
                2007
                
                
                2006
                
                
                ChangeRevenues
                
                $
                225.8
                
                
                $
                173.8
                
                
                29.9
                %Purchased
                    gas
                    costs
                
                
                137.4
                
                
                
                91.4
                
                
                50.3
                %Margins
                
                $
                88.4
                
                
                $
                82.4
                
                
                7.3
                %**Throughput
                    in therms**Residential
                
                
                122.7
                
                
                
                107.2
                
                
                14.5
                %Commercial
                    and industrial
                
                
                25.1
                
                
                
                21.9
                
                
                14.6
                %Transport
                
                
                127.7
                
                
                
                118.1
                
                
                8.1
                %Total
                    sales
                    in therms
                
                
                275.5
                
                
                
                247.2
                
                
                11.4
                %**Weather**Heating
                    degree days - actual
                
                
                677
                
                
                
                617
                
                
                9.7
                %
 
 -
            26 -
 
 **Operating
        Expenses**
 
 Three
                  Months
                  Ended June 30,PGL's
                  Operating Expenses *(Millions)*
              
              **2007**
              
              
              2006
              
              
              ChangeOperating
                  and
                  maintenance expenses
              
              **$**
              **68.4**
              
              
              $
              62.9
              
              
              8.7
              %Gas
                  charge
                  settlement
              
              ****
              **23.0**
              
              
              
              -
              
              
              N/ADepreciation
                  and amortization
              
              ****
              **15.5**
              
              
              
              14.5
              
              
              6.9
              %Taxes,
                  other
                  than income taxes
              
              ****
              **6.5**
              
              
              
              6.3
              
              
              3.2
              %
 
 *Operating
        and
        Maintenance Expenses*
 
 Operating
        and
        maintenance expenses increased $5.5 million (8.7%), to $68.4 million during
        the
        second quarter of 2007, from $62.9 million during the second quarter of 2006,
        driven by the following:
 
 ·
              Increased
                  maintenance expense of $3.9
                  million.
 ·
              Increased
                  utility environmental costs of $3.7 million related to investigation
                  and
                  remediation activities at multiple sites that formerly had operations
                  for
                  gas manufacturing and the storage of manufactured gas (see Note
                  9 of the
                  Condensed Notes to Financial Statements for further
                  discussion).  These costs are recovered through the utility’s
                  environmental rate recovery mechanism and a similar amount is included
                  in
                  revenues, therefore these costs do not affect operating
                  income.
 
 *Gas
        Charge
        Settlement*
 
 In
        the three-month period ended June 30, 2007, PGL recorded a $23.0 million
        pretax
        charge related to the funding of the Conservation Programs, as discussed
        in Note
        9 of the Condensed Notes to Financial Statements.
 
 *Depreciation
        and Amortization*
 
 Depreciation
        and
        amortization expense for the quarter ended June 30, 2007, increased
        $1.0 million (6.9%) mainly due to the impacts of a higher year-over-year
        property, plant and equipment balance due primarily to capital expenditures
        for
        PGL's gas distribution system.
 
 *Taxes
        Other
        Than Income Taxes*
 
 Taxes
        other than
        income taxes for the quarter ended June 30, 2007, increased
        $0.2 million (3.2%) primarily due to higher payroll-related taxes resulting
        from increased labor expenses.
 
 **Other
        (Expense) Income**
 
 Three
                  Months
                  Ended June 30,PGL’s
                  Other
                  (Expense) Income *(Millions)*
              
              **2007**
              
              
              2006
              
              
              ChangeMiscellaneous
                  income
              
              **$**
              **1.1**
              
              
              $
              1.6
              
              
              (31.3
              )%Interest
                  expense
              
              ****
              **(6.7**
              **)**
              
              
              (6.3
              )
              
              6.3
              %Other
                  (expense) income
              
              **$**
              **(5.6**
              **)**
              
              $
              (4.7
              )
              
              19.1
              %
 
 *Miscellaneous
        Income*
 
 Miscellaneous
        income decreased $0.5 million (31.3%) due to declines in interest
        income.
 
 -
            27 -
 *Interest
        Expense*
 
 Interest
        expense
        for the three-month period increased $0.4 million (6.3%) due to higher
        interest rates on higher amounts of short-term borrowing balances.
 
 **Provision
        for Income Taxes**
 
 Income
        tax benefit
        for the quarter-ended June 30, 2007 increased $8.2 million primarily
        due to an increase in the loss before taxes due to the Gas Charge
        settlement.
 
 The
        overall
        effective tax rates for the quarter ended June 30, 2007 and 2006 were 35.4%
        and
        44.4%, respectively. The effective tax rate differs from the federal tax
        rate of
        35% primarily due to the effect of state income taxation, offset by the
        permanent tax effects of employee benefit-related deductions.
 
 
 **Six
        Months
        2007 Compared with Six Months 2006**
 
 **Overview
        of
        Operations**
 
 Net
        income was $8.7
        million for the six-month period ended June 30, 2007, compared to $4.2 million
        for the six-month period ended June 30, 2006. Results for the six-month period
        ended June 30, 2007, were negatively impacted primarily by a $23.0 million
        pretax charge related to the funding of the Conservation Programs, as discussed
        in Note 9 of the Condensed Notes to Financial Statements. Results for the
        six-month period ended June 30, 2006, were impacted by a $28.4 million pretax
        charge related to a settlement of PGL's Gas Charge proceedings for 2001 through
        2004 with the ICC.
 
 Revenues
        for the
        six-month period ended June 30, 2007 increased $46.0 million compared with
        the
        same year-ago period.  These results reflected the impact on revenues
        of increased deliveries due to weather (approximately $96 million) that was
        13.4% colder compared with the same year-ago period, partially offset by
        the
        impact on revenues of lower natural gas prices (approximately $50 million)
        that
        are recovered on a dollar-for-dollar basis.  Natural gas costs were
        8.1% lower (on a per-unit basis) during the six-month period ended June 30,
        2007
        compared to the same period in 2006.  Following regulatory practice,
        changes in the total cost of natural gas are passed on to
        customers.
 
 PGL's
        margin
        increased $26.5 million (11.5%) for the six months ended June 30, 2007,
        compared to the same year-ago period in 2006, primarily due to the impact
        of increased deliveries due to weather (approximately $12 million) that was
        13.4% colder compared with the same year-ago period and an increase in revenues
        related to increased utility environmental costs of $12.4 million recovered
        through the utility's environmental rate recovery mechanism. These costs
        are
        related to investigation and remediation activities at multiple sites that
        formerly had operations for gas manufacturing and the storage of manufactured
        gas (see Note 9 of the Condensed Notes to Financial Statements for further
        discussion). A similar expense amount is included in operating and
        maintenance expenses, therefore this increase in margin does not affect
        operating income.
 
 See
        Notes 1 and 3
        of the Condensed Notes to Financial Statements for a discussion of a change
        in
        accounting policy with regards to presenting both revenues and taxes, other
        than
        income taxes, net of certain taxes on the Condensed Consolidated Statements
        of
        Income.
 
 -
            28 -
 PGL’s
        results of
        operations for the six-month periods ended June 30 are shown in the following
        table:
 
 Six
                    Months
                    Ended June 30,**PGL
                    Results *(Millions)***
                
                2007
                
                
                2006
                
                
                ChangeRevenues
                
                $
                852.9
                
                
                $
                806.9
                
                
                5.7
                %Purchased
                    gas
                    costs
                
                
                596.1
                
                
                
                576.6
                
                
                3.4
                %Margins
                
                $
                256.8
                
                
                $
                230.3
                
                
                11.5
                %**Throughput
                    in therms**Residential
                
                
                553.7
                
                
                
                487.9
                
                
                13.5
                %Commercial
                    and industrial
                
                
                109.3
                
                
                
                98.1
                
                
                11.4
                %Transport
                
                
                433.2
                
                
                
                387.5
                
                
                11.8
                %Total
                    sales
                    in therms
                
                
                1,096.2
                
                
                
                973.5
                
                
                12.6
                %**Weather**Heating
                    degree days - actual
                
                
                3,808
                
                
                
                3,358
                
                
                13.4
                %
 
 **Operating
        Expenses**
 
 Six
                  Months
                  Ended June 30,PGL's
                  Operating Expenses *(Millions)*
              
              **2007**
              
              
              2006
              
              
              ChangeOperating
                  and
                  maintenance expenses
              
              **$**
              **166.9**
              
              
              $
              144.9
              
              
              15.2
              %Gas
                  charge
                  settlement
              
              ****
              **23.0**
              
              
              
              28.4
              
              
              (19.0
              )%Depreciation
                  and amortization
              
              ****
              **30.0**
              
              
              
              28.5
              
              
              5.3
              %Taxes,
                  other
                  than income taxes
              
              ****
              **13.9**
              
              
              
              13.3
              
              
              4.5
              %
 
 *Operating
        and
        Maintenance Expenses*
 
 Operating
        and
        maintenance expenses increased $22.0 million (15.2%), to $166.9 million during
        the six- month period ended June 30, 2007, from $144.9 million during the
        same
        year-ago period of 2006, driven by the following:
 
 ·
              Increased
                  utility environmental costs of $12.4 million related to investigation
                  and
                  remediation activities at multiple sites that formerly had operations
                  for
                  gas manufacturing and the storage of manufactured gas (see Note
                  9 of the
                  Condensed Notes to Financial Statements for further
                  discussion).  These costs are recovered through the utility’s
                  environmental rate recovery mechanism and a similar amount is included
                  in
                  revenues, therefore these costs do not affect operating
                  income.
 ·
              Increased
                  maintenance expense of $6.5
                  million.
 ·
              Increased
                  injuries and damages expense of $3.4
                  million.
 ·
              Accrued
                  expenses of $3.5 million related to the fiscal 2005 Gas Charge
                  reconciliation case, as discussed in Note 9 of the Condensed Notes
                  to the
                  Financial Statements.
 ·
              Decreased
                  bad
                  debt expense of $3.3 million due primarily to improved credit and
                  collection experience.
 
 *Gas
        Charge
        Settlement*
 
 In
        the six-month period ended June 30, 2007, PGL recorded a $23.0 million pretax
        charge related to the funding of the Conservation Programs, as discussed
        in Note
        9 of the Condensed Notes to Financial Statements.
 
 -
            29 -
 In
        the six-month period ended June 30, 2006, PGL recorded a $28.4 million
        pretax charge related to a settlement of PGL's Gas Charge proceedings for
        2001 through 2004 with the ICC, as discussed in Note 9 of the Condensed
        Notes to Financial Statements.
 
 *Depreciation
        and Amortization*
 
 Depreciation
        and
        amortization expense for the six-month period ended June 30, 2007, increased
        $1.5 million (5.3%) mainly due to impacts of a higher year-over-year
        property, plant and equipment balance due primarily to capital expenditures
        for
        PGL's gas distribution system.
 
 *Taxes
        Other
        Than Income Taxes*
 
 Taxes
        other than
        income taxes for the six-month period ended June 30, 2007, increased
        $0.6 million (4.5%) primarily due to higher payroll-related taxes resulting
        from increased labor expenses.
 
 **Other
        (Expense) Income**
 
 Six
                  Months
                  Ended June 30,PGL’s
                  Other
                  (Expense) Income *(Millions)*
              
              **2007**
              
              
              2006
              
              
              ChangeMiscellaneous
                  income
              
              **$**
              **2.1**
              
              
              $
              2.5
              
              
              (16.0
              )%Interest
                  expense
              
              ****
              **(14.4**
              **)**
              
              
              (13.3
              )
              
              8.3
              %Other
                  (expense) income
              
              **$**
              **(12.3**
              **)**
              
              $
              (10.8
              )
              
              13.9
              %
 
 *Miscellaneous
        Income*
 
 Miscellaneous
        income decreased $0.4 million (16.0%) due to declines in interest
        income.
 
 *Interest
        Expense*
 
 Interest
        expense
        for the six-month period increased $1.1 million (8.3%) due
        to higher interest rates on higher amounts of short-term borrowing
        balances
 
 **Provision
        for Income Taxes**
 
 Income
        tax expense
        for the six-month period ended June 30, 2007 increased $1.8 million
        primarily due to higher pretax income. The overall effective tax rates for
        the
        six-month periods ended June 30, 2007 and 2006 were 18.5% and 3.4%,
        respectively. The accounting rules for interim income taxes require that
        the
        year-to-date tax provision or benefit for ordinary income or loss be based
        on
        the expected annual effective tax rate. At June 30, 2007, the expected annual
        effective tax rate for all items of income or loss for the year was 25.4%
        and
        the expected annual effective tax rate for ordinary income or loss was 32.4%.
        For the six-month period ended June 30, 2007 the 18.5% effective tax rate
        differs from the federal tax rate of 35% primarily due to the impact of applying
        an approximate 40% composite statutory tax rate to the $23 million Gas Charge
        settlement (as discussed in Note 9) while a larger level of pretax income
        (excluding the $23 million charge) is taxed at a lower effective tax rate.
        The
        effective income tax rate for the first six months of calendar 2006 was not
        meaningful given the low level of pre-tax income.
 
 -
            30 -
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 We
        believe that our cash balances, liquid assets, operating cash flows, access
        to
        capital markets, and borrowing capacity (intercompany and third-party) made
        available because of strong credit ratings, when taken together, provide
        adequate resources to fund ongoing operating requirements and future capital
        expenditures.  However, our operating cash flows and access to capital
        markets can be impacted by macroeconomic factors outside of our
        control.  In addition, our borrowing costs can be impacted by
        short-term and long-term debt ratings assigned by independent rating
        agencies.
 
 **Cash
        Flows
        Variations**
 
 The
        following is a
        summary of cash flows for PGL:
 
 (Millions)
              
              Six
                  Months
                  Ended
                June
                  30,
                  2007
              
              
              Six
                  MonthsEnded
                June
                  30, 2006Net
                  cash
                  provided by (used in) operating activities
              
              $
              96.9
              
              
              $
              216.8Net
                  cash
                  provided by (used in) investing activities
              
              $
              (43.0
              )
              
              $
              (27.6
              )Net
                  cash
                  provided by (used in) financing activities
              
              $
              (53.9
              )
              
              $
              (113.9
              )
 
 *Operating
        Cash
        Flows*
 
 Cash
        provided by
        operating activities decreased for the six-month period ended June 30, 2007
        as
        compared to the six-month period ended June 30, 2006, primarily due
        to unfavorable net changes in working capital. In the accompanying cash
        flow statements balance sheet changes in current deferred tax assets and
        other
        receivables exclude certain noncash transactions (primarily the effects of
        MTM
        accounting).  For the six-month period ended June 30, 2007, balance
        sheet changes in PGL's receivables from related parties and payables to related
        parties exclude the noncash effects of derivative activity previously conducted
        on its behalf by PEC.
 
 *Investing
        Cash
        Flows*
 
 Net
        cash used in
        investing activities increased primarily as a result of a decrease in the
        intercompany note receivable from NSG in 2006.
 
 *Financing
        Cash
        Flows*
 
 Net
        cash used
        in financing activities decreased primarily due to borrowings from NSG and
        the decrease in the retirement of commercial paper.
 
 *Credit
        Ratings*
 
 The
        current credit
        ratings for PGL have not changed since the filing of the combined PEC, PGL
        and
        NSG Annual Report on Form 10-K, as amended for the fiscal year ended September
        30, 2006.
 
 The
        credit ratings
        at June 30, 2007 for PGL are listed in the table below.
 
 Credit
                  Ratings - PGL
              
              Standard
                  & Poor's
              
              Moody'sSenior
                  secured debt
              
              A-
              
              A1Commercial
                  paper
              
              A-2
              
              P-1
 
 PGL
        believes these
        ratings continue to be among the best in the energy industry and allow us
        to
        access commercial paper and long-term debt markets on favorable terms. Credit
        ratings are not recommendations to buy, are subject to change, and each rating
        should be evaluated independently of any other rating.
 
 -
            31 -
 *Balance
        Sheet
        Variations*
 
 Total
        assets at
        June 30, 2007 increased $93.2 million compared to December 31, 2006, due to
        an increase in noncurrent regulatory assets (related primarily to an increase
        in
        the environmental remediation liability, as discussed in Note 9 of the Condensed
        Notes to Financial Statements), partially offset by a decrease in current
        regulatory assets, related primarily to MTM accounting for the utility gas
        costs
        hedging program, and by a seasonal decrease in accrued unbilled revenues.
        The
        decrease in current liabilities was driven by the reduction of short-term
        seasonal borrowings, a decrease in payables to related parties (due primarily
        to
        the transfer of derivative contracts from PEC to PGL that were previously
        contracted by PEC on behalf of PGL), and seasonal decreases in customer credit
        balances and accounts payable.  These decreases were partially offset
        by an increase resulting from the movement of $50.0 million to current portion
        of long-term debt and an increase in the temporary LIFO liquidation credit.
        PGL’s increase in long-term liabilities and deferred credits was due primarily
        to the increase in the environmental remediation liability and due to the
        Conservation Programs liability accrued during the current quarter and discussed
        in Note 9 of the Condensed Notes to Financial Statements.  Total
        capitalization did not change significantly other than due to the movement
        of
        $50.0 million to current portion of long-term debt as discussed in Note 6
        of the
        Condensed Notes to Financial Statements.
 
 Total
        assets at
        June 30, 2007 increased $392.3 million compared to June 30, 2006 due to an
        increase in noncurrent regulatory assets (related primarily to both an increase
        in the environmental remediation liability as discussed in Note 9 of the
        Condensed Notes to Financial Statements and the recognition of asset retirement
        obligations required under FIN 47 as of September 30, 2006), as well as an
        increase in net utility plant driven primarily by the adoption of FIN 47.
        These
        increases were partially offset by a decrease in cash and cash equivalents
        and a
        decrease in prepaid pension costs due to the impact of adopting SFAS No.
        158 at
        December 31, 2006.  The decrease in current liabilities was driven by
        decreases in gas costs refundable through rate adjustments and customer credit
        balances, partially offset by the movement of $50.0 million to current
        portion of long-term debt. Long-term liabilities and deferred credits increased
        due to the increase in the environmental remediation liability, the recognition
        of asset retirement obligations under FIN 47, the increase in pension and
        other
        postretirement benefits liabilities due to the impact of adopting SFAS No.
        158
        and the Conservation Programs liability accrued during the current
        quarter.  Total capitalization was flat due to a $32.4 million equity
        contribution by PEC to PGL and a reduction in accumulated other comprehensive
        loss (attributable to the elimination of the additional minimum pension
        liability as a result of increased plan funding and an increase in the discount
        rate), offset by the movement of $50.0 million to the current portion of
        long-term debt.
 
 **Future
        Capital Requirements and Resources**
 
 *Contractual
        Obligations*
 
 The
        following table
        shows the contractual obligations of PGL as of June 30, 2007.
  Payments
                    Due
                    by Period(Millions)
                
                
                
                
                
                
                
                2008-
                
                
                2010-
                
                
                2012
                    andTotal
                
                
                2007
                
                
                2009
                
                
                2011
                
                
                ThereafterTotal
                    debt
                
                $
                505.6
                
                
                $
                3.6
                
                
                $
                50.0
                
                
                $
                50.0
                
                
                $
                402.0Estimated
                    interest payments on debt
                
                
                489.6
                
                
                
                10.8
                
                
                
                43.8
                
                
                
                40.8
                
                
                
                394.2Operating
                    leases
                
                
                23.9
                
                
                
                1.6
                
                
                
                6.5
                
                
                
                6.9
                
                
                
                8.9Purchase
                    obligations
                
                
                304.2
                
                
                
                40.0
                
                
                
                107.5
                
                
                
                65.2
                
                
                
                91.5Total
                    contractual cash obligations
                
                $
                1,323.3
                
                
                $
                56.0
                
                
                $
                207.8
                
                
                $
                162.9
                
                
                $
                896.6
 
 -
            32 -
 
 The
        table above
        does not reflect any payments related to the manufactured gas plant remediation
        liability of $453.8 million at June 30, 2007 as the amount and timing of
        payments are uncertain. See Note 9 of the Condensed Notes to Financial
        Statements for more information about PGL’s environmental
        liabilities.
 
 As
        of June 30, 2007, surety bonds totaling $0.1 million and a standby letter
        of
        credit in the amount of $100,000 had been issued on PGL's behalf.
 
 *Capital
        Requirements*
 
 PGL
        makes large
        investments in capital assets. Net construction expenditures are expected
        to be
        $371 million in the aggregate for the 2007 through 2009 period. The largest
        of
        these expenditures is for the pipe distribution system (primarily to replace
        cast iron and ductile iron mains) and underground gas storage
        facilities.
 
 *Capital
        Resources*
 
 As
        of June 30, 2007, PGL had committed credit facilities of $250 million, of
        which
        $246.4 million were available. The PGL $250 million 5-year syndicated credit
        agreement expires in July 2010. The facilities are expected to be renewed
        when
        they expire, although the exact amount of the renewals will be evaluated
        at that
        time and may change from the current level.
 
 PGL
        has the ability
        to borrow up to $150 million from PEC and to loan to or borrow from NSG up
        to
        $50 million.  As of June 30, 2007, there were no loans from
        PEC to PGL.  As of June 30, 2007, there were loans of $27.2
        million from NSG to PGL.
 
 PGL's
        indenture
        relating to its first mortgage bonds contains provisions and covenants
        restricting the payment of cash dividends and the purchase or redemption
        of
        capital stock.  As of June 30, 2007, PGL was in compliance with all of the
        covenants under its lines of credit and other obligations.  For the
        period 2007 through 2009, PGL plans to use internally generated funds net
        of
        forecasted dividend payments, debt financings and equity infusions to fund
        capital requirements.  PGL plans to maintain current debt to equity
        ratios at appropriate levels to support current credit ratings and
        growth.  Management believes PGL has adequate financial flexibility
        and resources to meet its future needs.
 
 **Other
        Future Considerations**
 
 *Gas
        Charge
        Reconciliation Proceedings and Related Matters*
 
 For
        PGL, the ICC
        conducts annual proceedings regarding the reconciliation of revenues from
        the
        Gas Charge and related gas costs. In these proceedings, the accuracy of the
        reconciliation of revenues and costs is reviewed and the prudence of gas
        costs
        recovered through the Gas Charge is examined by interested parties. (See
        Note 9
        of the Condensed Notes to Financial Statements.)
 
 In
        February 2004, a purported class action was filed against PEC, PGL and NSG
        by
        customers of PGL and NSG alleging, among other things, violation of the Illinois
        Consumer Fraud and Deceptive Business Practices Act related to matters at
        issue
        in the utilities' Gas Charge reconciliation proceedings.  (See
        Note 9 of the Condensed Notes to Financial Statements.)
 
 *Environmental
        Matters*
 
 PGL
        is conducting
        environmental investigations and remedial work at certain sites that were
        the
        locations of former manufactured gas operations.  (See Note 9 of the
        Condensed Notes to Financial Statements.)
 
 -
            33 -
 *Proposed
        Illinois Gross Receipts Tax*
 
 On
        March 7, 2007, Illinois' Governor, in his Budget Address, proposed replacing
        the
        corporate income tax with a gross receipts tax ("GRT"). Under this proposal,
        the
        GRT rate on goods would be 0.85% and the rate on services would be 1.95%;
        the
        GRT would not apply to businesses with sales of less than $2
        million.  It is not clear which rate PGL would be subject
        to.  The tax would take effect on January 1, 2008, and the first full
        year of implementation would be the tax/calendar year 2008. During this period,
        businesses would receive a 100% credit against corporate income taxes
        paid.  The personal property replacement tax would remain intact and
        continue to apply to partnerships and corporations. It is unclear how existing
        Illinois net operating losses and Illinois corporate income tax credits will
        apply to the GRT.  The proposed tax would require unitary filings only
        with members who have Illinois nexus and allow intercompany eliminations
        among
        these members only. On May 11, 2007, the Illinois House of Representatives
        voted
        not to support the proposed GRT plan.
 
 *Service
        Company*
 
 As
        part of the regulatory approval process for the merger with PEC, Integrys
        agreed
        to formally propose the formation of a centralized service company to provide
        administrative support primarily to Integrys' six regulated utilities, including
        PGL. These services will include categories such as legal, accounting and
        finance, environmental, information technology, purchasing and warehousing,
        human resources, administrative services (e.g. real estate, printing, etc.),
        external/regulatory affairs, natural gas services, and natural gas supply.
        In
        addition, many of these services will also be provided to the Integrys
        nonregulated companies. The creation of a centralized service company will
        require Integrys' subsidiaries to move many of the employees supporting these
        functions into the new service company, including employees from PEC and
        PGL.
        Certain assets will also be transferred by Integrys' subsidiaries to the
        service
        company. On June 6, 2007, the service company entity, Integrys Business Support
        was established. Integrys Business Support will become an operational
        centralized service company upon receipt of necessary regulatory approvals
        or
        waivers in a form acceptable to Integrys. On June 8, 2007, Integrys and its
        regulated utilities, including PGL, filed applications with the ICC, Public
        Service Commission of Wisconsin, Minnesota Public Utilities Commission, and
        Michigan Public Service Commission seeking necessary regulatory approvals
        or
        waivers associated with the formation and operation of the service company.
        The
        requested approvals will relate to and include the categories of services
        to be
        delivered by Integrys Business Support, the contracts and arrangements governing
        the provision of such inter-company services, the transfer of assets and
        employees to Integrys Business Support, and the methodologies for allocating
        the
        costs for these services to the entities who take these services. The required
        regulatory approvals or waivers were requested with the intent that the service
        company can become operational by January 1, 2008. In states where action
        is
        required, prehearing conferences have been held and hearing dates have been
        scheduled during September and October in anticipation of year-end approvals.
        Discovery from regulatory staffs and respective intervenors is currently
        in
        progress.
 
 **CRITICAL
        ACCOUNTING POLICIES**
 
 See
        the MD&A in
        the combined PEC, PGL and NSG Annual Report on Form 10-K, as amended, for
        the
        fiscal year ended September 30, 2006 for a detailed discussion of PGL’s critical
        accounting policies.  These policies include Regulated Operations,
        Environmental Activities Relating to Former Manufactured Gas Operations,
        Retirement and Postretirement Benefits, Derivative Instruments and Hedging
        Activities, Provision for Uncollectible Accounts, and Depreciation and
        Amortization.
 
 **Item
        3.  Quantitative and Qualitative Disclosures about
        Market Risk**
 
 PGL
        has potential
        market risk exposure related to commodity price risk.  Exposure to
        commodity price risk results from the impact of market fluctuations on the
        prices of natural gas used by PGL in operations.  PGL has risk
        management policies in place to monitor and assist in controlling this risk
        and
        uses derivative instruments to manage some of these exposures.
 
 -
            34 -
 **Commodity
        Price Risk**
 
 **Derivative
        Summary.**  The following table summarizes the changes in
        valuation of all outstanding derivative contracts related to PGL company-use
        gas
        during the three-and six-month periods ended June 30, 2007 and
        2006.  All amounts are based on fair values at the end of the period
        and do not necessarily indicate that a gain or loss on the derivative will
        be
        recognized in income in future periods.  Generally, these cash flow
        hedge contracts are held to maturity, which coincides with recognition of
        the
        transaction being hedged (e.g., anticipated cost of purchases in earnings),
        thereby achieving the realization of prices contemplated by the underlying
        risk
        management strategies.
 
 Other
        than as
        described below, PGL's market risks have not changed materially from the
        market
        risks reported in the combined PEC, PGL and NSG Annual Report on Form 10-K,
        as
        amended, for the fiscal year ended September 30, 2006.
  **Cash
                    Flow Hedges*****Three-months
                    ended (Millions)***
                
                **2007**
                
                
                **2006**Value
                    of
                    contracts outstanding at April 1
                
                **$**
                **(0.2**
                **)**
                
                $
                (1.6
                )Less:
                    Gain
                    (loss) on contracts realized or otherwisesettled
                    during the period
                
                ****
                **(0.3**
                **)**
                
                
                (0.6
                )Plus:
                    Unrealized gain (loss) on new contracts enteredinto
                    during the period and outstanding at end of period
                
                ****
                **-**
                
                
                
                (0.1
                )Plus:
                    Other
                    unrealized gain (loss), primarily changesin
                    market prices on contracts outstanding at thebeginning
                    of the period
                
                ****
                **(0.6**
                **)**
                
                
                (0.5
                )**Value
                    of contracts outstanding at June 30**
                
                **$**
                **(0.5**
                **)**
                
                $
                (1.6
                )
 
 **Cash
                    Flow Hedges*****Six-months
                    ended (Millions)***
                
                **2007**
                
                
                **2006**Value
                    of
                    contracts outstanding at January 1
                
                **$**
                **(1.5**
                **)**
                
                $
                (0.6
                )Less:
                    Gain
                    (loss) on contracts realized or otherwisesettled
                    during the period
                
                ****
                **(0.9**
                **)**
                
                
                (1.5
                )Plus:
                    Unrealized gain (loss) on new contracts enteredinto
                    during the period and outstanding at end of period
                
                ****
                **(0.1**
                **)**
                
                
                (0.6
                )Plus:
                    Other
                    unrealized gain (loss), primarily changesin
                    market prices on contracts outstanding at thebeginning
                    of the period
                
                ****
                **0.2**
                
                
                
                (1.9
                )**Value
                    of contracts outstanding at June 30**
                
                **$**
                **(0.5**
                **)**
                
                $
                (1.6
                )
  The
        change in the
        value of derivative contracts outstanding for the three-and six-month periods
        ended June 30, 2007 was due to the settlement of contracts at net
        realized losses and the impact of changes in the forward price curve of natural
        gas on new and existing positions during this same period.
 
 -
            35 -
 The
        following table
        is a summary of the fair market value of PGL's natural gas swaps (commodity
        derivatives) at June 30, 2007 related to its cash flow hedge program for
        gas
        used in its own operations.  Valuations are based on the NYMEX closing
        prices for the respective NYMEX Henry Hub futures contracts and on the closing
        prices published in various commodity pricing publications for the geographical
        differential between a specific location price and the NYMEX Henry Hub futures
        contract closing price where applicable.
 
 *(Fair
                  Value amounts in thousands)****Maturity***
              
              ***Volumes***
                ***(Mmbtu's)***
              
              
              ***Fair
                  Value***Less
                  than 1
                  Year
              
              ****
              **700,000**
              
              
              $
              (460.8
              )1
                  - 3
                  Years
              
              ****
              **50,000**
              
              
              
              (9.2
              )****
              **750,000**
              
              
              **$**
              **(470.0**
              **)**
 
 
 **Item
        4.  Controls and Procedures**
 
 **Evaluation
        of Disclosure Controls and Procedures**
 
 As
        of the end of the period covered by this Quarterly Report on Form 10-Q, PGL's
        management, including PGL's Chief Executive Officer and Chief Financial Officer,
        evaluated the effectiveness of the design and operation of PGL's disclosure
        controls and procedures (as defined in the Securities Exchange Act of 1934
        Rules
        13a-15(e) and 15d-15(e)) and concluded that, as of the date of such evaluation,
        PGL’s disclosure controls and procedures were effective in accumulating and
        timely alerting management to information relating to PGL as appropriate
        to
        allow timely decisions regarding required disclosure to be included in PGL's
        periodic SEC filings, particularly during the period in which this Quarterly
        Report on Form 10-Q was being prepared.
 
 **Changes
        In
        Internal Control**
 
 Other
        than the
        merger between a subsidiary of Integrys and PEC discussed below, there were
        no
        changes in PGL's internal control over financial reporting during the quarter
        ended June 30, 2007 that have materially affected, or are reasonably likely
        to
        materially affect, PGL's internal control over financial reporting.
 
 Effective
        February
        21, 2007, the merger mentioned above was consummated.  Integrys is
        currently in the process of integrating the internal controls and procedures
        of
        PGL with its internal controls over financial reporting. Integrys has expanded
        its Section 404 compliance program under the Sarbanes-Oxley Act of 2002 and
        the
        applicable rules and regulations under such Act to include PGL.  See
        Notes 1, 3, 12 and 13 of the Condensed Notes to Financial Statements for
        additional information related to the merger.
 
 -
            36 -
 **PART
        II - OTHER INFORMATION**
 
 **Item
        1.  Legal Proceedings**
 
 See
        Note 9 of the
        Condensed Notes to Financial Statements - for discussions pertaining to
        environmental matters, proceedings at the ICC regarding the prudency of gas
        costs recovered by PGL through the Gas Charge, a purported class action filed
        against PGL by its customers alleging violation of the Illinois Consumer
        Fraud
        and Deceptive Business Practices Act, and other events and proceedings, which
        note is incorporated herein by reference.
 
 **Labor
        Contracts**
 
 Local
        18007 of the
        Utility Workers Union of America, AFL-CIO represents the union employees
        at PGL.
        The current collective bargaining agreement expires on April 1,
        2008.
 
 **Item
        1A.  Risk Factors**
 
 There
        were no
        material changes to the risk factors pertaining to PGL as presented in the
        combined PEC, PGL and NSG Annual Report on Form 10-K, as amended, for the
        fiscal
        year ended September 30, 2006.
 
 **Item
        6.  Exhibits**
 
 ExhibitNumber
              
              Description
                  of Document3.1
              
              Amendment
                  to
                  By-Laws adopted May 17, 2007.3.2
              
              By-Laws
                  of
                  The Peoples Gas Light and Coke Company, as amended and restated
                  May 17,
                  2007.12
              
              The
                  Peoples
                  Gas Light and Coke Company Ratio of Earnings to Fixed
                  Charges31.1
              
              Certification
                  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                  Act of
                  1934 for The Peoples Gas Light and Coke Company31.2
              
              Certification
                  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                  Act of
                  1934 for The Peoples Gas Light and Coke Company32
              
              Written
                  Statement of the Chief Executive Officer and Chief Financial Officer
                  Pursuant to 18 U.S.C. Section 1350 for The Peoples Gas Light and
                  Coke
                  Company
 
 
 -
            37 -
 
 **SIGNATURE**
 
 
 Pursuant
        to the
        requirements of the Securities Exchange Act of 1934, as amended, the registrant,
        The Peoples Gas Light and Coke Company, has duly caused this report to be
        signed
        on its behalf by the undersigned thereunto duly authorized.
 
 The
                  Peoples
                  Gas Light and Coke CompanyDate:
                  August 8, 2007
              
              /s/
                  Diane L.
                  FordDiane
                  L.
                  FordVice
                  President and Corporate Controller(Duly
                  Authorized Officer andChief
                  Accounting Officer)
   -
            38 -
 
 **THE
        PEOPLES
        GAS LIGHT AND COKE COMPANY**
 **EXHIBIT
        INDEX TO FORM 10-Q**
 **FOR
        THE
        QUARTER ENDED JUNE 30, 2007**
 
 ExhibitNumber
              
              Description
                  of Document3.1
              
              Amendment
                  to
                  By-Laws adopted May 17, 2007.3.2
              
              By-Laws
                  of
                  The Peoples Gas Light and Coke Company, as amended and restated
                  May 17,
                  2007.12
              
              The
                  Peoples
                  Gas Light and Coke Company Ratio of Earnings to Fixed
                  Charges31.1
              
              Certification
                  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                  Act of
                  1934 for The Peoples Gas Light and Coke Company31.2
              
              Certification
                  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                  Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange
                  Act of
                  1934 for The Peoples Gas Light and Coke Company32
              
              Written
                  Statement of the Chief Executive Officer and Chief Financial Officer
                  Pursuant to 18 U.S.C. Section 1350 for The Peoples Gas Light and
                  Coke
                  Company
 
 
  -
            39 -