| UNITED      STATES                                                                                                                                                                                                                                                                                                                        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| SECURITIES      AND EXCHANGE COMMISSION                                                                                                                                                                                                                                                                                                   |
| Washington,      D.C.  20549                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                      |
| FORM      10-K                                                                                                                                                                                                                                                                                                                            |
| (Mark      One)                                                                                                                                                                                                                                                                                                                           |   |   |
| [X]                                                                                                                                                                                                                                                                                                                                       | ANNUAL REPORT      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|                                                                                                                                                                                                                                                                                                                                      |
|                                               For      the fiscal year ended December 31,      2008 |
|                                                                                                                                                                                                                                                                                                                                      |
| OR                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                      |   |
| [  ]                                                                                                                                                                                                                                                                                                                            | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT      OF 1934 |
|                                                                                                                                                                                                                                                                                                                                      |
|                                       For      the transition period from ________________  to  ________________        |
|                                                                                                                                                                                                                                                                                                                                      |

| CommissionFile      Number | Registrant;      State of Incorporation;Address; and Telephone      Number | IRS      EmployerIdentification      No. |
|----------------------------|----------------------------------------------------------------------------|------------------------------------------|
|                       |                                                                       |                                     |
| 2-35965                    | NORTH SHORE      GAS COMPANY                                               | 36-1558720                               |
|                       | (An Illinois      Corporation)                                             |                                     |
|                       | 130 East      Randolph Drive                                               |                                     |
|                       | 18th      Floor                                                            |                                     |
|                       | Chicago,      Illinois  60601-6207                               |                                     |
|                       | (312)      240-4000                                                        |                                     |

| Indicate by      check mark if the Registrant is a well-known seasoned issuer, as defined      in Rule 405 of the Securities Act |
|----------------------------------------------------------------------------------------------------------------------------------|
|          Yes      [  ]   No[X]                             |

| Indicate by      check mark if the Registrant is not required to file reports pursuant to      Section 13 or 15(d) of the Exchange Act. |
|-----------------------------------------------------------------------------------------------------------------------------------------|
|          Yes      [X]   No[  ]                                    |

| Indicate by      check mark whether the Registrant (1) has filed all reports required to be      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during      the preceding 12 months (or for such shorter period that the Registrant      was required to file such reports), and (2) has been subject to such      filing requirements for the past 90 days. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          Yes      [X]  No [  ]                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                              |   |   |
| Indicate by      check mark if disclosure of delinquent filers pursuant to Item 405 of      Regulation S-K is not contained herein, and will not be contained, to the      best of Registrant's knowledge, in definitive proxy or information      statements incorporated by reference in Part III of this Form 10-K or any      amendment to this Form 10-K. [X]                |

| Indicate by      check mark whether the Registrant is a large accelerated filer, an      accelerated filer, a non-accelerated filer, or a smaller reporting      company. See definitions of "large accelerated filer," "accelerated filer"      and "smaller reporting company" in Rule 12b-2 of the Exchange      Act.                                                                                                                                                                                                                                |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Large      accelerated filer      [  ]                                                                           Accelerated      filer [  ] |
| Non-accelerated      filer      [X]                                                                           Smaller      Reporting Company [  ]      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

| Indicate by      check mark whether the Registrant is a shell company (as defined in Rule      12b-2 of the Act).          Yes      [  ]   No[X] |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Number of      shares outstanding of each class ofcommon stock,      as of February 25, 2009. Common Stock,      no par value, 3,625,887 shares(all of which      are owned beneficially and of record by Peoples Energy      Corporation,a wholly      owned subsidiary of Integrys Energy Group,Inc.) |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Definitive      proxy statement for the Integrys Energy Group, Inc. Annual Meeting of      Shareholders to be held on May 13, 2009, is incorporated by reference into      Item 14 of Part III.                                              |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                         |
| The      Registrant meets the conditions set forth in General Instruction I(1)(a)      and (b) of Form 10-K and is therefore filing this Form with the reduced      disclosure format permitted by General Instruction I(2)(b) and      (c). |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Page   |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Forward-Looking      Statements                                                                                                                                         | 1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| PART      I                                                                                                                                                                  | 2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| ITEM      1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | BUSINESS                                                                                                                                                   | 2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | GENERAL                                                                                                                                                   | 2      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | B.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | REGULATED      NATURAL GAS      OPERATIONS                                                                                                                | 2      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | C.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | ENVIRONMENTAL      MATTERS                                                                                                                                | 6      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | D.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | CAPITAL      REQUIREMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 6      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | E.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | EMPLOYEES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 6      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | F.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | AVAILABLE      INFORMATION                                                                                                                                | 6      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| ITEM      1A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | RISK      FACTORS                                                                                                                                          | 7                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| ITEM      1B                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | UNRESOLVED      STAFF      COMMENTS                                                                                                                        | 10                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| ITEM      2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | PROPERTIES                                                                                                                                                 | 11                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| ITEM      3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | LEGAL      PROCEEDINGS                                                                                                                                     | 12                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |
| ITEM      4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | SUBMISSION OF      MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 12                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

| PART      II                                                                                                                                         | 12                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| ITEM      5.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | MARKET FOR      REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER      PURCHASES OF EQUITY SECURITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 12 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| ITEM      6.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | SELECTED      FINANCIAL      DATA                                                                                                                         | 13 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| ITEM      7.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 14 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| ITEM      7A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 28 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| ITEM      8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | FINANCIAL      STATEMENTS AND SUPPLEMENTARY      DATA                                                                                                                                                                 | 29 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Management      Report on Internal Control over Financial Reporting | 29 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | B.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Statements of      Income                                                                                                                 | 30 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | C.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Balance      Sheets                                                                                                                 | 31 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | D.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Statements of      Capitalization                                                                                                                 | 32 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | E.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Statements of      Common Shareholder's      Equity                                                                                                                 | 33 |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | F.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Statements of      Cash      Flows                                                                                                                      | 34                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | G.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Notes to      Financial      Statements                                                                                                                 | 35                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Summary of      Significant Accounting      Policies                                                                                                                                                                                                                               | 35 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      2                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Risk      Management      Activities                                                                                                                                                                                                                                                                             | 39 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Property,      Plant, and      Equipment                                                                                                                                                                                                                                                                                        | 39 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      4                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Regulatory      Assets And Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                            | 39 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      5                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Long-Term      Debt                                                                                                                                                                                                                                                                                                                                                                                                                                               | 40 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      6                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Asset      Retirement      Obligations                                                                                                                                                                                                               | 41 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      7                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Income      Taxes                                                                                                                                                                                                                                                                       | 42 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      8                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Commitments      and      Contingencies                                                                                                                                                                                                                                                                                                                                                                                   | 43 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      9                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Employee      Benefit      Plans                                                                                                                                                                                                 | 46 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      10                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Preferred      Stock                                                                                                                                                                                                                                 | 52 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      11                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Common      Equity                                                                                                                                                                                                                                   | 52 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      12                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Fair      Value                                                                                                                                                                                                                                                                                                                 | 52 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      13                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Miscellaneous      Income                                                                                                                                                                                                                                                                                                                                                                                                      | 53 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      14                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Regulatory      Environment                                                                                                                                                                                                                                                                                                                                                                                                    | 53 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      15                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Segments of      Business                                                                                                                                                                                                                                                                                                                                     | 55 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      16                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Related Party      Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                   | 55 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Note      17                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Quarterly      Financial Information      (Unaudited)                                                                   | 56 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | H.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | Report of      Independent Registered Public Accounting Firm on Financial      Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 57                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ITEM      9.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | CHANGES IN      AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL      DISCLOSURE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 58                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ITEM      9A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | CONTROLS AND      PROCEDURES                                                                                                                                             | 58                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ITEM      9B.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | OTHER      INFORMATION                                                                                                                                                   | 58                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| PART      III                                                                                                                                         | 59                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ITEM      10.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | DIRECTORS,      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 59                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ITEM      11.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | EXECUTIVE      COMPENSATION                                                                                                                                              | 59                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ITEM      12.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | SECURITY      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED      STOCKHOLDER MATTERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 59                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ITEM      13.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | CERTAIN      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR      INDEPENDENCE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 59                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ITEM      14.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | PRINCIPAL      ACCOUNTING FEES AND      SERVICES                                                                                                                         | 59                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| PART      IV                                                                                                                                          | 61                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ITEM      15.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | EXHIBITS AND      FINANCIAL STATEMENT SCHEDULES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 61                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| SCHEDULE II -      VALUATION AND QUALIFYING ACCOUNTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 62                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| SIGNATURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 63                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| EXHIBIT      INDEX                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 64                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

----

| EPA    | United States      Environmental Protection Agency          |
|--------|-------------------------------------------------------------|
|   |                                                        |
| ESOP   | Employee      Stock Ownership Plan                          |
|   |                                                        |
| FASB   | Financial      Accounting Standards Board                   |
|   |                                                        |
| FERC   | Federal      Energy Regulatory Commission                   |
|   |                                                        |
| GAAP   | United States      Generally Accepted Accounting Principles |
|   |                                                        |
| IBS    | Integrys      Business Support, LLC                         |
|   |                                                        |
| ICC    | Illinois      Commerce Commission                           |
|   |                                                        |
| IRS    | United States      Internal Revenue Service                 |
|   |                                                        |
| LIFO   | Last in,      first out                                     |
|   |                                                        |
| N/A    | Not      Applicable                                         |
|   |                                                        |
| NSG    | North Shore      Gas Company                                |
|   |                                                        |
| NYMEX  | New York      Mercantile Exchange                           |
|   |                                                        |
| PEC    | Peoples      Energy Corporation                             |
|   |                                                        |
| PGL    | The Peoples      Gas Light and Coke Company                 |
|   |                                                        |
| SEC    | United States      Securities and Exchange Commission       |
|   |                                                        |
| SFAS   | Statement of      Financial Accounting Standards            |

----

Forward-Looking Statements

nts concerning expectations,beliefs, plans, objectives, goals, strategies, and future events or performance.Such statements are "forward-looking statements" within the meaning of Section21E of the Securities Exchange Act of 1934, as amended. Forward-lookingstatements are subject to assumptions and uncertainties; therefore, actualresults may differ materially from those expressed or implied by suchforward-looking statements.  Although NSG believes that theseforward-looking statements and the underlying assumptions are reasonable, itcannot provide assurance that such statements will provecorrect.

| ● | Resolution of      pending and future rate cases and negotiations (including the recovery of      deferred costs) and other regulatory decisions impacting    NSG;                                                                                                                                                                                                                                                                                                                             |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ● | The impact of      recent and future federal, state, and local regulatory changes, including      legislative and regulatory initiatives regarding deregulation and      restructuring of the natural gas utility industry and possible future      initiatives to address concerns about global climate change, changes in      environmental, tax, and other laws and regulations to which NSG is      subject, as well as changes in the application of existing laws and      regulations; |
| ● | Current and      future litigation, regulatory investigations, proceedings, or inquiries,      including but not limited to, manufactured gas plant site cleanup and      reconciliation of revenues from the Gas Charge and related natural gas      costs;                                                                                                                                                                                                                                   |
| ● | The impacts      of changing financial market conditions, credit ratings, and interest      rates on the liquidity and financing efforts of NSG;                                                                                                                                                                                                                                                                                                                                               |
| ● | The risks      associated with changing commodity prices (particularly natural gas), and      available sources of natural gas;                                                                                                                                                                                                                                                                                                                                                                |
| ● | Resolution of      audits or other tax disputes with the IRS, Illinois state revenue      agencies, or other taxing authorities;                                                                                                                                                                                                                                                                                                                                                               |
| ● | The effects,      extent, and timing of additional competition or regulation in the markets      in which NSG operates;                                                                                                                                                                                                                                                                                                                                                                        |
| ● | Investment      performance of employee benefit plan assets;                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| ● | Advances in      technology;                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| ● | Effects of      and changes in political and legal developments, as well as economic      conditions and the related impact on customer demand;                                                                                                                                                                                                                                                                                                                                                |
| ● | Potential      business strategies, including construction or disposition of assets,      which cannot be assured to be completed timely or within      budgets;                                                                                                                                                                                                                                                                                                                               |
| ● | The direct or      indirect effects of terrorist incidents, natural disasters, or responses      to such events;                                                                                                                                                                                                                                                                                                                                                                               |
| ● | The      effectiveness of risk management strategies and the use of financial and      derivative instruments;                                                                                                                                                                                                                                                                                                                                                                                 |
| ● | The risks      associated with the inability of NSG's counterparties, affiliates, and      customers to meet their obligations;                                                                                                                                                                                                                                                                                                                                                                |
| ● | The effect of      accounting pronouncements issued periodically by standard-setting bodies;      and                                                                                                                                                                                                                                                                                                                                                                                          |
| ● | Other factors      discussed elsewhere herein and in other reports filed by NSG and/or      Integrys Energy Group from time to time with the  SEC.                                                                                                                                                                                                                                                                                                                                             |

----

----

| Regulated      Natural Gas Segment Operating Statistics |   |
|---------------------------------------------------------|--------|
|                                                    |   | Year      Ended December 31, 2008 |   |   | Year      Ended December 31, 2007 |   |   | Transition      Period Ended December 31, 2006 |   |   | Year      Ended September 30, 2006 |   |
| Operating      revenues (Millions)                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                             |   | $ | 246.7 |   |   | $ | 209.7 |   |   | $ | 57.0 |   |   | $ | 221.3 |   |
| Commercial      and industrial                          |   |   | 50.0 |   |   |   | 45.8 |   |   |   | 12.2 |   |   |   | 47.8 |   |
| Transportation                                          |   |   | 14.7 |   |   |   | 14.1 |   |   |   | 4.0 |   |   |   | 14.3 |   |
| Other                                                   |   |   | 1.5 |   |   |   | 1.4 |   |   |   | 0.3 |   |   |   | 1.7 |   |
| Total                                                   |   | $ | 312.9 |   |   | $ | 271.0 |   |   | $ | 73.5 |   |   | $ | 285.1 |   |
| Therms      delivered (Millions)                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                             |   |   | 205.6 |   |   |   | 193.3 |   |   |   | 59.0 |   |   |   | 182.8 |   |
| Commercial      and industrial                          |   |   | 44.4 |   |   |   | 41.7 |   |   |   | 12.4 |   |   |   | 39.1 |   |
| Total therm      sales                                  |   |   | 250.0 |   |   |   | 235.0 |   |   |   | 71.4 |   |   |   | 221.9 |   |
| Transportation                                          |   |   | 137.2 |   |   |   | 129.3 |   |   |   | 36.0 |   |   |   | 127.4 |   |
| Total                                                   |   |   | 387.2 |   |   |   | 364.3 |   |   |   | 107.4 |   |   |   | 349.3 |   |
| Customers      served (End of      period)              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                             |   |   | 139,185 |   |   |   | 141,204 |   |   |   | 141,578 |   |   |   | 139,844 |   |
| Commercial      and industrial                          |   |   | 9,783 |   |   |   | 9,666 |   |   |   | 9,707 |   |   |   | 9,538 |   |
| Transportation                                          |   |   | 8,941 |   |   |   | 7,268 |   |   |   | 6,300 |   |   |   | 5,960 |   |
| Total                                                   |   |   | 157,909 |   |   |   | 158,138 |   |   |   | 157,585 |   |   |   | 155,342 |   |
| Average      therm price (Cents)                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Residential                                             |   |   | 119.99 |   |   |   | 108.48 |   |   |   | 96.61 |   |   |   | 121.06 |   |
| Commercial      and industrial                          |   |   | 112.61 |   |   |   | 109.83 |   |   |   | 98.39 |   |   |   | 122.25 |   |

----

|                                                      |   |         | Design      Peak-Day |       | Year      of Contract |
|-----------------------------------------------------------|--------|--------------|----------------------|------------|-----------------------|
| Source      (MDth)                                        |   | Availability |                 | Expiration |
| Firm pipeline      capacity                               |   | 58           |                 | 2013-2017  |
| Firm      city-gate supply                                |   | 60           |                 | 2009       |
| Liquefied      petroleum gas                              |   | 40           |                 | N/A        |
| Natural gas      in storage:                              |   |         |                 |       |
|      Contracted      from PGL    |   | 63           |                 | N/A        |
|      Contracted      from others |   | 170          |                 | 2010-2017  |
| Customer-owned                                            |   | 48           |                 | N/A        |
| Total      expected design peak-day availability          |   | 439          |                 |       |

| (MDth)                                                                                                                           | Year      EndedDecember      31, 2008 | Year      EndedDecember      31, 2007 | Transition      Period EndedDecember      31, 2006 | Year      EndedSeptember 30,      2006 |
|----------------------------------------------------------------------------------------------------------------------------------|---------------------------------------|---------------------------------------|----------------------------------------------------|---------------------------------------------|
| Natural gas      purchases                                                                                                       | 26,137                                | 23,432                                | 5,930                                              | 23,523                                      |
| Liquefied      petroleum gas                                                                                                     | 5                                     | 7                                     | -                                                  | 10                                          |
| Customer-owned      natural gas received                                                                                         | 13,589                                | 12,782                                | 3,646                                              | 12,793                                      |
| Underground      storage, net                                                                                                    | 95                                    | 767                                   | 1,612                                              | (883)                                       |
| Contracted      pipeline and storage compressor      fuel, franchiserequirements, and      unaccounted-for natural gas | (1,110)                               | (559)                                 | (451)                                              | (517)                                       |
| Total                                                                                                                            | 38,716                                | 36,429                                | 10,737                                             | 34,926                                      |

----

----

| ·         | Annual      Reports on Form 10-K; |
|--------------------------|-----------------------------------|

| ·         | Quarterly      Reports on Form 10-Q; |
|--------------------------|--------------------------------------|

| ·         | Current      Reports on Form 8-K; and |
|--------------------------|---------------------------------------|

| ·         | Any      amendments to these documents |
|--------------------------|----------------------------------------|

----

| · | Require the      payment of higher interest rates in future financings and possibly reduce      the potential pool of creditors; |
|--------|----------------------------------------------------------------------------------------------------------------------------------|
| · | Increase      borrowing costs under certain of its existing credit facilities;      and                                          |
| · | Require      provision of additional credit assurance to contract      counterparties.                                           |

----

----

----

----

| ● | Approximately      2,300 miles of natural gas distribution mains located in      Illinois,            |
|---------|-------------------------------------------------------------------------------------------------------|
| ● | Approximately      30 miles of natural gas transmission mains located in Illinois and      Wisconsin, |
| ● | 6 natural gas      distribution and transmission gate stations, and                                   |
| ● | Approximately      143,000 natural gas lateralservices.                                               |

----

----

| NORTH      SHORE GAS COMPANY                                                                                                           |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|
| COMPARATIVE      FINANCIAL STATEMENTS AND                                                                                              |   |
| FINANCIAL      AND OTHER STATISTICS (2004 TO 2008)                                                                                     |   |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                   |   |   |   |   |   |   |   | Transition |   |
|                                                                                                                                   |   | Year      Ended |   |   | Year      Ended |   |   | Period      Ended |   |
|                                                                                                                                   |   | December      31, |   |   | December      31, |   |   | December      31, |   |
| (Millions,      except weather and per share information)                                                                              |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |
| Gas operating      revenues                                                                                                            |   | $ | 312.9 |   |   | $ | 271.0 |   |   | $ | 73.5 |   |
| Net      income                                                                                                                        |   |   | 7.0 |   |   |   | 7.9 |   |   |   | 4.4 |   |
| Total      assets                                                                                                                      |   |   | 483.6 |   |   |   | 424.9 |   |   |   | 410.9 |   |
| Long-term      debt (excluding current portion)                                                                                        |   |   | 75.3 |   |   |   | 69.0 |   |   |   | 69.1 |   |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weather      information                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Heating      degree days                                                                                                               |   |   | 6,688 |   |   |   | 6,025 |   |   |   | 2,116 |   |
| Heating      degree days as a percent of normal *                                                                                      |   |   | 109.7 | % |   |   | 97.6 | % |   |   | 95.4 | % |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                   |   | Year      Ended |   |   | Year      Ended |   |   | Year      Ended |   |
|                                                                                                                                   |   | September      30, |   |   | September      30, |   |   | September      30, |   |
| (Millions,      except weather information)                                                                                            |   | 2006 |   |   | 2005 |   |   | 2004 |   |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gas operating      revenues                                                                                                            |   | $ | 285.1 |   |   | $ | 246.3 |   |   | $ | 209.4 |   |
| Net      income                                                                                                                        |   |   | 6.7 |   |   |   | 11.4 |   |   |   | 11.1 |   |
| Total      assets                                                                                                                      |   |   | 400.0 |   |   |   | 371.2 |   |   |   | 323.0 |   |
| Long-term      debt (excluding current portion)                                                                                        |   |   | 69.2 |   |   |   | 69.3 |   |   |   | 69.3 |   |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weather      information                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Heating      degree days                                                                                                               |   |   | 5,775 |   |   |   | 5,864 |   |   |   | 6,091 |   |
| Heating      degree days as a percent of normal *                                                                                      |   |   | 90.1 | % |   |   | 91.2 | % |   |   | 94.8 | % |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| * Normal      heating degree days for fiscal years 2004 through 2005 were based on a      30-year average of monthly                   |   |
| temperatures      at Chicago's O'Hare Airport for the years 1970 through 1999. Normal      heating degree days for fiscal              |   |
| 2006 were      based on a 30-year average of monthly temperatures at Chicago's O'Hare      Airport for the years 1975                  |   |
| through 2004.      Normal heating degree days for the transition period ended December 31,      2006, and fiscal 2007 were             |   |
| based on a      10-year average of monthly total heating degree days at Chicago’s O’Hare      Airport for the fiscal years |   |
| 1996 through      2005. Normal heating degree days for fiscal 2008 are based on a      12-year average of monthly total           |   |
| heating degree      days at Chicago’s O’Hare Airport for the fiscal years 1996 through      2007.                          |   |

----

----

|            |   | Year      Ended  |   |   | Year      Ended   |   |   | Change      in |   |   | Change      in |   |
|-----------------|--------|------------------|--------|--------|-------------------|--------|--------|----------------|--------|--------|----------------|--------|
|            |   | December 31 |   |   | September      30 |   |   | 2008      Over |   |   | 2007      Over |   |
| (Millions)      |   | 2008             |   |   | 2007              |   |   | 2006           |   |   | 2007           |   |   | 2006 |   |
| Net      income |   | $                | 7.0    |   |              | $      | 7.9    |           |   | $      | 6.7            |   |   |   | (11.4 | )% |   |   | 17.9 | % |

----

|                                         |   | Year      Ended  |   |   | Year      Ended   |   |   | Change      in |   |   | Change      in |   |
|----------------------------------------------|--------|------------------|--------|--------|-------------------|--------|--------|----------------|--------|--------|----------------|--------|
|                                         |   | December 31 |   |   | September      30 |   |   | 2008      Over |   |   | 2007      Over |   |
| (Millions,      except heating degree days)  |   | 2008             |   |   | 2007              |   |   | 2006           |   |   | 2007           |   |   | 2006 |   |
|                                         |   |             |   |   |              |   |   |           |   |   |           |   |   |   |   |
| Natural gas      operating revenues          |   | $                | 312.9  |   |              | $      | 271.0  |           |   | $      | 285.1          |   |   |   | 15.5 | % |   |   | (4.9 | )% |
| Natural gas      purchased for resale        |   |             | 240.6  |   |              |   | 205.2  |           |   |   | 220.3          |   |   |   | 17.3 | % |   |   | (6.9 | )% |
| Margins                                      |   |             | 72.3   |   |              |   | 65.8   |           |   |   | 64.8           |   |   |   | 9.9 | % |   |   | 1.5 | % |
|                                         |   |             |   |   |              |   |   |           |   |   |           |   |   |   |   |   |   |   |   |   |
| Operating and      maintenance expense       |   |             | 49.1   |   |              |   | 39.3   |           |   |   | 39.5           |   |   |   | 24.9 | % |   |   | (0.5 | )% |
| Natural gas      charge settlement           |   |             | -      |   |              |   | 2.0    |           |   |   | 4.3            |   |   |   | (100.0 | )% |   |   | (53.5 | )% |
| Depreciation      and amortization expense   |   |             | 6.6    |   |              |   | 6.0    |           |   |   | 5.7            |   |   |   | 10.0 | % |   |   | 5.3 | % |
| Taxes other      than income taxes           |   |             | 2.1    |   |              |   | 2.4    |           |   |   | 2.0            |   |   |   | (12.5 | )% |   |   | 20.0 | % |
| Operating      income                        |   |             | 14.5   |   |              |   | 16.1   |           |   |   | 13.3           |   |   |   | (9.9 | )% |   |   | 21.1 | % |
|                                         |   |             |   |   |              |   |   |           |   |   |           |   |   |   |   |   |   |   |   |   |
| Miscellaneous      income                    |   |             | 0.8    |   |              |   | 1.2    |           |   |   | 1.3            |   |   |   | (33.3 | )% |   |   | (7.7 | )% |
| Interest      expense                        |   |             | (4.2   | )      |              |   | (4.2   | )              |   |   | (4.1           | )      |   |   | - | % |   |   | 2.4 | % |
| Other      expense                           |   |             | (3.4   | )      |              |   | (3.0   | )              |   |   | (2.8           | )      |   |   | 13.3 | % |   |   | 7.1 | % |
|                                         |   |             |   |   |              |   |   |           |   |   |           |   |   |   |   |   |   |   |   |   |
| Income before      taxes                     |   |             | 11.1   |   |              |   | 13.1   |           |   |   | 10.5           |   |   |   | (15.3 | )% |   |   | 24.8 | % |
| Provision for      income taxes              |   |             | 4.1    |   |              |   | 5.2    |           |   |   | 3.8            |   |   |   | (21.2 | )% |   |   | 36.8 | % |
| Net      income                              |   | $                | 7.0    |   |              | $      | 7.9    |           |   | $      | 6.7            |   |   |   | (11.4 | )% |   |   | 17.9 | % |
|                                         |   |             |   |   |              |   |   |           |   |   |           |   |   |   |   |   |   |   |   |   |
| Throughput      in therms                    |   |             |   |   |              |   |   |           |   |   |           |   |   |   |   |   |   |   |   |   |
|  Residential                            |   |             | 205.6  |   |              |   | 193.3  |           |   |   | 182.8          |   |   |   | 6.4 | % |   |   | 5.7 | % |
|  Commercial      and industrial         |   |             | 44.4   |   |              |   | 41.7   |           |   |   | 39.1           |   |   |   | 6.5 | % |   |   | 6.6 | % |
|  Transport                              |   |             | 137.2  |   |              |   | 129.3  |           |   |   | 127.4          |   |   |   | 6.1 | % |   |   | 1.5 | % |
|    Total      sales in therms |   |             | 387.2  |   |              |   | 364.3  |           |   |   | 349.3          |   |   |   | 6.3 | % |   |   | 4.3 | % |
|                                         |   |             |   |   |              |   |   |           |   |   |           |   |   |   |   |   |   |   |   |   |
| Weather                                      |   |             |   |   |              |   |   |           |   |   |           |   |   |   |   |   |   |   |   |   |
|  Heating      degree days               |   |             | 6,688  |   |              |   | 6,025  |           |   |   | 5,775          |   |   |   | 11.0 | % |   |   | 4.3 | % |

| · | Weather that      was 11.0% colder than the prior year led to a $21.7 million increase      in revenues.                                                                                                                                                                                                                                                             |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                      |
| · | The per-unit      cost of natural gas increased 9.8% year-over-year.  This drove a      $21.0 million increase in revenues, as increases in natural gas      commodity costs are passed directly through to customers in      rates.                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                      |
| · | Revenues      increased $3.3 million due to NSG's recovery of higher year-over-year      expenditures related to the cleanup of former manufactured gas plant      sites.  This increase in revenues was offset by an increase in      operating expenses due to the amortization of the related regulatory      asset.                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                      |
| · | Partially      offsetting the increases discussed above was a decrease in revenues of      $3.4 million resulting from a decrease in natural gas throughput      volumes, excluding the impact of weather, which we believe is primarily      due to customer conservation efforts related to higher energy prices and a      general slowdown in the economy.  |

----

| · | The per-unit      cost of natural gas decreased approximately 12%      year-over-year.  This drove a decrease of approximately      $27 million in revenues.                                                                                                                                                   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                          |
| · | Partially      offsetting the decrease discussed above was an approximate increase of      $12 million due to weather that was 4.3% colder than fiscal 2006, as      well as an increase of approximately $2 million driven by an increase in      natural gas throughput volumes, excluding the impact of      weather. |

| · | A $5.2      million increase in various operating costs, driven by increases in legal      expenses, customer call center expenses, and intercompany service      costs.                                                                                                                                                                                                                                                                                                                                 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · | An increase      of $3.3 million in the amortization of the regulatory asset related to      cleanup costs of manufactured gas plant sites.  These costs were      recovered in revenues.                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · | A $1.1      million increase in the combined amortization expense related to costs to      achieve merger synergies and costs pertaining to the 2007/2008 rate case,      which were initially deferred as regulatory assets.  The      increase in operating expenses related to these costs was offset in margin      through an increase in revenues.  As a result, there was no      significant impact on earnings related to the amortization of these      regulatory assets. |

----

|                    |   | Year      Ended December 31 |   |   | Year      Ended September      30, |   |
|-------------------------|--------|-----------------------------|--------|--------|-----------------------------------------|--------|
|                    |   | 2008                        |   |   | 2007                                    |   |   | 2006 |   |
| Effective Tax      Rate |   |                        | 36.9   | %      |                                    |   | 39.7 | % |   |   | 36.2 | % |

----

|                                         |   | Transition        |   |   | Quarter           |   |   |            |   |
|----------------------------------------------|--------|-------------------|--------|--------|-------------------|--------|--------|-----------------|--------|
|                                         |   | Period      Ended |   |   | Ended             |   |   |            |   |
|                                         |   | December      31, |   |   | December      31, |   |   | %      Increase |   |
| (Millions,      except heating degree days)  |   | 2006              |   |   | 2005              |   |   | (Decrease)      |   |
| Natural gas      operating revenues          |   | $                 | 73.5   |   |              | $      | 110.3  |            |   |   | (33.4 | )% |
| Natural gas      purchased for resale        |   |              | 54.6   |   |              |   | 90.3   |            |   |   | (39.5 | )% |
| Margins                                      |   |              | 18.9   |   |              |   | 20.0   |            |   |   | (5.5 | )% |
|                                         |   |              |   |   |              |   |   |            |   |   |   |   |
| Operating and      maintenance expense       |   |              | 9.0    |   |              |   | 10.0   |            |   |   | (10.0 | )% |
| Natural gas      charge settlement           |   |              | -      |   |              |   | 17.0   |            |   |   | (100.0 | )% |
| Depreciation      and amortization expense   |   |              | 1.5    |   |              |   | 1.4    |            |   |   | 7.1 | % |
| Taxes other      than income taxes           |   |              | 0.5    |   |              |   | 0.4    |            |   |   | 25.0 | % |
| Operating      income (loss)                 |   |              | 7.9    |   |              |   | (8.8   | )               |   |   | N/A |   |
|                                         |   |              |   |   |              |   |   |            |   |   |   |   |
| Miscellaneous      income                    |   |              | 0.2    |   |              |   | 0.1    |            |   |   | 100.0 | % |
| Interest      expense                        |   |              | (1.1   | )      |              |   | (1.0   | )               |   |   | 10.0 | % |
| Other      expense                           |   |              | (0.9   | )      |              |   | (0.9   | )               |   |   | - | % |
|                                         |   |              |   |   |              |   |   |            |   |   |   |   |
| Income before      taxes                     |   |              | 7.0    |   |              |   | (9.7   | )               |   |   | N/A |   |
| Provision for      income taxes              |   |              | 2.6    |   |              |   | (4.0   | )               |   |   | N/A |   |
| Net income      (loss)                       |   | $                 | 4.4    |   |              | $      | (5.7   | )               |   |   | N/A |   |
|                                         |   |              |   |   |              |   |   |            |   |   |   |   |
| Throughput      in therms                    |   |              |   |   |              |   |   |            |   |   |   |   |
|  Residential                            |   |              | 59.0   |   |              |   | 64.7   |            |   |   | (8.8 | )% |
|  Commercial      and industrial         |   |              | 12.4   |   |              |   | 13.6   |            |   |   | (8.8 | )% |
|  Transport                              |   |              | 36.0   |   |              |   | 37.4   |            |   |   | (3.7 | )% |
|    Total      sales in therms |   |              | 107.4  |   |              |   | 115.7  |            |   |   | (7.2 | )% |
|                                         |   |              |   |   |              |   |   |            |   |   |   |   |
| Weather                                      |   |              |   |   |              |   |   |            |   |   |   |   |
|  Heating      degree days               |   |              | 2,116  |   |              |   | 2,302  |            |   |   | (8.1 | )% |

| · | An      approximate 34% decrease in the per-unit cost of natural gas drove an      approximate $30 million decrease in revenues. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                  |
| · | Weather that      was 8.1% warmer led to a decrease in revenues of approximately $8      million.                                     |

----

----

----

|                      |   | Standard      & Poor's |   | Moody's |
|---------------------------|--------|----------------------------|--------|---------|
| Issuer credit      rating |   | A-                         |   | N/A     |
| Senior      secured debt  |   | A                          |   | A1      |

----

|                                                              |   |                        |   |   | Payments      Due By Period |   |
|-------------------------------------------------------------------|--------|-----------------------------|--------|--------|-----------------------------|--------|
| (Millions)                                                        |   | Total      AmountsCommitted |   |   | 2009                        |   |   |   | 2010-2011 |   |   |   | 2012      - 2013 |   |   | 2014      and Thereafter |   |
|                                                              |   |                        |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term      debt principal and interest payments      (1) |   | $                           | 114.7  |   |                        | $      | 3.7 |   |   | $ | 7.5 |   |   | $ | 53.1 |   |   | $ | 50.4 |   |
| Commodity      purchase obligations (2)                           |   |                        | 76.4   |   |                        |   | 14.7 |   |   |   | 24.0 |   |   |   | 22.4 |   |   |   | 15.3 |   |
| Purchase      orders (3)                                          |   |                        | 3.2    |   |                        |   | 3.2 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Pension and      other postretirementfunding obligations (4)      |   |                        | 26.7   |   |                        |   | 6.0 |   |   |   | 9.3 |   |   |   | 5.9 |   |   |   | 5.5 |   |
| Total      contractual cash obligations                           |   | $                           | 221.0  |   |                        | $      | 27.6 |   |   | $ | 40.8 |   |   | $ | 81.4 |   |   | $ | 71.2 |   |

----

----

| Actuarial      Assumption(Millions,      except percentages) |   | Percentage-PointChange      inAssumption |   |   | Impact      on Projected BenefitObligation |   |   | Impact      on 2008 Pension Cost |   |
|--------------------------------------------------------------|--------|------------------------------------------|--------|--------|--------------------------------------------|--------|--------|----------------------------------|--------|
| Discount      rate                                           |   |                                     | (0.5   | )      |                                       | $      | 1.2    |                             |   | $ | 0.1 |   |
| Discount      rate                                           |   |                                     | 0.5    |   |                                       |   | (1.1   | )                                |   |   | (0.1 | ) |
| Rate of      return on plan assets                           |   |                                     | (0.5   | )      |                                       |   | N/A    |                             |   |   | 0.1 |   |
| Rate of      return on plan assets                           |   |                                     | 0.5    |   |                                       |   | N/A    |                             |   |   | (0.1 | ) |

----

| Actuarial      Assumption(Millions,      except percentages) |   | Percentage-Point      Change in Assumption |   |   | Impact      on Postretirement Benefit Obligation |   |   | Impact      on 2008 Postretirement Benefit Cost |   |
|--------------------------------------------------------------|--------|--------------------------------------------|--------|--------|--------------------------------------------------|--------|--------|-------------------------------------------------|--------|
| Discount      rate                                           |   |                                       | (0.5   | )      |                                             | $      | 0.8    |                                            |   | $ | 0.1 |   |
| Discount      rate                                           |   |                                       | 0.5    |   |                                             |   | (0.7   | )                                               |   |   | (0.1 | ) |
| Health care      cost trend rate                             |   |                                       | (1.0   | )      |                                             |   | (1.5   | )                                               |   |   | (0.3 | ) |
| Health care      cost trend rate                             |   |                                       | 1.0    |   |                                             |   | 1.7    |                                            |   |   | 0.4 |   |
| Rate of      return on plan assets                           |   |                                       | (0.5   | )      |                                             |   | N/A    |                                            |   |   | - |   |
| Rate of      return on plan assets                           |   |                                       | 0.5    |   |                                             |   | N/A    |                                            |   |   | - |   |

----

----

----

----

| B. STATEMENTS      OF INCOME                                                                        |   |
|----------------------------------------------------------------------------------------------------------|--------|
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                     |   |   |   |   |   |   |   | Transition |   |   |   |   |
|                                                                                                     |   | Year      Ended |   |   | Year      Ended |   |   | Period      Ended |   |   | Year      Ended |   |
|                                                                                                     |   | December      31, |   |   | December      31, |   |   | December      31, |   |   | September      30, |   |
| (Millions)                                                                                               |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2006 |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Natural      gas operating revenues                                                                      |   | $ | 312.9 |   |   | $ | 271.0 |   |   | $ | 73.5 |   |   | $ | 285.1 |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Natural gas      purchased for resale                                                                    |   |   | 240.6 |   |   |   | 205.2 |   |   |   | 54.6 |   |   |   | 220.3 |   |
| Operating and      maintenance expense                                                                   |   |   | 49.1 |   |   |   | 39.3 |   |   |   | 9.0 |   |   |   | 39.5 |   |
| Natural gas      charge settlement                                                                       |   |   | - |   |   |   | 2.0 |   |   |   | - |   |   |   | 4.3 |   |
| Depreciation      and amortization expense                                                               |   |   | 6.6 |   |   |   | 6.0 |   |   |   | 1.5 |   |   |   | 5.7 |   |
| Taxes other      than income taxes                                                                       |   |   | 2.1 |   |   |   | 2.4 |   |   |   | 0.5 |   |   |   | 2.0 |   |
| Operating      income                                                                                    |   |   | 14.5 |   |   |   | 16.1 |   |   |   | 7.9 |   |   |   | 13.3 |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Miscellaneous      income                                                                                |   |   | 0.8 |   |   |   | 1.2 |   |   |   | 0.2 |   |   |   | 1.3 |   |
| Interest      expense                                                                                    |   |   | (4.2 | ) |   |   | (4.2 | ) |   |   | (1.1 | ) |   |   | (4.1 | ) |
| Other      expense                                                                                       |   |   | (3.4 | ) |   |   | (3.0 | ) |   |   | (0.9 | ) |   |   | (2.8 | ) |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before      taxes                                                                                 |   |   | 11.1 |   |   |   | 13.1 |   |   |   | 7.0 |   |   |   | 10.5 |   |
| Provision for      income taxes                                                                          |   |   | 4.1 |   |   |   | 5.2 |   |   |   | 2.6 |   |   |   | 3.8 |   |
| Net      income                                                                                          |   | $ | 7.0 |   |   | $ | 7.9 |   |   | $ | 4.4 |   |   | $ | 6.7 |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The      accompanying notes to NSG's financial statements are an integral part of      these statements. |   |   |   |   |   |

----

| C.      BALANCE SHEETS                                                                                                     |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                       |   |   |   |   |   |   |
|                                                                                                                       |   | December      31 |   |   | December      31 |   |
| (Millions)                                                                                                                 |   | 2008 |   |   | 2007 |   |
|                                                                                                                       |   |   |   |   |   |   |
| Assets                                                                                                                     |   |   |   |   |   |   |
| Cash and cash      equivalents                                                                                             |   | $ | 0.1 |   |   | $ | - |   |
| Accounts      receivable and accrued unbilled revenues, net of reserves of $1.7 and      $2.0, respectively                |   |   | 63.5 |   |   |   | 50.2 |   |
| Receivables      from related parties                                                                                      |   |   | - |   |   |   | 2.3 |   |
| Natural gas      in storage, primarily at LIFO                                                                             |   |   | 8.8 |   |   |   | 8.9 |   |
| Assets from      risk management activities                                                                                |   |   | 1.8 |   |   |   | 2.0 |   |
| Regulatory      assets                                                                                                     |   |   | 32.3 |   |   |   | 9.8 |   |
| Other current      assets                                                                                                  |   |   | 1.6 |   |   |   | 2.0 |   |
| Current      assets                                                                                                        |   |   | 108.1 |   |   |   | 75.2 |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |
| Property,      plant, and equipment, net of accumulated depreciation of $160.2 and      $154.2, respectively          |   |   | 245.8 |   |   |   | 244.8 |   |
| Regulatory      assets                                                                                                     |   |   | 128.3 |   |   |   | 101.7 |   |
| Other                                                                                                                      |   |   | 1.4 |   |   |   | 3.2 |   |
| Total      assets                                                                                                          |   | $ | 483.6 |   |   | $ | 424.9 |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |
| Liabilities      and Shareholder's Equity                                                                                  |   |   |   |   |   |   |   |   |
| Accounts      payable                                                                                                      |   | $ | 26.6 |   |   | $ | 25.8 |   |
| Payables to      related parties                                                                                           |   |   | 6.7 |   |   |   | 7.3 |   |
| Notes payable      to related parties                                                                                      |   |   | 9.0 |   |   |   | 11.9 |   |
| Liabilities      from risk management activities                                                                           |   |   | 26.7 |   |   |   | 5.7 |   |
| Accrued      taxes                                                                                                         |   |   | 6.1 |   |   |   | 2.5 |   |
| Customer      credit balances                                                                                              |   |   | 6.5 |   |   |   | 8.1 |   |
| Regulatory      liabilities                                                                                                |   |   | 8.1 |   |   |   | 8.9 |   |
| Other current      liabilities                                                                                             |   |   | 7.8 |   |   |   | 5.6 |   |
| Current      liabilities                                                                                                   |   |   | 97.5 |   |   |   | 75.8 |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |
| Long-term      debt                                                                                                        |   |   | 75.3 |   |   |   | 69.0 |   |
| Deferred      income taxes                                                                                                 |   |   | 41.0 |   |   |   | 39.0 |   |
| Environmental      remediation liabilities                                                                                 |   |   | 101.4 |   |   |   | 84.6 |   |
| Pension and      other postretirement benefit obligations                                                                  |   |   | 32.5 |   |   |   | 25.1 |   |
| Asset      retirement obligations                                                                                          |   |   | 24.2 |   |   |   | 23.0 |   |
| Other                                                                                                                      |   |   | 9.6 |   |   |   | 7.0 |   |
| Long-term      liabilities                                                                                                 |   |   | 284.0 |   |   |   | 247.7 |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |
| Commitments      and contingencies                                                                                         |   |   |   |   |   |   |   |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |
| Common stock      - without par value, 5,000,000 shares authorized; 3,625,887      shares issued and      outstanding |   |   | 24.8 |   |   |   | 24.8 |   |
| Retained      earnings                                                                                                     |   |   | 77.4 |   |   |   | 76.7 |   |
| Accumulated      other comprehensive loss                                                                                  |   |   | (0.1 | ) |   |   | (0.1 | ) |
| Total      liabilities and shareholder's equity                                                                            |   | $ | 483.6 |   |   | $ | 424.9 |   |
|                                                                                                                       |   |   |   |   |   |   |   |   |
| The      accompanying notes to NSG's financial statements are an integral part of      these statements.                   |   |   |   |   |   |

----

|            D.  STATEMENTS      OF CAPITALIZATION |   |   |
|-------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                              |   |   |   |   |   | December      31 |   |   | December      31 |   |   |
| (Millions,      except share amounts)                                                                             |   |   |   | 2008 |   |   | 2007 |   |   |
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |
| Common      stock equity                                                                                          |   |   |   |   |   |   |   |   |   |
| Common stock,      without par value, 5,000,000 shares authorized, 3,625,887 shares      outstanding         | $      | 24.8   |   | $ | 24.8 |   |   |
| Accumulated      other comprehensive loss                                                                         |   |   | (0.1 | ) |   | (0.1 | ) |   |
| Retained      earnings                                                                                            |   |   |   |   | 77.4 |   |   | 76.7 |   |   |
| Total      common stock equity                                                                                    |   |   |   | 102.1 |   |   | 101.4 |   |   |
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |
| Long-term      debt                                                                                               |   |   |   |   |   |   |   |   |   |   |
| First      Mortgage Bonds                                                                                         |   |   |   |   |   |   |   |   |   |
|                                                                                                              | Series |   | Year Due |   |   |   |   |   |   |   |   |
|                                                                                                              | M      | 5.000% | 2028 |   |   | 28.8 |   |   | 29.0 |   |   |
|                                                                                                              | N-2    | 4.625% | 2013 |   |   | 40.0 |   |   | 40.0 |   |   |
|                                                                                                              | O      | 7.000% | 2013 |   |   | 6.5 |   |   |                     - |   |   |
| Total      long-term debt                                                                                         |   |   |   | 75.3 |   |   | 69.0 |   |   |
| Total      capitalization                                                                                         |   |   |   | $ | 177.4 |   | $ | 170.4 |   |   |
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |
| The      accompanying notes to NSG's financial statements are an integral part of      these statements.          |   |   |

----

| E.  STATEMENTS      OF COMMON SHAREHOLDER'S EQUITY                                             |   |
|----------------------------------------------------------------------------------------------------------|--------|
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   | Accumulated      Other Comprehensive |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   | Income      (Loss) |   |
|                                                                                                     |   | Comprehensive |   |   | Common |   |   | Retained |   |   | Cash      Flow |   |   | Minimum      Pension |   |
| (Millions)                                                                                               |   | Income |   |   | Total |   |   | Stock |   |   | Earnings |   |   | Hedges |   |   | Liability |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at September 30, 2005                                                                       |   |   |   |   | $ | 103.0 |   |   | $ | 24.8 |   |   | $ | 80.6 |   |   | $ | (0.2 | ) |   | $ | (2.2 | ) |
| Net      income                                                                                          |   | $ | 6.7 |   |   |   | 6.7 |   |   |   |   |   |   |   | 6.7 |   |   |   |   |   |   |   |   |   |
| Other      comprehensive income - minimum pension liability (net of tax of      $1.5)                    |   |   | 2.2 |   |   |   | 2.2 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2.2 |   |
| Comprehensive      income                                                                                |   |   | 8.9 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends on      common stock                                                                           |   |   |   |   |   |   | (11.0 | ) |   |   |   |   |   |   | (11.0 | ) |   |   |   |   |   |   |   |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at September 30, 2006                                                                       |   |   |   |   |   | $ | 100.9 |   |   | $ | 24.8 |   |   | $ | 76.3 |   |   | $ | (0.2 | ) |   | $ | - |   |
| Net      income                                                                                          |   | $ | 4.4 |   |   |   | 4.4 |   |   |   |   |   |   |   | 4.4 |   |   |   |   |   |   |   |   |   |
| Dividends on      common stock                                                                           |   |   |   |   |   |   | (2.5 | ) |   |   |   |   |   |   | (2.5 | ) |   |   |   |   |   |   |   |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2006                                                                        |   |   |   |   |   | $ | 102.8 |   |   | $ | 24.8 |   |   | $ | 78.2 |   |   | $ | (0.2 | ) |   | $ | - |   |
| Net      income                                                                                          |   | $ | 7.9 |   |   |   | 7.9 |   |   |   |   |   |   |   | 7.9 |   |   |   |   |   |   |   |   |   |
| Other      comprehensive income - net unrealized gain on cash flow hedges (net of tax      of $0.1)      |   |   | 0.1 |   |   |   | 0.1 |   |   |   |   |   |   |   |   |   |   |   | 0.1 |   |   |   |   |   |
| Comprehensive      income                                                                                |   |   | 8.0 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends on      common stock                                                                           |   |   |   |   |   |   | (9.4 | ) |   |   |   |   |   |   | (9.4 | ) |   |   |   |   |   |   |   |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2007                                                                        |   |   |   |   |   | $ | 101.4 |   |   | $ | 24.8 |   |   | $ | 76.7 |   |   | $ | (0.1 | ) |   | $ | - |   |
| Net      income                                                                                          |   | $ | 7.0 |   |   |   | 7.0 |   |   |   |   |   |   |   | 7.0 |   |   |   |   |   |   |   |   |   |
| Effects of      changing pension plan measurement datepursuant to      SFAS No. 158                      |   |   | (0.6 | ) |   |   |   |   |   |   | (0.6 | ) |   |   |   |   |   |   |   |   |
| Dividends on      common stock                                                                           |   |   |   |   |   |   | (5.7 | ) |   |   |   |   |   |   | (5.7 | ) |   |   |   |   |   |   |   |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2008                                                                        |   |   |   |   |   | $ | 102.1 |   |   | $ | 24.8 |   |   | $ | 77.4 |   |   | $ | (0.1 | ) |   | $ | - |   |
|                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The      accompanying notes to NSG's financial statements are an integral part of      these statements. |   |   |   |   |   |   |   |   |   |

----

| F.  STATEMENTS      OF CASH FLOWS                                                                                    |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   |   |   |   |   |   |   | Transition |   |   |   |   |
|                                                                                                                           |   | Year      Ended |   |   | Year      Ended |   |   | Period      Ended |   |   | Year      Ended |   |
|                                                                                                                           |   | December      31, |   |   | December      31, |   |   | December      31, |   |   | September      30, |   |
| (Millions)                                                                                                                     |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2006 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      Activities:                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                                                |   | $ | 7.0 |   |   | $ | 7.9 |   |   | $ | 4.4 |   |   | $ | 6.7 |   |
| Adjustments      to reconcile net income to cash provided by (used for)      operations:                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization expense                                                                                     |   |   | 6.6 |   |   |   | 6.0 |   |   |   | 1.5 |   |   |   | 5.7 |   |
| Bad debt      expense                                                                                                          |   |   | 2.3 |   |   |   | 2.1 |   |   |   | 0.3 |   |   |   | 1.6 |   |
| Deferred      income taxes and investment tax credits, net                                                                     |   |   | 4.3 |   |   |   | (1.3 | ) |   |   | - |   |   |   | 3.4 |   |
| Pension and      other postretirement expense                                                                                  |   |   | 4.1 |   |   |   | 4.2 |   |   |   | 0.9 |   |   |   | 4.8 |   |
| Pension and      other postretirement funding                                                                                  |   |   | (1.3 | ) |   |   | (0.1 | ) |   |   | - |   |   |   | (2.0 | ) |
| Natural gas      charge settlement                                                                                             |   |   | - |   |   |   | 1.6 |   |   |   | - |   |   |   | - |   |
| Other,      net                                                                                                                |   |   | 0.2 |   |   |   | (2.6 | ) |   |   | 1.2 |   |   |   | 0.9 |   |
| Net changes      in:                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|             Accounts      receivable and accrued unbilled revenues |   |   | (12.8 | ) |   |   | (11.5 | ) |   |   | (27.4 | ) |   |   | 2.5 |   |
| Natural gas      in storage                                                                                                    |   |   | 0.1 |   |   |   | 1.1 |   |   |   | 11.7 |   |   |   | (7.5 | ) |
| Other current      assets                                                                                                      |   |   | (0.1 | ) |   |   | 6.5 |   |   |   | (8.6 | ) |   |   | 11.7 |   |
| Accounts      payable                                                                                                          |   |   | (0.1 | ) |   |   | 4.3 |   |   |   | 5.1 |   |   |   | (5.5 | ) |
| Accrued      taxes                                                                                                             |   |   | 3.6 |   |   |   | (6.1 | ) |   |   | 3.6 |   |   |   | (4.2 | ) |
| Other current      liabilities                                                                                                 |   |   | (1.7 | ) |   |   | (5.1 | ) |   |   | (1.0 | ) |   |   | 4.2 |   |
| Net      cash provided by (used for) operating activities                                                                      |   |   | 12.2 |   |   |   | 7.0 |   |   |   | (8.3 | ) |   |   | 22.3 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investing      Activities:                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital      expenditures                                                                                                      |   |   | (10.0 | ) |   |   | (9.7 | ) |   |   | (1.6 | ) |   |   | (9.4 | ) |
| Notes      receivable from related parties                                                                                     |   |   | 0.2 |   |   |   | - |   |   |   | (0.1 | ) |   |   | 0.4 |   |
| Net      cash used for investing activities                                                                                    |   |   | (9.8 | ) |   |   | (9.7 | ) |   |   | (1.7 | ) |   |   | (9.0 | ) |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Financing      Activities:                                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Notes payable      to related parties                                                                                          |   |   | (2.9 | ) |   |   | 11.9 |   |   |   | - |   |   |   | - |   |
| Issuance of      long-term debt                                                                                                |   |   | 6.5 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Retirement of      long-term debt                                                                                              |   |   | (0.2 | ) |   |   | - |   |   |   | (0.2 | ) |   |   | - |   |
| Dividends to      parent                                                                                                       |   |   | (5.7 | ) |   |   | (9.3 | ) |   |   | (2.5 | ) |   |   | (11.0 | ) |
| Net      cash provided by (used for) financing activities                                                                      |   |   | (2.3 | ) |   |   | 2.6 |   |   |   | (2.7 | ) |   |   | (11.0 | ) |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                                                                      |   |   | 0.1 |   |   |   | (0.1 | ) |   |   | (12.7 | ) |   |   | 2.3 |   |
| Cash      and cash equivalents at beginning of period                                                                          |   |   | - |   |   |   | 0.1 |   |   |   | 12.8 |   |   |   | 10.5 |   |
| Cash      and cash equivalents at end of period                                                                                |   | $ | 0.1 |   |   | $ | - |   |   | $ | 0.1 |   |   | $ | 12.8 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| The      accompanying notes to NSG's financial statements are an integral part of      these statements.                       |   |   |   |   |   |   |   |   |   |

----

|                                       |   | Year      EndedDecember      31, |   |   | Year      EndedDecember      31, |   |   | TransitionPeriod      EndedDecember      31, |   |   | Year      EndedSeptember      30, |   |
|--------------------------------------------|--------|----------------------------------|--------|--------|----------------------------------|--------|--------|----------------------------------------------|--------|--------|-----------------------------------|--------|
| (Millions)                                 |   | 2008                             |   |   | 2007                             |   |   | 2006                                         |   |   | 2006                              |   |
| Cash paid for      interest                |   | $                                | 3.8    |   |                             | $      | 3.8    |                                         |   | $      | 1.8                               |   |   | $ | 3.6 |   |
| Cash paid      (received) for income taxes |   |                             | (3.2   | )      |                             |   | 12.3   |                                         |   |   | 0.5                               |   |   |   | 3.9 |   |

----

----

----

 
 SFASNo. 161 requires enhanced disclosures about (1) how and why an entityuses derivative instruments, (2) how derivative instruments and relatedhedged items are accounted for under SFAS No. 133, as amended, and(3) how derivative instruments and related hedged items affect an entity'sfinancial position, financial performance, and cash flows.
  SFAS No. 161 is effective for NSG for thereporting period ending March 31, 2009, and will result in expandeddisclosures for derivative instruments.

----

|                            |   | Assets                 |   |   | Liabilities            |   |
|---------------------------------|--------|------------------------|--------|--------|------------------------|--------|
| (Millions)                      |   | December      31, 2008 |   |   | December      31, 2007 |   |   | December      31,2008 |   |   | December      31, 2007 |   |
| Commodity      contracts        |   | $                      | 1.8    |   |                   | $      | 2.1 |   |   | $ | 28.4 |   |   | $ | 5.7 |   |
| Balance      Sheet Presentation |   |                   |   |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Current                         |   | $                      | 1.8    |   |                   | $      | 2.0 |   |   | $ | 26.7 |   |   | $ | 5.7 |   |
| Other      long-term            |   |                   | -      |   |                   |   | 0.1 |   |   |   | 1.7 |   |   |   | - |   |
| Total                           |   | $                      | 1.8    |   |                   | $      | 2.1 |   |   | $ | 28.4 |   |   | $ | 5.7 |   |

| (Millions)                                     |   | 2008   |   |   | 2007   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Total utility      plant                       |   | $      | 405.7  |   |   | $      | 396.8 |   |
| Less:  Accumulated      depreciation |   |   | 160.2  |   |   |   | 154.2 |   |
| Net                                            |   |   | 245.5  |   |   |   | 242.6 |   |
| Construction      work in progress             |   |   | 0.3    |   |   |   | 2.2 |   |
| Total      property, plant, and equipment      |   | $      | 245.8  |   |   | $      | 244.8 |   |

----

| (Millions)                                                         |   | 2008   |   |   | 2007   |   |
|--------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                               |   |   |   |   |   |   |
| Regulatory      assets                                             |   |   |   |   |   |   |
| Environmental      remediation costs (net of insurance recoveries) |   | $      | 105.8  |   |   | $      | 87.6 |   |
| Derivatives                                                        |   |   | 28.2   |   |   |   | 5.0 |   |
| Pension and      other postretirement benefit related items        |   |   | 16.4   |   |   |   | 12.6 |   |
| Asset      retirement obligations                                  |   |   | 4.4    |   |   |   | 2.2 |   |
| Rate case      costs                                               |   |   | 2.1    |   |   |   | - |   |
| Unamortized      loss on debt                                      |   |   | 1.8    |   |   |   | 1.8 |   |
| Costs to      achieve merger synergies                             |   |   | 1.5    |   |   |   | 1.6 |   |
| Other                                                              |   |   | 0.4    |   |   |   | 0.7 |   |
| Total                                                              |   | $      | 160.6  |   |   | $      | 111.5 |   |
| Balance      Sheet Presentation                                    |   |   |   |   |   |   |   |   |
| Current                                                            |   | $      | 32.3   |   |   | $      | 9.8 |   |
| Long-term                                                          |   |   | 128.3  |   |   |   | 101.7 |   |
| Total                                                              |   | $      | 160.6  |   |   | $      | 111.5 |   |
|                                                               |   |   |   |   |   |   |   |   |
| Regulatory      liabilities                                        |   |   |   |   |   |   |   |   |
| Gas costs      refundable through rate adjustments                 |   | $      | 6.5    |   |   | $      | 8.9 |   |
| Income tax      related items                                      |   |   | 1.7    |   |   |   | 2.0 |   |
| Other                                                              |   |   | 1.5    |   |   |   | - |   |
| Total                                                              |   | $      | 9.7    |   |   | $      | 10.9 |   |
| Balance      Sheet Presentation                                    |   |   |   |   |   |   |   |   |
| Current                                                            |   | $      | 8.1    |   |   | $      | 8.9 |   |
| Long-term –      included in other long-term liabilities     |   |   | 1.6    |   |   |   | 2.0 |   |
| Total                                                              |   | $      | 9.7    |   |   | $      | 10.9 |   |

----

| Year      ending December 31 |   |   |   |
|------------------------------|--------|--------|--------|
| (Millions)                   |   |   |   |
| 2009                         |   | $      | -      |   |
| 2010                         |   |   | -      |   |
| 2011                         |   |   | -      |   |
| 2012                         |   |   | -      |   |
| 2013                         |   |   | 46.5   |   |
| Later      years             |   |   | 28.8   |   |
| Total      payments          |   | $      | 75.3   |   |

| (Millions)                                                   |   |   |   |
|--------------------------------------------------------------|--------|--------|--------|
| Asset      retirement obligations at September 30, 2005 |   | $      | -      |   |
| Adoption of      FIN 47                                      |   |   | 19.3   |   |
| Asset      retirement obligations at September 30, 2006 |   |   | 19.3   |   |
| Accretion                                                    |   |   | 0.2    |   |
| Asset      retirement obligations at December 31, 2006       |   |   | 19.5   |   |
| Accretion                                                    |   |   | 1.2    |   |
| Additions and      revisions to estimated cash flows         |   |   | 2.3    |   |
| Asset      retirement obligations at December 31, 2007       |   |   | 23.0   |   |
| Accretion                                                    |   |   | 1.2    |   |
| Asset      retirement obligations at December 31, 2008       |   | $      | 24.2   |   |

----

| (Millions)                                                                               |   | 2008   |   |   | 2007   |   |
|------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                                                                     |   |   |   |   |   |   |
| Deferred      tax assets:                                                                |   |   |   |   |   |   |
| Employee      benefits                                                                   |   | $      | 7.8    |   |   | $      | 5.7 |   |
| Other                                                                                    |   |   | 2.0    |   |   |   | 3.0 |   |
| Total      deferred tax assets                                                           |   | $      | 9.8    |   |   | $      | 8.7 |   |
|                                                                                     |   |   |   |   |   |   |   |   |
| Deferred      tax liabilities:                                                           |   |   |   |   |   |   |   |   |
| Plant      related                                                                       |   | $      | 48.4   |   |   | $      | 45.3 |   |
| Regulatory      deferrals                                                                |   |   | 4.0    |   |   |   | 1.7 |   |
| Total      deferred tax liabilities                                                      |   | $      | 52.4   |   |   | $      | 47.0 |   |
|                                                                                     |   |   |   |   |   |   |   |   |
| Balance      Sheet Presentation:                                                         |   |   |   |   |   |   |   |   |
| Current      deferred tax assets – included in other current assets                |   | $      | -      |   |   | $      | 0.7 |   |
| Current      deferred tax liabilities – included in other current      liabilities |   |   | 1.6    |   |   |   | - |   |
| Long-term      deferred tax liabilities                                                  |   |   | 41.0   |   |   |   | 39.0 |   |
| Net deferred      tax liabilities                                                        |   | $      | 42.6   |   |   | $      | 38.3 |   |

| (Millions,      except for percentages) |   | 2008   |   |   | 2007   |   |   | Transition      PeriodEnded      December 31,2006 |   |   | Year      EndedSeptember      30,2006 |   |
|-----------------------------------------|--------|--------|--------|--------|--------|--------|--------|---------------------------------------------------|--------|--------|---------------------------------------|--------|
|                                    |   | Rate   |   |   | Amount |   |   | Rate                                              |   |   | Amount                                |   |   | Rate |   |   | Amount |   |   | Rate |   |   | Amount |   |
|                                    |   |   |   |   |   |   |   |                                              |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Statutory      federal income tax       |   |   | 35.0   | %      |   | $      | 3.9    |                                              |   |   | 35.0                                  | %      |   | $ | 4.6 |   |   |   | 35.0 | % |   | $ | 2.4 |   |   |   | 35.0 | % |   | $ | 3.7 |   |
| State income      taxes, net            |   |   | 4.3    |   |   |   | 0.5    |                                              |   |   | 4.5                                   |   |   |   | 0.6 |   |   |   | 4.6 | % |   |   | 0.3 |   |   |   | 4.7 |   |   |   | 0.5 |   |
| Unrecognized      tax benefits          |   |   | 0.5    |   |   |   | 0.1    |                                              |   |   | 2.3                                   |   |   |   | 0.3 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other      differences, net             |   |   | (2.9   | )      |   |   | (0.4   | )                                                 |   |   | (2.1                                  | )      |   |   | (0.3 | ) |   |   | (2.5 | ) |   |   | (0.1 | ) |   |   | (3.5 | ) |   |   | (0.4 | ) |
| Effective      income tax               |   |   | 36.9   | %      |   | $      | 4.1    |                                              |   |   | 39.7                                  | %      |   | $ | 5.2 |   |   |   | 37.1 | % |   | $ | 2.6 |   |   |   | 36.2 | % |   | $ | 3.8 |   |
|                                    |   |   |   |   |   |   |   |                                              |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current      provision                  |   |   |   |   |   |   |   |                                              |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal                                 |   |   |   |   |   | $      | (0.1   | )                                                 |   |   |                                  |   |   | $ | 3.9 |   |   |   |   |   |   | $ | 2.3 |   |   |   |   |   |   | $ | 0.7 |   |
| State                                   |   |   |   |   |   |   | -      |                                              |   |   |                                  |   |   |   | 2.3 |   |   |   |   |   |   |   | 0.3 |   |   |   |   |   |   |   | (0.3 | ) |
| Total      current provision            |   |   |   |   |   |   | (0.1   | )                                                 |   |   |                                  |   |   |   | 6.2 |   |   |   |   |   |   |   | 2.6 |   |   |   |   |   |   |   | 0.4 |   |
|                                    |   |   |   |   |   |   |   |                                              |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Deferred      provision                 |   |   |   |   |   |   | 4.2    |                                              |   |   |                                  |   |   |   | (1.3 | ) |   |   |   |   |   |   | - |   |   |   |   |   |   |   | 3.4 |   |
| Unrecognized      tax benefits          |   |   |   |   |   |   | 0.1    |                                              |   |   |                                  |   |   |   | 0.3 |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | - |   |
| Investment      tax credit restored     |   |   |   |   |   |   | (0.1   | )                                                 |   |   |                                  |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   |   |   |   |   | - |   |
| Total      income tax expense           |   |   |   |   |   | $      | 4.1    |                                              |   |   |                                  |   |   | $ | 5.2 |   |   |   |   |   |   | $ | 2.6 |   |   |   |   |   |   | $ | 3.8 |   |

----

| (Millions)                                                               |   | 2008   |   |   | 2007   |   |
|--------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Balance at      January 1                                           |   | $      | 0.4    |   |   | $      | 0.1 |   |
|   Increase      related to tax positions taken in prior years  |   |   | 0.4    |   |   |   | 0.1 |   |
|   Decrease      related to tax positions taken in prior years  |   |   | (0.4   | )      |   |   | - |   |
|   Increase      related to tax positions taken in current year |   |   | -      |   |   |   | 0.2 |   |
|   Decrease      related to settlements                         |   |   | (0.1   | )      |   |   | - |   |
| Balance at      December 31                                         |   | $      | 0.3    |   |   | $      | 0.4 |   |

| ·   | IRS – PEC and      consolidated subsidiaries have an open examination for the September 30,      2004 through December 31, 2006, taxyears. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | IRS –      Integrys Energy Group and consolidated subsidiaries has an open      examination for the 2006 and 2007 tax years along with the February 21,      2007, PEC short year. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Illinois      Department of Revenue – PEC and combined subsidiaries have an open      examination for the September 30, 2003, through December 31, 2006, tax      years. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

| ·   | Closure of      the defined benefit pension plans to non-union new hires, effective      January 1, 2008; |
|--------------------|-----------------------------------------------------------------------------------------------------------|

| ·   | A freeze in      defined benefit pension service accruals for non-union employees,      effective January 1, 2013; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------|

| ·   | A freeze in      compensation amounts used for determining defined benefit pension amounts      for non-union employees, effective January 1,  2018; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Revised      eligibility requirements for retiree medical benefits for employees hired      on or after January 1, 2008, and the introduction of an annual premium      reduction credit for employees eligible to retire after December 31, 2012;      and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Closure of      the retiree dental and life benefit programs to all new hires, effective      January 1, 2008, and elimination of these benefits for any existing      employees who are not eligible to retire before December 31,      2012. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                               |   | Pension Benefits |   |   | Other Benefits |   |
|----------------------------------------------------|--------|------------------|--------|--------|----------------|--------|
| (Millions)                                         |   | 2008             |   |   | 2007           |   |   | 2008 |   |   | 2007 |   |
| Reconciliation      of benefit obligation          |   |             |   |   |           |   |   |   |   |   |   |   |
| Obligation at      beginning of measurement period |   | $                | 28.3   |   |           | $      | 28.6 |   |   | $ | 14.6 |   |   | $ | 12.6 |   |
| Service      cost                                  |   |             | 1.2    |   |           |   | 1.3 |   |   |   | 0.9 |   |   |   | 0.7 |   |
| Interest      cost                                 |   |             | 1.8    |   |           |   | 1.6 |   |   |   | 0.9 |   |   |   | 0.8 |   |
| Participant      contributions                     |   |             | -      |   |           |   | - |   |   |   | 0.2 |   |   |   | 0.7 |   |
| Plan      curtailments                             |   |             | -      |   |           |   | (0.8 | ) |   |   | - |   |   |   | (0.1 | ) |
| Transfers to      affiliates                       |   |             | (0.1   | )      |           |   | (0.2 | ) |   |   | - |   |   |   | - |   |
| Actuarial      (gain) loss, net                    |   |             | (1.1   | )      |           |   | 0.4 |   |   |   | (0.5 | ) |   |   | 1.0 |   |
| Benefit      payments                              |   |             | (2.6   | )      |           |   | (2.6 | ) |   |   | (0.9 | ) |   |   | (1.2 | ) |
| Federal      subsidy on benefits paid              |   |             | -      |   |           |   | - |   |   |   | 0.1 |   |   |   | 0.1 |   |
| Elimination      of early measurement period       |   |             | 0.5    |   |           |   | - |   |   |   | 0.2 |   |   |   | - |   |
| Obligation at      end of measurement period       |   | $                | 28.0   |   |           | $      | 28.3 |   |   | $ | 15.5 |   |   | $ | 14.6 |   |

----

|                                                                        |   | Pension Benefits |   |   | Other Benefits |   |
|-----------------------------------------------------------------------------|--------|------------------|--------|--------|----------------|--------|
| (Millions)                                                                  |   | 2008             |   |   | 2007           |   |   | 2008 |   |   | 2007 |   |
| Reconciliation      of fair value of plan assets                            |   |             |   |   |           |   |   |   |   |   |   |   |   |
| Fair value of      plan assets at beginning of measurement      period |   | $                | 15.7   |   |           | $      | 16.4 |   |   | $ | 2.4 |   |   | $ | 2.3 |   |
| Actual return      on plan assets                                           |   |             | (4.0   | )      |           |   | 2.1 |   |   |   | (0.5 | ) |   |   | 0.5 |   |

| Employer      contributions                                      |   |   | 1.0  |   |   |   | -    |   |   |   | 0.3  |   |   |   | 0.1  |   |
|------------------------------------------------------------------|--------|--------|------|--------|--------|--------|------|--------|--------|--------|------|--------|--------|--------|------|--------|
| Transfers to      affiliates                                     |   |   | (0.1 | )      |   |   | (0.2 | )      |   |   | -    |   |   |   | -    |   |
| Participant      contributions                                   |   |   | -    |   |   |   | -    |   |   |   | 0.2  |   |   |   | 0.7  |   |
| Benefit      payments                                            |   |   | (2.6 | )      |   |   | (2.6 | )      |   |   | (0.9 | )      |   |   | (1.2 | )      |
| Elimination      of early measurement period                     |   |   | (0.4 | )      |   |   | -    |   |   |   | (0.1 | )      |   |   | -    |   |
| Fair value of      plan assets at end of measurement period |   | $      | 9.6  |   |   | $      | 15.7 |   |   | $      | 1.4  |   |   | $      | 2.4  |   |

|                        |   | Pension Benefits |   |   | Other Benefits |   |
|-----------------------------|--------|------------------|--------|--------|----------------|--------|
| (Millions)                  |   | 2008             |   |   | 2007           |   |   | 2008 |   |   | 2007 |   |
| Noncurrent      liabilities |   | $                | 18.4   |   |           | $      | 12.6 |   |   | $ | 14.1 |   |   | $ | 12.2 |   |

|                                |   | December 31, |   |
|-------------------------------------|--------|-------------------|--------|
| (Millions)                          |   | 2008              |   |   | 2007 |   |
| Projected      benefit obligation   |   | $                 | 28.0   |   |   | $ | 28.3 |   |
| Accumulated      benefit obligation |   |              | 21.9   |   |   |   | 22.6 |   |
| Fair value of      plan assets      |   |              | 9.6    |   |   |   | 15.7 |   |

|                       |   | Pension Benefits |   |   | Other Benefits |   |
|----------------------------|--------|------------------|--------|--------|----------------|--------|
| (Millions)                 |   | 2008             |   |   | 2007           |   |   | 2008 |   |   | 2007 |   |
| Regulatory      assets     |   |             |   |   |           |   |   |   |   |   |   |   |
| Net actuarial      loss    |   | $                | 11.7   |   |           | $      | 7.6 |   |   | $ | 2.4 |   |   | $ | 2.3 |   |
| Prior service      costs   |   |             | 1.7    |   |           |   | 1.9 |   |   |   | - |   |   |   | - |   |
| Transition      obligation |   |             | -      |   |           |   | - |   |   |   | 0.6 |   |   |   | 0.8 |   |
| Total                      |   | $                | 13.4   |   |           | $      | 9.5 |   |   | $ | 3.0 |   |   | $ | 3.1 |   |

----

|                                                      |   | Pension      Benefits             |   |
|-----------------------------------------------------------|--------|-----------------------------------|--------|
| (Millions)                                                |   | Year      Ended December 31, 2008 |   |   | Year      Ended December 31, 2007 |   |   | Transition      Period Ended December 31, 2006 |   |   | Year      Ended September 30, 2006 |   |
| Service      cost                                         |   | $                                 | 1.2    |   |   | $ | 1.3 |   |   | $ | 0.3 |   |   | $ | 1.5 |   |
| Interest      cost                                        |   |                              | 1.8    |   |   |   | 1.7 |   |   |   | 0.4 |   |   |   | 1.6 |   |
| Expected      return on plan assets                       |   |                              | (1.2   | ) |   |   | (1.2 | ) |   |   | (0.3 | ) |   |   | (1.3 | ) |
| Amortization      of prior service cost                   |   |                              | 0.2    |   |   |   | 0.2 |   |   |   | - |   |   |   | 0.2 |   |
| Amortization      of net actuarial loss                   |   |                              | 0.1    |   |   |   | 0.3 |   |   |   | 0.1 |   |   |   | 0.6 |   |
| Net      periodic benefit cost                            |   |                              | 2.1    |   |   |   | 2.3 |   |   |   | 0.5 |   |   |   | 2.6 |   |
| Effects of      lump sum settlements upon retirement |   |                              | 0.2    |   |   |   | 0.3 |   |   |   | - |   |   |   | 0.8 |   |
| Net      benefit cost                                     |   | $                                 | 2.3    |   |   | $ | 2.6 |   |   | $ | 0.5 |   |   | $ | 3.4 |   |

|                                       |   | Other      Benefits               |   |
|--------------------------------------------|--------|-----------------------------------|--------|
| (Millions)                                 |   | Year      Ended December 31, 2008 |   |   | Year      Ended December 31, 2007 |   |   | Transition      Period Ended December 31, 2006 |   |   | Year      Ended September 30, 2006 |   |
| Service      cost                          |   | $                                 | 0.8    |   |   | $ | 0.8 |   |   | $ | 0.2 |   |   | $ | 0.6 |   |
| Interest      cost                         |   |                              | 0.9    |   |   |   | 0.8 |   |   |   | 0.2 |   |   |   | 0.6 |   |
| Expected      return on plan assets        |   |                              | (0.1   | ) |   |   | (0.2 | ) |   |   | - |   |   |   | (0.1 | ) |
| Amortization      of transition obligation |   |                              | 0.1    |   |   |   | 0.1 |   |   |   | - |   |   |   | 0.1 |   |
| Amortization      of net actuarial loss    |   |                              | 0.1    |   |   |   | 0.1 |   |   |   | - |   |   |   | 0.2 |   |
| Net      periodic benefit cost             |   | $                                 | 1.8    |   |   | $ | 1.6 |   |   | $ | 0.4 |   |   | $ | 1.4 |   |

----

|                                                | Pension Benefits | Other Benefits |
|-----------------------------------------------------|------------------|----------------|
|                                                | 2008             | 2007           | 2008 | 2007 |
| Discount      rate                                  | 6.45%            | 6.35%          | 6.45% | 6.25% |
| Rate of      compensation increase                  | 4.17%            | 4.18%          | N/A | N/A |
| Assumed      medical cost trend rate (under age 65) | N/A              | N/A            | 9.0% |  10.0% |
| Ultimate      trend rate                            | N/A              | N/A            | 5.0% |  5.0% |
| Ultimate      trend rate reached in                 | N/A              | N/A            | 2013 |  2013 |
| Assumed      medical cost trend rate (over age 65)  | N/A              | N/A            | 9.5% |  10.5% |
| Ultimate      trend rate                            | N/A              | N/A            | 5.5% |  5.5% |
| Ultimate      trend rate reached in                 | N/A              | N/A            | 2013 |  2013 |
| Assumed      dental cost trend rate                 | N/A              | N/A            | 5.0% |  5.0% |

|                               |   | Pension      Benefits             |   |
|------------------------------------|--------|-----------------------------------|--------|
|                               |   | Year      Ended December 31, 2008 |   |   | Year      Ended December 31, 2007 |   |   | Year      Ended September 30, 2006 |   |
| Discount      rate                 |   |                              | 6.40   | % |   |   | 6.00 | % |   |   | 5.25 | % |
| Expected      return on assets     |   |                              | 8.50   | % |   |   | 8.50 | % |   |   | 8.75 | % |
| Rate of      compensation increase |   |                              | 4.18   | % |   |   | 3.75 | % |   |   | 3.75 | % |

|                                                |   | Other      Benefits               |   |
|-----------------------------------------------------|--------|-----------------------------------|--------|
|                                                |   | Year      Ended December 31, 2008 |   |   | Year      Ended December 31, 2007 |   |   | Year      Ended September 30, 2006 |   |
| Discount      rate                                  |   |                              | 6.25   | % |   |   | 5.75 | % |   |   | 5.00 | % |
| Expected      return on assets                      |   |                              | 8.50   | % |   |   | 8.50 | % |   |   | 8.75 | % |
| Assumed      medical cost trend rate (under age 65) |   |                              | 10.0   | % |   |   | 8.0 | % |   |   | 9.0 | % |
| Ultimate      trend rate                            |   |                              | 5.0    | % |   |   | 5.0 | % |   |   | 5.0 | % |
| Ultimate      trend rate reached in                 |   | 2013                              |   |   | 2010 |   |   | 2010 |   |
| Assumed      medical cost trend rate (over age 65)  |   |                              | 10.5   | % |   |   | 8.0 | % |   |   | 9.0 | % |
| Ultimate      trend rate                            |   |                              | 5.5    | % |   |   | 5.0 | % |   |   | 5.0 | % |
| Ultimate      trend rate reached in                 |   | 2013                              |   |   | 2010 |   |   | 2010 |   |
| Assumed      dental cost trend rate                 |   |                              | 5.0    | % |   |   | 5.0 | % |   |   | 5.0 | % |

----

|                                                                                                                      |   | One-Percentage-Point |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|----------------------|--------|
| (Millions)                                                                                                                |   | Increase             |   |   | Decrease |   |
| Effect on      total of service and interest cost components of net periodic      postretirement health care benefit cost |   | $                    | 0.3    |   |   | $ | (0.2 | ) |
| Effect on the      health care component of the accumulated      postretirement benefit obligation                        |   |                 | 1.7    |   |   |   | (1.5 | ) |

|                   |   | Pension Benefits Assets |   |   | Other Benefits Assets                              |   |
|------------------------|--------|-------------------------|--------|--------|----------------------------------------------------|--------|
|                   |   | Target      Allocation  |   |   | Percentage      of PlanAssets      at December 31, |   |   | Target      Allocation |   |   | Percentage      of PlanAssets      at December 31, |   |
| Asset      category    |   | 2008                    |   |   | 2008                                               |   |   | 2007 |   |   | 2008 |   |   | 2008 |   |   | 2007 |   |
| Equity      securities |   |                    | 64     | %      |                                               |   | 56 | % |   |   | 69 | % |   |   | 60 | % |   |   | 46 | % |   |   | 53 | % |
| Debt      securities   |   |                    | 33     | %      |                                               |   | 40 | % |   |   | 31 | % |   |   | 40 | % |   |   | 54 | % |   |   | 36 | % |
| Real      estate       |   |                    | 3      | %      |                                               |   | 4 | % |   |   | - | % |   |   | - | % |   |   | - | % |   |   | - | % |
| Other                  |   |                    | -      | %      |                                               |   | - | % |   |   | - | % |   |   | - | % |   |   | - | % |   |   | 11 | % |
| Total                  |   |                    | 100    | %      |                                               |   | 100 | % |   |   | 100 | % |   |   | 100 | % |   |   | 100 | % |   |   | 100 | % |

| (Millions) |   | Pension      Benefits |   |   | Other      Benefits |   |   | Federal      Subsidies |   |
|------------|--------|-----------------------|--------|--------|---------------------|--------|--------|------------------------|--------|
| 2009       |   | $                     | 1.5    |   |                | $      | 1.1    |                   |   | $ | (0.1 | ) |
| 2010       |   |                  | 1.8    |   |                |   | 1.2    |                   |   |   | (0.1 | ) |
| 2011       |   |                  | 1.7    |   |                |   | 1.2    |                   |   |   | (0.1 | ) |
| 2012       |   |                  | 1.7    |   |                |   | 1.3    |                   |   |   | (0.1 | ) |
| 2013       |   |                  | 2.1    |   |                |   | 1.4    |                   |   |   | (0.1 | ) |
| 2014-2018  |   |                  | 17.2   |   |                |   | 7.5    |                   |   |   | (0.7 | ) |

----

| (Millions)                                                     |   | Level      1 |   |   | Level      2 |   |   | Level      3 |   |   | Total  |   |   | Netting * |   |   | Balance      Sheet Presentation |   |
|----------------------------------------------------------------|--------|--------------|--------|--------|--------------|--------|--------|--------------|--------|--------|--------|--------|--------|----------------|--------|--------|---------------------------------|--------|
| Assets                                                         |   |         |   |   |         |   |   |         |   |   |   |   |   |           |   |   |                            |   |
|     Risk      management assets            |   | $            | -      |   |         | $      | 4.3    |         |   | $      | -      |   |   | $              | 4.3    |   |                            | $      | 2.5 |   |   | $ | 1.8 |   |
| Liabilities                                                    |   |         |   |   |         |   |   |         |   |   |   |   |   |           |   |   |                            |   |   |   |   |   |   |   |
|      Risk      management liabilities |   |         | -      |   |         |   | 30.9   |         |   |   | -      |   |   |           | 30.9   |   |                            |   | 2.5 |   |   |   | 28.4 |   |

| * | FASB      Interpretation No. 39, as amended, permits the netting of risk      management assets and liabilities when a legally enforceable netting      agreement exists, and requires the netting of related cash collateral      positions against the net derivativepositions. |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                   |   | 2008                 |   |   | 2007      |   |
|------------------------|--------|----------------------|--------|--------|-----------|--------|
|  (Millions)  |   | Carrying Amount |   |   | FairValue |   |   | Carrying Amount |   |   | FairValue |   |
|                   |   |                 |   |   |      |   |   |   |   |   |   |   |
| Long-term      debt    |   | $                    | 75.3   |   |      | $      | 68.3 |   |   | $ | 69.0 |   |   | $ | 68.9 |   |

|   (Millions)                                 |   | Year      EndedDecember      31, 2008 |   |   | Year      EndedDecember      31, 2007 |   |   | Transition      Period EndedDecember      31, 2006 |   |   | Year      EndedSeptember      30, 2006 |   |
|--------------------------------------------------------|--------|---------------------------------------|--------|--------|---------------------------------------|--------|--------|----------------------------------------------------|--------|--------|----------------------------------------|--------|
| Interest and      dividend income – external     |   | $                                     | 0.2    |   |                                  | $      | 0.6    |                                               |   | $      | 0.1                                    |   |   | $ | 1.1 |   |
| Interest and      dividend income – intercompany |   |                                  | 0.3    |   |                                  |   | 0.5    |                                               |   |   | 0.1                                    |   |   |   | 0.1 |   |
| Environmental      carrying charge                     |   |                                  | 0.3    |   |                                  |   | 0.1    |                                               |   |   | -                                      |   |   |   | 0.1 |   |
| Total      miscellaneous income                        |   | $                                     | 0.8    |   |                                  | $      | 1.2    |                                               |   | $      | 0.2                                    |   |   | $ | 1.3 |   |

----

| ● | provide      certain reports,                                                                                                                                                                        |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ● | maintain      NSG’s operation and maintenance and capital budgets at recent      levels,                                                                                                       |
| ● | file a plan      for formation and implementation of a service company,                                                                                                                              |
| ● | accept      certain limits on the merger-related costs that can be recovered from      ratepayers, and                                                                                               |
| ● | not seek cost      recovery for any increase in deferred tax assets that may result from the      tax treatment of the NSG natural gas storage inventory in connection with      closing the merger. |

| ● | inclusion of      merger synergy savings of $1.6 million at NSG in the proposed test      year,                                                                           |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ● | recovery of      $0.8 million at NSG of the merger-related costs in the test year      (reflecting recovery of $4.2 million of costs at NSG over      5 years), |
| ● | proposing a      combined $7.5 million Enhanced Efficiency Program at PGL and NSG,      which was contingent on receiving cost recovery in the rate case orders,      and |
| ● | filing      certain changes to the small volume transportation service      programs.                                                                                          |

----

|                                               |   |   | Year      EndedDecember      31, |   |   | Year      EndedDecember      31, |   |   | TransitionPeriod      EndedDecember      31, |   |   | Year      EndedDecember      31, |   |
|----------------------------------------------------|--------|--------|----------------------------------|--------|--------|----------------------------------|--------|--------|----------------------------------------------|--------|--------|----------------------------------|--------|
| (Millions)                                         |   |   | 2008                             |   |   | 2007                             |   |   | 2006                                         |   |   | 2006                             |   |
|                                               |   |   |                             |   |   |                             |   |   |                                         |   |   |                             |   |
| Natural gas      sales to Integrys Energy Services |   |   | $                                | 0.2    |   |                             | $      | 0.3    |                                         |   | $      | 0.1                              |   |   | $ | 0.3 |   |
| Interest      income from PGL                      |   |   |                             | 0.3    |   |                             |   | 0.5    |                                         |   |   | 0.1                              |   |   |   | 0.1 |   |
| Interest      expense to PGL and PEC               |   |   |                             | 0.1    |   |                             |   | -      |                                         |   |   | -                                |   |   |   | - |   |

----

| (Millions)                                                                          |   | 2008   |   |   | 2007   |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Total      short-term credit capacity under revolving short-term notes      payable |   | $      | 100.0  |   |   | $      | 100.0 |   |
| Less:  Loans      outstanding from PEC                                    |   |   | 9.0    |   |   |   | 11.9 |   |
| Available      capacity under existing agreements                                   |   | $      | 91.0   |   |   | $      | 88.1 |   |

| (Millions)                                     |   | Three      Months Ended |   |
|------------------------------------------------|--------|-------------------------|--------|
|                                           |   | 2008                    |   |
| Year      Ended December 31, 2008              |   | March                   |   |   | June |   |   | September |   |   | December |   |   | Total |   |
|                                           |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      revenues                        |   | $                       | 131.7  |   |   | $ | 50.7 |   |   | $ | 33.2 |   |   | $ | 97.3 |   |   | $ | 312.9 |   |
| Operating      income                          |   |                    | 8.9    |   |   |   | 0.8 |   |   |   | 0.6 |   |   |   | 4.2 |   |   |   | 14.5 |   |
| Net income      (loss)                         |   |                    | 5.5    |   |   |   | (0.1 | ) |   |   | (0.4 | ) |   |   | 2.0 |   |   |   | 7.0 |   |
|                                           |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                           |   | Three Months      Ended |   |
|                                           |   | 2007                    |   |
| Year Ended      December 31, 2007              |   | March                   |   |   | June |   |   | September |   |   | December |   |   | Total |   |
| Operating      revenues                        |   | $                       | 124.1  |   |   | $ | 45.5 |   |   | $ | 22.9 |   |   | $ | 78.5 |   |   | $ | 271.0 |   |
| Operating      income                          |   |                    | 11.1   |   |   |   | (0.1 | ) |   |   | (1.4 | ) |   |   | 6.5 |   |   |   | 16.1 |   |
| Net income      (loss)                         |   |                    | 6.6    |   |   |   | (0.4 | ) |   |   | (1.3 | ) |   |   | 3.0 |   |   |   | 7.9 |   |
|                                           |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Transition      Period Ended December 31, 2006 |   |                    |   |   |   |   |   |   |   |   | December |   |   |   |   |   |
| Operating      revenues                        |   |                    |   |   |   |   |   |   |   |   |   |   |   | $ | 73.5 |   |   |   |   |   |
| Operating      income                          |   |                    |   |   |   |   |   |   |   |   |   |   |   |   | 7.9 |   |   |   |   |   |
| Net      income                                |   |                    |   |   |   |   |   |   |   |   |   |   |   |   | 4.4 |   |   |   |   |   |

----

----

----

| Fees                        |   | 2008   |    |   | 2007   |   |
|-----------------------------|--------|--------|---------|--------|--------|--------|
| Audit Fees      (a)         |   | $      | 295,905 |   |   | $      | 360,000 |   |
| Audit Related      Fees (b) |   |   | 112,500 |   |   |   | - |   |
| Total      Fees             |   | $      | 408,405 |   |   | $      | 360,000 |   |

| a)   | Audit Fees. Consists of      aggregate fees for the audits of the annual financial statements, reviews      of the interim condensed financial statements included in quarterly      reports, and audits of the effectiveness of, and management's assessment      of the effectiveness of, internal control over financial      reporting.  Audit fees also include services that are normally      provided by Deloitte & Touche in connection with statutory and      regulatory filings. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b)   | Audit Related Fees.      Consists of fees billed for assurance and related services that are      reasonably related to the performance of the audit or review of the      financial statements or internal control over financial reporting and are      not reported under "Audit Fees."  These services included an      examination of forecasted financial statements in connection with NSG’s      rate filing with the ICC. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   |   |                                                                                                                                                                                    |   |     | Page   |   |   |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|--------|
|   | 1.     | Financial      Statements included in Part II, Item 8:                                                                                                                                  |   |     |   |   |
|   |   |                                                                                                                                                                                    |   |     |   |   |
|   |   | Statements of      Income for the years ended December 31, 2008 and 2007, and September      30, 2006, and the transition period ended December 31,2006                            |   | 30  |   |   |
|   |   |                                                                                                                                                                                    |   |     |   |   |
|   |   | Balance      Sheets as of December 31, 2008 and 2007                                                                                                                               |   | 31       |   |   |
|   |   |                                                                                                                                                                                    |   |     |   |   |
|   |   | Statements of      Capitalization as of December 31, 2008 and 2007                                                                                                                 |   | 32       |   |   |
|   |   |                                                                                                                                                                                    |   |     |   |   |
|   |   | Statements of      Common Shareholder's Equity for the years ended December 31, 2008 and      2007, and September 30, 2006, and the transition period ended December 31,      2006 |   | 33       |   |   |
|   |   |                                                                                                                                                                                    |   |     |   |   |
|   |   | Statements of      Cash Flows for the years ended December 31, 2008 and 2007, and      September 30, 2006, and the transition period ended December 31,      2006                  |   | 34       |   |   |
|   |   |                                                                                                                                                                                    |   |     |   |   |
|   |   | Notes to      Financial Statements                                                                                                                                                      |   | 35       |   |   |
|   |   |                                                                                                                                                                                    |   |     |   |   |
|   |   | Report of      Independent Registered Public Accounting Firm                                                                                                                            |   | 57       |   |   |
|   |   |                                                                                                                                                                                    |   |     |   |   |

|   | 2.     | Financial      Statement Schedules included in Part IV: |   |   |   |   |
|--------|--------|---------------------------------------------------------|--------|--------|--------|--------|
|   |   |                                                    |   |   |   |   |   |
|   |   | Schedule II -      Valuation and Qualifying Accounts    |   | 62     |   |   |
|   |   |                                                    |   |   |   |   |
|   | 3.     | Exhibits                                                |   |   |   |   |
|   |   | See the      attached Exhibit Index                     |   | 64     |   |   |

----

| Schedule      II                                      |   |
|-------------------------------------------------------|--------|
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| VALUATION AND      QUALIFYING ACCOUNTS                |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   |
| North      Shore Gas Company and Subsidiary Companies |   |   |   |   |   |   |   |   |   |   |
| Column      A                                         |   | Column      B |   |   | Column      C |   |   | Column      D |   |   | Column      E |   |
|                                                  |   |   |   |   | Additions |   |   | Deductions |   |   |   |   |
|                                                  |   |   |   |   |   |   |   | Charges for      the |   |   |   |   |
|                                                  |   | Balance      at |   |   | Charged |   |   | purpose for      which the |   |   |   |   |
|                                                  |   | beginning |   |   | to costs      and |   |   | reserves or      deferred |   |   | Balance at      end |   |
| Description      (Millions)                           |   | of      period |   |   | expenses |   |   | credits were      created |   |   | of      period |   |
| Year      Ended December 31, 2008                     |   |   |   |   |   |   |   |   |   |   |   |   |
| RESERVES                                              |   |   |   |   |   |   |   |   |   |   |   |   |
| (deducted      from assets in balance sheet):         |   |   |   |   |   |   |   |   |   |   |   |   |
| Reserve for      uncollectible accounts               |   | $ | 2.0 |   |   | $ | 2.5 |   |   | $ | 2.8 |   |   | $ | 1.7 |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year Ended      December 31, 2007                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| RESERVES                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (deducted      from assets in balance sheet):         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reserve for      uncollectible accounts               |   | $ | 1.6 |   |   | $ | 2.1 |   |   | $ | 1.7 |   |   | $ | 2.0 |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Transition      Period Ended December 31, 2006        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| RESERVES                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (deducted      from assets in balance sheet):         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reserve for      uncollectible accounts               |   | $ | 2.1 |   |   | $ | 0.4 |   |   | $ | 0.9 |   |   | $ | 1.6 |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Year Ended      September 30, 2006                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| RESERVES                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (deducted      from assets in balance sheet):         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reserve for      uncollectible accounts               |   | $ | 1.4 |   |   | $ | 2.2 |   |   | $ | 1.5 |   |   | $ | 2.1 |   |

----

SIGNATURES

|                                    |   |   | NORTH SHORE      GAS COMPANY                                                |
|-----------------------------------------|--------|--------|-----------------------------------------------------------------------------|
|                                    |   |   |                                                                        |
|                                    |   |   | (Registrant)                                                                |
|                                    |   |   |                                                                        |
| Date:  February      25, 2009 |   |   | By:  /s/  Lawrence T.      Borgard                      |
|                                    |   |   | Lawrence T.      Borgard                                                    |
|                                    |   |   | Vice Chairman      of the Board and  Chief      Executive Officer |

| Signature                                 | Title                                                                 | Date                   |
|-------------------------------------------|-----------------------------------------------------------------------|------------------------|
|                                      |                                                                  |                   |
| /s/  Larry L.    Weyers         |                                                                  |                   |
| Larry L.      Weyers                      | Director and      Chairman of the Board                               | February 25,      2009 |
|                                      |                                                                  |                   |
| /s/  Lawrence T.      Borgard   |                                                                  |                   |
| Lawrence T.      Borgard                  | Director,      Vice Chairman of the Board and Chief Executive Officer | February 25,      2009 |
|                                      |                                                                  |                   |
| /s/  Willard S. Evans,      Jr. |                                                                  |                   |
| Willard S.      Evans, Jr.                | Director and      President                                           | February 25,      2009 |
|                                      |                                                                  |                   |
| /s/  Thomas P.    Meinz         |                                                                  |                   |
| Thomas P.      Meinz                      | Director                                                              | February 25,      2009 |
|                                      |                                                                  |                   |
| /s/  Phillip M.      Mikulsky   |                                                                  |                   |
| Phillip M.      Mikulsky                  | Director                                                              | February 25,      2009 |
|                                      |                                                                  |                   |
| /s/  Joseph P.      O'Leary     |                                                                  |                   |
| Joseph P.      O'Leary                    | Director,      Senior Vice President and Chief Financial Officer      | February 25,      2009 |
|                                      |                                                                  |                   |
| /s/  James F.    Schott         |                                                                  |                   |
| James F.      Schott                      | Director and      Vice President - Regulatory Affairs                 | February 25,      2009 |
|                                      |                                                                  |                   |
| /s/  Diane L.Ford               |                                                                  |                   |
| Diane L.      Ford                        | Vice      President and Corporate Controller                          | February 25,      2009 |
|                                      |                                                                  |                   |

----

|  ExhibitNumber |  Description      of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.1                 | Articles of      Incorporation of NSG, as amended on April 24, 1995 (Incorporated by      reference to Form 10-K for fiscal year ended 1995, Exhibit 3(b) [File No.      2-35965]).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.2                 | By-Laws of      NSG, as amended May 17, 2007 ( Incorporated by reference to Form 10-Q for      the quarter ended June 30, 2007, Exhibit 3.2 [File No.      2-35965]).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.1                 | NSG      Indenture, dated as of April 1, 1955, from NSG to Continental      Illinois National Bank and Trust Company of Chicago, as Trustee; Third      Supplemental Indenture, dated as of December 20, 1963 (NSG—File      No. 2-35965, Exhibit 4-1); Fourth Supplemental Indenture, dated as of      May 1 1964 (NSG—File No. 2-35965, Exhibit 4-1); Fifth Supplemental      Indenture dated as of February 1, 1970 (NSG—File No. 2-35965,      Exhibit 4-2); Ninth Supplemental Indenture dated as of December 1, 1987 (      Incorporated by reference to Form 10-K for the fiscal year ended September      30, 1987, Exhibit 4 [File No. 1-05540]); Thirteenth Supplemental Indenture      dated December 1, 1998 ( Incorporated by reference to Form 10-Q for the      quarter ended March 31, 1999, Exhibit 4 [File No. 2-35965]); Fourteenth      Supplemental Indenture dated as of April 15, 2003, First Mortgage 4.625%      Bonds, Series N-1 and Series N-2 ( Incorporated by reference to Form 10-Q      for the quarter ended March 31, 2003, Exhibit 4(g) [File No. 2-35965]) and      Fifteenth Supplemental Indenture dated as of November 1, 2008, First      Mortgage 7.00% Bonds, Series O. (Incorporated by reference to Exhibit 4.12      to Integrys Energy Group's Form 10-K filed February 26, 2009 [File No.      1-11337]). |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1+               | Amendment      Number One to the Amended and Restated Trust under PEC's Directors      Deferred Compensation Plan, Directors Stock and Option Plan, Executive      Deferred Compensation Plan and Supplemental Retirement Benefit Plan, dated      as of July 24, 2006 ( Incorporated by reference to Form 10-K for fiscal      year ended September 30, 2006, Exhibit 10(e) [File No.      2-35965]).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2+               | Executive      Deferred Compensation Plan, amended as of December 4, 2002 ( Incorporated      by reference to Form 10-Q for the quarter ended December 31, 2002, Exhibit      10(c) [File No. 2-35965]).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3+               | Amended and      Restated Trust under PEC's Directors Deferred Compensation Plan, Directors      Stock and Option Plan, Executive Deferred Compensation Plan and      Supplemental Retirement Benefit Plan, dated as of August 13, 2003 (      Incorporated by reference to Form 10-K for fiscal year ended September 30,      2003, Exhibit 10(a) [File No. 2-35965]).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.4+               | Form of Key      Executive Employment and Severance Agreement entered into between Integrys      Energy Group and each of the following:  Lawrence T. Borgard,      Diane L. Ford, Bradley A. Johnson, Thomas P. Meinz, Joseph P. O'Leary,      Mark A. Radtke, Charles A. Schrock, and Barth J.      Wolf.  (Incorporated by reference to Exhibit 10.2 to Integrys      Energy Group's Form 10-K for the year ended December 31, 2008 [File      No. 1-11337]).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   10.5+   | Form of      Integrys Energy Group 2007 Omnibus Incentive Compensation Plan Performance      Stock Right Agreement approved May 17, 2007 (Incorporated by reference to      Exhibit 10.5 to Integrys Energy Group's Form 10-K for the year ended      December 31, 2007 [File No. 1-11337]).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.6+               | Form of      Integrys Energy Group 2007 Omnibus Incentive Compensation Plan Performance      Stock Right Agreement approved February 14, 2008 (Incorporated by      reference to Exhibit 10.6 to Integrys Energy Group's Form 10-K for the      year ended December 31, 2007 [File No.  1-11337]).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

----

|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.7+                    | Form of      Integrys Energy Group 2007 Omnibus Incentive Compensation Plan Restricted      Stock Award Agreement approved May 17, 2007 (Incorporated by reference to      Exhibit 10.8 to Integrys Energy Group's Form 10-K for the year ended      December 31, 2007 [File No. 1-11337]).                                                                                                                                  |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.8+                    | Form of      Integrys Energy Group 2007 Omnibus Incentive Compensation Plan Restricted      Stock Award Agreement approved February 14, 2008 (Incorporated by      reference to Exhibit 10.9 to Integrys Energy Group's Form 10-K for the      year ended December 31, 2007 [File No. 1-11337]).                                                                                                                             |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.9+                    | Form of      Integrys Energy Group 2007 Omnibus Incentive Compensation Plan      NonQualified Stock Option Agreement approved May 17, 2007 (Incorporated by      reference to Exhibit 10.10 to Integrys Energy Group's Form 10-K for the      year ended December 31, 2007 [File No. 1-11337]).                                                                                                                              |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.10+                   | Form of      Integrys Energy Group 2007 Omnibus Incentive Compensation Plan      NonQualified Stock Option Agreement approved February 14, 2008      (Incorporated by reference to Exhibit 10.11 to Integrys Energy Group's      Form 10-K for the year ended December 31, 2007 [File No.      1-11337]).                                                                                                                    |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.11+                   | Integrys      Energy Group, Inc. 2007 Omnibus Incentive Compensation Plan (Incorporated      by reference to Exhibit 10.17 to Integrys Energy Group's Form 10-K for the      year ended December 31, 2007 [File No. 1-11337]).                                                                                                                                                                                               |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.12+    | Integrys      Energy Group Pension Restoration and Supplemental Retirement Plan, as      Amended and Restated Effective April 1, 2008  (Incorporated by      reference to Exhibit 10.1 to Integrys Energy Group's Form 8-K filed April      15, 2008[File No. 1-11337).                                                                                                                                            |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.13                    | Order of the      Illinois Commerce Commission in Docket No. 01-0706 for NSG ( Incorporated      by reference to Form 10-Q for the quarter ended March 31, 2006, Exhibit      10.1 [File No. 2-35965]).                                                                                                                                                                                                                      |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.14                    | Order of the      Illinois Commerce Commission in Docket No. 02-0726 for NSG ( Incorporated      by reference to Form 10-Q for the quarter ended March 31, 2006, Exhibit      10.2 [File No. 2-35965]).                                                                                                                                                                                                                      |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.15                    | Order of the      Illinois Commerce Commission in Docket No. 03-0704 for NSG ( Incorporated      by reference to Form 10-Q for the quarter ended March 31, 2006, Exhibit      10.4 [File No. 2-35965]).                                                                                                                                                                                                                      |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.16                    | Order of the      Illinois Commerce Commission in Docket No. 04-0682 for NSG ( Incorporated      by reference to Form 10-Q for the quarter ended March 31, 2006, Exhibit      10.6 [File No. 2-35965]).                                                                                                                                                                                                                      |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 12                       | Statement      re:  Ratio of Earnings to Fixed Charges for  NSG.                                                                                                                                                                                                                                                                                                                                                   |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 24                       | Powers of      Attorney.                                                                                                                                                                                                                                                                                                                                                                                                     |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.1                     | Certification      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley      Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of      1934 for NSG.                                                                                                                                                                                                                                 |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.2                     | Certification      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley      Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of      1934 for NSG.                                                                                                                                                                                                                                 |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 32                       | Certification      of Chief Executive Officer and Chief Financial Officer pursuant to 18      U.S.C. Section 1350, as adopted pursuant to Section 906 of the      Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 99                       | Proxy      Statement for Integrys Energy Group's 2009 Annual Meeting of Shareholders.      [To be filed with the SEC under Regulation 14A within 120 days after      December 31, 2008; except to the extent specifically incorporated by      reference, the Proxy Statement for the 2009 Annual Meeting of Shareholders      shall not be deemed to be filed with the SEC as part of this Annual Report      on Form10-K.] |
|                     |                                                                                                                                                                                                                                                                                                                                                                                                                         |
| +                        | A management      contract or compensatory plan orarrangement.                                                                                                                                                                                                                                                                                                                                                               |

----