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 1934
        
      For the quarterly period ended September 30, 1996

      Transition Report Pursuant to Section 13 or 15(d)
      of the Securities Exchange Act of 1934

      For the transition period from ________________ to ________________

Commission file number 1-9779

NIPSCO Industries, Inc.
(Exact name of registrant as specified in its charter)


                   Indiana                       35-1719974
        (State or other jurisdiction of       (I.R.S. Employer
        incorporation or organization)        Identification No.)


        5265 Hohman Avenue, Hammond, Indiana            46320-1775
        (Address of principal executive offices)        (Zip Code)


      Registrant's telephone number, including area code: (219) 853-5200

      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
                           --------      --------

      As of October 31, 1996, 60,566,493 common shares were outstanding.


<PAGE>
NIPSCO INDUSTRIES, INC.
Part I.  FINANCIAL INFORMATION
Item I.  FINANCIAL STATEMENTS

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Board of Directors of
NIPSCO Industries, Inc.:

      We have audited the accompanying consolidated balance sheet of NIPSCO
Industries, Inc. (an Indiana corporation) and subsidiaries as of September 30,
1996, and December 31, 1995, and the related consolidated statements of
income, common shareholders' equity and cash flows for the three, nine, and
twelve month periods ended September 30, 1996 and 1995.  These consolidated
financial statements are the responsibility of Industries' management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

      In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
NIPSCO Industries, Inc. and subsidiaries as of September 30, 1996, and
December 31, 1995, and the results of their operations and their cash flows
for the three, nine, and twelve month periods ended September 30, 1996 and
1995, in conformity with generally accepted accounting principles.

                                           /s/  Arthur Andersen LLP

Chicago, Illinois
October 23, 1996

<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
                                            September 30,  December 31,
ASSETS                                          1996          1995
                                            =============  ============
                                               (Dollars in thousands)

<S>                                         <C>            <C>
UTILITY PLANT, AT ORIGINAL COST (INCLUDING
 CONSTRUCTION WORK IN PROGRESS OF
 $144,091 AND $145,129, RESPECTIVELY)
 (Note 2):
  Electric                                  $  4,006,616   $  3,935,103
  Gas                                          1,334,794      1,301,687
  Common                                         350,079        350,168
                                            ------------   ------------
                                               5,691,489      5,586,958
    Less - Accumulated provision for
     depreciation and amortization             2,523,681      2,373,694
                                            ------------   ------------
      Total Utility Plant                      3,167,808      3,213,264
                                            ------------   ------------
OTHER PROPERTY AND INVESTMENTS:
 Other property, at cost, less accumulated
  provision for depreciation                     142,333        136,006
 Investments, at equity (Note 2)                  53,550         47,565
 Investments, at cost (Note 2)                    29,542         22,899
 Other investments                                18,889         17,315
                                            ------------   ------------
      Total Other Property and Investments       244,314        223,785
                                            ------------   ------------
CURRENT ASSETS:
 Cash and cash equivalents                        62,905         28,496
 Accounts receivable, less reserve of
  $7,131 and $7,264,respectively (Note 2)         59,599        108,998
 Fuel adjustment clause (Note 2)                   9,807         10,301
 Gas cost adjustment clause (Note 2)              59,709          1,423
 Materials and supplies, at average cost          59,798         65,044
 Electric production fuel, at average cost        31,198         14,258
 Natural gas in storage, (Note 2)                 82,553         60,884
 Prepayments and other                            48,493         27,177
                                            ------------   ------------
      Total Current Assets                       414,062        316,581
                                            ------------   ------------ 
OTHER ASSETS:
 Regulatory assets (Note 2)                      213,527        212,491
 Deferred charges and other noncurrent
  assets                                          72,220         33,399
                                            ------------   ------------
      Total Other Assets                         285,747        245,890
                                            ------------   ------------
                                            $  4,111,931   $  3,999,520
                                            ============   ============
<FN>
The accompanying notes to consolidated financial statements are an
integral part of this statement.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
                                            September 30,  December 31,
CAPITALIZATION AND LIABILITIES                  1996           1995
                                            ============   ============
                                               (Dollars in thousands)

<S>                                         <C>            <C>
CAPITALIZATION:
 Common shareholders' equity
  (See accompanying statement)              $  1,112,942   $  1,122,215
 Cumulative preferred stocks (Note 10) -
  Northern Indiana Public Service Company:
   Series without mandatory redemption
    provisions (Note 11)                          81,129         81,325
   Series with mandatory redemption                                 
    provisions (Note 12)                          61,801         63,651
  NIPSCO Industries Inc.:
   Series with mandatory redemption
    provisions (Note 12)                               0         35,000
 Long-term debt excluding amounts due 
  within one year (Note 16)                    1,190,684      1,175,728
                                            ------------   ------------
      Total Capitalization                     2,446,556      2,477,919
                                            ------------   ------------
CURRENT LIABILITIES:
 Current portion of long-term debt (Note 17)      76,384         96,855
 Short-term borrowings (Note 18)                 415,026        260,671
 Accounts payable                                146,144        151,691
 Sinking funds due within one year
  (Notes 12 and 16)                                3,078          2,621
 Dividends declared on common and                                    
  preferred stocks                                26,843         28,179
 Customer deposits                                14,880         11,361
 Taxes accrued                                    32,821         28,952
 Interest accrued                                 18,126          8,439
 Accrued employment costs                         38,463         46,695
 Other accruals                                   22,721         33,753
                                            ------------   ------------
      Total Current Liabilities                  794,486        669,217
                                            ------------   ------------   
OTHER:
 Deferred income taxes (Note 7)                  603,782        596,940
 Deferred investment tax credits, being
  amortized over life of related property 
  (Note 7)                                       110,344        115,666
 Deferred credits                                 46,166         45,126
 Accrued liability for postretirement
  benefits (Note 9)                               99,772         75,012
 Other noncurrent liabilities                     10,825         19,640
                                            ------------   ------------  
      Total Other                                870,889        852,384
                                            ------------   ------------
COMMITMENTS AND CONTINGENCIES
 (Notes 3, 4, 5, 6, 19, and 20)
                                            $  4,111,931   $  3,999,520
                                            ============   ============
<FN>
The accompanying notes to consolidated financial statements are an
integral part of this statement.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
                                                                      
                                  Three Months             Nine Months
                              Ended September 30,      Ended September 30,
                            ----------------------   ----------------------
                               1996        1995         1996        1995
                            ==========  ==========   ==========  ==========
                          (Dollars in thousands, except for per share amounts)

<S>                         <C>         <C>          <C>         <C>
Operating Revenues: 
 (Notes 2, 5, and 22)
  Gas                       $   79,498  $   73,648   $  527,840  $  473,117
  Electric                     276,776     296,731      769,432     780,222
                            ----------  ----------   ----------  ----------
                               356,274     370,379    1,297,272   1,253,339
                            ----------  ----------   ----------  ----------
Cost of Energy: (Note 2)
 Gas costs                      42,784      38,201      309,480     275,559
 Fuel for electric
  generation                    62,346      69,612      172,732     179,309
 Power purchased                15,356      13,126       41,639      35,259
                            ----------  ----------   ----------  ----------  
                               120,486     120,939      523,851     490,127
                            ----------  ----------   ----------  ----------   
Operating Margin               235,788     249,440      773,421     763,212
                            ----------  ----------   ----------  ----------
Operating Expenses and
 Taxes (except income):
  Operation                     71,910      73,790      223,185     215,467
  Maintenance (Note 2)          17,019      18,916       54,510      58,966
  Depreciation and
   amortization (Note 2)        55,044      50,685      162,747     149,550
  Taxes (except income)         16,955      17,420       55,087      54,989
                            ----------  ----------   ----------  ----------
                               160,928     160,811      495,529     478,972
                            ----------  ----------   ----------  ----------
Operating Income Before
 Utility Income Taxes           74,860      88,629      277,892     284,240
                            ----------  ----------   ----------  ----------
Utility Income Taxes 
 (Note 7)                       17,961      24,706       75,489      81,054
                            ----------  ----------   ----------  ----------
Operating Income                56,899      63,923      202,403     203,186
                            ----------  ----------   ----------  ---------- 
Other Income (Deductions)
 (Note 2)                        6,741      (1,246)       8,694      (2,220)
                            ----------  ----------   ----------  ---------- 
Income Before Interest 
 and Other Charges              63,640      62,677      211,097     200,966
                            ----------  ----------   ----------  ----------
Interest and Other Charges:
 Interest on long-term debt     21,166      21,061       64,534      62,170
 Other interest                  5,038       2,457       11,956       8,957
 Allowance for borrowed 
  funds used during 
  construction and carrying                                                    
  charges (Note 2)                (290)       (580)        (737)     (3,871)
 Amortization of premium, 
  reacquisition premium, 
  discount and expense  
  on debt, net                   1,142       1,150        3,468       3,252
 Dividend requirements on   
  preferred stocks of
  subsidiary                     2,174       2,231        6,551       6,821
                            ----------  ----------   ----------  ----------
                                29,230      26,319       85,772      77,329
                            ----------  ----------   ----------  ----------
Net Income                      34,410      36,358      125,325     123,637

Dividend requirements on
 preferred shares                    0         766          119       2,297
                            ----------  ----------   ----------  ----------
Balance available for
 common shareholders        $   34,410  $   35,592   $  125,206  $  121,340
                            ==========  ==========   ==========  ==========
Average common shares
 outstanding                61,061,196  63,031,729   61,451,974  63,532,590

Earnings per average
 common share               $     0.56  $     0.56   $     2.03  $     1.90
                            ==========  ==========   ==========  ==========
Dividends declared per 
 common share               $     0.42  $     0.39   $     1.26  $     1.17
                            ==========  ==========   ==========  ==========

<CAPTION>
                                 Twelve Months  
                              Ended September 30,
                            ----------------------
                               1996        1995   
                            ==========  ========== 
                            (Dollars in thousands,
                         except for per share amounts)
Operating Revenues: 
 (Notes 2, 5, and 22)
  Gas                       $  746,125  $  662,010
  Electric                   1,020,133   1,019,572
                            ----------  ----------
                             1,766,258   1,681,582
                            ----------  ----------
Cost of Energy: (Note 2)
 Gas costs                     433,034     387,544          
 Fuel for electric
  generation                   235,760     241,505
 Power purchased                50,061      39,777
                            ----------  ----------
                               718,855     668,826
                            ----------  ---------- 
Operating Margin             1,047,403   1,012,756
                            ----------  ----------
Operating Expenses and
 Taxes (except income):
  Operation                    298,669     284,313                  
  Maintenance (Note 2)          73,837      78,989
  Depreciation and
   amortization (Note 2)       214,334     199,014     
  Taxes (except income)         73,550      72,350  
                            ----------  ----------
                               660,390     634,666
                            ----------  ----------
Operating Income Before
 Utility Income Taxes          387,013     378,090
                            ----------  ----------
Utility Income Taxes 
 (Note 7)                      102,884     106,258
                            ----------  ----------
Operating Income               284,129     271,832       
                            ----------  ---------- 
Other Income (Deductions)
 (Note 2)                        6,673       2,924 
                            ----------  ---------- 
Income Before Interest 
 and Other Charges             290,802     274,756    
                            ----------  ----------
Interest and Other Charges:
 Interest on long-term debt     85,019      81,273    
 Other interest                 15,780      12,861   
 Allowance for borrowed 
  funds used during 
  construction and carrying                                                    
  charges (Note 2)                (544)     (5,376)              
 Amortization of premium, 
  reacquisition premium, 
  discount and expense  
  on debt, net                   4,618       4,310      
 Dividend requirements on   
  preferred stocks of
  subsidiary                     8,776       9,118
                            ----------  ----------
                               113,649     102,186
                            ----------  ----------
Net Income                     177,153     172,570          

Dividend requirements on
 preferred shares                  885       3,063
                            ----------  ----------
Balance available for
 common shareholders        $  176,268  $  169,507
                            ==========  ==========
Average common shares
 outstanding                61,724,244  63,655,520

Earnings per average 
 common share               $     2.85  $     2.66
                            ==========  ==========
Dividends declared per 
 common share               $     1.68  $     1.56
                            ==========  ==========
<FN>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY

                                        Dollars in Thousands
                          -----------------------------------------------------
                                                        Additional
                                            Common       Paid-in      Retained
   Three Months Ended         Total         Shares       Capital      Earnings
========================   ===========   ===========   ===========  ===========

<S>                        <C>           <C>           <C>          <C>
Balance, July 1, 1995      $ 1,116,208   $   870,930   $    31,950  $   482,823
Net income                      36,358                                   36,358
Dividends:
 Preferred shares                 (766)                                    (766)
 Common shares                 (24,474)                                 (24,474)
Treasury shares acquired       (11,854)                                
Issued:
 Employee stock purchase
  plan                             299                         159
 Long-term incentive plan          725                                     
Amortization of unearned
  compensation                     574
Other                              112                          93          (65)
                           -----------   -----------   -----------  -----------
Balance, September 30,
 1995                      $ 1,117,182   $   870,930   $    32,202  $   493,876
                           ===========   ===========   ===========  ===========
Balance, July 1, 1996      $ 1,116,228   $   870,930   $    32,674  $   558,076
Net income                      34,410                                   34,410
Dividends:              
 Common shares                 (25,561)                                 (25,561) 
Treasury shares acquired       (13,904)                      
Issued:
 Employee stock purchase 
  plan                             166                         100
 Long-term incentive plan          704          
Amortization of unearned
 compensation                      560                     
Unrealized gain on
 available for sale
 securities                        230
Other                              109                                      (22)
                           -----------   -----------   -----------  -----------
Balance, September 30,
 1996                      $ 1,112,942   $   870,930   $    32,774  $   566,903
                           ===========   ===========   ===========  ===========

<CAPTION>
                                      Dollars in Thousands             Shares
                           ---------------------------------------  -----------
                                           Currency
   Three Months Ended        Treasury    Translation                   Common
       (continued)            Shares      Adjustment      Other        Shares
========================   ===========   ===========   ===========  ===========

<S>                        <C>           <C>           <C>          <C>
Balance, July 1, 1995      $  (260,485)  $    (1,481)  $    (7,529)  73,892,109
Net income
Dividends:
 Preferred shares
 Common shares
Treasury shares acquired       (11,854)
Issued:
 Employee stock purchase
  plan                             140
 Long-term incentive plan          725
Amortization of unearned
 compensation                                                  574        
Other                                             84
                           -----------   -----------   -----------  -----------
Balance, September 30,
 1995                      $  (271,474)  $    (1,397)  $    (6,955)  73,892,109
                           ===========   ===========   ===========  ===========

Balance, July 1, 1996      $  (339,673)  $    (1,991)  $    (3,788)  73,892,109
Net income
Dividends:
 Common shares
Treasury shares acquired       (13,904)
Issued:
 Employee stock purchase
  plan                              66
 Long-term incentive plan          704
Amortization of unearned
 compensation                                                  560
Unrealized gain
 on available for sale
 securities                                                    230
Other                                            131
                           -----------   -----------   -----------  -----------
Balance, September 30,
 1996                      $  (352,807)  $    (1,860)  $    (2,998)  73,892,109
                           ===========   ===========   ===========  ===========

<CAPTION>
                              Shares
                           -----------
  Three Months Ended         Treasury
     (continued)              Shares
========================   ===========

<S>                        <C>
Balance, July 1, 1995      (10,627,573)
Net income
Dividends:
 Common shares
Treasury shares acquired      (363,407)
Issued:
 Employee stock purchase 
  plan                           8,791                           
 Long-term incentive plan       29,000
Amortization of unearned
 compensation
Other
                           -----------
Balance, September 30, 
 1995                      (10,953,189)
                           ===========

Balance, July 1, 1996      (12,737,360)
Net income
Dividends:
 Common shares
Treasury shares acquired      (377,024)
Issued:
 Employee stock purchase 
  plan                           4,118 
 Long-term incentive plan       26,100
Amortization of unearned
 compensation
Unrealized gain
 on available for sale
 securities
Other
                          ------------
Balance, September 30, 
 1996                      (13,084,166)
                          ============

<CAPTION>
                                            Dollars in Thousands
                           ----------------------------------------------------
                                                        Additional
                                           Common        Paid-in      Retained
    Nine Months Ended         Total        Shares        Capital      Earning 
========================   ===========   ===========   ===========  ===========

<S>                        <C>           <C>           <C>          <C>
Balance, January 1, 1995   $ 1,107,848   $   870,930   $    29,657  $   446,928
Net income                     123,637                                  123,637
Dividends:
 Preferred shares               (2,297)                                  (2,297)
 Common shares                 (74,131)                                 (74,131)
Treasury shares acquired       (44,093)
Issued:
 Employee stock purchase
  plan                             604                         301
 Long-term incentive plan        3,442                       1,654
Amortization of unearned
  compensation                   1,736
Other                              436                         590         (261)
                           -----------   -----------   -----------  -----------
Balance, September 30,
 1995                      $ 1,117,182   $   870,930   $    32,202  $   493,876
                           ===========   ===========   ===========  ===========
Balance, January 1, 1996   $ 1,122,215   $   870,930   $    32,210  $   518,837
Net income                     125,325                                  125,325
Dividends:
 Preferred shares                 (119)                                    (119)
 Common shares                 (77,039)                                 (77,039)
Treasury shares acquired       (61,940)      
Issued:
 Employee stock purchase 
  plan                             615                         361
 Long-term incentive plan        1,714                         184
Amortization of unearned
 compensation                    1,748
Unrealized gain on
 available for sale
 securities                        435
Other                              (12)                         19         (101)
                           -----------   -----------   -----------  -----------
Balance, September 30,
 1996                      $ 1,112,942   $   870,930   $    32,774  $   566,903
                           ===========   ===========   ===========  ===========

<CAPTION>
                                     Dollars in Thousands              Shares
                           ---------------------------------------  -----------
                                          Currency
  Nine Months Ended          Treasury    Translation                   Common
     (continued)              Shares      Adjustment      Other        Shares
========================   ===========   ===========   ===========  ===========

<S>                        <C>           <C>           <C>          <C>
Balance, January 1, 1995   $  (237,193)  $    (1,504)  $      (970)  73,892,109
Net income
Dividends:
 Preferred shares
 Common shares
Treasury shares acquired       (44,093)
Issued:
 Employee stock purchase
  plan                             303
 Long-term incentive plan        9,509                      (7,721)
Amortization of unearned
 compensation                                                1,736
Other                                            107
                           -----------   -----------   -----------  -----------
Balance, September 30,
 1995                      $  (271,474)  $    (1,397)  $    (6,955)  73,892,109
                           ===========   ===========   ===========  ===========
Balance, January 1, 1996   $  (293,223)  $    (1,930)  $    (4,609)  73,892,109
Net income
Dividends:
 Preferred shares
 Common shares
Treasury shares acquired       (61,940)
Issued:
 Employee stock purchase
  plan                             254
 Long-term incentive plan        2,102                        (572)
Amortization of unearned
 compensation                                                1,748
Unrealized gain
 on available for sale
 securities                                                    435
Other                                             70
                           -----------   -----------   -----------  -----------
Balance, September 30,
 1996                      $  (352,807)  $    (1,860)  $    (2,998)  73,892,109
                           ===========   ===========   ===========  ===========

<CAPTION>
                              Shares
                           -----------
   Nine Months Ended         Treasury
     (continued)              Shares
========================   ===========

<S>                        <C>
Balance, January 1, 1995    (9,986,720)
Net income
Dividends:
 Preferred shares
 Common shares
Treasury shares acquired    (1,366,741)
Issued:
 Employee stock purchase 
  plan                          19,022
 Long-term incentive plan      381,250
Amortization of unearned
 compensation
Other
                           -----------
Balance, September 30,
 1995                      (10,953,189)
                           ===========

Balance, January 1, 1996   (11,512,513)
Net income                 
Dividends:
 Preferred shares
 Common shares
Treasury shares acquired    (1,666,768)
Issued:
 Employee stock purchase 
  plan                          15,965
 Long-term incentive plan       79,150
Amortization of unearned
 compensation
Unrealized gain
 on available for sale
 securities
Other
                           -----------
Balance, September 30,
 1996                      (13,084,166)
                           ===========

<CAPTION>
                                         Dollars in Thousands
                         ------------------------------------------------------
                                                       Additional
                                           Common       Paid-in       Retained 
  Twelve Months Ended         Total        Shares       Capital       Earnings 
========================   ===========   ===========  ===========   =========== 

<S>                        <C>           <C>          <C>           <C>
Balance, October 1, 1994   $ 1,089,838   $   870,930  $    28,317   $   423,667
Net income                     172,570                                  172,570
Dividends:
 Preferred shares               (3,063)                                  (3,063)
 Common shares                 (99,021)                                 (99,021)
Treasury shares acquired       (51,677)
Issued:
 Employee stock purchase
  plan                             604                        301
 Long-term incentive plan        3,748                      1,656
Amortization of unearned
  compensation                   1,929
Other                            2,254                      1,928          (277)
                           -----------   -----------   ----------   -----------
Balance, September 30,
 1995                      $ 1,117,182   $   870,930   $   32,202   $   493,876
                           -----------   -----------   ----------   -----------
Net income                     177,153                                  177,153
Dividends:              
 Preferred shares                 (885)                                    (885)
 Common shares                (103,140)                                (103,140)
Treasury shares acquired       (87,030)
Issued:
 Employee stock purchase 
  plan                             615                        361
 Long-term incentive plan        5,057                        186
Amortization of unearned
 compensation                    2,425
Unrealized gain on
 available for sale
 securities                      2,104
Other                             (539)                        25          (101)
                           -----------   -----------   ----------   -----------
Balance, September 30,
 1996                      $ 1,112,942   $   870,930   $   32,774   $   566,903
                           ===========   ===========   ==========   ===========

<CAPTION>
                                     Dollars in Thousands              Shares
                           --------------------------------------   -----------
                                          Currency
  Twelve Months Ended        Treasury    Translation                   Common
       (continued)            Shares      Adjustment      Other        Shares
========================   ===========   ===========   ==========   ===========

<S>                        <C>           <C>           <C>          <C>
Balance, October 1, 1994   $  (229,913)  $    (2,000)  $   (1,163)   73,892,109
Net income
Dividends:
 Preferred shares
 Common shares
Treasury shares acquired       (51,677)
Issued:
 Employee stock purchase
  plan                             303
 Long-term incentive plan        9,813                     (7,721)
Amortization of unearned
 compensation                                               1,929 
Other                                            603        
                           -----------   -----------   ----------   -----------
Balance, September 30,
 1995                      $  (271,474)  $    (1,397)  $   (6,955)   73,892,109
                           -----------   -----------   ----------   -----------
Net income
Dividends:
 Preferred shares
 Common shares
Treasury shares acquired       (87,030)     
Issued:
 Employee stock purchase
  plan                             254
 Long-term incentive plan        5,443                       (572)
Amortization of unearned
 compensation                                               2,425
Unrealized gain on
 available for sale
 securities                                                 2,104
Other                                           (463)
                           -----------   -----------   ----------   -----------
Balance, September 30,
 1996                      $  (352,807)  $    (1,860)  $   (2,998)   73,892,109
                           ===========   ===========   ==========   ===========

<CAPTION>
                              Shares
                           -----------
  Twelve Months Ended        Treasury
     (continued)              Shares
========================   ===========

<S>                        <C>
Balance, October 1, 1994    (9,728,999)
Net income
Dividends:
 Preferred shares
 Common shares
Treasury shares acquired    (1,637,162)
Issued:
 Employee stock purchase
  plan                          19,022
 Long-term incentive plan      393,950
Amortization of unearned
 compensation
Other
                           -----------
Balance, September 30,
 1995                      (10,953,189)
                           -----------
Net income
Dividends:
 Preferred shares
 Common shares
Treasury shares acquired    (2,357,692)
Issued:
 Employee stock purchase 
  plan                          15,965
 Long-term incentive plan      210,750
Amortization of unearned
 compensation
Unrealized gain
 on available for sale
 securities

Other
                           -----------
Balance, September 30,
 1996                      (13,084,166)
                           ===========
<FN>
The accompanying notes to consolidated financial statements are an
integral part of this statement.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS

                                                         Three Months
                                                     Ended September 30,
                                                   -----------------------  
                                                     1996          1995
                                                   =========     =========
                                                    (Dollars in thousands)

<S>                                                <C>           <C>
CASH FLOWS FROM OPERATING 
 ACTIVITIES:
 Net income                                        $  34,410     $  36,358  

ADJUSTMENTS TO RECONCILE 
 NET INCOME TO NET CASH:
  Depreciation and amortization                       55,044        50,685
  Deferred federal and state operating
   income taxes, net                                   1,998         4,254
  Deferred investment tax credits, net                (1,984)       (1,869)
  Advance contract payment                               475             0
  Change in certain assets and liabilities - 
   Accounts receivable, net                           20,234         9,215
   Electric production fuel                             (301)        2,915
   Materials and supplies                              2,168         2,380
   Natural gas in storage                            (53,023)      (35,734)
   Accounts payable                                  (10,235)          248
   Taxes accrued                                     (22,354)      (20,383)
   Fuel adjustment clause                              1,816        (5,763)
   Gas cost adjustment clause                        (10,763)       (6,114)
   Accrued employment costs                              797           858
   Other accruals                                     (2,265)          574
   Other, net                                         41,088        18,496
                                                   ---------     ---------
      Net cash provided by operating activities       57,105        56,120
                                                   ---------     ---------
CASH FLOWS USED IN INVESTING ACTIVITIES: 
  Utility construction expenditures                  (44,506)      (38,731)    
  Construction expenditures related to
   Crossroads Pipeline Company                        (1,007)       (1,548)
  Other, net                                          (8,491)      (12,076)
                                                   ---------     ---------
      Net cash used in investing activities          (54,004)      (52,355) 
                                                   ---------     ---------  
CASH FLOWS PROVIDED BY (USED IN)
 FINANCING ACTIVITIES: 
  Issuance of long-term debt                               0         7,715
  Issuance of short-term debt                        519,050        68,797
  Net change in commercial paper                       3,500        42,900
  Retirement of long-term debt                       (80,434)      (97,706)
  Retirement of short-term debt                     (374,350)      (16,732)
  Retirement of preferred shares                        (600)       (1,008)
  Issuance of common shares                              853         1,024
  Acquisition of treasury shares                     (13,904)      (11,854)
  Cash dividends paid on common shares               (25,692)      (24,550)
  Cash dividends paid on preferred shares                  0        (2,619)
  Other, net                                             121            96
                                                   ---------     ---------  
      Net cash provided by (used in)
       financing activities                           28,544       (33,937)
                                                   ---------     ---------
NET INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS                                 31,645       (30,172)
      
CASH AND CASH EQUIVALENTS AT
 BEGINNING OF PERIOD                                  31,260        48,670
                                                   ---------     ---------  
CASH AND CASH EQUIVALENTS AT
 END OF PERIOD                                     $  62,905     $  18,498
                                                   =========     =========

<CAPTION>
                                                         Nine Months
                                                     Ended September 30,
                                                   -----------------------  
                                                     1996          1995
                                                   =========     =========
                                                    (Dollars in thousands)

<S>                                                <C>           <C>
CASH FLOWS FROM OPERATING 
 ACTIVITIES:
 Net income                                        $ 125,325     $ 123,637

ADJUSTMENTS TO RECONCILE 
 NET INCOME TO NET CASH:
  Depreciation and amortization                      162,747       149,550
  Deferred federal and state operating
   income taxes, net                                  14,939       (17,700)
  Deferred investment tax credits, net                (5,322)       (5,605)
  Advance contract payment                           (17,575)            0
  Change in certain assets and liabilities - 
   Accounts receivable, net                           49,399        31,108
   Electric production fuel                          (16,940)        1,544
   Materials and supplies                              5,246        (1,099)
   Natural gas in storage                            (21,669)        3,730
   Accounts payable                                   (5,547)      (43,673)
   Taxes accrued                                     (16,174)        9,586
   Fuel adjustment clause                                494        (7,069)
   Gas cost adjustment clause                        (58,286)       55,009
   Accrued employment costs                           (8,232)       (2,297)
   Other accruals                                    (11,032)       29,144
   Other, net                                         18,401        24,602
                                                   ---------     ---------
      Net cash provided by operating activities      215,774       350,467 
                                                   ---------     ---------
CASH FLOWS USED IN INVESTING ACTIVITIES: 
  Utility construction expenditures                 (124,664)     (135,215)
  Construction expenditures related to
   Crossroads Pipeline Company                        (1,371)       (2,480)
  Other, net                                         (23,060)      (20,511)
                                                   ---------     ---------
      Net cash used in investing activities         (149,095)     (158,206)
                                                   ---------     ---------  
CASH FLOWS PROVIDED BY (USED IN)
 FINANCING ACTIVITIES: 
  Issuance of long-term debt                          77,450       181,689
  Issuance of short-term debt                      1,117,458       476,936
  Net change in commercial paper                      58,500      (120,100)
  Retirement of long-term debt                       (89,171)     (123,662)
  Retirement of short-term debt                   (1,022,385)     (504,324)
  Retirement of preferred shares                     (37,046)       (6,339)
  Issuance of common shares                            2,267         3,852
  Acquisition of treasury shares                     (61,940)      (44,093)
  Cash dividends paid on common shares               (77,685)      (74,572)
  Cash dividends paid on preferred shares               (119)       (4,150)
  Other, net                                             401           559
                                                   ---------     ---------
      Net cash provided by (used in)
       financing activities                          (32,270)     (214,204)
                                                   ---------     ---------
NET INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS                                 34,409       (21,943)
      
CASH AND CASH EQUIVALENTS AT
 BEGINNING OF PERIOD                                  28,496        40,441
                                                   ---------     ---------  
CASH AND CASH EQUIVALENTS AT
 END OF PERIOD                                     $  62,905     $  18,498
                                                   =========     =========

<CAPTION>
                                                        Twelve Months
                                                      Ended September 30,
                                                   -----------------------  
                                                     1996          1995
                                                   =========     =========
                                                    (Dollars in thousands)

<S>                                               <C>            <C>
CASH FLOWS FROM OPERATING 
 ACTIVITIES:
 Net income                                        $ 177,153     $ 172,570

ADJUSTMENTS TO RECONCILE 
 NET INCOME TO NET CASH:
  Depreciation and amortization                      214,334       199,014 
  Deferred federal and state operating
   income taxes, net                                  29,958       (21,284)
  Deferred investment tax credits, net                (7,232)       (7,433)
  Advance contract payment                           (17,575)            0
  Change in certain assets and liabilities - 
   Accounts receivable, net                          (15,814)      (12,007)
   Electric production fuel                          (14,395)        3,794
   Materials and supplies                              6,731         1,329
   Natural gas in storage                             (8,489)       12,898
   Accounts payable                                   31,105       (33,428)
   Taxes accrued                                     (34,962)       36,965
   Fuel adjustment clause                             (1,124)       (3,795)
   Gas cost adjustment clause                        (88,746)        8,535
   Accrued employment costs                           (3,051)          758
   Other accruals                                    (17,453)       25,095
   Other, net                                          6,359        18,911
                                                   ---------     ---------
      Net cash provided by operating activities      256,799       401,922
                                                   ---------     ---------
CASH FLOWS USED IN INVESTING ACTIVITIES: 
  Utility construction expenditures                 (179,203)     (181,143)
  Construction expenditures related to
   Crossroads Pipeline Company                        (2,103)       (3,153)
  Other, net                                         (54,298)      (25,198)
                                                   ---------     ---------
      Net cash used in investing activities         (235,604)     (209,494)
                                                   ---------     ---------  
CASH FLOWS PROVIDED BY (USED IN)
 FINANCING ACTIVITIES: 
  Issuance of long-term debt                          75,316       190,418    
  Issuance of short-term debt                      1,931,495       755,736 
  Net change in commercial paper                      94,000       (96,700)
  Retirement of long-term debt                       (87,614)      (84,143)
  Retirement of short-term debt                   (1,770,311)     (811,910)
  Retirement of preferred shares                     (37,802)      (14,484)
  Issuance of common shares                            5,804         4,158
  Acquisition of treasury shares                     (87,030)      (51,677)
  Cash dividends paid on common shares              (102,156)      (97,637)
  Cash dividends paid on preferred shares                968        (4,916)
  Other, net                                             542           478
                                                   ---------     ---------  
      Net cash provided by (used in)
       financing activities                           23,212      (210,677)
                                                   ---------     ---------
NET INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS                                 44,407       (18,249)
      
CASH AND CASH EQUIVALENTS AT
 BEGINNING OF PERIOD                                  18,498        36,747
                                                   ---------     ---------  
CASH AND CASH EQUIVALENTS AT
 END OF PERIOD                                     $  62,905     $  18,498
                                                   =========     =========
<FN>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
</TABLE>

<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)   HOLDING COMPANY STRUCTURE:  NIPSCO Industries, Inc. (Industries) is an
Indiana corporation serving as the holding company for a number of
subsidiaries, including four regulated companies:  Northern Indiana Public
Service Company (Northern Indiana); Kokomo Gas and Fuel Company (Kokomo Gas);
Northern Indiana Fuel and Light Company, Inc. (NIFL); and Crossroads
Pipeline Company (Crossroads).  Northern Indiana is a public utility operating
company supplying natural gas and electric energy to the public.  Kokomo Gas
and NIFL are public utility operating companies supplying natural gas to the
public, and Crossroads is an interstate natural gas transmission company.

      Industries' major non-utility subsidiaries include NIPSCO Development
Company, Inc. (Development); NIPSCO Energy Services, Inc. (Services); Primary
Energy, Inc. (Primary); and NIPSCO Capital Markets, Inc. (Capital Markets).

      Development makes various investments, including real estate and venture
capital investments.  Services coordinates the energy-related diversification
ventures of Industries.  Primary arranges energy-related projects with large
industrial customers.  Capital Markets handles financing for Industries and
its subsidiaries, other than Northern Indiana.

(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      BASIS OF PRESENTATION.  The consolidated financial statements include
the accounts of Industries; its regulated subsidiaries Northern Indiana,
Kokomo Gas, NIFL and Crossroads (Utilities); and all non-utility subsidiaries.
Investments for which Industries has at least a 20% interest and certain joint
ventures are accounted for under the equity method of accounting.  Investments
with less than a 20% interest are accounted for under the cost method of
accounting.  The operating results of the non-utility subsidiaries, as well
as the non-operating results of the Utilities, are included under the caption
"Other Income (Deductions)" in the Consolidated Statement of Income.  Interest
on long-term debt, other interest, and amortization of debt discount and
expense are reflected as a component of "Interest and Other Charges."  All
significant intercompany items have been eliminated in consolidation.
Certain reclassifications were made to conform the prior years' financial
statements to the current presentation.

      USE OF ESTIMATES.  The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.  Actual results could
differ from those estimates.
 
      OPERATING REVENUES.  Revenues are recorded based on estimated service
rendered, but are billed to customers monthly on a cycle basis.

      DEPRECIATION AND MAINTENANCE.  Northern Indiana provides depreciation
on a straight-line method over the remaining service lives of the electric,
gas, and common properties.  The provisions, as a percentage of the cost of
depreciable utility plant, were approximately 4.3%, 4.2%, and 4.2% for the
three-month, nine-month, and twelve-month periods ended September 30, 1996,
respectively; and 4.0%, 4.1%, and 4.1% for the three-month, nine-month, and
twelve-month periods ended September 30, 1995.  The depreciation rates for
electric and gas properties were 3.55% and 4.92%, respectively.

      Kokomo Gas provides depreciation on the original cost of utility plant
in service using straight-line rates that averaged approximately 3.1% for the
three-month, nine-month, and twelve-month periods ended September 30, 1996;
and 3.2% for the three-month, nine-month, and twelve-month periods ended
September 30, 1995.

      NIFL provides depreciation on the original cost of utility plant in 
service using straight-line rates that averaged approximately 2.75% for the 
three-month, nine-month, and twelve-month periods ended September 30, 1996 and
September 30, 1995.

      Crossroads provides depreciation on the original cost of utility plant
in service using straight-line rates that averaged approximately 2.5% for the
three-month, nine-month, and twelve-month periods ended September 30, 1996 and
September 30, 1995.

      The Utilities follow the practice of charging maintenance and repairs,
including the cost of renewals of minor items of property, to maintenance
expense accounts, except for repairs of transportation and service equipment
which are charged to clearing accounts and redistributed to operating expense
and other accounts.  When property which represents a retirement unit is
replaced or removed, the cost of such property is credited to utility plant,
and such cost, together with the cost of removal less salvage, is charged to
the accumulated provision for depreciation.

      AMORTIZATION OF SOFTWARE COSTS.  Northern Indiana amortizes capitalized
software costs using the straight-line method based on estimated economic
lives.

      PLANT ACQUISITION ADJUSTMENTS.  Industries' costs in excess of the
underlying book values of the acquired NIFL and Kokomo Gas subsidiaries have
been recorded as plant acquisition adjustments which are being amortized
over forty-year periods from their respective dates of acquisition.

      COAL RESERVES.  Northern Indiana has a long-term mining contract to 
mine its coal reserves through the year 2001.  The costs of these reserves 
are being recovered through the rate-making process as such coal reserves are 
used to produce electricity.

      OIL AND NATURAL GAS ACCOUNTING.  NIPSCO Fuel Company, Inc., a
wholly-owned subsidiary of Services, uses the full-cost method of accounting
for its oil and natural gas production activities.  Under this method, all
costs incurred in the acquisition, exploration, and development of oil and
natural gas properties are capitalized and amortized on the
units-of-production basis.

      POWER PURCHASED.  Power purchases and net interchange power with other 
electric utilities under interconnection agreements are included in Cost of 
Energy under the caption "Power purchased."

      ACCOUNTS RECEIVABLE.  At September 30, 1996, Northern Indiana had sold
$100 million of its accounts receivable under a sales agreement which expires
May 31, 1997.

      STATEMENT OF CASH FLOWS.  For the purposes of the Consolidated Statement
of Cash Flows, Industries considers temporary cash investments with an
original maturity of three months or less to be cash equivalents.

      Cash paid during the periods reported for income taxes and interest
was as follows:

<TABLE>
<CAPTION>
                   Three Months          Nine Months         Twelve Months
                Ended September 30,  Ended September 30,  Ended September 30,
                -------------------  -------------------  -------------------
                  1996       1995      1996       1995      1996       1995
                ========   ========  ========   ========  ========   ========
                                   (Dollars in thousands)

<S>             <C>        <C>       <C>        <C>       <C>        <C>
Income taxes    $ 20,047   $ 30,500  $ 75,795   $ 80,100  $113,635   $104,989

Interest, net 
 of amounts 
 capitalized    $ 15,141   $ 15,375  $ 56,089   $ 56,307  $ 89,103   $ 81,208
</TABLE>

      FUEL ADJUSTMENT CLAUSE.  All metered electric rates contain a provision
for adjustment in charges for electric energy to reflect increases and
decreases in the cost of fuel and the fuel cost of purchased power through
operation of a fuel adjustment clause.  As prescribed by order of the Indiana
Utility Regulatory Commission (Commission) applicable to metered retail rates,
the adjustment factor has been calculated based on the estimated cost of fuel
and the fuel cost of purchased power in a future three-month period.  If two
statutory requirements relating to expense and return levels are satisfied,
any under-recovery or over-recovery caused by variances between estimated
and actual cost in a given three-month period will be included in a future
filing.  Northern Indiana records any under-recovery or over-recovery as
a current asset or current liability until such time as it is billed
or refunded to its customers.  The fuel adjustment factor is subject to a
quarterly hearing by the Commission and remains in effect for a three-month
period. 

      GAS COST ADJUSTMENT CLAUSE.  All metered gas rates contain an adjustment
factor which reflects the cost of purchased gas, contracted gas storage, and
storage transportation charges.  The Utilities record any under-recovery or
over-recovery as a current asset or current liability until such time as it is
billed or refunded to their customers.  The gas cost adjustment factor for
Northern Indiana is subject to a quarterly hearing by the Commission and
remains in effect for a three-month period.  The gas cost adjustment factors
for Kokomo Gas and NIFL are subject to semi-annual hearings by the Commission
and remain in effect for a six-month period.  If the statutory requirement
relating to the level of return is satisfied, any under-recovery or over-
recovery caused by variances between estimated and actual cost in a given
three-month or six-month period will be included in a future filing.  See
Note 5, FERC Order No. 636 for a discussion of gas transition cost charges.

      NATURAL GAS IN STORAGE.  Northern Indiana's natural gas in storage is
valued using the last-in, first-out (LIFO) inventory methodology. Based on the
average cost of gas purchased in September 1996 and December 1995 the
estimated replacement cost of gas in storage (current and non-current) at
September 30, 1996 and December 31, 1995 exceeded the stated LIFO cost by
approximately $20 million and $30 million, respectively.  Certain other
subsidiaries of Industries have natural gas in storage valued at average cost.

      HEDGING ACTIVITIES.  Industries' gas subsidiaries use commodity futures
contracts, options and swap (derivative financial instruments) to hedge the
impact of natural gas price fluctuations related to its business activities.
Gains and losses on these derivative financial instruments are deferred and
recognized in income concurrent with the related purchases and sales of
natural gas.

      As of September 30, 1996, Industries had open derivative financial
instruments representing hedges of natural gas sales of 4.4 billion cubic feet
(Bcf) and natural gas purchases of 3.1 Bcf.  The deferred gain on these 
derivative financial instruments totalled $0.6 million.  This gain will be
included in the margin on the related natural gas transactions.

      REGULATORY ASSETS.  The Utilities' operations are subject to the
regulation of the Commission and the Federal Energy Regulatory Commission
(FERC).  Accordingly, the Utilities' accounting policies are subject to the
provisions of Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation."  The Utilities
monitor changes in market and regulatory conditions and the resulting impact
of such changes in order to continue to apply the provisions of SFAS No. 71
to some or all of its operations.  The regulatory assets identified below
represent probable future revenue to the Utilities associated with certain
incurred costs as these costs are recovered through the rate-making process.
If a portion of the Utilities' operations becomes no longer subject to the
provisions of SFAS No. 71, a write-off of certain of the regulatory assets
identified below might be required.  Regulatory assets were comprised of the
following items and were reflected in the Consolidated Balance Sheet as
follows:

<TABLE>
<CAPTION>
                                                September 30,  December 31,
                                                    1996           1995
                                                =============  ============
                                                    (Dollars in thousands)

<S>                                             <C>            <C>
Unamortized reacquisition premium on 
 debt (Note 16)                                 $      51,140  $     53,776
Unamortized R.M. Schahfer Unit 17 and
 Unit 18 carrying charges
 and deferred depreciation (See below)                 71,818        74,981
Bailly scrubber carrying charges and
 deferred depreciation (See below)                     11,050        11,517
Deferral of SFAS No. 106 expense not
 recovered (Note 9)                                    82,327        64,834
FERC Order No. 636
 transition costs (Note 5)                             31,579        25,038
                                                -------------  ------------
                                                      247,914       230,146
Less: Current portion of regulatory assets             34,387        17,655
                                                -------------  ------------
                                                $     213,527  $    212,491
                                                =============  ============
</TABLE>

      In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of."  This statement imposes stricter criteria for
retention of regulatory assets by requiring that such assets be probable of
future recovery at each balance sheet date.  The Utilities adopted this
standard on January 1, 1996, and adoption did not impact their financial
position or results of operations.

      CARRYING CHARGES AND DEFERRED DEPRECIATION.  Upon completion of R. M. 
Schahfer Units 17 and 18, Northern Indiana capitalized the carrying charges
and deferred depreciation in accordance with orders of the Commission until 
the cost of each unit was allowed in rates.  Such carrying charges and
deferred depreciation are being amortized over the remaining life of each
unit.

      Northern Indiana has capitalized carrying charges and deferred 
depreciation and certain operating expenses relating to its scrubber service
agreement for its Bailly Generating Station in accordance with an order of the
Commission. Pursuant to such order, capitalization of carrying charges and
deferral of depreciation and certain operating expenses ceased on December 31,
1995.  The accumulated balance of the deferred costs and related carrying
charges is being amortized over the remaining life of the scrubber service
agreement.

      ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION.  Allowance for funds 
used during construction (AFUDC) is charged to construction work in progress 
during the period of construction and represents the net cost of borrowed
funds used for construction purposes and a reasonable rate upon other (equity)
funds. Under established regulatory rate practices, after the construction
project is placed in service, Northern Indiana is permitted to include in the
rates charged for utility services (a) a fair return on and (b) depreciation
of such AFUDC included in plant in service.

      At January 1, 1994, a pre-tax rate of 5.0% for all construction was 
being used; effective January 1, 1995 the rate increased to 6.0%; and for 1996
the rate remained at 6.0%.

      FOREIGN CURRENCY TRANSLATION.  Translation gains or losses are based 
upon the end-of-period exchange rate and are recorded as a separate component 
of common shareholders' equity.

      INVESTMENTS IN REAL ESTATE.  Development has invested in a series of
affordable housing projects in the Utilities' service territory.  These
investments include certain tax benefits, including low-income housing tax
credits and tax deductions for operating losses of the housing projects. 
Development accounts for these investments using the equity method.
Investments, at equity, include $24.2 million and $21.9 million relating to
affordable housing projects at September 30, 1996 and December 31, 1995,
respectively.

      INCOME TAXES.  Deferred income taxes are recognized as costs in the 
rate-making process by the commissions having jurisdiction over the rates
charged by the Utilities.  Deferred income taxes are provided as a result of
provisions in the income tax law that either require or permit certain items
to be reported on the income tax return in a different period than they are
reported in the financial statements.  These taxes are reversed by a debit or
credit to deferred income tax expense as the temporary differences reverse. 
Investment tax credits have been deferred and are being amortized to income
over the life of the related property. 

(3)   PENDING TAX MATTER:  On August 1, 1991, the Internal Revenue Service 
(IRS) issued a notice of deficiency for Northern Indiana's taxes for the years
1982 through 1985 ($3,785,250 per year plus interest) relating to interest 
payments on $70 million of 17-1/4% Notes issued in 1981 by Northern Indiana's 
former foreign subsidiary, Northern Indiana Public Service Finance N.V.
(Finance). The IRS believes that interest paid on the Notes should have been
subject to United States tax withholding.   The Notes were redeemed in 1985
and Finance was subsequently liquidated.  On October 25, 1991, Northern
Indiana challenged the assessment in the United States Tax Court (Tax Court)
and the matter was tried in 1994.   On November 6, 1995, the Tax Court ruled
in favor of Northern Indiana, finding that the interest paid on the Notes was
not subject to United States tax withholding.  On March 13, 1996, the IRS
appealed the Tax Court's decision to the U. S. Court of Appeals for the
Seventh Circuit, and on March 25, 1996 Northern Indiana filed its cross
appeal. Northern Indiana's management and general counsel believe the ruling
of the Tax Court will prevail.

(4)   ELM ENERGY AND RECYCLING (UK) LTD.:  Development, a wholly-owned
subsidiary of Industries, is a 95% shareholder in Elm Energy and Recycling
(UK) Ltd. (Elm), which owns and operates a tire-fueled electric generating
plant in Wolverhampton, England (Project), that began operating in late 1993.
In 1992, Elm entered into a contract with TBV Power Limited (TBV), a company
jointly owned by affiliates of the Tarmac PLC Group and Black & Veatch, for
the design, construction, and commissioning of the Project.  Pursuant to that
contract and other agreements between Elm and TBV, TBV committed to complete
certain work and pass certain performance and reliability tests for the
Project no later than June 30, 1995, which would have allowed the independent
Project engineer to issue an Acceptance and Completion Certificate by that
date.

      On July 3, 1995, the Project engineer notified TBV that an Acceptance
and Completion Certificate had not been issued as of June 30, 1995. Elm then
notified TBV that it was rejecting the Project in accordance with the terms of
the contract between it and TBV.  As a result, on July 3, 1995 Barclays Bank,
as agent for the banks which had provided financing for the Project, issued a
notice of an event of default to Elm.  On July 4, 1995, the Project engineer
notified TBV that, in accordance with the contract between Elm and TBV, all
monies previously paid by Elm to TBV (29.6 million Pounds Sterling) were to be
reimbursed by TBV to Elm.  The certificate issued by the Project engineer was
adjudicated under a procedure provided in the construction contract, and the
adjudicator confirmed the full 29.6 million Pounds Sterling as owing to Elm.
TBV has filed suit in the English courts to enjoin enforcement of the
adjudicator's decision, to challenge again the Project engineer's decision
and to allege breaches of the underlying construction contract and
misrepresentations by Elm.  Elm has counterclaimed and is aggressively
pursuing its remedies. 

      Elm and Development are also seeking additional remedies at law, in both
the United States and the United Kingdom, for further damages and/or sanctions
against TBV and/or Tarmac PLC Group and Black & Veatch.  In response to the
claims brought by Elm and Development in the United States, Black & Veatch
has brought a counterclaim against Elm and Development alleging breach of
contract, negligence, misrepresentation and promissory estoppel.  Development
believes that the claims made against it and Elm are meritless and that its
remedies, in conjunction with Elm's rights under the construction contract,
will be sufficient to mitigate any losses which Elm and/or Development may
otherwise incur as a result of TBV's failure to complete the Project in
accordance with the contract.

      Development believes that it and Elm have sustainable and adequate
remedies under the construction contract such that rejection will not have
a material adverse effect on Industries.  Elm is continuing to operate the
plant.  The banks which provided the financing for the plant are continuing to
support its operations and to provide working capital under an uncommitted
loan facility which is repayable on demand or, in any event, May 31, 1997
(unless extended).  However, because of the ongoing defaults under the Project
financing and the demand nature of the uncommitted working capital loan
facility, the banks have the right to ask that the operation of the plant be
terminated and the assets sold.  In that event, some or all of Industries'
investments in Elm may be at risk.  Industries' investments in Elm were
approximately $12.4 million at September 30, 1996.
 
(5)   FERC ORDER NO. 636.  Pursuant to FERC Order No. 636, interstate
pipeline sales services have been "unbundled" such that gas supplies are being
sold separately from interstate transportation services.  The Utilities have
contracted for a mix of transportation and storage services from their
pipeline suppliers which allows them to meet the needs of their customers.
Pipelines are recovering, from their customers, certain transition costs
associated with restructuring under the Order No. 636 regulation.  Any such
recovery is subject to established review procedures at the FERC.  

      The Utilities expect that the total transition costs from all suppliers
will approximate $139 million; however, the ultimate level of costs will
depend on future events, including the market price of natural gas.
Approximately $106 million of such costs have been recorded, a portion of
which has been paid to the pipeline suppliers, subject to refund.  The
Commission has approved the recovery of these FERC-allowed transition costs on
a volumetric basis from sales and transportation customers. Regulatory assets,
in amounts corresponding to the costs recorded but not yet collected, have
been recorded to reflect the ultimate recovery of these costs.

(6)   ENVIRONMENTAL MATTERS:  The Utilities have an ongoing program to remain
aware of laws and regulations involved with hazardous waste and other
environmental matters.  It is the Utilities' intent to continue to evaluate
their facilities and properties with respect to these rules and identify
any sites that would require corrective action.  The Utilities have recorded
a reserve of $8.4 million to cover probable corrective actions as of
September 30, 1996; however, environmental regulations and remediation
techniques are subject to future change.  The ultimate cost could be
significant, depending on the extent of corrective actions required.  Based
upon investigations and management's understanding of current laws and
regulations, the Utilities believe that any corrective actions required, after
consideration of insurance coverages and contributions from other potentially
responsible parties, will not have a significant impact on the financial
position or results of operations of Industries.

      Because of major investments made in modern environmental control
facilities and the use of low-sulfur coal, all of Northern Indiana's electric
production facilities now comply with the sulfur dioxide limitations contained
in the acid deposition provisions of the Clean Air Act Amendments of 1990
(CAAA).  Northern Indiana estimates that total costs of compliance with the
CAAA sulfur dioxide regulations will impact electric rates by less than 5% in
the future.

      The CAAA contain provisions that could lead to limitations on emissions 
of nitrogen oxides and hazardous air pollutants which may require significant
capital expenditures for control of these emissions.  Northern Indiana is
pursuing a nitrogen oxide control program to meet future requirements. 
Northern Indiana cannot predict the costs of complying with CAAA requirements,
but Northern Indiana believes that any such mandated costs would be
recoverable through the rate-making process.

      The Environmental Protection Agency (EPA) has notified Northern Indiana
that it is a "potentially responsible party" (PRP) under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) and may be
required to share in the cost of cleanup of several waste disposal sites
identified by the EPA.  The sites are in various stages of investigation,
analysis and remediation.  At each of the sites, Northern Indiana is one of
several PRPs, and it is expected that remedial costs, as provided under
CERCLA, will be shared among them.  At some sites Northern Indiana and/or
the other named PRPs are presently working with the EPA to clean up the
sites and avoid the imposition of fines or added costs.

      The Utilities have instituted a program to investigate former
manufactured-gas plants where one of them is the current or former owner.
The Utilities have identified twenty-seven of these sites and made visual
inspections of these sites.  Initial samplings have been conducted at
seventeen sites. Follow-up investigations have been conducted at five sites
and potential remedial measures are being evaluated.  The Utilities will
continue their program to assess sites. During the follow-up investigation of
the former manufactured-gas plant in Elkhart, Indiana, Northern Indiana noted
the presence of hydrocarbons in the Elkhart River.  Northern Indiana reported
this finding to the Indiana Department of Environmental Management (IDEM) and
the EPA.  Northern Indiana has placed the Elkhart site in the IDEM Voluntary
Remediation Program (VRP).  The goal of placing the site in the VRP is to
obtain IDEM approval of the determination and subsequent implementation of
what remedial measures, if any, may be needed.

      Northern Indiana was notified by the IDEM of the release of a petroleum
substance into the St. Mary's River in Fort Wayne, Indiana, from the site of a
former manufactured-gas plant formerly owned by Northern Indiana.  In
cooperation with IDEM, Northern Indiana has taken steps to investigate and
contain the substance.  Northern Indiana has remediated parts of the Fort
Wayne site.  The remainder of the site is being evaluated to determine what
further remedial measures, if any, may be needed.

      During the course of investigation activities, Northern Indiana noted
the presence of manufactured-gas plant residuals in the St. Mary's River in
Fort Wayne, Indiana and the Wabash River in Peru, Indiana.  Northern Indiana
notified the IDEM and the EPA and immediately took steps to contain the
material at both sites.

      Northern Indiana and Indiana Gas Company, Inc. (Indiana Gas) have
entered into an agreement covering cost sharing and management of
investigation and remediation programs at five former manufactured-gas plant
sites at which both companies or their predecessors were former operators or
owners.  One of these sites is the Lafayette site which Indiana Gas had
previously notified Northern Indiana is being investigated and remediated
pursuant to an administrative order with IDEM.  Northern Indiana also notified
PSI Energy, Inc. that it was a former owner or operator of seven former
manufactured-gas plants at which Northern Indiana had conducted or was
planning investigation or remediation activities.

      The Utilities have met with various companies that provided insurance
coverage which the Utilities believe covers costs related to actions taken at
former manufactured-gas plants.  In September 1995, certain insurance
companies initiated a suit in Indiana state court against Northern Indiana to
deny coverage.  Later in September 1995, Northern Indiana filed a more
comprehensive suit in Federal Court in Indiana against those insurers and
several other insurance companies, seeking coverage for costs associated with
several former manufactured-gas plant sites.  The state court action is stayed
pending resolution of the Northern Indiana suit in Federal Court.

      The possibility that exposure to electric and magnetic fields emanating 
from power lines, household appliances, and other electric sources may result 
in adverse health effects has been the subject of public, governmental, and
media attention.  A considerable amount of scientific research has been
conducted on this topic without definitive results.  Research is continuing to
resolve scientific uncertainties.

(7)   INCOME TAXES:  Industries uses the liability method of accounting for
income taxes under which deferred income taxes are recognized, at currently
enacted income tax rates, to reflect the tax effect of temporary differences
between the financial statement and tax bases of assets and liabilities.

      To the extent certain deferred income taxes of the Utilities are
recoverable or payable through future rates, regulatory assets and
liabilities have been established. Regulatory assets are primarily
attributable to undepreciated AFUDC-equity and the cumulative net amount of
other income tax timing differences for which deferred taxes had not
been provided in the past, when regulators did not recognize such taxes as
costs in the rate-making process.  Regulatory liabilities are primarily
attributable to the Utilities' obligation to credit to ratepayers deferred
income taxes provided at rates higher than the current federal tax rate
currently being credited to ratepayers using the average rate assumption
method and unamortized deferred investment tax credits.

      The components of the net deferred income tax liability at
September 30, 1996 and December 31, 1995 are as follows:

<TABLE>
<CAPTION>
                                          September 30,  December 31,
                                               1996          1995
                                          =============  ============  
                                             (Dollars in thousands)

<S>                                       <C>            <C>
Deferred tax liabilities -
 Accelerated depreciation
  and other property differences          $     717,801  $    706,715
 AFUDC-equity                                    38,389        40,083
 Adjustment clauses                              25,772         4,613
 Take-or-pay gas costs                              985         1,550
 Other regulatory assets                         31,893        28,930
 Reacquisition premium on debt                   19,398        20,397

Deferred tax assets -
 Deferred investment tax credits                (41,835)      (43,854)
 Removal costs                                 (123,858)     (118,064)
 FERC Order No. 636 transition costs             (2,501)       (4,400)
 Other postretirement/postemployment            
   benefits                                     (40,755)      (32,512)
 Other, net                                      (7,521)      (12,575)
                                          -------------  ------------
                                                617,768       590,883
Less: Deferred income taxes related to 
 current assets and liabilities                  13,986        (6,057)
                                          -------------  ------------
Deferred income taxes - noncurrent        $     603,782  $    596,940
                                          =============  ============
</TABLE>

      Federal and state income taxes as set forth in the Consolidated
Statement of Income are comprised of the following:

<TABLE>
<CAPTION>
                                      Three Months            Nine Months
                                   Ended September 30,    Ended September 30,
                                  --------------------   --------------------
                                     1996       1995        1996       1995
                                  =========  =========   =========  =========
                                             (Dollars in thousands)

<S>                               <C>        <C>         <C>        <C>
Current income taxes -
 Federal                          $  15,362  $  19,344   $  56,767  $  90,919 
 State                                2,585      2,977       9,105     13,440
                                  ---------  ---------   ---------  ---------
                                     17,947     22,321      65,872    104,359
                                  ---------  ---------   ---------  ---------
Deferred income taxes, net -
 Federal                              1,767      3,876      13,557    (16,482)
 State                                  231        378       1,382     (1,218)
                                  ---------  ---------   ---------  ---------
                                      1,998      4,254      14,939    (17,700)
                                  ---------  ---------   ---------  --------- 
Deferred investment tax credits, 
 net                                 (1,984)    (1,869)     (5,322)    (5,605)
                                  ---------  ---------   ---------  ---------
  Total utility operating income 
   taxes                             17,961     24,706      75,489     81,054

Income tax applicable to non-
 operating activities and income
 of non-utility subsidiaries          2,116     (1,008)         40     (6,021)
                                  ---------  ---------   ---------  --------- 
  Total income taxes              $  20,077  $  23,698   $  75,529  $  75,033
                                  =========  =========   =========  =========

<CAPTION>
                                      Twelve Months
                                   Ended September 30,
                                  --------------------
                                     1996       1995
                                  =========  =========
                                 (Dollars in thousands)

<S>                               <C>        <C>
Current income taxes -
 Federal                          $  69,072  $ 117,456
 State                               11,086     17,519
                                  ---------  ---------
                                     80,158    134,975
                                  ---------  ---------
Deferred income taxes, net -
 Federal                             27,395    (19,809)  
 State                                2,563     (1,475)
                                  ---------  ---------
                                     29,958    (21,284)
                                  ---------  --------- 
Deferred investment tax credits, 
 net                                 (7,232)    (7,433)
                                  ---------  --------- 
  Total utility operating income 
   taxes                            102,884    106,258

Income tax applicable to non-
 operating activities and income
 of non-utility subsidiaries         (3,189)   (17,577)
                                  ---------  --------- 
  Total income taxes              $  99,695  $  88,681
                                  =========  =========
</TABLE>

      A reconciliation of total tax expense to an amount computed by applying
the statutory federal income tax rate to pre-tax income is as follows:

<TABLE>
<CAPTION>
                                       Three Months           Nine Months
                                   Ended September 30,    Ended September 30,
                                  --------------------   --------------------
                                     1996       1995        1996       1995
                                  =========  =========   =========  =========
                                             (Dollars in thousands)

<S>                               <C>        <C>         <C>        <C>
Net income                        $  34,410  $  36,358   $ 125,325  $ 123,637
Add-Income taxes                     20,077     23,698      75,529     75,033
 Dividend requirements on
  preferred stocks of subsidiary      2,174      2,231       6,551      6,821
                                  ---------  ---------   ---------  ---------
Income before preferred dividend
 requirements of subsidiary and
 income taxes                     $  56,661  $  62,287   $ 207,405  $ 205,491 
                                  =========  =========   =========  =========
Amount derived by multiplying 
 pre-tax income by the statutory  
 rate                             $  19,832  $  21,801   $  72,592  $  71,922 

Reconciling items multiplied by 
 the statutory rate:
  Book depreciation over related
   tax depreciation                   1,007      1,005       3,020      3,014
  Amortization of deferred
   investment tax credits            (1,984)    (1,869)     (5,322)    (5,605)
  State income taxes, net of
   federal income tax benefit         1,946      2,269       7,337      7,218
  Fair market value of property 
   donated in excess of book value        0          0           0          0
  Reversal of deferred taxes 
   provided at rates in excess 
   of the current federal income 
   tax rate                          (1,409)    (1,360)     (4,228)    (4,079)
  Other, net                            685      1,852       2,130      2,563
                                  ---------  ---------   ---------  ---------
    Total income taxes            $  20,077  $  23,698   $  75,529  $  75,033
                                  =========  =========   =========  =========

<CAPTION>
                                     Twelve Months
                                   Ended September 30,
                                  --------------------
                                     1996       1995
                                  =========  =========
                                 (Dollars in thousands)

<S>                               <C>        <C>
Net income                        $ 177,153  $ 172,570
Add-Income taxes                     99,695     88,681                   
 Dividend requirements on
  preferred stocks of subsidiary      8,776      9,118      
                                  ---------  ---------
Income before preferred dividend
 requirements of subsidiary and
 income taxes                     $ 285,624  $ 270,369
                                  =========  =========
Amount derived by multiplying 
 pre-tax income by the statutory  
 rate                             $  99,969  $  94,630

Reconciling items multiplied by 
 the statutory rate:
  Book depreciation over related
   tax depreciation                   4,024      4,156                 
  Amortization of deferred
   investment tax credits            (7,232)    (7,433)           
  State income taxes, net of
   federal income tax benefit         9,598      9,399 
  Fair market value of property 
   donated in excess of book value        0     (7,753)    
  Reversal of deferred taxes 
   provided at rates in excess 
   of the current federal income 
   tax rate                          (5,814)    (5,991)
  Other, net                           (850)     1,673
                                  ---------  --------- 
    Total income taxes            $  99,695  $  88,681
                                  =========  =========
</TABLE>

(8)   PENSION PLANS:  Industries and its subsidiaries have three
noncontributory, defined benefit retirement plans covering substantially all
employees.  Benefits under the plans reflect the employees' compensation,
years of service, and age at retirement.

      The plans' funded status as of January 1, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                      1996        1995
                                                   =========   =========
                                                   (Dollars in thousands)

<S>                                                <C>         <C>
Vested benefit obligation                          $ 549,234   $ 449,043
Nonvested benefit                                    104,814      97,138
                                                   ---------   ---------
Accumulated benefit obligation                     $ 654,048   $ 546,181
                                                   =========   =========
Projected benefit obligation for service 
 rendered to date                                  $ 759,681   $ 613,094
Plan assets at fair market value                     706,320     571,624
                                                   ---------   ---------
Projected benefit obligation in excess of plan 
 assets                                               53,361      41,470
Unrecognized transition obligation at January 1, 
 being recognized over seventeen years               (43,484)    (48,906)
Unrecognized prior service cost                      (27,242)    (29,847)
Unrecognized gains                                     4,217      47,788
                                                   ---------   ---------
Accrued (prepaid) pension costs                    $ (13,148)  $  10,505
                                                   =========   =========
</TABLE>

      The accumulated benefit obligation is the present value of future
pension benefit payments and is based on a plan benefit formula without
considering expected future salary increases.  The projected benefit
obligation considers estimated future salary increases.  Discount rates of
7.25% and 8.75% and rates of increase in compensation levels of 5.5% were used
to determine the accumulated benefit obligation and projected benefit
obligation at January 1, 1996 and 1995, respectively.  The increase in the
accumulated benefit obligation as of January 1, 1996 is mainly caused by the
decrease in the discount rate from 8.75% to 7.25%.

      The following items are the components of provisions for pensions for
the three-month, nine-month, and twelve-month periods ended September 30,
1996 and September 30, 1995:

<TABLE>
<CAPTION>
                     Three Months        Nine Months         Twelve Months
                        Ended               Ended                Ended
                    September 30,       September 30,        September 30,
                 ------------------  -------------------  ------------------
                   1996      1995      1996       1995      1996      1995
                 ========  ========  ========   ========  ========  ========
                                   (Dollars in thousands)

<S>              <C>       <C>       <C>        <C>       <C>       <C>
Service costs    $  4,495  $  3,264  $ 15,083   $  9,861  $ 17,453  $ 12,108
Interest costs     17,482    13,371    49,611     40,047    62,075    51,985 
Estimated return 
 on plan assets   (20,874)  (12,899)  (58,977)   (38,627) (155,593)   13,334
Amortization of 
 transition 
 obligation         1,791     1,355     5,054      4,066     6,410     5,447
Other net 
 amortization
 and deferral         846       636     2,396      1,954    86,607   (61,331)
                 --------  --------  --------   --------  --------  --------
                 $  3,740  $  5,727  $ 13,167   $ 17,301  $ 16,952  $ 21,543
                 ========  ========  ========   ========  ========  ========
</TABLE>

      Assumptions used in the valuation and determination of 1996 and 1995 
pension expenses were as follows:

<TABLE>
<CAPTION>
                                                     1996         1995
                                                    =====        =====

<S>                                                 <C>          <C>
Discount rate                                       7.25%        8.75%
Rate of increase in compensation levels             5.50%        5.50%
Expected long-term rate of return on assets         9.00%        9.00%
</TABLE>

      The plans' assets are invested primarily in common stocks, bonds, and 
notes.

(9)   POSTRETIREMENT BENEFITS:  Industries provides certain health care and
life insurance benefits for retired employees.  Substantially all of
Industries' employees may become eligible for those benefits if they reach
retirement age while working for Industries.  The expected cost of such
benefits is accrued during the employees' years of service.

      Northern Indiana's current rate-making includes the cost of providing
these benefits based on the related insurance premiums.  On December 30, 1992,
the Commission authorized the accrual method of accounting for postretirement
benefits for rate-making purposes consistent with SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and authorized
the deferral of the differences between the net periodic postretirement
benefits costs and the insurance premiums paid for such benefits as a
regulatory asset until such time as the accrual cost method may be reflected
in the rate-making process.  The Commission stated that a deferral period of
four years or less would be rebuttably presumed to be reasonable and also
indicated each utility would have to demonstrate its postretirement benefit
costs were prudent and reasonably incurred at the time such costs were
proposed to be recovered in the rate-making process.  Northern Indiana has
been deferring as a regulatory asset the difference between the amount
that would have been charged to expense under pay-as-you-go accounting and the
amount accrued in accordance with the standard in anticipation of approval for
these costs in the rate-making process.

      Northern Indiana has taken the initial steps to seek regulatory approval
for inclusion of postretirement benefit costs in the rate-making process.
These costs would include an amortization of the existing regulatory asset
consistent with the remaining amortization period for the transition
obligation.  Management believes that Northern Indiana will ultimately be
successful in obtaining such approval.

      The following table sets forth the plans' accumulated postretirement 
benefit obligation as of January 1, 1996 and 1995:

<TABLE>
<CAPTION>
                                                   January 1,  January 1,
                                                      1996        1995
                                                   ==========  ==========
                                                   (Dollars in thousands)

<S>                                                <C>         <C>
Retirees                                           $   99,453  $   96,676
Fully eligible active plan participants                23,084      20,008
Other active plan participants                        136,322     105,991
                                                   ----------  ----------
Accumulated postretirement benefit obligation         258,859     222,675
Unrecognized transition obligation at January 1,
 being recognized over twenty years                  (197,088)   (208,681)
Unrecognized actuarial gain                            23,439      45,496
                                                   ----------  ----------
Accrued liability for postretirement benefits      $   85,210  $   59,490
                                                   ==========  ==========
</TABLE>

      A discount rate of 7.25% and a pre-Medicare medical trend rate of 10%
declining to a long-term rate of 6% and a discount rate of 8.75%, and a
pre-Medicare medical trend rate of 11% declining to a long-term rate of 7%
were used to determine the accumulated postretirement benefit obligation at
January 1, 1996 and 1995, respectively.

       Net periodic postretirement benefits costs for the three-month, nine-
month, and twelve-month periods ended September 30, 1996 and September 30,
1995 include the following components:

<TABLE>
<CAPTION>
                     Three Months         Nine Months         Twelve Months
                        Ended                Ended                Ended
                    September 30,        September 30,        September 30,
                 ------------------   ------------------   ------------------
                   1996      1995       1996      1995       1996      1995
                 ========  ========   ========  ========   ========  ========
                                    (Dollars in thousands)

<S>              <C>       <C>        <C>       <C>        <C>       <C>
Service costs    $  1,621  $  1,526   $  4,861  $  4,578   $  6,359  $  6,715
Interest costs      5,079     4,745     15,238    14,235     20,034    19,294
Amortization of 
 transition 
 obligation 
 over twenty 
 years              3,095     2,899      9,285     8,697     12,181    11,644
Amortization of 
 unrecognized
 actuarial 
 gain                (583)     (541)    (1,748)   (1,623)    (2,304)   (1,623)
                 --------  --------   --------  --------   --------  --------
                 $  9,212  $  8,629   $ 27,636  $ 25,887   $ 36,270  $ 36,030
                 ========  ========   ========  ========   ========  ========
</TABLE>

      The net periodic postretirement benefit costs for 1996 were determined 
assuming a 7.25% discount rate, a 5% rate of compensation increase, and a
pre-Medicare medical trend rate of 10% declining to a long-term rate of 6%. 
The effect of a 1% increase in the assumed health care cost trend rates for
each future year would increase the accumulated postretirement benefit
obligation at January 1, 1996 by approximately $40.9 million, and increase the
aggregate of the service and interest cost components of plan costs by
approximately $1.3 million and $3.9 million for the three-month and nine-month
period ended September 30, 1996.  Amounts disclosed above could be changed
significantly in the future by changes in health care costs, work force
demographics, interest rates, or plan changes.

(10)  AUTHORIZED CLASSES OF CUMULATIVE PREFERRED AND PREFERENCE STOCKS:

      INDUSTRIES -
        20,000,000 shares - Preferred - without par value

      Effective March 2, 1990, 2,000,000 of Industries' Series A
Junior Participating Preferred Shares were reserved for issuance pursuant to
the Share Purchase Rights Plan described in Note 14, Common Shares.

      NORTHERN INDIANA -
        2,400,000 shares - Cumulative Preferred - $100 par value
        3,000,000 shares - Cumulative Preferred - no par value
        2,000,000 shares - Cumulative Preference - $50 par value
                            (none outstanding)
        3,000,000 shares - Cumulative Preference - no par value
                            (none issued)

      Note 11 sets forth the preferred stocks which are redeemable solely at
the option of the issuer, and Note 12 sets forth the preferred stocks which
are subject to mandatory redemption requirements or whose redemption is
outside the control of the issuer. 

      The Preferred shareholders of Industries and Northern Indiana have no
voting rights, except in the event of default on the payment of four
consecutive quarterly dividends, or as required by Indiana law to authorize
additional preferred shares, or by the Articles of Incorporation in the event
of certain merger transactions.

(11)  PREFERRED STOCKS, REDEEMABLE SOLELY AT THE OPTION OF THE ISSUER,
OUTSTANDING AT SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (SEE NOTE 10):

<TABLE>
<CAPTION>
                                                                 Redemption
                                                                  Price at
                                  September 30,   December 31,  September 30,
                                      1996            1995           1996
                                  =============  =============  =============
                                     (Dollars in thousands)

<S>                               <C>            <C>            <C>
NORTHERN INDIANA PUBLIC 
SERVICE COMPANY: 
 Cumulative preferred stock - 
  $100 par value -

  4-1/4% series - 209,176 and
   209,190 shares outstanding, 
   respectively                   $      20,918  $      20,919        $101.20

  4-1/2% series -  79,996 shares
   outstanding                            8,000          8,000        $100.00

  4.22% series -  106,198 shares
   outstanding                           10,620         10,620        $101.60
   
  4.88% series -  100,000 shares
   outstanding                           10,000         10,000        $102.00

  7.44% series -   41,890 shares
   outstanding                            4,189          4,189        $101.00
 
  7.50% series -   34,842 shares
   outstanding                            3,484          3,484        $101.00

  Premium on preferred stock                254            254

 Cumulative preferred stock - 
  no par value -
   Adjustable rate (6.00% at 
    September 30, 1996), Series A 
    (stated value $50 per share)
    473,285 and 477,185 shares
    outstanding, respectively            23,664         23,859         $50.00
                                   ------------   ------------
                                   $     81,129   $     81,325
                                   ============   ============
</TABLE>

      During the period October 1, 1994 to September 30, 1996, there were no
additional issuances of the above preferred stocks.

      The foregoing preferred stocks are redeemable in whole or in part at 
any time upon thirty days' notice at the option of Northern Indiana at the
redemption prices shown.

(12)  REDEEMABLE PREFERRED STOCKS OUTSTANDING AT SEPTEMBER 30, 1996 AND
DECEMBER 31, 1995 (SEE NOTE 10):

<TABLE>
<CAPTION>
                                                  September 30,   December 31,
                                                      1996            1995
                                                  =============  =============
                                                     (Dollars in thousands)

<S>                                               <C>            <C>
Preferred stocks subject to mandatory redemption 
 requirements or whose redemption is outside the 
 control of issuer:

NORTHERN INDIANA PUBLIC SERVICE COMPANY:
 Cumulative preferred stock - $100 par value -
  8.85% series - 75,000 and 87,500 shares 
   outstanding, respectively, excluding sinking
   fund payments due within one year              $       7,500  $      8,750

  7-3/4% series - 50,014 shares outstanding, 
   excluding sinking fund payments due within
   one year                                               5,001         5,001

  8.35% series - 63,000 and 69,000 shares
   outstanding, respectively, excluding sinking
   fund payments due within one year                      6,300         6,900

 Cumulative preferred stock - no par value -
  6.50% series - 430,000 shares outstanding              43,000        43,000
                                                  -------------  ------------
                                                         61,801        63,651
                                                  -------------  ------------
NIPSCO INDUSTRIES, INC.:
 Cumulative preferred shares - without par 
  value - 8.75% series (stated value - $100 
  per share), 0 and 350,000 shares 
  outstanding, respectively                                   0        35,000
                                                  -------------  ------------
                                                  $      61,801  $     98,651
                                                  =============  ============
</TABLE>

      Pursuant to mandatory redemption provisions, all 350,000 shares of 8.75%
Series Cumulative Preferred Shares were redeemed by Industries on
January 12, 1996 for $100 per share plus accrued dividends.

      The redemption prices at September 30, 1996, as well as sinking fund
provisions for the cumulative preferred stock subject to mandatory redemption
requirements, or whose redemption is outside the control of Northern Indiana,
are as follows:

<TABLE>
<CAPTION>
                                                        Sinking Fund Or
                                                     Mandatory Redemption
Series   Redemption Price Per Share                     Provisions
======   ==========================              ===========================
<S>      <C>                                     <C>
NORTHERN INDIANA PUBLIC SERVICE COMPANY:
 Cumulative preferred stock - $100 par value -
  8.85%  $101.85, reduced periodically           12,500 shares on or before
                                                  April 1.

  8.35%  $103.93, reduced periodically           3,000 shares on or before
                                                  July 1; increasing to 
                                                  6,000 shares beginning
                                                  in 2004; noncumulative
                                                  option to double amount
                                                  each year.
                                                            
  7-3/4% $104.58, reduced periodically           2,777 shares on or 
                                                  before December 1;
                                                  noncumulative option 
                                                  to double amount each
                                                  year. 

 Cumulative preferred stock - no par value -
  6.50%  $100.00 on October 14, 2002             430,000 shares on October 14,
                                                  2002.
</TABLE>

      Sinking fund requirements with respect to redeemable preferred stocks
outstanding at September 30, 1996 for each of the twelve-month periods
subsequent to September 30, 1997 are as follows:

<TABLE>
<CAPTION>

Twelve Months Ended September 30,*
==================================

<S>                      <C>
1998                    $1,827,700
1999                    $1,827,700
2000                    $1,827,700
2001                    $1,827,700

<FN>
* Table does not reflect redemptions made after September 30, 1996.
</TABLE>

(13)  COMMON SHARE DIVIDEND:  During the next few years, Industries
expects that the great majority of earnings available for distribution of
dividends will depend upon dividends paid to Industries by Northern Indiana. 
Northern Indiana's Indenture provides that it will not declare or pay any
dividends on any class of capital stock (other than preferred or preference
stock) except out of earned surplus or net profits of Northern Indiana.  At
September 30, 1996, Northern Indiana had approximately $140.4 million of
retained earnings (earned surplus) available for the payment of dividends.
Future dividends will depend upon adequate retained earnings, adequate future
earnings, and the absence of adverse developments.

(14)  COMMON SHARES:  Industries has 200,000,000 common shares authorized
without par value.

      SHARE PURCHASE RIGHTS PLAN.  On February 27, 1990, the Board of
Directors of Industries (Board) declared a dividend distribution of one Right
for each outstanding common share of Industries to shareholders of record on
March 12, 1990.  The Rights are not currently exercisable.  Each Right, when
exercisable, would initially entitle the holder to purchase from Industries
one one-hundredth of a Series A Junior Participating Preferred Share, without
par value, of Industries at a price of $60 per one one-hundredth of a share.
In certain circumstances, if an acquirer obtained 25% of Industries'
outstanding shares, or merged into Industries or merged Industries into the
acquirer, the Rights would entitle the holders to purchase Industries' or the
acquirer's common shares for one-half of the market price.  The Rights will
not dilute Industries' common shares nor affect earnings per share unless they
become exercisable for common shares.  The Plan was not adopted in response to
any specific attempt to acquire control of Industries.

      COMMON SHARE REPURCHASES.  The Board has authorized the repurchase of
common shares. At September 30, 1996, Industries had purchased approximately
17.6 million shares at an average price of $25.39 per share since 1990. 
Including 3.5 million shares authorized on March 26, 1996, approximately 3.4
million additional common shares may be repurchased under the Board's
authorization.

(15)  LONG-TERM INCENTIVE PLAN:  Industries has two Long-Term Incentive
Plans for key management employees that were approved by shareholders on
April 13, 1988 (1988 Plan) and April 13, 1994 (1994 Plan), each of which
provides for the issuance of up to 2.5 million of Industries' common shares to
key employees through 1998 and 2004, respectively. At September 30, 1996,
there were 12,011 shares and 2,189,700 shares reserved for future awards under
the 1988 Plan and 1994 Plan, respectively.  The 1988 Plan and 1994 Plan permit
the following types of grants, separately or in combination:  nonqualified
stock options, incentive stock options, restricted stock awards, stock
appreciation rights, and performance units.  No incentive stock options or
performance units were outstanding at September 30, 1996.  Under both Plans,
the exercise price of each option equals the market price of Industries' stock
on the date of grant.  Each option's maximum term is ten years and vests one
year from the date of grant.

      The stock appreciation rights (SARs) may be exercised only in tandem
with stock options on a one-for-one basis and are payable in cash, Industries
stock, or a combination thereof.  Restricted stock awards are restricted as to
transfer and are subject to forfeiture for specific periods from the date of
grant.  Restrictions on shares awarded in 1995 lapse five years from date
of grant and vesting is variable from 0% to 200% of the number awarded,
subject to specific earnings per share and stock appreciation goals.
Restrictions on shares awarded in 1996 lapse two years from date of grant and
vesting is variable from 0% to 100% of the number awarded, subject to
specific performance goals.  If a participant's employment is terminated prior
to vesting other than by reason of death, disability or retirement, restricted
shares are forfeited.  There were 262,000 and 330,500 restricted shares
outstanding at September 30, 1996 and December 31, 1995, respectively.

      The Industries Nonemployee Director Stock Incentive Plan, which was
approved by shareholders, provides for the issuance of up to 100,000 of
Industries' common shares to nonemployee directors of Industries. The Plan
provides for awards of common shares which vest in 20% per year increments,
with full vesting after five years.  The Plan also allows the award of
nonqualified stock options in the future.  If a director's service on the
Board is terminated for any reason other than death or disability, any common
shares not vested as of the date of termination are forfeited.  As of
September 30, 1996, 30,750 shares were issued under the Plan.

      Industries accounts for these plans under Accounting Principles Board
Opinion No. 25, under which no compensation cost has been recognized for non-
qualified stock options.  The compensation cost that has been charged against
income for restricted stock awards was $0.6, $1.7, and $2.2 million for the
three-month, nine-month, and twelve-month periods ending September 30, 1996.
Had compensation cost for stock options been determined consistent with SFAS
No. 123 "Accounting for Stock-Based Compensation," Industries' net income and
earnings per share would have been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
                             Three Months     Nine Months    Twelve Months
                                 Ended           Ended           Ended
                             September 30,   September 30,   September 30,
                                 1996            1996            1996
                             =============   =============   =============

<S>                          <C>             <C>             <C>
Net Income:
(Dollars in thousands)
 As reported                      $ 34,410       $ 125,325       $ 177,153
 Pro forma                        $ 34,238       $ 124,838       $ 176,503

Earnings Per Share:
 As reported                      $   0.56       $    2.03       $    2.85
 Pro forma                        $   0.56       $    2.03       $    2.85
</TABLE/

      Because the SFAS No. 123 method of accounting has not been applied
to options granted prior to January 1, 1995, the resulting pro forma
compensation costs may not be representative of that to be expected in future
years.

      The fair value of each option granted used to determine pro forma
net income is estimated as of the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants
in the three-month, nine-month, and twelve-month periods ended September 30,
1996: risk-free interest rate of 6.39%, expected dividend yield of $1.68 per
share, expected option term of five years, and expected volatility of 13.2%.

      Changes in outstanding shares under option and SARs for the three-month,
nine-month, and twelve-month periods ended September 30, 1996 and 1995 are as
follows:


</TABLE>
<TABLE>
<CAPTION>
                                          NONQUALIFIED STOCK OPTIONS
                                -------------------------------------------
                                           Weighted                Weighted
                                           Average                 Average
   Three Months Ended                      Option                  Option
      September 30,                1996    Price           1995    Price
===========================     =========  ========     =========  ========

<S>                             <C>        <C>          <C>        <C>
Balance beginning of period     1,062,700  $  28.62       995,900  $  27.07
 Granted                          278,300  $  37.81       277,450  $  32.44
 Exercised                        (26,100) $  27.15       (29,000) $  22.74
 Canceled                               0                  (2,000) $  32.44
                                ---------               ---------
Balance end of period           1,314,900  $  30.59     1,242,350  $  28.36
                                =========               =========
Shares exercisable              1,036,600  $  28.66       961,900  $  27.18
                                =========               =========
Weighted average fair value
 of options granted             $    5.00               $    3.87 
                                =========               =========

<CAPTION>
                                         NONQUALIFIED STOCK OPTIONS
                                -------------------------------------------
                                           Weighted                Weighted
                                           Average                 Average
   Nine Months Ended                       Option                  Option
      September 30,               1996     Price          1995     Price
===========================     =========  ========     =========  ========

<S>                             <C>        <C>          <C>        <C>
Balance beginning of period     1,107,750  $  28.55     1,097,550  $  26.59
 Granted                          278,300  $  37.81       282,450  $  32.40
 Exercised                        (64,150) $  26.42      (128,250) $  22.61
 Canceled                          (7,000) $  32.44        (9,400) $  21.86
                                ---------               ---------
Balance end of period           1,314,900  $  30.59     1,242,350  $  28.36
                                =========               =========
Shares exercisable              1,036,600  $  28.66       961,900  $  27.18
                                =========               =========
Weighted average fair value
 of options granted             $    5.00               $    3.89       
                                =========               =========

<CAPTION>
                                          NONQUALIFIED STOCK OPTIONS
                                -------------------------------------------
                                           Weighted                Weighted
                                           Average                 Average
   Twelve Months Ended                     Option                  Option
      September 30,                1996    Price           1995    Price
===========================     =========  ========     =========  ========

<S>                             <C>        <C>          <C>        <C>
Balance beginning of period     1,242,350  $  28.36     1,112,250  $  26.55
 Granted                          278,300  $  37.81       282,450  $  32.40
 Exercised                       (195,750) $  26.60      (140,950) $  22.61
 Canceled                         (10,000) $  32.44       (11,400) $  23.07
                                ---------               ---------
Balance end of period           1,314,900  $  30.59     1,242,350  $  28.36
                                =========               =========
Shares exercisable              1,036,600  $  28.66       961,900  $  27.18
                                =========               =========
Weighted average fair value
 of options granted             $    5.00               $    3.89 
                                =========               =========

<CAPTION>
                                    NONQUALIFIED STOCK OPTIONS WITH SARs
                                -------------------------------------------
   Three Months Ended                      Option                   Option
      September 30,                1996    Price           1995     Price
===========================     =========  ========     =========  ========

<S>                             <C>        <C>          <C>        <C>
Balance beginning of period         5,600  $  10.94         5,600  $  10.94
 Granted                                0                       0   
 Exercised                              0                       0 
 Canceled                               0                       0   
                                ---------               ---------
Balance end of period               5,600  $  10.94         5,600  $  10.94
                                =========               =========
Shares exercisable                  5,600  $  10.94         5,600  $  10.94
                                =========               =========

<CAPTION>
                                    NONQUALIFIED STOCK OPTIONS WITH SARs
                                -------------------------------------------
   Nine  Months Ended                      Option                  Option
      September 30,                1996    Price           1995    Price
===========================     =========  ========     =========  ========

<S>                             <C>       <C>           <C>        <C>
Balance beginning of period         5,600  $  10.94         9,900  $  10.94
 Granted                                0                       0 
 Exercised                              0                  (4,300) $  10.94
 Canceled                               0                       0
                                ---------               ---------
Balance end of period               5,600  $  10.94         5,600  $  10.94
                                =========               =========
Shares exercisable                  5,600  $  10.94         5,600  $  10.94
                                =========               =========

<CAPTION>
                                    NONQUALIFIED STOCK OPTIONS WITH SARs
                                -------------------------------------------
   Twelve Months Ended                     Option                  Option
       September 30,               1996    Price           1995    Price
===========================     =========  ========     =========  ========

<S>                             <C>        <C>          <C>        <C>
Balance beginning of period         5,600  $  10.94         9,900  $  10.94
 Granted                                0                       0   
 Exercised                              0                  (4,300) $  10.94
 Canceled                               0                       0   
                                ---------               ---------
Balance end of period               5,600  $  10.94         5,600  $  10.94
                                =========               =========
Shares exercisable                  5,600  $  10.94         5,600  $  10.94
                                =========               =========
</TABLE>

      The following table summarizes information about non-qualified stock
options at September 30, 1996:

<TABLE>
<CAPTION>
                         OPTIONS OUTSTANDING                   
--------------------------------------------------------------------------
                      Number         Weighted Average      
   Range of        Outstanding at       Remaining        Weighted Average
  Option Price     Sept. 30, 1996    Contractual Life      Option Price
================   ==============   ==================   =================

<S>                <C>              <C>                  <C>
$10.94 to $17.73        94,400           3.33 years            $16.73
$22.94 to $28.75       443,700           6.60 years            $26.58
$30.31 to $37.81       776,800           8.65 years            $34.58
----------------     ---------           ----------            ------
$10.94 to $37.81     1,314,900           7.57 years            $30.59
                     =========

<CAPTION>
                         OPTIONS EXERCISABLE 
--------------------------------------------------------------------------
                                  Number             
   Range of                    Exercisable at             Weighted Average
  Option Price               September 30, 1996             Option Price
================             ==================          =================

<S>                          <C>                         <C>
$10.94 to $17.73                    94,400                     $16.73
$22.94 to $28.75                   443,700                     $26.58
$30.31 to $33.19                   498,500                     $32.77
----------------                 ---------                     ------
$10.94 to $33.19                 1,036,600                     $28.66
                                 =========
</TABLE>

(16)  LONG-TERM DEBT: At September 30, 1996 and December 31, 1995,
Industries' long-term debt, excluding amounts due within one year, issued and
not retired or canceled was as follows:

<TABLE>
<CAPTION>
                                                    AMOUNT OUTSTANDING
                                               ---------------------------
                                               September 30,   December 31,
                                                   1996           1995
                                               =============   ============
                                                  (Dollars in thousands)

<S>                                            <C>             <C>
NORTHERN INDIANA PUBLIC SERVICE COMPANY
First mortgage bonds -
 Series O, 6-3/8%, due September 1, 1997       $          0   $     25,747
 Series P, 6-7/8%, due October 1, 1998               14,509         14,509
 Series T, 7-1/2%, due April 1, 2002                 40,000         40,500
 Series NN, 7.10%, due July 1, 2017                  55,000         55,000
                                               ------------   ------------
    Total                                           109,509        135,756
                                               ------------   ------------
Pollution control notes and bonds -
 Series A Note -
  City of Michigan City, 5.70% due
  October 1, 2003                                    20,000         20,000
 Series 1988 Bonds - Jasper County - 
  Series  A, B, and C - 3.67% weighted
  average at  September 30, 1996, due
  November 1, 2016                                  130,000        130,000
 Series 1988 Bonds - Jasper County - 
  Series D - 3.60% weighted average at
   September 30, 1996, due November 1, 2007          24,000         24,000
 Series 1994 Bonds - Jasper County - 
  Series A - 3.80% at September 30, 1996,
  due August 1, 2010                                 10,000         10,000
 Series 1994 Bonds - Jasper County -
  Series B - 3.80% at September 30, 1996,
  due June 1, 2013                                   18,000         18,000
 Series 1994 Bonds - Jasper County -                                          
  Series C - 3.80% at September 30, 1996,
  due April 1, 2019                                  41,000         41,000
                                               ------------   ------------
    Total                                           243,000        243,000
                                               ------------   ------------
Medium-term notes -
 Interest rates between 5.83% and 7.64% with
  a weighted average interest rate of 6.85%
  and various maturities between April 6, 1998                               
  and January 19, 2024                              644,025        684,025
                                               ------------   ------------
Unamortized premium and discount 
 on long-term debt, net                              (3,640)        (4,040)
                                               ------------   ------------
    Total long-term debt of  
    Northern Indiana Public
    Service Company                                 992,894      1,058,741
                                               ------------   ------------
NIPSCO CAPITAL MARKETS, INC.
 Subordinated Debentures -                                           
  Series A, 7-3/4%, due March 31, 2026               75,000              0
 Zero Coupon Notes - 7.57%, $72,500 at                                        
  maturity, due December 1, 1997                     66,487         62,875
                                               ------------   ------------
    Total long-term debt of
    NIPSCO Capital Markets, Inc.                    141,487         62,875
                                               ------------   ------------
NIPSCO DEVELOPMENT COMPANY, INC.
 LAKE ERIE LAND COMPANY -
  Notes payable -
   8.25% - due June 30, 1998                            100            389
 ELM ENERGY AND RECYCLING (UK), LTD.
  Term Loan Facility-weighted average interest
   rate of 7.70% at September 30, 1996, due        
   December 31, 2004                                 36,443         34,516
 NDC DOUGLAS PROPERTIES, INC.
  Notes Payable -
   Interest rates between 6.72% and 8.15% with 
    a weighted average interest rate of 7.76% 
    and maturities through April 1, 2006             19,760         19,207
                                               ------------   ------------
    Total long-term debt of 
    NIPSCO Development Company,Inc.                  56,303         54,112
                                               ------------   ------------
    Total long-term debt, excluding 
    amounts due in one year                    $  1,190,684    $ 1,175,728
                                               ============   ============
</TABLE>

      The sinking fund requirements of long-term debt outstanding at 
September 30, 1996 (including the maturity of Northern Indiana's first
mortgage bonds: Series P, 6-7/8%, due October 1, 1998; Northern Indiana's
medium-term notes due from April 6, 1998 to August 15, 2001; Capital Markets'
Zero Coupon Notes due December 1, 1997; Lake Erie Land Company's notes payable
due June 30, 1998; and NDC Douglas Properties, Inc. notes payable due
December 22, 1999), for each of the twelve-month periods subsequent to
September 30, 1997 are as follows:

<TABLE>
<CAPTION>

Twelve Months Ended September 30,
=================================

<S>                 <C>
1998                $ 118,755,072
1999                $  25,434,923
2000                $ 166,163,628
2001                $  26,636,878
</TABLE>

      Unamortized debt expense, premium and discount on long-term debt
applicable to outstanding bonds are being amortized over the lives of such
bonds.  Reacquisition premiums are being deferred and amortized.

      Northern Indiana's Indenture dated August 1, 1939, as amended and
supplemented, securing the first mortgage bonds issued by Northern Indiana,
constitutes a direct first mortgage lien upon substantially all property and
franchises, other than expressly excepted property, owned by Northern Indiana.

      In 1994, the Commission authorized Northern Indiana to issue
up to $289,275,000 of its Medium-Term Notes, Series D, due from one year to
thirty years, for purposes of refinancing certain first mortgage bonds and
medium-term notes.  During 1994, $120.0 million of the Medium-Term
Notes, Series D, were issued to refinance certain first mortgage bonds.
On June 12, 1995, the remaining $169,275,000 of Medium-Term Notes, Series D,
were issued and part of the proceeds were used to redeem all of the
outstanding First Mortgage Bonds, Series U and Z aggregating $94.8 million, on
July 3, 1995.

      On February 13, 1996, Capital Markets issued $75 million of 7-3/4%
Junior Subordinated Deferrable Interest Debentures, Series A, due
March 31, 2026 (Debentures) pursuant to an underwritten public offering.
Proceeds from the sale of the Debentures were used to pay short-term debt
incurred to redeem on January 12, 1996 Industries' $35 million of 8.75%
Preferred Shares, pursuant to mandatory redemption, and to pay other 
short-term debt of Capital Markets.

      The obligations of Capital Markets are subject to a Support Agreement
between Industries and Capital Markets, under which Industries has committed
to make payments of interest and principal on Capital Markets' securities in
the event of a failure to pay by Capital Markets.  Restrictions in the
Support Agreement prohibit recourse on the part of Capital Markets' investors
against the stock and assets of Northern Indiana.  Under the terms of the
Support Agreement, in addition to the cash flow of cash dividends paid to
Industries by any of its consolidated subsidiaries, the assets of Industries,
other than the stock and assets of Northern Indiana, are available as recourse
to holders of Capital Markets' securities.  The carrying value of those assets
(other than Northern Indiana), reflected in the consolidated financial
statements of Industries, is approximately $482.4 million at September 30,
1996.<PAGE>
(17)  CURRENT PORTION OF LONG-TERM DEBT:  At September 30, 1996 and
December 31, 1995, Industries' current portion of long-term debt due within
one year was as follows:

<TABLE>
<CAPTION>
                                             September 30,     December 31,
                                                 1996              1995
                                             =============     ============
                                                  (Dollars in thousands)

<S>                                          <C>               <C>
  NORTHERN INDIANA PUBLIC SERVICE COMPANY:
   First mortgage bonds -
    Series O, 6-3/8% - due September 1, 1997 $     25,747      $          0
   Medium-term notes -
    Interest rates of 5.78% and 5.82% with
     a weighted average interest rate of
     5.80% and maturities of July 25, 1997
     and July 28, 1997                             40,000            80,000
  NIPSCO CAPITAL MARKETS, INC.:
   Medium-term notes -
    9.95% - due June 10, 1996                           0             7,500
  LAKE ERIE LAND COMPANY:
   Notes payable                                    3,081             2,961
  ELM ENERGY AND RECYCLING (UK), LTD.:
   Term loan facility                               5,321             4,554
  NDC DOUGLAS PROPERTIES, INC.:
   Notes payable                                    2,235             1,840
                                             ------------      ------------
   Total current portion of long-term debt   $     76,384      $     96,855
                                             ============      ============
</TABLE>

(18)   SHORT-TERM BORROWINGS:  Northern Indiana has a $250 million revolving
Credit Agreement with several banks which terminates August 19, 1998 unless
extended by its terms. As of September 30, 1996, there were no borrowings
outstanding under this agreement. In addition, Northern Indiana has $14.2
million in lines of credit which run to May 31, 1997.  The credit pricing of
each of the lines varies from either the lending banks' commercial prime or
market rates.  Northern Indiana has agreed to compensate the participating
banks with arrangements that vary from no commitment fees to a combination of
fees which are mutually satisfactory to both parties.  As of September 30,
1996, there were no borrowings under these lines of credit.  The Credit
Agreement and lines of credit are also available to support the issuance of
commercial paper.

      Northern Indiana also has $273.5 million of money market lines of
credit. As of September 30, 1996 and December 31, 1995, there were $186.7
million and $118.8 million of borrowings, respectively, outstanding under
these lines of credit.

      Northern Indiana has a $50 million uncommitted finance facility. At
September 30, 1996, there were no borrowings outstanding under this facility.

      Northern Indiana and Capital Markets make use of commercial paper to
fund short-term working capital requirements. 

      Capital Markets has a $150 million revolving Credit Agreement which
will terminate August 19, 1998, unless extended by its terms.  This facility
provides short-term financing flexibility to Industries and also serves as the
backup instrument for a commercial paper program.  As of September 30, 1996,
there were no borrowings outstanding under this agreement.

      Capital Markets also has $95 million of money market lines of credit.
As of September 30, 1996 and December 31, 1995, $44.3 million and $17.4
million, respectively, of borrowings were outstanding under these lines of
credit.

      At September 30, 1996 and December 31, 1995, Industries' short-term
borrowings were as follows:

<TABLE>
<CAPTION>
                                             September 30,      December 31,
                                                 1996              1995
                                             =============      ============
                                                  (Dollars in thousands)

<S>                                          <C>                <C>
  NORTHERN INDIANA PUBLIC SERVICE COMPANY:
   Commercial paper -
    Weighted average interest rate of
     5.45% at September 30, 1996             $     88,000       $     44,800
   Notes payable - 
    Issued at interest rates between 5.38%
     and 5.55% with a weighted average 
     interest rate of 5.45% and various
     maturities between October 1, 1996
     and November 13, 1996                        186,700            118,800
  NIPSCO CAPITAL MARKETS, INC.:
   Commercial paper -
    Weighted average interest rate of
     5.59% at September 30, 1996                   92,000             76,700
   Notes payable -
    Issued at interest rates between 5.57%
     and 6.25% with a weighted average
     interest rate of 5.68% and maturities         
     of October 1, 1996 and October 21, 1996       44,300             17,400
  LAKE ERIE LAND COMPANY:
   Notes payable -                                    299              1,239
  ELM ENERGY AND RECYCLING (UK), LTD.:
   Standby loan facility                            3,727              1,732
                                             ------------       ------------
   Total short-term borrowings               $    415,026       $    260,671
                                             ============       ============
</TABLE>

(19)  OPERATING LEASES:  On April 1, 1990, Northern Indiana entered into a
twenty-year agreement for the rental of office facilities from Development at
a current annual rental payment of approximately $3.3 million.

      The following is a schedule, by years, of future minimum rental
payments, excluding those to associated companies, required under operating
leases that have initial or remaining noncancelable lease terms in excess of
one year as of September 30, 1996:

<TABLE>
<CAPTION>

Twelve Months Ended September 30,
=================================
   (Dollars in thousands)

<S>                      <C>
1997                     $  8,226
1998                        7,537
1999                        6,595
2000                        5,640
2001                        5,544
Later years                77,464
                         -------- 
Total minimum 
 payments required       $111,006     
                         ========
</TABLE>

      The consolidated financial statements include rental expense for all 
operating leases as follows:

<TABLE>
<CAPTION>
                            September 30,  September 30,
                                1996           1995
                            =============  =============
                               (Dollars in thousands)

<S>                         <C>            <C>
Three months ended                $ 1,762        $ 2,189
Nine months ended                 $ 5,486        $ 6,176
Twelve months ended               $ 7,760        $ 7,784
</TABLE>

(20)  COMMITMENTS:  The Utilities estimate that approximately $794
million will be expended for construction purposes for the period from
January 1, 1996 to December 31, 2000.  Substantial commitments have been made
by the Utilities in connection with their program.

      Northern Indiana has entered into a service agreement with Pure Air, a
general partnership between Air Products and Chemicals, Inc. and Mitsubishi
Heavy Industries America, Inc., under which Pure Air provides scrubber
services to reduce sulfur dioxide emissions for Units 7 and 8 at Bailly
Generating Station. Services under this contract commenced on June 15, 1992
with annual charges approximating $20 million. The agreement provides that,
assuming various performance standards are met by Pure Air, a termination
payment would be due if Northern Indiana terminates the agreement prior to the
end of the twenty-year contract period.

      Northern Indiana has entered into an agreement with Integrated Systems
Solutions Corporation (ISSC), a wholly-owned subsidiary of IBM, for ISSC to
perform all data center, application development and maintenance, and desktop
management of Northern Indiana.

      Primary is the parent of subsidiaries including Harbor Coal
Company (Harbor Coal), North Lake Energy Corporation (North Lake),
Lakeside Energy Corporation (LEC) and Portside Energy Corporation (Portside).
Primary arranges energy-related projects with large industrial customers and
has entered into certain commitments in connection with these projects.

      Harbor Coal has invested in a partnership to finance, construct, own,
and operate a $65 million pulverized coal injection facility which began
commercial operation in August, 1993.  The facility receives raw coal,
pulverizes it and delivers it to Inland Steel Company for use in the operation
of its blast furnaces.  Harbor Coal is a 50% partner in the project with an
Inland Steel affiliate. Industries has guaranteed the payment and performance
of the partnership's obligations under a sale and leaseback of a 50% undivided
interest in the facility.

      North Lake has entered into a lease for the use of a 75-megawatt
energy facility to be located at Inland Steel Company.  The facility uses
steam generated by Inland Steel to produce electricity which is delivered to
Inland Steel.  The facility began commercial operation in May 1996.
Industries has guaranteed North Lake's obligations relative to the lease and
certain obligations to Inland Steel relative to the project.

      LEC has entered into an agreement with USX Corporation - US Steel
Group to utilize a new 161 megawatt energy facility at USS Gary Works to
process high-pressure steam into electricity and low-pressure process steam
for a fifteen-year period.  LEC has entered into an agreement to lease this
facility, once constructed, from a third party.  Under this agreement LEC is
acting as the agent for the lessor to design, construct, and start up the
energy facility.  Capital Markets has guaranteed LEC obligations to the lessor
during the construction period.  Capital Markets also guarantees LEC's
security deposit obligations relative to the lease and certain limited LEC
obligations to the lessor.  Construction of the project began in January 1996.
The facility is scheduled to be operational in May 1997.

      Portside has entered into an agreement with National Steel Corporation
(National) to utilize a new 63-megawatt energy facility at National's Midwest
Division to process natural gas into electricity, process steam and heated
water for a fifteen-year period.  Portside will lease this facility, once
constructed, from a third party.  Additionally, Portside has entered into an
interim agreement, which expires when the lease is established with the third-
party lessor, under which Portside is acting as agent for the lessor to
design, construct, and start up the energy facility.  Industries has
guaranteed certain Portside obligations to the lessor during construction. 
Capital Markets anticipates guaranteeing certain Portside obligations relative
to the anticipated lease.  Construction of the project began in June 1996. 
The facility is scheduled to be operational in August 1997.

      Primary has advanced approximately $29 million and $11 million, at
September 30, 1996 and December 31, 1995, respectively, to the lessors of the
energy related projects discussed above.  These net advances are included in
"Prepayments and other" in the Consolidated Balance Sheet and "Other, net"
as a component of operating activities in the Consolidated Statement of
Cash Flows.

(21)  FAIR VALUE OF FINANCIAL INSTRUMENTS:  The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:

        Cash and cash equivalents:  The carrying amount approximates 
         fair value because of the short maturity of those instruments.

        Investments: The fair value of some investments is estimated based 
         on market prices for those or similar investments.

        Long-term debt/Preferred stock:  The fair value of long-term debt 
         and preferred stock is estimated based on the quoted market prices
         for the same or similar issues or on the rates offered to Industries
         for securities of the same remaining maturities. Certain premium
         costs associated with the early settlement of long-term debt are not
         taken into consideration in determining fair value.

      The carrying values and estimated fair values of Industries'
financial instruments are as follows:

<TABLE>
<CAPTION>
                             September 30, 1996       December 31, 1995
                           ----------------------  ----------------------
                            Carrying    Estimated   Carrying    Estimated
                             Amount    Fair Value    Amount    Fair Value
                           ==========  ==========  ==========  ==========
                                       (Dollars in thousands)

<S>                        <C>         <C>         <C>         <C>
Cash and cash equivalents  $   62,905  $   62,905  $   28,496  $   28,496
Investments                $   27,520  $   29,715  $   25,893  $   27,045
Long-term debt (including
 current portion)          $1,268,318  $1,196,986  $1,273,376  $1,274,079
Preferred stock            $  144,758  $  123,360  $  181,804  $  164,306
</TABLE>

      The majority of the long-term debt relates to utility operations.   
The Utilities are subject to regulation, and gains or losses may be included 
in rates over a prescribed amortization period, if in fact settled at amounts
approximating those above.

(22)  CUSTOMER CONCENTRATIONS:  Industries' public utility subsidiaries
supply natural gas and electrical energy in the northern third of Indiana.
Although these public utilities have a diversified base of residential and
commercial customers, a substantial portion of their electric and gas
industrial deliveries are dependent upon the basic steel industry. The basic
steel industry accounted for 2% of gas revenue (including transportation
services) and 22% of electric revenue for the twelve months ended
September 30, 1996 as compared to 5% and 23%, respectively, for the twelve
months ended September 30, 1995.

<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

HOLDING COMPANY -

      NIPSCO Industries, Inc. (Industries) is an Indiana corporation serving
as the holding company for a number of subsidiaries, including four regulated
companies:  Northern Indiana Public Service Company (Northern Indiana); Kokomo
Gas and Fuel Company (Kokomo Gas); Northern Indiana Fuel and Light Company,
Inc. (NIFL); and Crossroads Pipeline Company (Crossroads).  Northern Indiana
is a public utility operating company supplying natural gas and electric
energy to the public.  Kokomo Gas and NIFL are public utility operating
companies supplying natural gas to the public, and Crossroads is an interstate
natural gas transmission company.

      Industries' major non-utility subsidiaries include NIPSCO Development
Company, Inc. (Development); NIPSCO Energy Services, Inc. (Services); Primary
Energy, Inc. (Primary); and NIPSCO Capital Markets, Inc. (Capital Markets).

      Development makes various investments, including real estate and
venture capital investments.  Services coordinates the energy-related
diversification ventures of Industries.  Primary arranges energy-related
projects with large industrial customers.  Capital Markets handles financing
for Industries and its subsidiaries, other than Northern Indiana.

      The following discussion, except where noted, is attributable to the
operations of Northern Indiana, Kokomo Gas, NIFL, and Crossroads (Utilities).

REVENUES -

      Total operating revenues for the twelve months ended September 30, 1996
increased $84.7 million as compared to the twelve months ended September 30,
1995.  Gas revenues increased $84.1 million and electric revenues increased
$0.6 million as compared to the same period in 1995.  The increase in gas
revenues was largely attributable to increased sales to residential and
commercial customers due to colder winter weather, increased sales to
industrial and wholesale customers, increased deliveries of gas transported
for others, and increased gas transition costs, which were partially offset by
decreased gas costs per dekatherm (dth).  The increase in electric revenues
was mainly due to increased sales to commercial and wholesale customers, which
were partially offset by decreased sales to residential customers due to the
cooler summer this year and decreased sales to industrial customers. 

      Total operating revenues for the nine months ended September 30, 1996
increased $43.9 million as compared to the nine months ended September 30,
1995.  Gas revenues increased $54.7 million and electric revenues decreased
$10.8 million as compared to the same period in 1995.  The increase in gas
revenues was mainly due to increased sales to residential and commercial
customers as a result of colder weather, increased sales to industrial and
wholesale customers, and increased gas costs per dth, which were partially
offset by decreased gas transition costs.  The decrease in electric revenues
was mainly due to decreased sales to residential customers due to cooler
summer weather in the third quarter of 1996, and decreased sales to industrial
customers due to operational difficulties at several major industrial
customers, which were partially offset by increased sales to commercial and
wholesale customers.

      Total operating revenues for the three months ended September 30, 1996
decreased $14.1 million as compared to the three months ended September 30,
1995.  Gas revenues increased $5.9 million and electric revenues decreased
$20.0 million as compared to the same period in 1995.  The increase in gas
revenues was mainly due to increased sales to wholesale customers partially
offset by decreased gas transition costs.  The decrease in electric
revenues was mainly due to decreased sales to residential and commercial
customers reflecting cooler summer weather and decreased sales to industrial
customers which were partially offset by increased sales to wholesale
customers.

      The basic steel industry accounted for 30% of natural gas delivered
(including volumes transported) and 36% of electric sales during the twelve
months ended September 30, 1996.

      The components of the variations in gas and electric revenues are
shown in the following table:

<TABLE>
<CAPTION>
                                                   Variations
                                                      from
                                                 Prior Periods
                                       ---------------------------------   
                                              September 30, 1996
                                                  Compared to
                                              September 30, 1995
                                        Three       Nine        Twelve
                                        Months      Months      Months
                                       =========   =========   =========
                                             (Dollars in thousands)

<S>                                    <C>         <C>         <C>
Gas Revenue -
 Pass through of net changes in
  purchased gas costs, gas storage,
  and storage transportation costs     $     646   $  13,292   $ (67,137)
 Gas transition costs                     (4,627)    (28,259)     35,512
 Changes in sales levels                   9,512      69,256     114,680
 Gas transport levels                        319         434       1,060
                                       ---------   ---------   ---------
Gas Revenue Change                         5,850      54,723      84,115  
                                       ---------   ---------   ---------
Electric Revenue  -
 Pass through of net changes in fuel      (2,706)      1,516         841
 Changes in sales levels                 (17,249)    (12,306)       (280)
                                       ---------   ---------   ---------
Electric Revenue Change                  (19,955)    (10,790)        561
                                       ---------   ---------   ---------
   Total Revenue Change                $ (14,105)  $  43,933   $  84,676
                                       =========   =========   =========
</TABLE>

      See Note 5 to Notes to Consolidated Financial Statements regarding
FERC Order No. 636 transition costs.

GAS COSTS - 

      The Utilities' gas costs increased $4.6, $33.9, and $45.5 million for
the three-month, nine-month, and twelve-month periods ended September 30,
1996, respectively. Gas costs increased for the three-month and nine-month
periods due to increased purchases and increased gas costs per dth, which were
partially offset by decreased gas transition costs. Gas costs increased for
the twelve-month period due to increased purchases partially offset by
decreased gas costs per dth.  The average cost for the Utilities' purchased
gas for the three-month, nine-month, and twelve-month periods ended
September 30, 1996, after adjustment for gas transition costs billed to
transport customers, was $2.77, $2.89, and $2.74 per dth, respectively, as
compared to $2.70, $2.83, and $2.81 per dth for the same periods in 1995.

FUEL AND PURCHASED POWER -

      The cost of fuel for electric generation decreased for the
three-month, nine-month, and twelve-month periods ended September 30, 1996,
compared to 1995 periods, mainly as a result of decreased production of
electricity.  

      Power purchased increased $2.2, $6.4, and $10.3 million for the three-
month, nine-month, and twelve-month periods ended September 30, 1996 as a
result of increased bulk power purchases.  

OPERATING MARGINS -

      Operating margins increased $34.6 million for the twelve months ended
September 30, 1996 from the same period a year ago.  The operating margin from
gas deliveries increased $38.6 million due to increased sales to residential
and commercial customers reflecting colder winter weather, increased sales to
industrial and wholesale customers, and increased deliveries of gas
transported for others.  The operating margin from electric sales decreased
$4.0 million reflecting decreased sales to residential customers due to cooler
summer weather in the third quarter of 1996 partially offset by increased
sales to commercial and wholesale customers.

      Operating margins increased $10.2 million for the nine-months ended
September 30, 1996 from the same period a year ago.  Gas operating margin
increased $20.8 million due to increased sales to residential and commercial
customers reflecting colder weather during the period, increased sales to
industrial and wholesale customers, and increased deliveries of gas
transported for others.  Operating margin from electric sales decreased $10.6
million due to decreased sales to residential customers reflecting cooler
summer weather in the third quarter of 1996, and decreased sales to
industrial customers due to plant operational difficulties at several major
customers, which were partially offset by increased sales to commercial and
wholesale customers.

      Operating margins decreased $13.7 million for the three-months ended
September 30, 1996 over the same period a year ago.  The operating margin from
gas deliveries increased $1.2 million due to increased sales for resale and
increased deliveries of gas transported for others.  Operating margin from
electric sales decreased $14.9 million due to decreased sales to residential
and commercial customers reflecting cooler summer weather and decreased sales
to industrial customers, which were partially offset by increased sales to
wholesale customers.

OPERATING EXPENSES AND TAXES -

      Operation expenses increased $7.7 and $14.4 million for the
nine-month and twelve-month periods ended September 30, 1996,
respectively.  Operation expenses increased for the nine-month period
reflecting increased electric production costs of $2.7 million resulting from
increased pollution control facility costs, environmental costs of $4.3
million, and other various increased operating costs.  Operation expenses
increased for the twelve-month period reflecting a December 1995 Indiana
Utility Regulatory Commission (Commission) order to refund $3.4 million to
electric customers related to a 1992 insurance settlement previously credited
to operation and maintenance expenses, increased electric production costs of
$4.8 million mainly resulting from pollution control facilities costs,
employee-related costs of $3.3 million, environmental costs of $3.3 million,
and various other increased operation expenses.  Operation expenses decreased
$1.9 million for the three-month period ended September 30, 1996 mainly due to
lower employee related costs.

      Maintenance expenses decreased $1.9, $4.5, and $5.2 million for the
three-month, nine-month, and twelve-month periods ended September 30, 1996,
respectively, mainly reflecting decreased maintenance activity at the electric
production facilities and the gas underground storage facilities.

      Depreciation and amortization expense increased $4.4, $13.2, and $15.3
million for the three-month, nine-month, and twelve-month periods ended
September 30, 1996, respectively, resulting from plant additions, increased
amortization of computer software, and the amortization of deferred costs
related to scrubber services provided by Pure Air at the Bailly Generating
Station.

      Utility income taxes decreased for the three-month, nine-month, and
twelve-month periods ended September 30, 1996 mainly as a result of decreased
pre-tax income.

OTHER INCOME (DEDUCTIONS) -

      Other Income (Deductions) increased $8.0 and $10.9 million for the
three-month and nine-month periods ended September 30, 1996, respectively,
mainly reflecting improved results from non-regulated operations.  Other
Income (Deductions) for the twelve-month period increased $3.7 million mainly
resulting from improved results from non-regulated operations partially
offset by the inclusion in the prior period of a $5.6 million after-tax
benefit for the Northern Indiana land donation to the Shafer and Freeman
Lakes Environmental Conservation Corporation.

INTEREST AND OTHER CHARGES -

      Interest and other charges increased for the three-month, nine-month,
and twelve-month periods ended September 30, 1996 reflecting the issuance of
$169,275,000 of Northern Indiana's Medium-Term Notes, Series D, and $75
million of Capital Markets' Junior Subordinated Deferrable Interest
Debentures, Series A, and the discontinuance of carrying charges on deferred
charges related to the Bailly Generating Station scrubber service agreement.

      See Note 2 to Notes to Consolidated Financial Statements (Summary of
Significant Accounting Policies) for a discussion of Regulatory Assets,
Carrying Charges and Deferred Depreciation, and Allowance for Funds Used
During Construction.  Also see Notes 5, 7, and 9 for a discussion of FERC
Order No. 636, Income Taxes and Postretirement Benefits.

NET INCOME-

      Industries' net income for the twelve-month period ended September 30,
1996 was $177.2 million compared to $172.6 million for the twelve-month
period ended September 30, 1995.

      Net income for the nine months ended September 30, 1996 was $125.3
million compared to $123.6 million for the nine months ended September 30,
1995.

      Net income for the three months ended September 30, 1996 was $34.4
million compared to $36.4 million for the three months ended September 30,
1995.

ENVIRONMENTAL MATTERS - 
       
      The Utilities have an ongoing program to remain aware of laws and
regulations involved with hazardous waste and other environmental matters.
It is the Utilities' intent to continue to evaluate their facilities and
properties with respect to these rules and identify any sites that would
require corrective action.  The Utilities have recorded a reserve of $8.4
million to cover probable corrective actions as of September 30, 1996;
however, environmental regulations and remediation techniques are subject to
future change.  The ultimate cost could be significant, depending on the
extent of corrective actions required.  Based upon investigations and
management's understanding of current laws and regulations, the Utilities
believe that any corrective actions required, after consideration of insurance
coverages and contributions from other potentially responsible parties, will
not have a significant impact on the financial position or results of
operations of Industries.

      Because of major investments made in modern environmental control
facilities and the use of low-sulfur coal, all of Northern Indiana's electric
production facilities now comply with the sulfur dioxide limitations contained
in the acid deposition provisions of the Clean Air Act Amendments of 1990
(CAAA). Northern Indiana estimates that total costs of compliance with the
CAAA sulfur dioxide regulations will impact electric rates by less than 5% in
the future.

      The CAAA contain provisions that could lead to limitations on
emissions of nitrogen oxides and hazardous air pollutants which may require
significant capital expenditures for control of these emissions. Northern
Indiana is pursuing a nitrogen oxide control program to meet future
requirements.  Northern Indiana cannot predict the costs of complying with
CAAA requirements, but Northern Indiana believes that any such mandated costs
would be recoverable through the rate-making process.

      The Environmental Protection Agency (EPA) has notified Northern
Indiana that it is a "potentially responsible party" (PRP) under the
Comprehensive Environmental Response Compensation and Liability Act (CERCLA)
and may be required to share in the cost of cleanup of several waste disposal
sites identified by the EPA.  The sites are in various stages of
investigation, analysis, and remediation.  At each of the sites, Northern
Indiana is one of several PRPs, and it is expected that remedial costs, as
provided under CERCLA, will be shared among them.  At some sites, Northern
Indiana and/or the other named PRPs are presently working with the EPA to
clean up the sites and avoid the imposition of fines or added costs. 

      The Utilities have instituted a program to investigate former
manufactured-gas plants where one of them is the current or former owner.
The Utilities have identified twenty-seven of these sites and made visual
inspections of these sites.  Initial samplings have been conducted at
seventeen sites.  Follow-up investigations have been conducted at five sites
and potential remedial measures are being evaluated.  The Utilities will
continue their program to assess sites.  During the follow-up investigation
of the former manufactured-gas plant in Elkhart, Indiana, Northern Indiana
noted the presence of hydrocarbons in the Elkhart River. Northern Indiana
reported this finding to the Indiana Department of Environmental Management
(IDEM) and the EPA.  Northern Indiana has placed the Elkhart site in the IDEM
Voluntary Remediation Program (VRP).  The goal of placing the site in the VRP
is to obtain IDEM approval of the determination and subsequent implementation
of what remedial measures, if any, may be needed.

      Northern Indiana was notified by IDEM of the release of a petroleum
substance into the St. Mary's River in Fort Wayne, Indiana, from the site of
a former manufactured-gas plant formerly owned by Northern Indiana. In
cooperation with IDEM, Northern Indiana has taken steps to investigate and
contain the substance.  Northern Indiana has remediated parts of the Fort
Wayne site.  The remainder of the site is being evaluated to determine what
further remedial measures, if any, may be needed.

      During the course of investigation activities, Northern Indiana noted
the presence of manufactured-gas plant residuals in the St. Mary's River in
Fort Wayne, Indiana and the Wabash River in Peru, Indiana.  Northern Indiana
notified the IDEM and the EPA and immediately took steps to contain the
material at both sites.

      Northern Indiana and Indiana Gas Company, Inc. (Indiana Gas) have
entered into an agreement covering cost sharing and management of
investigation and remediation programs at five former manufactured-gas plant
sites at which both companies or their predecessors were former operators or
owners.  One of these sites is the Lafayette site which Indiana Gas had
previously notified Northern Indiana is being investigated and remediated
pursuant to an administrative order with IDEM.  Northern Indiana also notified
PSI Energy, Inc. that it was a former owner or operator of seven former
manufactured-gas plants at which Northern Indiana had conducted or was
planning investigation or remediation activities.

      The Utilities have met with various companies that provided insurance
coverage which the Utilities believe covers costs related to actions taken at
former manufactured-gas plants.  In September 1995, certain insurance
companies initiated a suit in Indiana state court against Northern Indiana to
deny coverage.  Later, in September 1995, Northern Indiana filed a more
comprehensive suit in Federal Court in Indiana against those insurers and
several other insurance companies, seeking coverage for costs associated with
several former manufactured-gas plant sites.  The state court action is stayed
pending resolution of the Northern Indiana suit in Federal court.

      The possibility that exposure to electric and magnetic fields
emanating from power lines, household appliances, and other electric sources
may result in adverse health effects has been the subject of public,
governmental, and media attention.  A considerable amount of scientific
research has been conducted on this topic without definitive results. Research
is continuing to resolve scientific uncertainties.

LIQUIDITY AND CAPITAL RESOURCES -

      During the next few years, it is anticipated that the great majority
of earnings available for distribution of dividends will depend upon dividends
paid to Industries by Northern Indiana.  See Note 13 to Notes to Consolidated
Financial Statements for a discussion of the Common Share dividend.

      In 1994, the Commission authorized Northern Indiana to issue
up to $289,275,000 of its Medium-Term Notes, Series D, due from one year to
thirty years, for purposes of refinancing certain first mortgage bonds and
medium-term notes. During 1994, $120.0 million of the Medium-Term
Notes, Series D, were issued to refinance certain first mortgage bonds.  On
June 12, 1995, the remaining $169,275,000 of Medium-Term Notes, Series D,
were issued and part of the proceeds were used to redeem all of the
outstanding First Mortgage Bonds, Series U and Z, aggregating $94.8 million,
on July 3, 1995.

      On February 13, 1996, Capital Markets issued $75 million of 7-3/4%
Junior Subordinated Deferrable Interest Debentures, Series A, due March 31,
2026 (Debentures), pursuant to an underwritten public offering.  Proceeds from
the sale of the Debentures were used to pay short-term debt incurred to redeem
on January 12, 1996 Industries' $35 million of 8.75% Preferred Shares,
pursuant to mandatory redemption, and to pay other short-term debt of Capital
Markets.

      Capital Markets has a $150 million revolving Credit Agreement which
will terminate August 19, 1998, unless extended by its terms. This facility
provides short-term financing flexibility to Industries and also serves as
the backup instrument for a commercial paper program.  As of September 30,
1996, there were no borrowings outstanding under this agreement.

      Capital Markets also has $95 million of money market lines of credit.
As of September 30, 1996, $44.3 million of borrowings were outstanding under
these lines of credit.

      As of September 30, 1996, Capital Markets had $92.0 million in
commercial paper outstanding, having a weighted average interest rate of
5.59%.

      The obligations of Capital Markets are subject to a Support Agreement
between Industries and Capital Markets, under which Industries has committed
to make payments of interest and principal on Capital Markets' securities in
the event of a failure to pay by Capital Markets. Restrictions in the Support
Agreement prohibit recourse on the part of Capital Markets' investors against
the stock and assets of Northern Indiana. Under the terms of the Support
Agreement, in addition to the cash flow of cash dividends paid to Industries
by any of its consolidated subsidiaries, the assets of Industries, other than
the stock and assets of Northern Indiana, are available as recourse to holders
of Capital Markets' securities.  The carrying value of those assets (other
than Northern Indiana), reflected in the consolidated financial statements of
Industries, is approximately $482.4 million at September 30, 1996.

      Cash flow from operations has provided sufficient liquidity to meet
current operating requirements. Because of the seasonal nature of the utility
business and the construction program, Northern Indiana makes use of
commercial paper to fund short-term working capital requirements.  As of 
September 30, 1996, Northern Indiana had $88.0 million in commercial paper
outstanding, having a weighted average interest rate of 5.45%.

      Northern Indiana has a $250 million revolving Credit Agreement with
several banks which terminates August 19, 1998 unless extended by its terms. 
As of September 30, 1996, there were no borrowings outstanding under this
agreement. In addition, Northern Indiana has $14.2 million in lines of credit
which run to May 31, 1997.  The credit pricing of each of the lines varies
from either the lending banks' commercial prime or market rates. Northern
Indiana has agreed to compensate the participating banks with arrangements
that vary from no commitment fees to a combination of fees which are mutually
satisfactory to both parties.  As of September 30, 1996, there were no
borrowings under these lines of credit. The Credit Agreement and lines of
credit are also available to support the issuance of commercial paper. 

      Northern Indiana also has $273.5 million of money market lines of
credit.  As of September 30, 1996, there were $186.7 million of borrowings
outstanding under these lines of credit.

      Northern Indiana has a $50 million uncommitted finance facility. At
September 30, 1996, there were no borrowings outstanding under this facility.

      During recent years, Northern Indiana has been able to finance its
construction program with internally generated funds and expects to be able to
meet future commitments through such funds.

      The Utilities do not expect the effects of inflation at current levels
to have a significant impact on their results of operations, ability to
contain cost increases, or need to seek timely and adequate rate relief. The
Utilities do not anticipate the need to file for gas and electric base rate
increases in the near future.

COMPETITION 

      The Energy Policy Act of 1992 (Energy Act) allowed FERC to order
electric utilities to grant access to transmission systems by third-party
power producers. The Energy Act specifically prohibits federally mandated
wheeling of power for retail customers. On April 24, 1996, the FERC issued
its Order No. 888 which opens wholesale power sales to competition and
requires public utilities owning, controlling, or operating transmission lines
to file non-discriminatory open access tariffs that offer others the same
transmission service they provide themselves.  Order No. 888 also provides
for the full recovery of stranded costs - that is, costs that were prudently
incurred to serve power customers and that could go unrecovered if these
customers use open access to move to another supplier.  FERC expects
this rule will accelerate competition and bring lower prices and more choices
to wholesale energy customers.  This competition will create opportunities to
compete for new customers and revenues, as well as increase the risk of the
loss of customers. Although wholesale customers represent a relatively small
portion of Northern Indiana's sales, Northern Indiana will continue its
efforts to retain and add customers by offering competitive rates.

      Operating in a competitive environment will place added pressures on
utility profit margins and credit quality.  Increasing competition in the
electric utility industry has already led the credit rating agencies to apply
more stringent guidelines in making credit rating determinations.

      Industries' management has taken steps to make the company more
competitive and profitable in the changing utility environment, including
partnering on energy projects with major industrial customers and conversions
of some of its generating units to allow use of lower cost, low-sulfur coal.

      FERC Order No. 636 shifted primary responsibility for gas
acquisition, transportation, and peak days' supply from pipelines to local gas
distribution companies such as the Utilities. Although pipelines continue to
transport gas, they no longer provide sale service. The Utilities believe they
have taken appropriate steps to ensure the continued acquisition of adequate
gas supplies at reasonable prices.

      The mix of gas revenues from retail sales, interruptible retail sales,
firm transportation service, and interruptible transportation services has
changed significantly over the past several years. The deregulation of the gas
industry, since the mid-1980's, allows large industrial and commercial
customers to purchase their gas supplies directly from producers and use the
Utilities' facilities to transport the gas. Transportation customers pay the
Utilities only for transporting their gas from the pipeline to the customers'
premises.

      Northern Indiana filed an Alternative Regulatory Plan (ARP) with the
Commission on November 29, 1995.  The purpose of the ARP is to create a
business and regulatory environment and structure which will permit increased
choice for gas customers, competition among suppliers, and improved natural
gas service.  In its petition, Northern Indiana stated it would propose to
implement new rates and services that would include, but not be limited to,
further unbundling of services for additional customer classes which would
include increased customer choice for sources of natural gas supply,
negotiated services and prices, and incentive gas and storage cost mechanisms.
The Commission will hold hearings during first quarter of 1997.    

      To date, the Utilities' system has not been materially affected by
competition, and management does not foresee substantial adverse effects in
the near future, unless the current regulatory structure is substantially
altered. The Utilities believe the steps they are taking to deal with
increased competition will have significant, positive effects in the next few
years.


<PAGE>
Part II.  OTHER INFORMATION
Item 1.   LEGAL PROCEEDINGS.

      Industries and Northern Indiana are parties to various pending
proceedings, including suits and claims against them for personal injury,
death and property damage, but, in the opinion of their counsel, the nature of
such proceedings and suits, and the amounts involved, do not depart from the
ordinary routine litigation and proceedings incidental to the kind of business
conducted by Industries and Northern Indiana, except as described under Note 3
(Pending Tax Matter), Note 4 (Elm Energy and Recycling (UK) Ltd.), and Note 6
(Environmental Matters) in the Notes to Consolidated Financial Statements
under Part I, Item 1 of this report on Form 10-Q.

      To the knowledge of Industries no other material legal proceedings
against Industries, Northern Indiana or their subsidiaries are contemplated by
governmental authorities and other parties.

Item 2.  CHANGES IN SECURITIES.

         None

Item 3.  DEFAULTS UPON SENIOR SECURITIES.

         None

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         None

Item 5.  OTHER INFORMATION

         None

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)  Exhibits.

               Exhibit 3 - By-laws effective August 27, 1996.

               Exhibit 11.1 - Computation of Per Share Earnings
                Three-Month, Nine-Month, and Twelve-Month Periods
                Ended September 30, 1996.

               Exhibit 11.2 - Computation of Per Share Earnings
                Three-Month, Nine-Month, and Twelve-Month Periods
                Ended September 30, 1995.

               Exhibit 23 - Consent of Arthur Andersen LLP

         (b)  Reports on Form 8-K.

               None

<PAGE>
                            SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                               NIPSCO Industries, Inc.

                                    (Registrant)

                                /s/Jerry M. Springer
                                    Controller
                            and Chief Accounting Officer

Date November 13, 1996