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

FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)

[ X ]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2002
OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[ X ]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2001
OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

	Exact Name of Registrant as
	Specified in Charter, State of
	Incorporation, Address of
Commission	Principal Executive	IRS Employer
File Number	Office and Telephone Number	Identification Number
1-5540	PEOPLES ENERGY CORPORATION	36-2642766
	(an Illinois Corporation)
	130 East Randolph Drive, 24^th Floor
	Chicago, Illinois 60601-6207
	Telephone (312) 240-4000

2-26983	THE PEOPLES GAS LIGHT AND COKE COMPANY	36-1613900
	(an Illinois Corporation)
	130 East Randolph Drive, 24^th Floor
	Chicago, Illinois 60601-6207
	Telephone (312) 240-4000

2-35965	NORTH SHORE GAS COMPANY	36-1558720
	(an Illinois Corporation)
	130 East Randolph Drive, 24^th Floor
	Chicago, Illinois 60601-6207
	Telephone (312) 240-4000

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date (July 31, 2001):
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date (January 31, 2003):
Peoples Energy Corporation	Common Stock, No par value, 35,~~398~~698,~~944~~548 shares outstanding
The Peoples Gas Light and Coke Company	Common Stock, No par value, 24,817,566 shares outstanding (all of which are owned beneficially and of record by Peoples Energy Corporation)
North Shore Gas Company	Common Stock, No par value, 3,625,887 shares outstanding (all of which are owned beneficially and of record by Peoples Energy Corporation)
This combined Form 10-Q is separately filed by Peoples Energy Corporation, The Peoples Gas Light and Coke Company, and North Shore Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies.
This combined Form 10-Q is separately filed by Peoples Energy Corporation, The Peoples Gas Light and Coke Company, and North Shore Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies. The Peoples Gas Light and Coke Company and North Shore Gas Company meet the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and are therefore filing this Form 10-Q with the reduced disclosure format permitted by General Instruction I(2) of Form 10-K.

Part I - Financial Information

Item I. Financial Statements

The condensed, unaudited financial statements of Peoples Energy Corporation (the Company), The Peoples Gas Light and Coke Company (Peoples Gas) and North Shore Gas Company (North Shore Gas), have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Peoples Gas and North Shore Gas are wholly-owned subsidiaries of the Company.

This Quarterly Report on Form 10-Q is a combined report of the Company, ~~The~~ Peoples Gas ~~Light~~ and ~~Coke Company (Peoples Gas) and~~ North Shore Gas ~~Company (North Shore Gas)~~.

Certain footnote disclosures and other information, normally included in financial statements prepared in accordance with generally accepted accounting principles (GAAP), have been condensed or omitted from these interim financial statements, pursuant to SEC rules and regulations. Therefore, the statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's, Peoples Gas' and North Shore Gas' Annual Report on Form 10-K, ~~as amended,~~ for the fiscal year ended September 30, ~~2000~~2002. Certain items previously reported for the prior periods have been reclassified to conform with the presentation in the current period. Due to a number of factors, including seasonality of businesses and market price volatility, the quarterly results of operations and balances should not be considered indicative of the year as a whole.

~~The~~In ~~business of~~ the ~~Company's~~opinion ~~utility~~of ~~subsidiaries~~management, ~~(Peoples~~the ~~Gas~~accompanying ~~and~~unaudited ~~North~~consolidated ~~Shore~~financial ~~Gas)~~statements iscontain ~~influenced~~all byadjustments, ~~seasonal~~including ~~weather~~normal ~~conditions~~recurring ~~because~~accruals, anecessary ~~large~~to ~~element~~present offairly the ~~utilities~~Company's, ~~customer~~Peoples ~~load consists of gas used for space heating. Weather-related deliveries can~~Gas', ~~therefore, have a significant positive or negative impact on net income. Swings in natural gas prices can also impact revenue sensitive items such as customer accounts receivable balances~~ and ~~reserves~~North ~~for~~Shore ~~uncollectible~~Gas' ~~accounts. The~~financial ~~quarterly~~position, its results of operations and ~~balances~~cash ~~should~~flows ~~not~~for ~~be considered indicative of~~ the ~~year~~interim asperiods ~~a whole~~presented.

The information furnished reflects, in the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the results of operations for the interim periods presented.

Peoples Energy Corporation
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

	Three Months Ended
	December 31,
	2002	2001
(In Thousands, except per-share amounts)
Revenues	$ 549,111	$ 377,548

Operating Expenses:
Cost of energy sold	329,505	186,503
Operation and maintenance	87,914	66,171
Depreciation, depletion and amortization	27,464	24,504
Taxes, other than income taxes	43,657	36,022
Total Operating Expenses	488,540	313,200

Operating Income	60,571	64,348

Equity Investment Income (Loss)	(253)	(3,509)

Total Operating Income
and Equity Investment Income	60,318	60,839

Other Income and (Expense)	716	2,106


Interest Expense	12,862	15,976

Earnings Before Income Taxes	48,172	46,969

Income Taxes	17,171	15,948


Net Income	$ 31,001	$ 31,021

Average Shares of Common Stock Outstanding
Basic	35,535	35,434
Diluted	35,582	35,485

Earnings Per Share of Common Stock
Basic	$ 0.87	$ 0.88
Diluted	$ 0.87	$ 0.87

Dividends Declared Per Share	$ 0.52	$ 0.51

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

Peoples Energy Corporation
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED BALANCE SHEETS
(Unaudited)
	Three Months Ended		Nine Months Ended
	December 31,	September 30,	December 31,
	June 30,		June 30,
(In Thousands)	2002	2002	2001
	2001	2000	2001	2000
ASSETS
	(In Thousands, Except Per-Share Amounts)
CAPITAL INVESTMENTS:
Operating Revenues	$ 318,501	$ 261,248	$ 2,109,272	$ 1,198,395
Property, plant and equipment
Operating Expenses:
Utility plant	$ 2,507,170	$ 2,493,323	$ 2,446,106
Cost of energy sold	183,892	127,766	1,469,508	634,139
Oil and gas	325,608	285,885	251,379
Operation and maintenance	59,639	54,677	203,753	190,856
Other	15,853	15,422	17,259
Depreciation, depletion and amortization	25,580	28,410	68,691	74,989
Total property, plant and equipment	2,848,631	2,794,630	2,714,744
Taxes, other than income taxes	27,977	27,755	172,907	119,842
Less - Accumulated depreciation, depletion and amortization	1,045,963	1,020,729	969,988
Total Operating Expenses	297,088	238,608	1,914,859	1,019,826
Net property, plant and equipment	1,802,668	1,773,901	1,744,756
Operating Income	21,413	22,640	194,413	178,569
Investment in equity investees	149,993	154,857	102,965
Equity Investment Income	10,890	3,095	26,694	9,144
Other investments	22,681	22,893	25,644
Total Operating Income
Total Capital Investments - Net	1,975,342	1,951,651	1,873,365
and Equity Investment Income	32,303	25,735	221,107	187,713
CURRENT ASSETS:
Other Income and (Deductions)	1,821	1,948	7,126	3,491
Cash and cash equivalents	13,669	5,433	7,532
Interest Expense	18,114	13,224	54,311	38,303
Deposits with broker or trustee	34,663	28,726	2,474
Earnings Before Income Taxes	16,010	14,459	173,922	152,901
Receivables -
Income Taxes	4,447	3,607	63,477	55,051
Customers, net of reserve for uncollectible accounts
Income Before Cumulative Effect
of $27,019, $34,669, and $39,275, respectively	350,026	180,601	336,461
of Change in Accounting Principle	11,563	10,852	110,445	97,850
Other	44,486	42,979	114,005
Cumulative Effect of Accounting Change,
Materials and supplies, at average cost	13,282	12,691	14,644
Net of Tax	-	-	(34)	-
Gas in storage	74,929	86,825	72,136
Net Income	$ 11,563	$ 10,852	$ 110,411	$ 97,850
Gas costs recoverable through rate adjustments	24,083	10,218	6,302
Average Shares of Common Stock Outstanding
Regulatory assets of utility subsidiaries	17,709	18,274	4,411
Basic	35,396	35,328	35,374	35,448
Other	8,467	6,122	3,833
Diluted	35,459	35,330	35,433	35,452
Total Current Assets	581,314	391,869	561,798
Earnings Per Share of Common Stock
OTHER ASSETS:
Basic	$ 0.33	$ 0.31	$ 3.12	$ 2.76
Prepaid pension costs	184,814	179,678	168,404
Diluted	$ 0.33	$ 0.31	$ 3.12	$ 2.76
Noncurrent regulatory assets of utility subsidiaries	177,360	167,236	117,584
Dividends Declared Per Share	$ 0.51	$ 0.50	$ 1.52	$ 1.49
Deferred charges	35,857	33,213	36,251
The Notes to Consolidated Financial Statements are an integral part of these statements.
Total Other Assets	398,031	380,127	322,239
Total Assets	$ 2,954,687	$ 2,723,647	$ 2,757,402
The Notes to Consolidated Financial Statements are an integral part of these statements.

Peoples Energy Corporation
CONSOLIDATED BALANCE SHEETS
	June 30,	September 30,	June 30,
(Unaudited)
	2001*	2000	2000*
	December 31,	September 30,	December 31,
	(In Thousands)
(In Thousands, except shares)	2002	2002	2001
ASSETS
CAPITALIZATION AND LIABILITIES
CAPITAL INVESTMENTS:
CAPITALIZATION:
Property, plant and equipment, at original cost	$ 2,663,263	$ 2,517,100	$ 2,467,491
Common Stockholders' Equity:
Less - Accumulated depreciation, depletion and amortization	931,392	871,760	871,543
Common stock, without par value -
Net property, plant and equipment	1,731,871	1,645,340	1,595,948
Authorized 60,000,000 shares
Investment in equity investees	141,446	139,317	130,670
Issued 35,815,527, 35,705,106, and
Other investments	25,737	25,435	24,135
35,695,000 shares, respectively	$ 304,594	$ 301,699	$ 300,034
Total Capital Investments - Net	1,899,054	1,810,092	1,750,753
Retained earnings	534,885	522,381	519,532
CURRENT ASSETS:
Treasury stock (246,100, 246,100 and 247,300 shares,
Cash and cash equivalents	22,799	5,956	28,823
respectively, at cost)	(6,760)	(6,760)	(6,793)
Temporary investments and special deposits	28,772	10,091	47,072
Accumulated other comprehensive income (loss)	(17,920)	(10,996)	(3,936)
Advances to joint venture partnerships	155,946	68,442	33,634
Total Common Stockholders' Equity	814,799	806,324	808,837
Receivables -
Long-term debt, exclusive of sinking fund payments,
Customers, net of allowance for uncollectible accounts
maturities due within one year and long-term maturities
of $43,798, $24,958, and $26,339, respectively	463,209	175,644	158,078
classified as short-term debt	529,345	554,014	644,023
Other	88,277	41,884	65,775
Total Capitalization	1,344,144	1,360,338	1,452,860
Materials and supplies, at average cost	14,017	14,695	14,521
CURRENT LIABILITIES:
Gas in storage	46,660	84,533	50,744
Commercial paper	229,590	85,871	74,610
Gas costs recoverable through rate adjustments	5,188	54,866	31,336
Current maturities of long-term debt	90,000	90,000	-
Regulatory assets of subsidiaries	2,452	5,418	4,851
Other short-term debt	202,000	202,000	302,000
Prepayments	2,582	2,370	2,309
Accounts payable	246,234	213,912	239,906
Total Current Assets	829,902	463,899	437,143
Regulatory liabilities of utility subsidiaries	56,345	29,976	-
OTHER ASSETS:
Dividends payable	18,553	18,495	18,201
Prepaid pension costs	168,799	132,026	120,863
Customer deposits	62,401	70,641	62,644
Non-current regulatory assets of subsidiaries	82,591	71,059	68,056
Accrued taxes	68,489	47,283	61,177
Deferred charges	31,911	24,842	29,872
Gas costs refundable through rate adjustments	1,797	28	21,724
Total Other Assets	283,301	227,927	218,791
Temporary LIFO liquidation credit	8,982	-	2,416
Total Assets	$ 3,012,257	$ 2,501,918	$ 2,406,687
Accrued interest	13,495	11,582	14,513
* Unaudited
Total Current Liabilities	997,886	769,788	797,191
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes	384,213	378,225	340,740
Investment tax credits	28,140	28,340	28,863
Noncurrent regulatory liabilities of utility subsidiaries,
environmental and other	200,304	186,956	137,748
Total Deferred Credits and Other Liabilities	612,657	593,521	507,351
Total Capitalization and Liabilities	$ 2,954,687	$ 2,723,647	$ 2,757,402
The Notes to Consolidated Financial Statements are an integral part of these statements.

Peoples Energy Corporation
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
	June 30,		September 30,		June 30,
(Unaudited)
	2001*		2000		2000*
		Three Months Ended
	(In Thousands)
		December 31,
CAPITALIZATION AND LIABILITIES
(In Thousands)		2002		2001
CAPITALIZATION:
Operating Activities:
Common Stockholders' Equity:
Net Income		$ 31,001		$ 31,021
Common stock, without par value -
Adjustments to reconcile net income to net cash:
Authorized 60,000 shares
Depreciation, depletion and amortization
Outstanding 35,646, 35,544 and
Per statement of income		27,464		24,504
35,544 shares, respectively	$ 299,326		$ 298,042		$ 298,062
Charged to other accounts		1,193		1,126
Retained earnings	544,936		488,314		517,521
Deferred income taxes and investment tax credits - net		6,868		8,857
Treasury stock (247, 248 and 248 shares, respectively, at cost)	(6,793)		(6,817)		(6,817)
Change in environmental and other liabilities		12,268		9,859
Accumulated other comprehensive income	(5,410)		(2,457)		(465)
Change in prepaid pension costs		(5,136)		(12,838)
Total Common Stockholders' Equity	832,059		777,082		808,301
Change in noncurrent regulatory assets of utility subsidiaries		(10,124)		(3,202)
Long-term debt	744,308		419,663		319,711
Change in undistributed earnings from equity investments		2,557		10,713
Total Capitalization	1,576,367		1,196,745		1,128,012
Major changes in key working capital accounts:
CURRENT LIABILITIES:
Receivables - net		(170,932)		(49,453)
Short-term debt	481,995		568,215		554,000
Gas in storage		11,896		14,368
Accounts payable	257,683		191,716		167,018
Gas costs recoverable through rate adjustments		(13,865)		539
Dividends payable on common stock	18,297		17,905		17,651
Net regulatory assets/liabilities of utility subsidiaries		26,934		(530)
Customer gas service and credit deposits	30,317		45,492		29,424
Customer deposits		(8,240)		22,274
Accrued taxes	67,177		15,248		52,700
Accounts payable		41,340		(62,032)
Gas sales revenue refundable through rate adjustments	2,412		1,731		8,208
Accrued taxes		21,206		29,977
Temporary LIFO liquidation credit	87,230		-		10,740
Gas costs refundable through rate adjustments		1,769		(25,615)
Accrued interest	15,941		8,152		3,480
Temporary LIFO liquidation credit		8,982		2,416
Total Current Liabilities	961,052		848,459		843,221
Other		(9,432)		6,390
DEFERRED CREDITS AND OTHER LIABILITIES:
Net Cash Provided by (Used in) Operating Activities		(24,251)		8,374
Deferred income taxes	354,030		343,359		309,442
Investing Activities:
Investment tax credits being amortized over
Capital spending		(58,361)		(35,504)
the average lives of related property	29,281		29,739		30,094
Net change in advances to joint venture partnerships		-		147,616
Other	91,527		83,616		95,918
Return of capital investments		2,297		55,045
Total Deferred Credits and Other Liabilities	474,838		456,714		435,454
Deposits with broker or trustee		(5,937)		851
Total Capitalization and Liabilities	$ 3,012,257		$ 2,501,918		$ 2,406,687
Net Cash Provided by (Used in) Investing Activities		(62,001)		168,008
* Unaudited
Financing Activities:
The Notes to Consolidated Financial Statements are an integral part of these statements.
Proceeds from (payment of) overdraft facility		(9,018)		14,455
Short-term debt - net		143,719		(230,844)
Retirement of long-term debt		(24,669)		(285)
Proceeds from issuance of common stock		2,895		707
Dividends paid on common stock		(18,439)		(18,049)
Net Cash Provided by (Used in) Financing Activities		94,488		(234,016)
Net Increase (Decrease) in Cash and Cash Equivalents		8,236		(57,634)
Cash and Cash Equivalents at Beginning of Period		5,433		65,166
Cash and Cash Equivalents at End of Period		$ 13,669		$ 7,532
Supplemental information:
Income taxes paid, net of refunds		$ 187		$ 15,380
Interest paid, net of amounts capitalized		$ 10,582		$ 11,565
The Notes to Consolidated Financial Statements are an integral part of these statements.

Peoples Energy Corporation
The Peoples Gas Light and Coke Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
		Nine Months Ended
	Three Months Ended
		June 30,
	December 31,
		2001	2000
	2002	2001
(In Thousands)		~~(In Thousands)~~
Operating Activities:
Revenues	$ 352,415	$ 247,801
Net Income		$ 110,411	$ 97,850
Operating Expenses:
Adjustments to reconcile net income to net cash:
Gas costs	184,769	101,039
Depreciation, depletion and amortization
Operation and maintenance	67,185	42,218
Per statement of income		68,691	74,989
Depreciation and amortization	14,794	15,282
Charged to other accounts		4,372	3,827
Taxes, other than income taxes	37,048	31,290
Deferred income taxes and investment tax credits - net		10,810	22,185
Total Operating Expenses	303,796	189,829
Other - net		5,523	-
Operating Income	48,619	57,972
Change in deferred credits and other liabilities		7,314	6,915
Other Income	698	611
Change in accumulated other comprehensive income		(2,953)	-
Interest Expense	5,898	7,372
Change in other assets		(55,374)	(41,390)
Earnings Before Income Taxes	43,419	51,211
Change in undistributed earnings from equity investments		(747)	(3,587)
Income Taxes	16,834	18,964
Change in current assets and liabilities:
Net Income	$ 26,585	$ 32,247
Receivables - net		(333,958)	(122,973)
The Notes to Consolidated Financial Statements are an integral part of these statements.
Materials and supplies		678	1,761
Gas in storage		37,873	30,766
Gas costs recoverable		49,678	(20,169)
Regulatory assets		2,264	(3,378)
Prepayments		(212)	134
Accounts payable		65,967	4,917
Customer gas service and credit deposits		(15,175)	(17,920)
Accrued taxes		51,929	15,123
Gas sales revenue refundable		681	7,516
Accrued interest		7,789	(6,730)
Temporary LIFO liquidation credit		87,230	10,740
Net Cash Provided by Operating Activities		102,791	60,576
Investing Activities:
Capital spending		(203,882)	(170,584)
Return of capital investments		37,784	-
Advances to joint venture partnerships		(87,504)	-
Temporary investments and special deposits		(18,682)	(38,218)
Other assets		-	(918)
Net Cash Used in Investing Activities		(272,284)	(209,720)
Financing Activities:
Short-term debt - net		(86,220)	398,000
Issuance of long-term debt		325,000	-
Retirement of long-term debt		(355)	(175,023)
Dividends paid on common stock		(53,397)	(52,550)
Proceeds from issuance of common stock		1,284	1,349
Treasury stock purchases		24	(6,817)
Net Cash Provided by Financing Activities		186,336	164,959
Net Increase in Cash and Cash Equivalents		16,843	15,815
Cash and Cash Equivalents at Beginning of Period		5,956	13,008
Cash and Cash Equivalents at End of Period		$ 22,799	$ 28,823
Supplemental information:
Income taxes paid, net of refunds		$ 28,933	$ 22,874
Interest paid, net of amounts capitalized		42,166	42,890
The Notes to Consolidated Financial Statements are an integral part of these statements.

The Peoples Gas Light and Coke Company
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED BALANCE SHEETS
(Unaudited)
	Three Months Ended				Nine Months Ended
		December 31,		September 30,		December 31,
	June 30,				June 30,
		2002		2002		2001
	2001		2000		2001		2000
(In Thousands)
	(In Thousands)
ASSETS
Operating Revenues	$ 188,662		$ 172,024		$ 1,459,942		$ 827,955
CAPITAL INVESTMENTS:
Operating Expenses:
Property, plant and equipment		$ 2,162,990		$ 2,150,825		$ 2,110,353
Gas costs	86,245		66,699		934,158		373,141
Less - Accumulated depreciation and amortization		826,799		813,909		787,868
Operation and maintenance	40,927		38,264		141,483		138,118
Net property, plant and equipment		1,336,191		1,336,916		1,322,485
Depreciation and amortization	15,227		19,985		46,111		56,486
Other investments		11,722		11,724		10,601
Taxes, other than income taxes	23,685		23,806		153,840		105,923
Total Capital Investments - Net		1,347,913		1,348,640		1,333,086
Total Operating Expenses	166,084		148,754		1,275,592		673,668
CURRENT ASSETS:
Operating Income	22,578		23,270		184,350		154,287
Deposits with broker or trustee		27,743		21,802		-
Other Income and (Deductions)	768		1,163		1,932		2,405
Receivables -
Interest Expense	8,783		7,850		28,902		25,645
Customers, net of reserve for uncollectible accounts
Earnings Before Income Taxes	14,563		16,583		157,380		131,047
of $24,161, $31,569 and $37,552, respectively		235,481		119,660		248,052
Income Taxes	5,295		5,863		61,121		49,446
Intercompany receivables		31,915		20,071		6,482
Net Income Applicable to Common Stock	$ 9,268		$ 10,720		$ 96,259		$ 81,601
Other		9,297		13,053		57,570
The Notes to Consolidated Financial Statements are an integral part of these statements.
Materials and supplies, at average cost		9,259		8,974		9,745
Gas in storage, at last-in, first-out cost		49,871		65,364		50,505
Gas costs recoverable through rate adjustments		21,668		7,058		4,579
Regulatory assets		16,004		17,747		3,756
Other		1,582		1,354		1,720
Total Current Assets		402,820		275,083		382,409
OTHER ASSETS:
Prepaid pension costs		184,813		182,339		166,095
Noncurrent regulatory assets		147,379		138,742		96,013
Deferred charges		16,431		15,706		18,617
Total Other Assets		348,623		336,787		280,725
Total Assets		$ 2,099,356		$ 1,960,510		$ 1,996,220
The Notes to Consolidated Financial Statements are an integral part of these statements.

The Peoples Gas Light and Coke Company
CONSOLIDATED BALANCE SHEETS
	June 30,	September 30,	June 30,
(Unaudited)
	2001*	2000	2000*
	December 31,	September 30,	December 31,
	(In Thousands)
	2002	2002	2001
ASSETS
(In Thousands, except shares)
CAPITAL INVESTMENTS:
CAPITALIZATION AND LIABILITIES
Property, plant and equipment, at original cost	$ 2,077,279	$ 2,029,730	$ 2,024,826
CAPITALIZATION:
Less - Accumulated depreciation and amortization	766,842	728,158	732,882
Common Stockholder's Equity:
Net property, plant and equipment	1,310,437	1,301,572	1,291,944
Common stock, without par value -
Other investments	10,495	10,522	10,332
Authorized 40,000,000 shares
Total Capital Investments - Net	1,320,932	1,312,094	1,302,276
Outstanding 24,817,566 shares	$ 165,307	$ 165,307	$ 165,307
CURRENT ASSETS:
Retained earnings	479,055	471,070	472,717
Cash and cash equivalents	20,197	2,466	4,340
Accumulated other comprehensive income (loss)	(491)	(491)	(3,015)
Temporary investments	21,855	400	500
Total Common Stockholder's Equity	643,871	635,886	635,009
Receivables -
Long-term debt, exclusive of sinking fund payments, maturities
Customers, net of allowance for uncollectible accounts
due within one year and long-term maturities classified
of $41,106, $22,821 and $24,253, respectively	363,954	114,072	134,870
as short-term debt	175,000	175,000	250,000
Other	53,967	38,001	25,013
Total Capitalization	818,871	810,886	885,009
Materials and supplies, at average cost	10,562	10,341	9,308
CURRENT LIABILITIES:
Gas in storage, at last-in, first-out cost	32,621	70,901	42,404
Commercial paper	121,000	82,671	74,610
Gas costs recoverable through rate adjustments	4,590	45,212	27,602
Current maturities of long-term debt	75,000	75,000	-
Regulatory assets	1,799	4,558	4,278
Other short-term debt	202,000	202,000	202,000
Prepayments	1,798	1,829	1,845
Accounts payable	128,995	126,445	169,627
Total Current Assets	511,343	287,780	250,160
Intercompany payables	44,759	18,845	72,483
OTHER ASSETS:
Regulatory liabilities	48,080	24,763	-
Prepaid pension costs	167,455	131,284	121,252
Dividends payable	18,600	11,913	17,869
Non-current regulatory assets	61,047	49,768	47,126
Customer deposits	53,915	60,389	55,315
Deferred charges	21,880	19,770	18,439
Accrued taxes	60,531	37,810	58,464
Total Other Assets	250,382	200,822	186,817
Gas costs refundable through rate adjustments	582	28	16,452
Total Assets	$ 2,082,657	$ 1,800,696	$ 1,739,253
Temporary LIFO liquidation credit	6,868	-	2,416
* Unaudited
Accrued interest	2,975	5,208	3,067
Total Current Liabilities	763,305	645,072	672,303
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes	351,644	346,723	316,938
Investment tax credits	25,093	25,280	25,730
Noncurrent regulatory liabilities, environmental and other	140,443	132,549	96,240
Total Deferred Credits and Other Liabilities	517,180	504,552	438,908
Total Capitalization and Liabilities	$ 2,099,356	$ 1,960,510	$ 1,996,220
The Notes to Consolidated Financial Statements are an integral part of these statements.

The Peoples Gas Light and Coke Company
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
	June 30,	September 30,	June 30,
(Unaudited)
	2001*	2000	2000*
		Three Months Ended
	(In Thousands)
		December 31,
CAPITALIZATION AND LIABILITIES
		2002	2001
CAPITALIZATION:
(In Thousands)
Common Stockholder's Equity:
Operating Activities:
Common stock, without par value -
Net Income		$ 26,585	$ 32,247
Authorized 40,000 shares
Adjustments to reconcile net income to net cash:
Outstanding 24,818 shares	$ 165,307	$ 165,307	$ 165,307
Depreciation and amortization
Retained earnings	500,462	443,104	466,267
Per statement of income		14,794	15,282
Accumulated other comprehensive income	(2,457)	(2,457)	(464)
Charged to other accounts		1,074	1,021
Total Common Stockholder's Equity	663,312	605,954	631,110
Deferred income taxes and investment tax credits - net		3,402	8,999
Long-term debt	250,000	250,000	250,000
Change in environmental and other liabilities		9,226	5,898
Total Capitalization	913,312	855,954	881,110
Change in prepaid pension costs		(2,474)	(11,380)
CURRENT LIABILITIES:
Change in noncurrent regulatory assets		(8,637)	(3,324)
Short-term debt	402,000	345,775	270,000
Major changes in key working capital accounts:
Accounts payable	180,531	137,541	123,137
Receivables - net		(123,909)	(28,504)
Customer gas service and credit deposits	25,634	38,364	22,668
Gas in storage		15,493	16,647
Accrued taxes	68,840	18,806	49,366
Gas costs recoverable through rate adjustments		(14,610)	(110)
Gas sales revenue refundable through rate adjustments	729	1,731	8,044
Net regulatory assets/liabilities		25,060	698
Temporary LIFO liquidation credit	70,376	-	3,886
Customer deposits		(6,474)	19,898
Accrued interest	4,280	5,001	2,717
Accounts payable		9,848	(56,485)
Total Current Liabilities	752,390	547,218	479,818
Accrued taxes		22,721	14,199
DEFERRED CREDITS AND OTHER LIABILITIES:
Gas costs refundable through rate adjustments		554	(19,186)
Deferred income taxes	332,602	319,904	303,226
Temporary LIFO liquidation credit		6,868	2,416
Investment tax credits being amortized over
Other		(3,472)	(2,488)
the average lives of related property	26,120	26,545	26,878
Net Cash Provided by (Used in) Operating Activities		(23,951)	(4,172)
Other	58,233	51,075	48,221
Investing Activities:
Total Deferred Credits and Other Liabilities	416,955	397,524	378,325
Capital spending		(15,142)	(16,189)
Total Capitalization and Liabilities	$ 2,082,657	$ 1,800,696	$ 1,739,253
Deposits with broker or trustee		(5,941)	-
* Unaudited
Other		1	-
Net Cash Provided by (Used in) Investing Activities		(21,082)	(16,189)
Financing Activities:
Proceeds from (payment of) overdraft facility		(6,024)	14,455
Short-term debt - net		62,969	(54,915)
Dividends paid on common stock		(11,912)	-
Net Cash Provided by (Used in) Financing Activities		45,033	(40,460)
Net Increase (Decrease) in Cash and Cash Equivalents		-	(60,821)
Cash and Cash Equivalents at Beginning of Period		-	60,821
Cash and Cash Equivalents at End of Period		$ -	$ -
Supplemental information:
Income taxes paid, net of refunds		$ -	$ 18,210
Interest paid, net of amounts capitalized		$ 7,996	$ 9,027
The Notes to Consolidated Financial Statements are an integral part of these statements.

The Peoples Gas Light and Coke Company
North Shore Gas Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
		Nine Months Ended
	Three Months Ended
		June 30,
	December 31,
		2001	2000
	2002	2001
(In Thousands)		~~(In Thousands)~~
Operating Activities:
Revenues	$ 65,468	$ 41,927
Net Income		$ 96,259	$ 81,601
Operating Expenses:
Adjustments to reconcile net income to net cash:
Gas costs	42,260	22,009
Depreciation and amortization
Operation and maintenance	7,987	6,943
Per statement of income		46,111	56,486
Depreciation	1,713	1,609
Charged to other accounts		4,022	3,189
Taxes, other than income taxes	4,625	3,553
Deferred income taxes and investment tax credits - net		9,964	21,217
Total Operating Expenses	56,585	34,114
Change in deferred credits and other liabilities		9,467	6,395
Operating Income	8,883	7,813
Change in other assets		(49,560)	(34,978)
Other Income and (Expense)	(11)	26
Change in current assets and liabilities:
Interest Expense	1,154	1,348
Receivables - net		(265,848)	(64,735)
Earnings Before Income Taxes	7,718	6,491
Materials and supplies		(221)	1,535
Income Taxes	2,958	2,479
Gas in storage		38,280	22,236
Net Income	$ 4,760	$ 4,012
Gas costs recoverable		40,622	(18,821)
The Notes to Consolidated Financial Statements are an integral part of these statements.
Regulatory assets		2,057	(3,383)
Prepayments		31	143
Accounts payable		42,990	13,129
Customer gas service and credit deposits		(12,730)	(18,642)
Accrued taxes		50,034	15,753
Gas sales revenue refundable		(1,002)	7,352
Accrued interest		(721)	(5,757)
Temporary LIFO liquidation credit		70,376	3,886
Net Cash Provided by Operating Activities		80,131	86,606
Investing Activities:
Capital spending		(58,297)	(68,329)
Temporary investments		(21,455)	-
Other assets		339	(918)
Net Cash Used in Investing Activities		(79,413)	(69,247)
Financing Activities:
Short-term debt - net		56,225	227,010
Dividends paid on common stock		(39,212)	(68,745)
Retirement of long-term debt		-	(175,000)
Net Cash Provided by (Used in) Financing Activities		17,013	(16,735)
Net Increase in Cash and Cash Equivalents		17,731	624
Cash and Cash Equivalents at Beginning of Period		2,466	3,716
Cash and Cash Equivalents at End of Period		$ 20,197	$ 4,340
Supplemental information:
Income taxes paid, net of refunds		$ 23,528	$ 16,733
Interest paid, net of amounts capitalized		28,463	29,746
The Notes to Consolidated Financial Statements are an integral part of these statements.

North Shore Gas Company
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED BALANCE SHEETS
(Unaudited)
	Three Months Ended		Nine Months Ended
	December 31,	September 30,	December 31,
	June 30,		June 30,
	2002	2002	2001
	2001	2000	2001	2000
(In Thousands)
	(In Thousands)
ASSETS
Operating Revenues	$ 31,811	$ 27,963	$ 255,837	$ 136,448
CAPITAL INVESTMENTS:
Operating Expenses:
Property, plant and equipment	$ 344,180	$ 342,498	$ 335,753
Gas costs	18,575	13,623	187,550	74,315
Less - Accumulated depreciation	133,119	131,523	128,724
Operation and maintenance	7,188	7,279	22,769	21,068
Net property, plant and equipment	211,061	210,975	207,029
Depreciation	1,693	2,237	4,894	6,636
Other investments	22	22	22
Taxes, other than income taxes	2,483	2,560	14,383	11,473
Total Capital Investments - Net	211,083	210,997	207,051
Total Operating Expenses	29,939	25,699	229,596	113,492
CURRENT ASSETS:
Operating Income	1,872	2,264	26,241	22,956
Cash and cash equivalents	-	-	1,929
Other Income and (Deductions)	105	176	316	265
Deposits with broker or trustee	4,798	5,062	-
Interest Expense	1,236	1,259	4,162	3,866
Receivables -
Earnings Before Income Taxes	741	1,181	22,395	19,355
Customers, net of reserve for uncollectible
Income Taxes	205	401	8,618	7,477
accounts of $768, $493, and $598, respectively	37,671	13,479	30,093
Net Income Applicable to Common Stock	$ 536	$ 780	$ 13,777	$ 11,878
Intercompany receivables	7,619	5,608	102
The Notes to Consolidated Financial Statements are an integral part of these statements.
Other	1,024	670	1,001
Materials and supplies, at average cost	1,680	1,708	1,810
Gas in storage, at last-in, first-out cost	7,896	8,796	9,330
Gas costs recoverable through rate adjustments	2,415	3,160	1,724
Regulatory assets	1,705	527	655
Other	142	234	345
Total Current Assets	64,950	39,244	46,989
OTHER ASSETS:
Prepaid pension costs	-	-	2,309
Noncurrent regulatory assets	29,981	28,494	21,571
Deferred charges	2,309	3,353	4,509
Total Other Assets	32,290	31,847	28,389
Total Assets	$ 308,323	$ 282,088	$ 282,429
The Notes to Consolidated Financial Statements are an integral part of these statements.

North Shore Gas Company
CONSOLIDATED BALANCE SHEETS
	June 30,	September 30,	June 30,
(Unaudited)
	2001*	2000	2000*
	December 31,	September 30,	December 31,
	(In Thousands)
	2002	2002	2001
ASSETS
(In Thousands, except shares)
CAPITAL INVESTMENTS:
CAPITALIZATION AND LIABILITIES
Property, plant and equipment, at original cost	$ 331,774	$ 325,823	$ 325,062
CAPITALIZATION:
Less - Accumulated depreciation	126,559	122,412	121,346
Common Stockholder's Equity:
Net property, plant and equipment	205,215	203,411	203,716
Common stock, without par value -
Other investments	22	22	22
Authorized 5,000,000 shares
Total Capital Investments - Net	205,237	203,433	203,738
Outstanding 3,625,887 shares	$ 24,757	$ 24,757	$ 24,757
CURRENT ASSETS:
Retained earnings	80,086	77,726	77,338
Cash and cash equivalents	1,155	553	7,998
Total Common Stockholder's Equity	104,843	102,483	102,095
Temporary investments	4,615	-	-
Long-term debt, exclusive of sinking fund payments and
Receivables -
maturities due within one year	29,345	54,014	69,023
Customers, net of allowance for uncollectible
Total Capitalization	134,188	156,497	171,118
accounts of $1,756, $978, and $1,036, respectively	35,593	13,409	16,216
CURRENT LIABILITIES:
Other	257	302	352
Commercial paper	21,300	-	-
Materials and supplies, at average cost	2,191	2,327	2,122
Current maturities of long-term debt	15,000	15,000	-
Gas in storage, at last-in, first-out cost	4,891	8,866	5,082
Accounts payable	21,017	16,864	17,857
Gas costs recoverable through rate adjustments	598	9,654	3,734
Intercompany payables	19,294	5,754	11,643
Regulatory assets	653	861	572
Regulatory liabilities	8,266	5,213	-
Prepayments	438	417	310
Dividends payable	2,400	-	2,611
Total Current Assets	50,391	36,389	36,386
Customer deposits	8,456	10,221	8,298
OTHER ASSETS:
Accrued taxes	5,358	2,201	3,256
Prepaid pension costs	967	365	-
Gas costs refundable through rate adjustments	1,216	-	5,272
Non-current regulatory assets	21,543	21,291	21,049
Temporary LIFO liquidation credit	2,114	-	-
Deferred charges	5,223	3,647	3,583
Accrued interest	291	1,704	611
Total Other Assets	27,733	25,303	24,632
Total Current Liabilities	104,712	56,957	49,548
Total Assets	$ 283,361	$ 265,125	$ 264,756
DEFERRED CREDITS AND OTHER LIABILITIES:
* Unaudited
Deferred income taxes	28,225	26,769	26,282
Investment tax credits	3,048	3,061	3,133
Noncurrent regulatory liabilities, environmental and other	38,150	38,804	32,348
Total Deferred Credits and Other Liabilities	69,423	68,634	61,763
Total Capitalization and Liabilities	$ 308,323	$ 282,088	$ 282,429
The Notes to Consolidated Financial Statements are an integral part of these statements.

North Shore Gas Company
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
	June 30,	September 30,	June 30,
(Unaudited)
	2001*	2000	2000*
		Three Months Ended
	(In Thousands)
		December 31,
CAPITALIZATION AND LIABILITIES
		2002	2001
CAPITALIZATION:
(In Thousands)
Common Stockholder's Equity:
Operating Activities:
Common stock, without par value -
Net Income		$ 4,760	$ 4,012
Authorized 5,000 shares
Adjustments to reconcile net income to net cash:
Outstanding 3,626 shares	$ 24,757	$ 24,757	$ 24,757
Depreciation
Retained earnings	76,439	69,334	76,333
Per statement of income		1,713	1,609
Total Common Stockholder's Equity	101,196	94,091	101,090
Charged to other accounts		118	103
Long-term debt	69,308	69,663	69,711
Deferred income taxes and investment tax credits - net		965	859
Total Capitalization	170,504	163,754	170,801
Change in environmental and other liabilities		(176)	77
CURRENT LIABILITIES:
Change in prepaid pension costs		-	(443)
Short-term debt	-	7,375	-
Change in noncurrent regulatory assets		(1,487)	122
Accounts payable	26,001	27,349	17,300
Major changes in key working capital accounts:
Customer gas service and credit deposits	3,641	4,878	4,022
Receivables - net		(26,557)	(9,105)
Accrued taxes	5,523	2,543	8,316
Gas in storage		900	(556)
Gas sales revenue refundable through rate adjustments	1,682	-	163
Gas costs recoverable through rate adjustments		745	647
Temporary LIFO liquidation credit	16,854	-	6,854
Net regulatory assets/liabilities		1,875	168
Accrued interest	613	1,731	625
Customer deposits		(1,765)	3,299
Total Current Liabilities	54,314	43,876	37,280
Accounts payable		7,127	(3,247)
DEFERRED CREDITS AND OTHER LIABILITIES:
Accrued taxes		3,157	2,343
Deferred income taxes	23,658	23,533	22,200
Gas costs refundable through rate adjustments		1,216	(6,430)
Investment tax credits being amortized over
Temporary LIFO liquidation credit		2,114	-
the average lives of related property	3,161	3,194	3,215
Other		(249)	(644)
Other	31,724	30,768	31,260
Net Cash Provided by (Used in) Operating Activities		(5,544)	(7,186)
Total Deferred Credits and Other Liabilities	58,543	57,495	56,675
Investing Activities:
Total Capitalization and Liabilities	$ 283,361	$ 265,125	$ 264,756
Capital spending		(1,917)	(1,980)
* Unaudited
Deposits with broker or trustee		264	-
Net Cash Provided by (Used in) Investing Activities		(1,653)	(1,980)
Financing Activities:
Proceeds from (payment of) overdraft facility		(2,994)	-
Short-term debt - net		34,860	7,905
Retirement of long-term debt		(24,669)	(285)
Net Cash Provided by (Used in) Financing Activities		7,197	7,620
Net Increase (Decrease) in Cash and Cash Equivalents		-	(1,546)
Cash and Cash Equivalents at Beginning of Period		-	3,475
Cash and Cash Equivalents at End of Period		$ -	$ 1,929
Supplemental information:
Income taxes paid, net of refunds		$ -	$ 2,532
Interest paid, net of amounts capitalized		$ 2,471	$ 2,265
The Notes to Consolidated Financial Statements are an integral part of these statements.

North Shore Gas Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
2001 2000
(In Thousands)
Operating Activities:
Net Income $ 13,777 $ 11,878
Adjustments to reconcile net income to net cash:
Depreciation
Per statement of income 4,894 6,636
Charged to other accounts 350 638
Deferred income taxes and investment tax credits - net 1,035 818
Change in deferred credits and other liabilities 13 (37)
Change in other assets (2,430) 380
Change in current assets and liabilities:
Receivables - net (22,139) (4,192)
Materials and supplies 136 226
Gas in storage 3,975 3,710
Gas costs recoverable 9,056 (1,348)
Regulatory assets 208 5
Prepayments (21) (39)
Accounts payable (1,348) (9,148)
Customer gas service and credit deposits (1,237) (1,296)
Accrued taxes 2,980 4,277
Gas sales revenue refundable 1,682 163
Accrued interest (1,118) (1,112)
Temporary LIFO liquidation credit 16,854 6,854
Net Cash Provided by Operating Activities 26,667 18,413
Investing Activities:
Capital spending (7,048) (8,765)
Temporary investments (4,615) 7,855
Net Cash Used in Investing Activities (11,663) (910)
Financing Activities:
Short-term debt - net (7,375) -
Dividends paid on common stock (6,672) (9,826)
Retirement of long-term debt (355) (23)
Net Cash Used in Financing Activities (14,402) (9,849)
Net Increase in Cash and Cash Equivalents 602 7,654
Cash and Cash Equivalents at Beginning of Period 553 344
Cash and Cash Equivalents at End of Period $ 1,155 $ 7,998
Supplemental information:
Income taxes paid, net of refunds $ 4,151 $ 2,921
Interest paid, net of amounts capitalized 4,885 4,619
The Notes to Consolidated Financial Statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Gas in Storage

The Gas Distribution segment's inventory is carried at cost on a last-in, first-out (LIFO) method on a fiscal year basis. For interim periods, the difference between current replacement cost and the LIFO cost for quantities of gas temporarily withdrawn from storage is recorded as a temporary LIFO liquidation credit. Any interim reductions in the LIFO layers are due to seasonality and are expected to be replenished by the fiscal year end.

Recovery of Gas Costs

Under the tariffs of Peoples Gas and North Shore Gas, all ~~reasonably~~prudently incurred gas costs are recoverable from customers ~~through a charge for gas (the "Gas Charge")~~. The difference for any month between costs recoverable through the Gas Charge and ~~revenues~~the actual amount billed to customers under the Gas Charge is ~~refunded~~recovered tofrom or ~~recovered~~refunded ~~from~~to customers~~. Consistent~~ ~~with~~through ~~these~~future ~~tariff~~adjustments ~~provisions,~~to ~~such~~the Gas Charge. Such difference for any month is recorded either as a current ~~liability~~asset or as a current ~~asset~~liability (with a contra entry to Gas Costs). Gas Costs consist of two types - Commodity and Non-Commodity costs. The two types are tracked independently and may cause both an accounts receivable from and an accounts payable to customers.

For each ~~gas distribution~~ utility subsidiary, the Illinois Commerce Commission (~~the "~~Commission") conducts annual proceedings regarding the reconciliation of revenues from the Gas Charge and related ~~costs incurred for~~ gas costs. In ~~such~~these proceedings, the accuracy of the reconciliation of revenues and costs is reviewed and the prudence of gas costs recovered through the Gas Charge is examined by ainterested parties. If the Commission were to find that the reconciliation was inaccurate or any gas costs were imprudently incurred, the Commission would order the utility ~~through~~to refund the affected amount to customers through subsequent Gas Charge filings. The proceedings are ~~subject~~typically initiated shortly after the close of the fiscal year and take at least a year to ~~challenge~~18 months to complete. ~~Such~~Proceedings ~~proceedings~~ regarding Peoples Gas and North Shore Gas for the fiscal year ~~2000~~2001 costs are currently pending before the Commission. In the proceeding regarding Peoples Gas, the Commission Staff (Staff) has raised concerns about the prudence of gas costs associated with gas that Peoples Gas resold as part of its normal operational practices. The Staff has not yet submitted evidence or made a specific recommendation, but as part of the discovery process, it filed a motion to compel the production of certain information about these transactions and their possible relationship to Peoples Gas' affiliates. The Commission's Administrative Law Judge has not ruled on the motion, which Peoples Gas is contesting. Peoples Gas submitted additional direct evidence on October 16, 2002. On January 23, 2003, the Administrative Law Judge set a status hearing for February 26, 2003, to address a schedule for further proceedings in this matter. An order from the Commission is not expected before the first quarter of fiscal 2004. Peoples Gas believes that its gas costs were prudently incurred but cannot predict the outcome of the proceedings.

The fiscal year 2002 gas charge reconciliation case for each utility subsidiary was initiated on November 7, 2002. On December 18, 2002, the Administrative Law Judge granted each utility subsidiary's motion to extend time to file its direct testimony to May 1, 2003. The Administrative Law Judge set a status hearing for both cases for May 15, 2003.

Stock Compensation Plans

The Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," was amended to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, the disclosure requirements of SFAS No. 123 were amended to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

As allowed under SFAS No. 123, the Company has chosen to continue accounting for stock-based compensation under Accounting Principles Board (APB) Opinion No. 25. Therefore, no compensation cost has been recognized for nonqualified stock options (under both the Long-Term Incentive Compensation Plan (LTIC) and Director Stock and Option Plan (DSOP)) and shares issued under the Employee Stock Purchase Plan (ESPP). There were 426,900 and 520,300 options granted in the first quarter of fiscal 2003 and 2002, respectively. There were 7,459 and 6,479 shares sold through the ESPP in the first quarter of fiscal 2003 and 2002, respectively. The compensation cost that has been charged against net income for restricted stock awards was $0.8 million and $1.0 million for the three months ended December 31, 2002 and 2001, respectively. Had compensation cost for stock options (under both LTIC and DSOP) and shares issued under the ESPP been determined consistent with SFAS No. 123, as amended, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:

	Three Months Ended
		December 31,
(In Thousands, except per-share amounts		2002	2001
Net income as reported		$31,001	$31,021
Pro forma stock option and ESPP compensation expense under SFAS 123		235	418
Pro forma net income		$30,766	$30,603
Earnings per average common share:
Basic		$ 0.87	$ 0.88
Diluted		0.87	0.87
Pro forma basic		$ 0.87	$ 0.86
Pro forma diluted		$ 0.86	$ 0.86

The fair value of each option grant used to determine pro forma net income is estimated as of the date of grant using a variation of the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in the three months ended December 31, 2002 and 2001.

Three Months Ended December 31,	2002	2001
Expected volatility	25.85%	24.76%
Dividend yield	5.4%	5.4%
Risk-free interest rate	2.09%	3.08%
Expected lives (years)	3	3
Weighted average fair value	$3.34	$4.82

Derivative Instruments and Hedging Activities

InThe ~~June~~Company ~~1998,~~has ~~the~~hedged ~~Financial~~various ~~Accounting~~anticipated ~~Standards~~cash ~~Board~~flow ~~issued~~transactions ~~Statement~~through December 2006. The majority of ~~Financial~~these ~~Accounting~~hedges ~~Standards~~are ~~(SFAS)~~related ~~No.~~to ~~133,~~the ~~"Accounting~~Company's ~~for~~forecasted ~~Derivative~~sales ~~Instruments~~of produced oil and ~~Hedging~~gas ~~Activities",~~of ~~amended~~its byOil ~~SFAS~~and NoGas subsidiary. During ~~137~~the ~~and~~three ~~SFAS~~months ~~No.~~ended ~~138~~December 31, ~~(collectively~~2002, ~~"SFAS~~the NoCompany recorded in earnings a $1.9 ~~133"~~million loss ($1.1 million, net of tax) related to hedge activity. ~~SFAS~~The ~~No.~~majority ~~133~~of ~~establishes~~this ~~accounting~~activity ~~and~~was ~~reporting~~previously ~~standards~~recorded ~~requiring~~in ~~that~~accumulated ~~every~~other ~~derivative~~comprehensive ~~instrument~~income (~~including~~AOCI) ~~certain~~with ~~derivative~~the ~~instruments~~exception ~~embedded~~of ingains ~~other~~and ~~contracts)~~losses beattributable ~~recorded~~to onhedges ~~the~~entered ~~balance~~into ~~sheet~~and assettled ~~either~~during anthe ~~asset~~first orquarter ~~liability~~of ~~measured~~fiscal at2003, ~~its~~which ~~fair~~accounted ~~value. SFAS~~for ~~No.~~an ~~133~~insignificant ~~requires~~amount. The ~~that~~Company ~~changes~~anticipates reclassifying, in the ~~derivative's~~next ~~fair~~12 ~~value~~months, be$15.8 ~~recognized~~million ~~currently~~of indeferred losses from AOCI into earnings, ~~unless~~as ~~specific~~calculated ~~hedge~~using ~~accounting~~commodity ~~criteria~~prices ~~are~~at ~~met~~December 31, 2002. ~~Special~~As ~~accounting~~of ~~for~~December ~~qualifying~~31, ~~hedges~~2002, ~~allows~~the aCompany has $35.0 million of derivative's ~~gains~~liabilities, $10.2 million of derivative assets and has cumulative deferred losses toin ~~offset~~AOCI ~~related~~of ~~results~~$14.5 million, net of ~~the~~taxes. ~~hedged~~The ~~item~~Company onalso ~~the~~records ~~income~~adjustments ~~statement,~~to ~~and~~AOCI ~~requires~~to ~~that~~reflect aits ~~company~~share ~~must~~of ~~formally~~AOCI ~~document,~~amounts ~~designate,~~recorded ~~and~~by ~~assess~~partnerships ~~the~~related ~~effectiveness~~to oftheir ~~transactions~~hedging ~~that~~activity. The ~~receive~~Company ~~hedge~~records ~~accounting~~an offsetting amount to its investment in the partnership.

~~The~~Peoples ~~Company~~Gas ~~hedges~~and ~~forecasted~~North ~~cash~~Shore ~~flows~~Gas ~~related~~use derivative transactions to ~~commodities~~mitigate ~~and~~volatility ~~certain~~in ~~interest~~their ~~rate~~respective ~~risks~~gas charges. ~~The~~Since ~~impact~~these onderivative ~~the~~instruments ~~financial~~are ~~statements~~not ofdesignated ~~adopting~~as ~~SFAS~~hedges ~~No.~~and ~~133~~are asemployed ofto ~~October~~support 1,gas ~~2000,~~costs ~~was~~charged to ~~reduce~~regulated ~~earnings~~gas ~~by $34~~customers,~~000,~~ ~~net~~the ofaccounting ~~tax,~~for ~~reduce~~these ~~accumulated~~derivative ~~other~~instruments ~~comprehensive~~is ~~income~~subject ~~(AOCI)~~to bySFAS ~~$23~~No.6 ~~million,~~71. Any ~~net~~realized ofgains ~~tax,~~or ~~record~~losses aassociated ~~liability~~with ofthis ~~$40.0~~activity ~~million,~~will ~~record~~be anincluded ~~increase~~ in ~~investment~~gas incosts ~~equity~~passed ~~investees~~through ofto ~~$900,000~~utility ~~and record deferred taxes of $15~~customers.~~5 million.~~ ~~Based~~As onof ~~October~~December 131, ~~2000 values~~2002, ~~the~~Peoples ~~Company~~Gas ~~estimates~~and ~~that~~North inShore ~~2001,~~Gas ithave ~~will~~net ~~reclassify~~regulatory ~~from~~liabilities ~~AOCI~~related to ~~the~~these ~~Consolidated~~transactions ~~Statements~~ of ~~Income~~$44.2 ~~deferred~~million ~~losses~~and ~~totaling~~ $177.95 million, ~~net of tax, which are expected to offset gains on the hedged transactions~~respectively.

~~The~~Recent ~~Company~~Accounting has hedged various anticipated cash flow transactions through December 2006. During the three and nine months ended June 30, 2001, the Company reclassified $2.3 million and $12.2 million net of tax, respectively, of deferred losses from AOCI to the Consolidated Statements of Income to offset gains realized by the hedged transactions. In the following 12 months, $2.5 million of deferred losses will be reclassified from AOCI into earnings. The deferred loss is reported in the same income statement line as the gain or loss from the hedged transaction. As of June 30, 2001, the Company has $4.9 million of derivative liabilities and has cumulative deferred losses in AOCI of $3.0 million, net of tax. As of June 30, 2001, Peoples Gas and North Shore Gas had no derivative instruments, respectively.Pronouncements

In July 2001, the ~~nine-month~~FASB ~~period~~issued SFAS No. 143, ~~the~~"Accounting ~~cash~~for ~~flow~~Asset ~~hedges~~Retirement byObligations." SFAS No. 143 requires an entity to record a liability and corresponding asset representing the ~~Elwood~~present ~~joint~~value ~~venture~~of ~~were~~legal ~~liquidated~~obligations ~~resulting~~associated inwith ~~recognizing~~the ~~gains~~retirement of ~~$4.0~~tangible, ~~million~~long-lived ~~($2~~assets.4 SFAS ~~million,~~No. ~~net~~143 ofis ~~taxes)~~effective for fiscal years beginning after June 2002. The ~~power~~Company, ~~sales~~Peoples ~~contracts~~Gas ~~were~~and ~~renegotiated~~North toShore ~~essentially~~Gas ~~eliminate~~adopted the ~~fuel~~standard ~~price~~on ~~risk~~October ~~that~~1, ~~the~~2002 ~~hedges~~and ~~were~~did ~~designed~~not torecord ~~protect~~any significant adjustments.

~~Equity~~ In ~~Investments~~December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." It is an amendment of SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and APB No. 28, Interim Financial Reporting. In addition, this Statement allows companies to continue to report using the intrinsic method. It amends the disclosure requirements of SFAS No. 123 for reporting under the intrinsic method to require prominent disclosures in both annual and interim financial statements about the pro forma stock option expense. The Company has continued to report based on the intrinsic method and reported stock option expense in Note 1.

~~The~~In ~~Company~~November ~~has~~2002, athe ~~number~~FASB ofissued ~~investments~~Interpretation ~~which~~No. ~~are~~(FIN) ~~accounted~~45, ~~for~~"Guarantor's asAccounting ~~unconsolidated~~and ~~equity~~Disclosure ~~method~~Requirements ~~investments~~for Guarantees, ~~the~~Including ~~larger~~Indirect Guarantees of ~~which~~Indebtedness ~~are~~of ~~reported~~Others in- ~~the~~an ~~Power~~interpretation ~~Generation,~~of ~~Midstream~~SFAS ~~Services~~No. 5, 57 and ~~Oil~~107 and ~~Gas~~rescission ~~Production~~of ~~segments~~FIN 34." ~~Individually,~~FIN 45 elaborates on the ~~Company's~~disclosures ~~equity~~to ~~investments~~be ~~are~~made ~~not~~by ~~material,~~a ~~however,~~guarantor in ~~aggregate~~its ~~these~~interim ~~investments~~and ~~are~~annual ~~material~~financial atstatements ~~June~~about ~~30,~~its ~~2001~~obligations under certain guarantees that it has issued and in certain circumstances requires recognition of a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company's ~~pro~~will ~~rata~~not ~~share~~be ofrequired ~~financial~~to ~~results~~recognize ~~are~~a ~~listed~~liability ~~below~~for any of its existing guarantees.

Three Months Ended Nine Months Ended
June 30, June 30,
(In Thousands) 2001 2000 2001 2000
Total Equity Investments
Operating revenues $ 63,313 $ 18,348 $ 144,328 $ 30,329
Operating income 11,981 5,116 28,668 11,808
Interest expense 1,228 1,858 2,631 2,651
Earnings before income taxes 10,890 3,095 26,694 9,144
Investments in equity investees $ 141,446 $ 130,670 $ 141,446 $130,670
Investment Results by Segment:
Power Generation
Operating revenues $ 7,996 $ 7,929 $ 19,151 $ 16,480
Operating income 3,653 2,809 10,558 8,263
Interest expense 502 - 502 -
Earnings before income taxes 3,246 2,915 10,580 8,461
Investments in equity investees $ 100,128 $ 99,311 $ 100,128 $ 99,311
Midstream Services
Operating revenues $ 44,335 $ - $ 99,520 $ -
Operating income 3,517 - 9,642 -
Interest expense - - - -
Earnings before income taxes 3,550 - 9,719 -
Investments in equity investees $ 10,036 $ - $ 10,036 $ -
Oil and Gas Production
Operating revenues $ 9,598 $ 9,355 $ 20,911 $ 10,565
Operating income 4,409 1,878 6,906 2,323
Interest expense 409 1,552 1,175 1,707
Earnings before income taxes 4,000 20 5,742 314
Investments in equity investees $ 26,690 $ 26,095 $ 26,690 $ 26,095
Other
Operating revenues $ 1,384 $ 1,064 $ 4,746 $ 3,284
Operating income 402 429 1,562 1,222
Interest expense 317 306 954 944
Earnings before income taxes 94 160 653 369
Investments in equity investees $ 4,592 $ 5,264 $ 4,592 $ 5,264
2. BUSINESS SEGMENTS

Financial data by business segment is presented below:.

	The Company
				Retail			Corporate
(In Thousands)	Gas	Power	Midstream	Energy	Oil and Gas		and
Three Months Ended 06-30-01	Distribution	Generation	Services	Services	Production	Other	Adjustments	Total
Operating Revenues	$ 218,994	$ -	$ 35,851	$ 48,316	$ 17,078	$ 12	$ (1,750)	$ 318,501
Depreciation, Depletion and Amortization	16,920	-	131	435	8,004	17	73	25,580
Operating Income (Loss)	23,221	(1,409)	1,517	(739)	3,963	(538)	(4,602)	21,413
Equity Investment Income (Loss)	-	3,246	3,550	-	4,000	94	-	10,890
Operating Income and Equity Investment Income (Loss)	23,221	1,837	5,067	(739)	7,963	(444)	(4,602)	32,303
Segment Assets	1,515,652	4,735	7,639	11,426	200,013	2,467	5,445	1,747,377
Investments in Equity Investees	-	100,128	10,036	-	26,690	4,592	-	141,446
Capital Spending	$ 21,386	$ 427	$ 5	$ 1,790	$ 121,808	$ 196	$ 2,155	$ 147,767
				Retail			Corporate
	Gas	Power	Midstream	Energy	Oil and Gas		and
Three Months Ended 06-30-00	Distribution	Generation	Services	Services	Production	Other	Adjustments	Total
Operating Revenues	$ 199,715	$ -	$ 20,095	$ 30,352	$ 12,236	$ 11	$ (1,161)	$ 261,248
Depreciation, Depletion and Amortization	22,222	-	69	419	5,653	16	31	28,410
Operating Income (Loss)	25,966	(1,629)	(1,061)	(902)	3,356	(267)	(2,823)	22,640
Equity Investment Income	-	2,915	-	-	20	160	-	3,095
Operating Income and Equity Investment Income (Loss)	25,966	1,286	(1,061)	(902)	3,376	(107)	(2,823)	25,735
Segment Assets	1,495,661	1,221	10,478	8,200	92,208	(49)	333	1,608,052
Investments in Equity Investees	-	99,311	-	-	26,095	5,264	-	130,670
Capital Spending	$ 24,631	$ 1,221	$ (148)	$ (138)	$ 20,624	$ 974	$ 119	$ 47,283
				Retail			Corporate
	Gas	Power	Midstream	Energy	Oil and Gas		and
Nine Months Ended 06-30-01	Distribution	Generation	Services	Services	Production	Other	Adjustments	Total
Operating Revenues	$ 1,708,995	$ -	$ 123,764	$ 244,989	$ 37,429	$ 29	$ (5,934)	$2,109,272
Depreciation, Depletion and Amortization	51,006	-	394	1,190	15,840	50	211	68,691
Operating Income (Loss)	203,197	(2,739)	5,939	(480)	8,813	(1,329)	(18,988)	194,413
Equity Investment Income	-	10,580	9,719	-	5,742	653	-	26,694
Operating Income and Equity Investment Income (Loss)	203,197	7,841	15,658	(480)	14,555	(676)	(18,988)	221,107
Segment Assets	1,515,652	4,735	7,639	11,426	200,013	2,467	5,445	1,747,377
Investments in Equity Investees	-	100,128	10,036	-	26,690	4,592	-	141,446
Capital Spending	$ 65,318	$ 1,853	$ 1,860	$ 1,856	$ 128,208	$ 949	$ 3,838	$ 203,882
				Retail			Corporate
	Gas	Power	Midstream	Energy	Oil and Gas		and
Nine Months Ended 06-30-00	Distribution	Generation	Services	Services	Production	Other	Adjustments	Total
Operating Revenues	$ 968,985	$ -	$ 98,466	$ 111,650	$ 22,912	$ 30	$ (3,648)	$ 1,198,395
Depreciation, Depletion and Amortization	63,122	-	202	1,228	10,290	49	98	74,989
Operating Income (Loss)	182,272	(3,290)	7,020	(2,542)	5,750	(897)	(9,744)	178,569
Equity Investment Income	-	8,461	-	-	314	369	-	9,144
Operating Income and Equity Investment Income (Loss)	182,272	5,171	7,020	(2,542)	6,064	(528)	(9,744)	187,713
Segment Assets	1,495,661	1,221	10,478	8,200	92,208	(49)	333	1,608,052
Investments in Equity Investees	-	99,311	-	-	26,095	5,264	-	130,670
Capital Spending	$ 77,211	$ 1,050	$ (148)	$ 965	$ 90,280	$ 1,042	$ 184	$ 170,584

The activities of Peoples Gas and North Shore Gas are mainly within the Gas Distribution segment with only immaterial amounts of activity in other segments. Total segment capital assets include net property, plant and equipment and certain intangible assets classified in other assets.

The following reconciles total segment assets and investments in equity investees to the Company's consolidated total assets at June 30, 2001 and 2000:

				Retail			Corporate
(In Thousands)	Gas	Power	Midstream	Energy	Oil and Gas		and
Three Months Ended 12-31-02	Distribution	Generation	Services	Services	Production	Other	Adjustments	Total
Revenues	$ 415,751	$ -	$ 60,769	$ 54,673	$ 22,194	$ 43	$ (4,319)	$ 549,111
Depreciation, Depletion and Amortization	16,507	32	106	417	10,376	3	23	27,464
Operating Income (Loss)	58,292	(1,098)	2,564	2,102	5,498	(300)	(6,487)	60,571
Equity Investment Income (Loss)	-	(63)	-	-	(626)	436	-	(253)
Operating and Equity Investment Income	58,292	(1,161)	2,564	2,102	4,872	136	(6,487)	60,318
Segment Capital Assets	1,547,253	996	5,959	7,953	245,215	1,240	1,266	1,809,882
Investments in Equity Investees	-	121,101	-	-	24,863	4,029	-	149,993
Capital Spending	$ 17,059	$ 1,158	$ 15	$ (3)	$ 39,723	$ 1	$ 408	$ 58,361

				Retail			Corporate
	Gas	Power	Midstream	Energy	Oil and Gas		and
Three Months Ended 12-31-01	Distribution	Generation	Services	Services	Production	Other	Adjustments	Total
Revenues	$ 290,733	$ -	$ 23,214	$ 50,249	$ 15,824	$ 10	$ (2,482)	$ 377,548
Depreciation, Depletion and Amortization	16,891	28	237	409	6,905	11	23	24,504
Operating Income (Loss)	68,449	(1,215)	2,820	1,402	3,279	(328)	(10,059)	64,348
Equity Investment Income (Loss)	-	(1,616)	(502)	-	(1,523)	132	-	(3,509)
Operating and Equity Investment Income	68,449	(2,831)	2,318	1,402	1,756	(196)	(10,059)	60,839
Segment Capital Assets	1,529,514	5,186	7,496	9,762	202,100	1,547	1,001	1,756,606
Investments in Equity Investees	-	70,431	2,164	-	25,852	4,518	-	102,965
Capital Spending	$ 18,168	$ 8,361	$ 297	$ (6)	$ 8,686	$ -	$ (2)	$ 35,504

June 30,
2001 2000
(In Thousands)
Capital Investments
Segment assets $ 1,747,377 $ 1,608,052
Investments in equity investees 141,446 130,670
Other investments not included in
above categories 10,231 12,031
Total Capital Investments - Net 1,899,054 1,750,753
Assets
Current Assets 829,902 437,143
Other Assets 283,301 218,791
Total Assets $ 3,012,257 $ 2,406,687
3. EQUITY INVESTMENTS

The ~~activities~~Company has a number of ~~Peoples~~investments ~~Gas~~that are ~~mainly~~accounted ~~within~~for ~~the~~as ~~Gas~~unconsolidated ~~Distribution~~equity ~~segment~~method ~~with~~investments. During ~~only~~the ~~immaterial~~second ~~amounts~~quarter of ~~activity~~fiscal 2002, the Company acquired Enron's 50 percent interest in ~~other~~enovate, ~~segments~~its partnership with Enron. ~~North~~Results ~~Shore~~from ~~Gas~~this ~~activities~~business ~~are~~were ~~entirely~~recorded ~~within~~in the ~~Gas~~Midstream ~~Distribution~~Services segment as a consolidated subsidiary from March 2002 until enovate was liquidated in September 2002. Individually, the Company's equity investments do not meet the requirements for financial disclosure. However, in aggregate these investments were material at December 31, 2002. The Company records its share of income gains and losses based on financial information it receives from the partnerships.

~~3. ACCOUNTS~~ The ~~RECEIVABLE~~following table describes total activity of equity method investees and the Company's pro rata share of financial results from unconsolidated equity method investments.

See accounts receivable discussion in Item 2 "Management's Discussion and Analysis of Results of Operations and Financial Condition - Liquidity and Capital Resources - Balance Sheet Variations."

	Three Months Ended
	December 31,
(In Thousands)	2002	2001
Gross Results from Equity Investments
Revenues	$ 28,145	$ 47,854
Operating Income	9,685	59
Interest Expense	9,365	9,388
Net Income	724	(9,100)
Total Assets	881,326	802,152
Total Liabilities	$ 476,159	$ 567,535

Peoples Energy's Share
Total Equity Investments
Revenues	$ 10,757	$ 23,020
Operating Income	4,148	986
Interest Expense	4,603	4,593
Equity Investment Income (Loss)	(253)	(3,509)
Undistributed Partnership Income Included in Retained Earnings	2,557	10,713
Total Assets	383,367	369,078
Total Liabilities	$ 241,381	$ 268,618

4. ENVIRONMENTAL MATTERS

Former Manufactured Gas Plant Operations

The Company's utility subsidiaries, their predecessors, and certain former affiliates operated facilities in the past at multiple sites for the purpose of manufacturing gas and storing manufactured gas ~~(Manufactured Gas Sites)~~. In connection with manufacturing and storing gas, various by-products and waste materials were produced, some of which might have been disposed of rather than sold. Under certain laws and regulations relating to the protection of the environment, the subsidiaries might be required to undertake remedial action with respect to some of these materials. Two of the ~~Manufactured~~manufactured ~~Gas~~gas ~~Sites~~sites are discussed in more detail below. The subsidiaries, ~~under~~are ~~the~~addressing ~~supervision~~an ofadditional ~~the~~32 ~~Illinois~~manufactured ~~Environmental~~gas ~~Protection~~sites ~~Agency~~under ~~(IEPA),~~a ~~are~~program ~~conducting~~supervised ~~investigations~~by ofthe anIllinois ~~additional~~Environmental 31Protection ~~Manufactured~~Agency ~~Gas Sites~~(IEPA). ~~These~~Investigations ~~investigations~~have ~~may~~been ~~require~~completed ~~the~~at ~~utility~~all ~~subsidiaries~~or toportions ~~perform~~of ~~additional~~27 ~~investigation and remediation~~sites. ~~The~~Remediations ~~investigations~~have ~~are~~been incompleted aat ~~preliminary~~all ~~stage~~or ~~and~~portions ~~are~~of ~~expected~~four ~~to occur over approximately three years~~sites.

In 1990, North Shore Gas entered into an Administrative Order on Consent (AOC) with the United States Environmental Protection Agency (EPA) and the IEPA to implement and conduct a remedial investigation/feasibility study (RI/FS) of a ~~Manufactured~~manufactured ~~Gas~~gas ~~Site~~site located in Waukegan, Illinois, where manufactured gas and coking operations were formerly conducted (Waukegan Site). The RI/FS was comprised of an investigation to determine the nature and extent of contamination at the Waukegan Site and a feasibility study to develop and evaluate possible remedial actions. North Shore Gas entered into the AOC after being notified by the EPA that North Shore Gas, General Motors Corporation (GMC), and Outboard Marine Corporation (OMC) were each a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA), with respect to the Waukegan Site. A PRP is potentially liable for the cost of any investigative and remedial work that the EPA determines is necessary. Other parties identified as PRPs did not enter into the AOC.

Under the terms of the AOC, North Shore Gas is responsible for the cost of the RI/FS. North Shore Gas believes, however, that it will recover a significant portion of the costs of the RI/FS from other entities. GMC has shared equally with North Shore Gas in funding of the RI/FS cost, without prejudice to GMC's or North Shore Gas' right to seek a lesser cost responsibility at a later date.

OnIn ~~May 14,~~ 1999, the EPA notified GMC, OMC, Elgin Joliet and Eastern Railway Company, and North Shore Gas that they were potentially liable with respect to the Waukegan Site and that the EPA intended to begin discussions regarding the design and implementation of the remedial action selected for the Waukegan Site.

OnIn ~~September 30,~~ 1999, the EPA issued the Record of Decision (ROD) selecting the remedial action for the Waukegan Site. The remedy consists of on-site treatment of ground water, off-site treatment and disposal of soil containing polynuclear aeromatic hydrocarbons or creosote, and on-site solidification/stabilization of arsenic -contaminated soils. The EPA has estimated the present worth of the remedy to be $26.5 million (representing the present worth of estimated capital costs and of estimated operation and maintenance costs).

OnIn ~~December 22,~~ 2000, OMC filed a petition in federal bankruptcy court seeking protection under Chapter 11 of the United States Bankruptcy Code. On August 20, 2001, the bankruptcy court entered an order converting OMC's Chapter 11 case to a Chapter 7 case.

North Shore Gas and the other parties notified by the EPA have been discussing implementation of the remedy and the allocation of costs associated with the investigation and remediation of the Waukegan Site. In July 2001, North Shore Gas and the other ~~PRP's~~PRPs entered into an AOC with the EPA to conduct the remedial design for the Waukegan ~~site~~Site.

North Shore Gas has entered into a settlement agreement with one of the ~~PRP's~~PRPs and is continuing discussion with the remaining parties.

In June 2002, the City of Waukegan purchased the Waukegan Site from the OMC bankruptcy trustee. In October 2002, the City of Waukegan rezoned the property from industrial to residential.

In October 2002, the City of Waukegan enacted an ordinance that purports to require the remediation of soil, at sites within a defined geographic area that includes the Waukegan Site, to levels more stringent than those set forth in the ROD.

At this time, management is unable to determine whether, or to what extent, the change in ownership, change in zoning or enactment of the ordinance will affect remedial costs at the Waukegan Site.

The current owner of a site in Chicago, formerly called Pitney Court Station, filed suit against Peoples Gas in federal district court under CERCLA. The suit seeks recovery of the past and future costs of investigating and remediating the site. Peoples Gas is contesting this suit.

The utility subsidiaries are accruing and deferring the costs they incur in connection with all of the ~~Manufactured~~manufactured ~~Gas~~gas ~~Sites~~sites, including related legal expenses, pending recovery through rates or from insurance carriers or other entities. At ~~June~~December 3031, ~~2001~~2002, the total of the costs deferred (stated in current year dollars) for Peoples Gas was $41136.1 million; for North Shore Gas the total was $2028.65 million; and for the Company on a consolidated basis the total deferred was $61164.76 million. ~~This~~Each ~~amount~~of these amounts includes ~~management's~~the ~~best~~low ~~estimate~~end of ~~the~~a ~~costs~~range of costs that management estimates the utilities will incur in investigating and remediating the ~~Manufactured~~manufactured gas sites. Management estimates that additional costs in the following amounts are reasonably possible: for Peoples Gas, ~~Sites~~$45.2 million; for North Shore Gas, $7.6 million; for the Company on a consolidated basis, $52.8 million. ~~The~~Management's ~~estimate~~estimates isare based upon aan ~~comprehensive~~ongoing review by management and its outside consultants of potential costs associated with conducting investigative and remedial actions at the ~~Manufactured~~manufactured ~~Gas~~gas ~~Sites~~sites, asincluding ~~well~~updated asestimates ~~the~~based ~~likelihood~~on ofcompleted ~~whether~~investigations ~~such~~or ~~actions~~specific ~~will~~remedial ~~be necessary~~plans. While each subsidiary intends to seek contribution from other entities for the costs incurred at the sites, the full extent of such contributions cannot be determined at this time.

Peoples Gas and North Shore Gas have filed suit against a number of insurance carriers for the recovery of environmental costs relating to the utilities' former manufactured gas operations. The suit asks the court to declare, among other things, that the insurers are liable under policies in effect between 1937 and 1986 for costs incurred or to be incurred by the utilities in connection with five of their ~~Manufactured~~manufactured ~~Gas~~gas ~~Sites~~sites in Chicago and Waukegan. The utilities are also asking the court to award damages stemming from the insurers' breach of their contractual obligation to defend and indemnify the utilities against these costs. InThe ~~November 1998, the~~ utilities have reached a settlement ~~agreement~~agreements with ~~one~~several of the insurance carriers. The utilities are applying portions of the proceeds from these settlements to pay costs otherwise recoverable through rates. The costs deferred at ~~June~~December 3031, ~~2001~~2002 have been reduced by the ~~proceeds~~portions of the settlement proceeds that have yet to be applied to pay such costs. At this time, management cannot determine the timing and extent of the subsidiaries' recovery of costs from the other insurance carriers. Accordingly, the costs deferred at ~~June~~December 3031, ~~2001~~2002 have not been reduced to reflect recoveries from other insurance carriers.

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

Former Mineral Processing Site in Denver, Colorado

In 1994, North Shore Gas received a demand from the S.W. Shattuck Chemical Company, Inc. (Shattuck), a responsible party under CERCLA, for reimbursement, indemnification, and contribution for response costs incurred at a former mineral processing site in Denver, Colorado (Denver site). Shattuck is a wholly -owned subsidiary of Salomon, Inc. (Salomon). The demand alleges that North Shore Gas is a successor to the liability of a former entity that was allegedly responsible during the period 1934-1941 for the disposal of mineral processing wastes containing radium and other hazardous substances at the site. In 1992, the EPA issued the ROD for the Denver site. The remedy selected in the ROD consisted of the on-site stabilization, solidification and capping of soils containing radioactive wastes. In 1997, the remedial action was completed. The cost of the remedy at the site has been estimated by Shattuck to be approximately $31.0 million. Salomon has provided financial assurance for the performance of the remediation of the site.

Denver site. The remedy selected in the ROD consisted of the on-site stabilization, solidification and capping of soils containing radioactive wastes. In 1997, the remedial action was completed. The cost of the remedy at the site has been estimated by Shattuck to be approximately $31.0 million. Salomon has provided financial assurance for the performance of the remediation of the site.

North Shore Gas filed a declaratory judgment action against Salomon in the District Court for the Northern District of Illinois. The suit asked the court to declare that North Shore Gas is not liable for response costs at the Denver site. Salomon filed a counterclaim for costs incurred by Salomon and Shattuck with respect to the site. In 1997, the District Court granted North Shore Gas' motion for summary judgment, declaring that North Shore Gas is not liable for any response costs in connection with the Denver site.

In ~~August~~ 1998, the ~~U.S.~~United States Court of Appeals, Seventh Circuit, reversed the District Court's decision and remanded the case for determination of what liability, if any, the former entity has, and therefore North Shore Gas has, for activities at the site.

In ~~November~~ 1999, the EPA announced that it was reopening the ROD for the Denver site. The EPA's announcement followed a six-month scientific/technical review by the agency of the remedy's effectiveness. In ~~June~~ 2000, the EPA amended the ROD to require removal of the radioactive wastes from the site to a licensed off-site disposal facility. The EPA estimates that this action will cost an additional $21.5 million (representing the present worth of estimated capital costs and estimated operation and maintenance costs).

In December 2001, Shattuck entered into a proposed settlement agreement with the United States and the State of Colorado regarding past and future response costs at the site. In August 2002, the agreement was approved by the District Court for the District of Colorado. Under the terms of the agreement, Shattuck will pay, in addition to amounts already paid for response costs at the site, approximately $7.2 million in exchange for a release from further obligations at the site. The release will not apply in the event that new information shows that the remedy selected in the amended ROD is not protective of human health or the environment or if it becomes necessary to remediate contaminated groundwater beneath or emanating from the site.

North Shore Gas does not believe that it has liability for the response costs, but cannot determine the matter with certainty. At this time, North Shore Gas cannot reasonably estimate what range of loss, if any, may occur. In the event that North Shore Gas incurred liability, it would pursue reimbursement from insurance carriers, other responsible parties, if any, and through its rates for utility service.

~~Equipment~~5. ACCOUNTS ~~Containing Mercury~~RECEIVABLE

~~Peoples~~Accounts ~~Gas~~receivable ~~and~~balances ~~North~~for ~~Shore~~the ~~Gas~~Company ~~are~~includes ~~inspecting~~accrued ~~for~~unbilled ~~mercury~~revenues ~~contamination in certain~~ of ~~their~~$103.9 ~~customers' premises where gas pressure regulators~~million, ~~manometers~~$32.1 million and ~~other equipment containing mercury may have been used~~$80. ~~The~~3 ~~utilities~~million ~~have~~at ~~identified~~December ~~approximately~~31, 932002,~~000~~ ~~locations~~September ~~where gas pressure regulators~~30, ~~manometers~~2002 and ~~other~~December ~~equipment~~31, ~~containing~~2001, ~~mercury may have been used. Virtually all of the gas pressure regulators containing mercury that were used for residences and other small volume customers were removed by the utilities in the 1960's~~respectively, ~~1970's~~related ~~and~~primarily ~~1980's. The~~to ~~utilities'~~Gas ~~inspection~~Distribution ~~programs include both a visual check for mercury and a verification with mercury detection equipment~~operations.

AsThe offollowing ~~June~~table ~~30,~~presents ~~2001,~~the ~~Peoples~~status ~~Gas had visually inspected approximately 31,172 premises (including 29,549 small volume customers, primarily residences) and small amounts~~ of ~~mercury~~customer ~~were~~accounts ~~found~~receivable inbalances 34 of these locations (of which 16 were residences). North Shore Gas had visually inspected approximately 38,208 premises (including 37,829 small volume customers, primarily residences) and small amounts of mercury were found in 34 of these locations (of which 33 were residences). All but one of the ~~commercial~~Company's ~~and~~utility ~~industrial locations have been inspected~~subsidiaries. The utilities have sent notices to residential locations and will inspect residences when requested by the residents. Based on responses to date, the utilities do not anticipate that all residents will request inspections; however, at this time, the utilities cannot predict with certainty how many inspections will be made.

In each case where mercury contamination is found, Peoples Gas or North Shore Gas will perform appropriate remediation at the premises to eliminate contamination. Based on information available at June 30, 2001, it does not appear that mercury contamination discovered by the utilities has had or will have a significant harmful effect on the public.

	Peoples Gas			North Shore Gas
	Accounts Receivable Balance At			Accounts Receivable Balance At
	December 31,	September 30,	December 31,	December 31,	September 30,	December 31,
	2002	2002	2001	2002	2002	2001
	(Dollars In Millions)

Gross customer accounts receivable	$ 259.7	$ 151.2	$ 285.6	$ 38.5	$ 14.0	$ 30.7
Reserve for uncollectible accounts	24.2	31.5	37.5	0.8	0.5	0.6
Net customer accounts receivable	$ 235.5	$ 119.7	$ 248.1	$ 37.7	$ 13.5	$ 30.1

Reserve for uncollectible accounts as a percent of gross customer accounts receivable	9.3%	20.8%	13.1%	2.1%	3.6%	2.0%

The ~~Company~~following ~~has~~table ~~incurred~~details ~~and expects to continue to incur costs for inspection and remediation and other costs related to the programs. The Company charged $16.1 million (of which~~ Peoples Gas' ~~and~~aging ~~North Shore Gas charged $8.0 million and $8.1 million, respectively) to operating expense in the fourth quarter~~ of ~~fiscal~~customer ~~year 2000, including the accrual recorded in~~ accounts ~~payable~~receivable of $15.0 million (of which Peoples Gas and North Shore Gas recorded $7.0 million and $8.0 million, respectively) to account for the estimated remaining costs related to the programs. Actual costs incurred as of June 30, 2001 for Peoples Gas and North Shore Gas were $2.6 million and $2.9 million, respectively. As of June 30, 2001 neither the Company nor either utility has been named as a defendant in any lawsuit. The Company intends to vigorously pursue the recovery of mercury-related costs from insurance carriers.balances:

5. COMPREHENSIVE INCOME


	Total
	Accounts		Past Due
	Receivable	Current	30-89 Days	90-149 Days	Over 150 Days
	(Dollars in Millions)

December 31, 2002	$259.7	$180.2	$31.0	$9.7	$38.8
Percentage	100	69	12	4	15

September 30, 2002	$151.2	$52.0	$21.7	$19.0	$58.5
Percentage	100	34	14	13	39

December 31, 2001	$285.6	$146.7	$32.8	$15.8	$90.3
Percentage	100	51	11	6	32

~~SFAS No~~6. ~~130, "Reporting Comprehensive Income," requires the reporting of comprehensive income in addition to net income.~~ ~~Comprehensive~~COMPREHENSIVE ~~income~~INCOME ~~is the total of net income and all other nonowner changes in equity~~ (~~Other Comprehensive Income~~LOSS). Comprehensive income includes net income, the effect of the additional pension liability not yet recognized as net periodic pension cost and unrealized gains and losses from derivative instruments that qualify as cash flow hedges per SFAS No. 133. The Company and Peoples Gas have reported accumulated other comprehensive income in their respective Consolidated Balance Sheets

~~Comprehensive~~Other comprehensive income ~~for~~(loss) recorded in the ~~Company~~reported ~~for~~periods ~~the~~consists ~~three~~of ~~and~~unrealized ~~nine~~gains ~~months~~and ~~ended~~losses ~~June~~from ~~30,~~derivative ~~2001~~financial ~~and~~instruments ~~2000~~accounted isfor as ~~follows~~cash flow hedges. Total comprehensive income (loss) consisted of the following:

	Three Months Ended			Nine Months Ended
	Three months ended
	June 30,			June 30,
	December 31,
	2001		2000	2001	2000
	2002	2001
~~(In Thousands)~~	(In Thousands)
Net income	$11,563		$10,852	$110,411	$97,850
Other comprehensive income
Other comprehensive income
Net income	$ 31,001	$ 31,021
Unrealized gain (loss) on cash flow hedges	44,909		-	(4,894)	-
Other comprehensive income (loss), net of tax	(6,924)	(3,427)
Income tax (expense)/benefit	(17,814)		-	1,941	-
Total other comprehensive income	$ 24,077	$ 27,594
Other comprehensive income, net of tax	27,095		-	(2,953)	-
Total comprehensive income	$38,658		$10,852	$107,458	$97,850

Total Other Comprehensive Income for Peoples Gas and North Shore Gas is equal to Net Income as shown on the their respective Income Statements.

Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
RESULTS OF OPERATIONS
The following should be read in conjunction with the Management's Discussion and Analysis of Results of Operations and Financial Condition (MD&A) of Peoples Energy Corporation, The Peoples Gas Light and Coke Company and North Shore Gas Company 2000 Annual Report on Form 10-K, as amended.
Summary

Net income for the Company for the three months ended ~~June~~December 3031, ~~2001~~2002 ~~increased~~totaled to $1131.60 million, ~~compared~~or to $10.987 ~~million~~per indiluted ~~the~~share, ~~year~~essentially ~~ago~~unchanged from the previous period. ~~The~~Operating ~~$711,000~~and ~~increase~~equity (investment income totaled $160.63 million ~~before~~for ~~taxes)~~the ~~was~~first ~~mainly~~quarter, ~~the~~versus ~~result~~$60.8 ofmillion ~~continued~~reported ~~growth~~for by the ~~diversified~~prior ~~businesses,~~year. The ~~primarily~~Gas ~~the~~Distribution ~~midstream~~business ~~services~~benefited ~~($6.1~~from ~~million)~~a ~~and~~return ~~oil~~to ~~and~~more ~~gas~~normal ~~production~~weather, ~~($4.6~~although ~~million)~~that ~~segments,~~improvement aswas ~~well~~overshadowed asby ~~from~~ a ~~decrease~~significant reduction in ~~gas~~pension ~~distribution~~credits ~~depreciation~~and ~~expense~~an ~~($5.3~~increase ~~million). Net~~in ~~income~~the ~~was~~provision ~~negatively~~for ~~effected~~uncollectible byaccounts. All ~~weather~~of ~~that~~the ~~was~~diversified ~~nine~~energy ~~percent~~businesses ~~warmer~~posted ~~than~~strong inresults, and the ~~previous~~Company ~~period~~expanded ~~($1.7~~the ~~million)~~production base and byearnings apotential ~~decrease~~of inthe ~~income~~Oil ~~associated~~and ~~with~~Gas ~~pension~~Production ~~benefit~~segment ~~accounting~~with the purchase in ~~the~~November 2002 of additional gas ~~distribution~~reserves ~~segment~~in ~~($2~~Texas.~~7 million).~~

~~Net~~A ~~income~~summary ~~for~~of ~~the~~variations ~~nine~~affecting ~~months~~net ~~ended~~income ~~June~~between ~~30,~~periods ~~2001~~is ~~increased~~presented ~~to $110.4 million~~below, ~~compared~~followed toby ~~$97.9~~explanations ~~million in the year ago period. The $12.5 million increase ($21.0 million before taxes) was mainly a result~~ of ~~increased~~significant ~~gas~~differences ~~delivery~~by volumes due to weather that was 19 percent colder than the same period last year and to continued growth in diversified business earnings. In addition to the positive impact from weather ($22.6 million), the gas distribution segment ~~benefited from reduced depreciation expense ($12~~.1 million) and from the positive effects of pension benefit accounting ($8.9 million). Partially offsetting these effects was an increase in the utilities' provision for uncollectible accounts ($13.2 million) due to unseasonably cold weather and significantly higher natural gas prices.

A summary of variations affecting income between years is presented below, followed by explanations of significant differences by segment.

	Three Months Ended
	December 31,		Increase /
	2002	2001	(Decrease)
(In Thousands)
Operating and Equity Investment Income:
Gas Distribution	$ 58,292	$ 68,449	$ (10,157)
Power Generation	(1,161)	(2,831)	1,670
Midstream Services	2,564	2,318	246
Retail Energy Services	2,102	1,402	700
Oil and Gas Production	4,872	1,756	3,116
Other	136	(196)	332
Corporate and Adjustments	(6,487)	(10,059)	3,572
Total Operating and Equity Investment Income	60,318	60,839	(521)
Other Income and (Expense)	716	2,106	(1,390)
Interest Expense	12,862	15,976	3,114
Income Taxes	17,171	15,948	(1,223)
Net Income	$ 31,001	$ 31,021	$ (20)

Three Months Ended
June 30, Increase /
2001 2000 (Decrease) Percent
(In Thousands, Except Percents)
Operating Income and Equity Investment Income:
Gas Distribution $ 23,221 $ 25,966 $ (2,745) (10.57)
Power Generation 1,837 1,286 551 42.85
Midstream Services 5,067 (1,061) 6,128 (577.57)
Retail Energy Services (739) (902) 163 18.07
Oil and Gas Production 7,963 3,376 4,587 135.87
Other (444) (107) (337) (314.95)
Corporate and Adjustments (4,602) (2,823) (1,779) (63.02)
Total Operating Income and Equity Investment Income 32,303 25,735 6,568 25.52
Other Income and (Deductions) 1,821 1,948 (127) (6.52)
Interest Expense 18,114 13,224 4,890 36.98
Income Taxes 4,447 3,607 840 23.29
Net Income $ 11,563 $ 10,852 $ 711 6.55
Nine Months Ended
June 30, Increase /
2001 2000 (Decrease) Percent
(In Thousands, Except Percents)
Operating Income and Equity Investment Income:
Gas Distribution $ 203,197 $ 182,272 $ 20,925 11.48
Power Generation 7,841 5,171 2,670 51.63
Midstream Services 15,658 7,020 8,638 123.05
Retail Energy Services (480) (2,542) 2,062 81.12
Oil and Gas Production 14,555 6,064 8,491 140.02
Other (676) (528) (148) (28.03)
Corporate and Adjustments (18,988) (9,744) (9,244) (94.87)
Total Operating Income and Equity Investment Income 221,107 187,713 33,394 17.79
Other Income and (Deductions) 7,126 3,491 3,635 104.12
Interest Expense 54,311 38,303 16,008 41.79
Income Taxes 63,477 55,051 8,426 15.31
Income before Cumulative Effect of Change
in Accounting Principle 110,445 97,850 12,595 12.87
Cumulative Effect of Accounting Change, net of tax (34) - (34) (100.00)
Net Income $ 110,411 $ 97,850 $ 12,561 12.84
Gas Distribution Segment

The Company's core business is the distribution of natural gas. ~~Its~~Peoples ~~two~~Gas ~~regulated~~and ~~utilities~~North Shore Gas purchase, store, distribute, sell and transport natural gas to approximately one million ~~retail~~ customers ~~through~~(816,000 afor 6Peoples Gas and 151,000- for North Shore Gas). Peoples Gas' 4,000 mile distribution system ~~serving~~serves the City of Chicago and North Shore Gas' 2,000 mile distribution system serves 54 communities in northeastern Illinois. The ~~Company~~customer base includes residential, commercial and industrial retail sales and transportation accounts, and provides a broad foundation with no reliance on any particular group of customers. Peoples Gas also owns a storage facility in central Illinois and a pipeline ~~which~~that connects the storage facility and six major interstate pipelines to Chicago.

~~Gross~~Revenues ~~revenues~~ of Peoples Gas and North Shore Gas are affected by changes in the unit cost of the utilities' gas purchases and do not include the cost of gas supplies for customers who purchase gas directly from producers and marketers. In ~~rather~~a ~~than~~normal ~~from~~gas ~~the~~price ~~utilities. In general~~environment, the unit cost of gas does not have a significant direct effect on operating income because of the utilities' tariffs ~~that~~ provide for dollar-for-dollar recovery of gas costs. (See Note 1 of the Notes to Consolidated Financial Statements.) However, ~~unusually~~significant ~~higher~~changes ~~natural~~in gas costs ~~that~~can ~~continue~~materially ~~for an extended period of time~~ affect the ~~accrual~~reserve for ~~the provision for~~ uncollectible accounts and ~~carrying~~working ~~charges~~capital needs.

~~Operating~~The ~~revenues~~following ~~for~~table ~~the~~sets ~~Company~~forth ~~for~~net ~~the~~margin ~~three-month period increased $19.3 million to $219.0 million due primarily to the higher unit price of gas ($32.3 million), offset in part by weather that was 14 percent warmer than normal~~ and ~~nine~~degree ~~percent~~day ~~warmer~~statistics ~~than~~for the ~~same~~Gas ~~period~~Distribution ~~last year~~segment. Increases in revenues are not necessarily indicative of operating results. Operating income decreased $2.7 million to $23.2 million due mainly to warmer weather ($1.7 million), customer conservation resulting from higher natural gas costs ($3.4 million) and the negative effects of pension benefit accounting ($2.7 million). Partially offsetting these negative effects was a decrease in depreciation expense ($5.3 million).

Operating revenues for the Company for the nine-month period increased $740.0 million to $1.7 billion due primarily to the higher unit price of gas ($639.3 million) and weather that was four percent colder than normal and 19 percent colder than the same period last year. Increases in revenues are not necessarily indicative of operating results. Operating income increased $20.9 million to $203.2 million due mainly to colder weather ($22.6 million), reduced depreciation expense ($12.1 million), to the positive effects of pension benefit accounting ($8.9 million) and to the reduced use of external labor ($4.0 million). Negatively impacting operating income were customer conservation resulting from higher natural gas costs ($12.1 million) and an increase in the provision for uncollectible accounts ($13.2 million). Also impacting the year-to-year comparison was the prior years benefit of the weather insurance program ($13.2 million). (See Liquidity and Capital Resources - "Balance Sheet Variations" for discussion of increased accounts receivables due to high gas prices and the related impact on bad debt reserves.)

Gas Distribution Statistics

	Three Months Ended
Net Margin	December 31,
(In Thousands)	2002	2001	2002 vs. 2001

Gas Distribution Revenues:
Sales
Residential
Heating	$ 306,987	$ 204,020	$ 102,967
Non-heating	12,762	12,523	239
Commercial	47,383	28,145	19,238
Industrial	8,782	4,737	4,045
Total Sales	375,914	249,425	126,489

Transportation
Residential	11,157	9,020	2,137
Commercial	14,648	12,583	2,065
Industrial	5,906	5,451	455
Contract Pooling	3,386	2,375	1,011
Total Transportation	35,097	29,429	5,668

Other Gas Distribution Revenues	4,740	11,879	(7,139)

Total Gas Distribution Revenues	$ 415,751	$ 290,733	$ 125,018

Less: Gas Costs	227,029	123,048	103,981
Revenue Taxes	37,289	30,509	6,780
Environmental Costs Recovered	6,206	1,503	4,703
Net Margin Before Taxes	$ 145,227	$ 135,673	$ 9,554

Gas Distribution Deliveries (MDth):
Gas Sales
Residential
Heating	39,229	31,839	7,390
Non-heating	927	1,059	(132)
Commercial	6,408	4,790	1,618
Industrial	1,304	966	338
Total Gas Sales	47,868	38,654	9,214

Transportation
Residential	7,334	6,090	1,244
Commercial	12,967	11,111	1,856
Industrial	6,845	6,681	164
Total Transportation	27,146	23,882	3,264

Total Gas Distribution Deliveries	75,014	62,536	12,478

Margin per Dth Delivered	$ 1.94	$ 2.17	$ (0.23)

Degree Days as a Percent of Normal *	103	82

~~Operating~~* ~~revenues~~Normal ~~for~~degree ~~Peoples~~days ~~Gas~~ for ~~the~~December ~~three-month~~31, ~~period~~2002 ~~increased~~and ~~$16.1~~2001 ~~million due mainly to the higher unit price of gas~~ (~~$26.6 million)~~2,279) ~~offset~~are inbased ~~part~~on bya ~~weather that was 14 percent warmer than normal and nine percent warmer than the same period last~~ 30-year~~. Increases~~ inaverage ~~revenues are not necessarily indicative~~ of ~~operating~~monthly ~~results. Operating~~temperatures ~~income~~at ~~decreased~~Chicago's ~~$1.7~~O'Hare ~~million~~Airport tofor ~~$21.5 million due primarily to warmer weather ($1.5 million), customer conservation resulting from higher natural gas costs ($2.9 million) and~~ the ~~negative~~years ~~effects of pension benefit accounting ($2~~1970-1999.~~9 million). Partially offsetting these negative effects was a decrease in depreciation expense ($4.8 million).~~

~~Operating~~The ~~revenues~~discussion ~~for~~of ~~Peoples~~the Gas ~~for~~Distribution ~~the~~segment ~~nine-month~~variations ~~period~~is ~~increased~~primarily ~~$633.8 million to $1.5 billion due principally to~~ the ~~higher~~result ~~unit price~~ of ~~gas~~Peoples ~~($535.8~~Gas ~~million)~~ and ~~weather~~North ~~that~~Shore ~~was~~Gas ~~four percent colder than normal and 19 percent colder than the same period last year~~activity. ~~Increases~~Operating in revenues ~~are~~also ~~not~~include ~~necessarily~~the ~~indicative~~impact of ~~operating~~the ~~results. Operating~~Company's ~~income increased $30.8 million to $180.6 million due mainly to colder~~ weather ~~($19.4~~insurance ~~million)~~policy, ~~reduced~~which ~~depreciation~~is ~~expense~~recorded ~~($10.4~~by ~~million),~~Peoples ~~the~~Energy. Prior ~~positive~~period ~~effects~~revenue ofincludes ~~pension benefit accounting (~~$84.3 million) ~~and~~in ~~the~~weather ~~reduced~~insurance ~~use of external labor ($4~~accruals.~~1 million).~~ ~~Negatively~~There ~~impacting operating income~~ were ~~customer~~no ~~conservation~~weather ~~resulting~~insurance ~~from~~accruals ~~higher~~reflected ~~natural gas costs ($10.5 million) and an increase~~ in the ~~provision~~current ~~for uncollectible accounts ($12~~period.~~6 million).~~ ~~(See Liquidity and Capital Resources - "Balance Sheet Variations" for discussion of increased accounts receivables due to high gas prices and the related impact on bad debt reserves.)~~

~~Operating~~Revenues ~~revenues~~ for ~~North~~Peoples ~~Shore~~ Gas for the three-month period increased $3105.87 million toover ~~$31.8~~the ~~million~~previous period due ~~mainly~~primarily to ~~the~~an ~~higher~~increase ~~unit price of gas ($5.7 million), offset~~ in ~~part~~deliveries byresulting from weather that was 1426.5 percent ~~warmer~~or ~~than~~494 ~~normal~~heating ~~and~~degree ~~nine~~days ~~percent~~colder ~~warmer~~ than the ~~same~~previous period ~~last~~and ~~year. Increases~~from inthe ~~revenues~~higher ~~are~~unit ~~not~~cost ~~necessarily indicative~~ of ~~operating results~~gas. Operating income decreased $~~392,000~~7.0 tomillion compared with the previous period resulting from a $113.92 million reduction in first quarter pension credits. The decrease in pension credits was expected due primarily to ~~warmer~~the ~~weather~~inclusion (in the prior period of a $~~233~~6.4 million credit associated with a special retirement program,~~000)~~ as well as the ongoing effects of both lower pension plan returns and ~~customer~~the ~~conservation~~effect ~~resulting~~of ~~from~~falling ~~higher~~interest ~~natural~~rates ~~gas~~on ~~costs~~the discount rate. Also affecting the variation was an increase in the provision for uncollectible accounts ($~~520,000~~6.7 million). Partially offsetting these negative ~~effects~~impacts ~~was~~is the effect of the colder weather in the current period as well as a ~~decrease~~reduction in ~~depreciation~~the ~~expense~~municipal and state utility tax accrual ($~~544,000~~4.1 million) and a decline in labor costs ($1.5 million).

~~Operating~~In ~~revenues~~addition ~~for~~to ~~North~~a ~~Shore~~normal ~~Gas~~increase ~~for~~in the ~~nine-month~~provision ~~period~~for ~~increased~~uncollectible ~~$119.4~~accounts ~~million~~resulting tofrom ~~$255.8 million due mainly to the~~ higher ~~unit~~revenues, ~~price~~about ~~of gas (~~$~~103~~3.50 million) ~~and~~of ~~weather~~the ~~that~~increase ~~was~~relates ~~four~~to ~~percent~~higher ~~colder~~ than ~~normal~~expected ~~and~~first 19quarter ~~percent~~net ~~colder~~write ~~than~~offs, ~~the~~principally ~~same~~of ~~period~~older ~~last~~outstanding ~~year. Increases~~customer inreceivables ~~revenues~~related ~~are~~to ~~not~~the ~~necessarily~~winter ~~indicative~~ of ~~operating~~fiscal ~~results. Operating~~2001 ~~income~~and ~~increased~~a ~~$3.3~~large ~~million~~first toquarter ~~$26.2~~bankruptcy ~~million~~of ~~due~~one ~~principally~~of tothe ~~colder~~Company's ~~weather ($3~~customers.2 In ~~million)~~addition, ~~reduced depreciation expense ($1.7 million) and~~ the ~~positive~~provision ~~effects~~rate offor ~~pension~~uncollectibles ~~benefit~~was ~~accounting~~increased ~~($588,000)~~from 2. ~~Negatively~~0 ~~impacting~~percent ~~operating~~of ~~income~~revenues ~~were~~to ~~customer~~approximately ~~conservation resulting from higher natural gas costs ($1~~2.65 ~~million)~~percent ~~and an increase~~ in ~~the~~order ~~provision~~to ~~for~~conservatively ~~uncollectible~~manage ~~accounts~~the ~~($595,000). (See~~possible ~~Liquidity~~impact ~~and~~on ~~Capital~~future ~~Resources~~collections ~~- "Balance Sheet Variations" for discussion~~ of ~~increased~~higher ~~accounts~~customer ~~receivables~~bills ~~due~~resulting tofrom ~~high~~colder ~~gas~~weather ~~prices~~ and ~~the~~higher ~~related~~natural ~~impact~~gas ~~on bad debt reserves~~costs.)

~~The~~Revenues ~~Company's~~for ~~objectives~~North Shore Gas for the ~~Gas~~three-month ~~Distribution~~period ~~segment~~increased ~~center~~$23.5 onmillion ~~continuous~~over ~~improvement,~~the ~~technological~~prior ~~advancements,~~period ~~safety~~due ~~and~~primarily ~~customer~~to ~~service. Operating~~an ~~revenues~~increase ~~for~~in ~~the~~deliveries ~~fiscal~~resulting ~~year~~from ~~are~~weather ~~expected~~that towas ~~increase~~26.5 ~~from~~percent ~~the~~or ~~prior~~494 ~~year~~heating ~~due~~degree todays colder ~~weather~~than ~~and~~the ~~increased~~previous ~~gas~~period ~~prices. Segment~~and ~~operating~~from ~~income~~the ~~for~~higher ~~fiscal~~unit ~~2001~~cost isof ~~expected~~gas. Operating toincome ~~improve~~for ~~due~~the tothree-month ~~the~~period ~~colder~~increased ~~weather,~~$1.1 ~~reduced~~million ~~operation~~resulting ~~and~~from ~~maintenance~~the ~~expense~~effects ~~and~~of ~~lower~~the ~~depreciation~~colder ~~expense~~weather, partially offset by ~~increased~~a ~~customer~~$0.8 ~~conservation~~million ~~and~~increase ~~increased~~in ~~uncollectible~~first quarter pension expense ~~due~~and toa ~~colder~~$0.6 ~~weather~~million ~~and~~increase ~~higher~~in ~~gas~~the ~~prices~~provision for uncollectible accounts.

Power Generation Segment

The ~~Company~~Power Generation segment, through Peoples Energy Resources, is engaged in the development, construction, operation and ownership of ~~natural gas-fired~~ electric generation facilities for sales to electric utilities and marketers. Currently, the Company has an ownership interest in two electric generation facilities. The Company and Dominion Energy, Inc. (Dominion) are equal investors in Elwood ~~Energy L.L.C.~~, which owns and operates a ~~600~~1,400-megawatt peaking facility ~~(Phase~~near I)the ~~near~~City ~~Chicago,~~of ~~Illinois~~Chicago. APower ~~750~~generated by Elwood is sold through long-~~megwatt~~term ~~expansion~~contracts with Exelon Generation Company, LLC (~~Phase~~Exelon), IIEngage Energy America, LLC (Engage) ofand ~~this~~Aquila, ~~facility~~Inc. ~~was~~(Aquila). The ~~completed~~Company has a 30 percent interest in ~~early~~Southeast ~~July~~Chicago ~~2001~~Energy Project, ~~with~~LLC ~~the~~(SCEP), ~~first~~a ~~three~~partnership ~~units~~with Exelon, ~~totaling~~that ~~450~~owns ~~megawatts,~~and ~~becoming~~operates ~~commercially~~a ~~operable~~350-megawatt facility. Commercial operations began in ~~June~~July 2002.

Revenue recognition for ~~these~~the ~~peaking~~Elwood ~~facilities~~facility is based on contract provisions, which assign higher value to summer capacity. ~~Therefore,~~ ~~quarterly~~The ~~results~~majority of Elwood's annual capacity revenues are ~~not~~recognized ~~indicative~~in ofthe ~~total~~June ~~year~~to ~~results~~September period, resulting in operating losses in the first and second quarters. Revenue is recognized by SCEP evenly across the fiscal year based on contract provisions.

~~Operating~~The ~~income~~operating and equity investment ~~income~~loss for the three- ~~and nine-~~month ~~periods~~period ~~increased~~amounted ~~$551,000~~ to $1.~~8 million and $~~2.7 million, compared to a $72.8 million, ~~respectively. The~~loss ~~current quarter increase was mainly a result of the Phase II expansion of the Elwood facility. The full impact of all five units, totaling 750 megawatts will bolster earnings~~ in the ~~fourth~~previous ~~quarter~~period. The ~~fiscal~~improvement ~~year-to-date~~was ~~increase is~~ primarily due to aequity ~~gain~~investment onincome ~~the~~generated ~~liquidation~~from ofthe ~~financial~~350-megawatt ~~hedges~~SCEP ~~associated~~project, ~~with~~which ~~Phase~~began Icommercial ~~Elwood's~~operations ~~gas~~in ~~supply~~July ~~requirements~~2002 ($41.06 million). Because ~~and~~the ~~additional~~majority ~~equity~~of ~~investment~~Elwood's ~~income~~capacity ~~from~~revenues ~~the~~are ~~Phase~~recognized ~~II expansion ($200,000) offset,~~ in ~~part,~~the byJune ~~higher gas costs prior~~ to ~~March~~September 1period, ~~2001~~Elwood ~~($1.7~~recorded ~~million). Effective~~a ~~March~~loss 1,in ~~2001,~~ the ~~power~~first ~~sales~~quarter ~~contracts~~offsetting on the ~~Phase~~income Igenerated ~~Elwood~~from ~~units were restructured to essentially eliminate Elwood's fuel price risk~~SCEP.

InMoody's ~~addition~~Investors toService ~~further~~and ~~expansion~~Standard of& ~~the~~Poor's ~~Elwood~~Ratings ~~facility,~~Services ~~which~~recently isdowngraded ~~permitted~~Aquila's ~~for~~senior unsecured debt rating to below investment grade. As a ~~total~~result of 3Aquila's credit rating downgrades,~~850~~ ~~megawatts~~Aquila inhas ~~generating~~posted ~~capacity,~~letters ~~including~~of 2credit equal to six months of capacity payments,~~500~~ ~~megawatts~~as ~~for~~required ~~combined-cycle~~under ~~power~~its ~~development~~contracts, for the ~~Company~~benefit isof ~~pursuing~~Elwood. Aquila ~~other~~continues ~~power~~to ~~generation~~make ~~opportunities~~its monthly capacity payments to Elwood on time. ItIn ~~will~~the ~~jointly~~event ~~develop~~Aquila does not fulfill its payment obligations or terminates its power sales tolling agreements and ~~operate,~~Elwood ~~with~~cannot ~~Exelon~~make ~~Corporation~~adequate alternate arrangements, Elwood could suffer a ~~350-megawatt~~revenue ~~natural~~shortfall ~~gas-fired~~or ~~"peaker"~~an ~~electric~~increase ~~plant~~in onits ~~Chicago's~~costs ~~southeast~~that ~~side~~could adversely affect the ability of Elwood to fully perform its obligations under the indenture related to its outstanding bonds. ~~The~~If ~~plant~~Elwood ~~will~~is ~~provide~~adversely ~~reliable~~affected ~~electricity~~by the failure of Aquila to make payments under its power sales agreements, the ~~city~~Company inmay ~~times~~receive ofsubstantially ~~high~~reduced ~~electric~~or ~~demand~~no investment income from Elwood. ItAt isthis ~~targeted~~time, the Company cannot determine whether or to ~~begin~~what ~~operations~~extent Aquila's failure to pay Elwood would result in ~~late~~a ~~spring~~material ~~2002~~adverse effect on the Company.

The Company expects fiscal 2001 equity investment income to increase due to operational commencement of the 750-megawatt expansion of the Elwood facility partially offset by increased partnership interest expense resulting from a project financing of the entire 1,350-megawatt facility. Closing on the project financing is expected to occur in the fourth quarter of fiscal 2001.
Midstream Services Segment

The ~~Company~~Midstream Services segment is engaged in wholesale activities that provide ~~value~~services to ~~gas distribution~~ marketers, utilities, ~~and~~ pipelines~~. The~~ ~~Company,~~and ~~through~~gas-fired ~~Peoples~~power ~~Gas,~~generation ~~operates~~facilities ain ~~natural~~the ~~gas~~upper ~~hub~~Midwest. ItPeoples ~~also~~Gas owns and operates, ~~through~~a natural gas hub. Peoples Energy Resources ~~Corp.~~owns ~~(PERC),~~ a natural gas liquids peaking facility ~~and is active in other asset-based wholesale activities~~. ~~The~~ Company and Enron North America, Inc. ("Enron") are equal partners in enovate, L.L.C. ("enovate"), which is expanding the Peoples Gas hub by offering additional hub services and peaking services, developing new products and pursuing strategic asset acquisitions.

~~Operating~~Revenues ~~revenues~~ for ~~the~~December ~~three-~~31, ~~and~~2002 ~~nine-month periods~~ increased $1537.86 million toas ~~$35.9~~compared ~~million~~with ~~and~~the ~~$25.3~~previous ~~million to $123~~period.~~8 million, respectively.~~ ~~Success~~In inprevious ~~this~~periods, ~~segment~~income ~~is dependent upon capturing margin~~ from ~~price movements in the wholesale market. The size of this margin can vary daily and is small in relation to the market value of the commodity. Therefore~~enovate, ~~revenue statistics are not necessarily~~ a ~~good~~former ~~indicator~~partnership ofwith ~~results. Operating~~Enron, ~~income~~was ~~and~~reported as equity investment income, ~~for the three-~~ and ~~nine-month periods increased $6.1 million to $5.1 million and $8.6 million to $15.7 million~~therefore, ~~respectively. The~~related ~~strong~~revenues ~~earnings in both current periods~~ were ~~primarily~~not ~~the result of equity investment income from enovate ($3~~recognized.~~6 million and $9.7 million, respectively).~~ ~~Results~~All ~~for~~operations ~~the~~are ~~current~~now ~~three-month~~performed ~~period~~in ~~also~~a ~~benefited~~100 ~~from~~percent ~~increased~~owned ~~hub~~subsidiary ~~activity ($1.0 million)~~ and ~~other wholesale activities ($1.3 million). Results for the nine-month period were negatively impacted by lower operating income from hub ($682~~therefore,~~000)~~ ~~and~~recorded ~~peaking~~revenues ~~activities ($485,000)~~ and ~~earnings~~expenses ~~recognized~~have ~~from~~increased aversus ~~nonrecurring~~last ~~pipeline construction project in the prior period ($1~~year.5 ~~million).~~

~~The~~Operating ~~Company's~~and ~~objective~~equity isinvestment toincome ~~become~~increased ~~the~~$0.3 ~~primary~~million ~~player~~ in the ~~Midwest~~first ~~energy~~quarter ~~market,~~compared ~~developing~~with ~~additional~~the ~~hub~~prior ~~services~~period ~~such~~primarily asdue ~~storage,~~to ~~transportation~~losses ~~and~~incurred ~~title~~in ~~tracking~~the ~~while pursuing an exchange~~year-~~traded~~ago ~~Chicago~~first ~~contract. The~~quarter ~~enovate~~associated ~~partnership~~with ~~is anticipated to grow through development of new products and services~~enovate, ~~development~~which ofceased ~~wholesale~~operations ~~business for the Chicago niche marketplace and identification of asset based projects~~ in ~~the~~March ~~Chicago~~2002 ~~area~~($1.0 ~~that have a clear strategic fit~~million). ~~The~~Offsetting ~~Company~~this ~~expects~~effect ~~operating~~was ~~income~~lower ~~and~~contributions ~~equity~~from ~~investment income in fiscal 2001 to increase significantly over~~ the ~~prior~~hub ~~year~~($1.2 million).

Retail Energy Services Segment

The ~~Company~~Retail ~~markets~~Energy ~~gas~~Services ~~and~~segment ~~electricity~~provides ~~and~~energy, ~~provides~~including energy ~~management~~alternatives, ~~and~~to ~~other~~industrial, ~~services~~commercial toand ~~retail~~residential customers regionally within Illinois. Residential customer choice for Illinois became available during the period of March through May 2002, for both gas and electricity.

~~For~~Revenues for the three- ~~and nine-~~month ~~periods,~~period ~~operating revenues~~ increased $184.04 million tocompared ~~$48.3~~with ~~million~~the ~~and~~previous ~~$133.3~~period ~~million to $245.0 million, respectively. These increases were~~ due ~~mainly~~ to ~~increased~~an ~~revenues~~increase ~~resulting~~in ~~from~~natural ~~higher~~ gas ~~prices~~commodity ~~and from the start-up of electricity sales~~prices. ~~The~~Operating ~~third~~income ~~quarter~~for ~~reflected an operating loss of $739,000, an improvement of $163,000 over~~ the ~~prior period loss of $902,000. The fiscal year~~three-~~to-date~~month period ~~reflects~~increased ~~a loss of~~ $~~480,000, an improvement of $2.~~0 ~~million over the prior period loss of $2~~.57 million~~. The~~ ~~current~~due ~~quarter~~mainly ~~benefited~~to ~~from increased electric margins ($711,000) and~~ lower operating costs ~~($203,000) over the same period a year ago~~. The fiscal year-to-date benefited from a one-time change in inventory accounting methods ($1.5 million) and from higher electric margins ($1.5 million) offset by higher operating expenses ($1.0 million) related to growth.

The ~~Company~~following ~~intends~~table tosummarizes ~~develop~~operating ~~proprietary~~statistics ~~products~~for asPeoples itEnergy ~~participates~~Services, in the ~~electric~~main ~~and~~contributor ~~gas unbundling process and will continue~~ to ~~build~~ the ~~necessary~~Retail ~~infrastructure~~Energy toServices ~~support its growth. As a result of growing customer base and volumes, margin enhancement and cost management initiatives, the Company expects that the fiscal year results for this~~ segment ~~will show a smaller loss than last year.~~:

	Three Months Ended December 31,
(In Thousands, except customers)	2002	2001
Gas sales sendout (Dth)	11,141	11,303
Number of gas customers	11,358	12,969
Electric sales sendout (Mwh)	209	226
Number of electric customers	1,102	1,049

Oil and Gas Production Segment

The ~~Company~~Oil and Gas Production segment, through Peoples Energy Production, is active in the acquisition, development and production of oil and gas reserves in selected onshore basins in North America. ~~The~~Business ~~Company~~is pursued through direct ownership interests in oil, gas and mineral leases. Peoples Energy Production also has an equity investment in EnerVest ~~Energy, L~~($24.P.9 ~~(EnerVest)~~million ~~which~~as ~~acquires~~of December 31, 2002), which develops and manages a portfolio of ~~U.S. and Canadian~~ oil and gas producing properties. ~~The~~Peoples ~~Company~~Energy Production's primary focus is on natural gas, with growth coming from low -to-moderate-risk drilling opportunities and ~~the~~ acquisition of proved reserves with upside potential, which can be realized through drilling, production enhancements and reservoir optimization programs. Certain producing properties owned by ~~the~~Peoples ~~Company~~Energy ~~qualify~~Production qualified for income tax credits as defined in Section 29 of the Internal Revenue Code of 1986. ~~These~~The Section 29 income tax credits ~~are~~were computed based on units of production and recorded to income as earned. These credits expired on December 31, 2002.

~~Operating~~In ~~revenues~~November ~~for~~2002, the ~~three-~~Company ~~and-nine~~acquired ~~month~~an ~~periods~~interest ~~increased~~in ~~$4.8~~five ~~million~~properties toin ~~$17.1~~south ~~million~~Texas and ~~$14.5~~the ~~million~~upper toTexas ~~$37.4~~gulf ~~million,~~area ~~respectively. The~~from ~~increases~~a ~~were~~subsidiary ~~due to the impact~~ of ~~new~~Magnum ~~reserve~~Hunter ~~acquisitions~~Resources, ~~subsequent~~Inc. to(Magnum ~~the~~Hunter). The ~~year~~reserves ~~ago periods~~acquired, ~~positive~~99 ~~results~~percent ~~from~~of ~~drilling~~which ~~programs~~are ~~and~~natural ~~higher~~gas, ~~sales~~were ~~prices~~purchased ~~on production volumes. Operating income~~ for ~~the~~approximately ~~three- and nine-month periods increased~~ $433.~~6 million to $8.~~0 million and ~~$8.5~~added ~~million~~approximately to11 ~~$14.6~~MMcfe ~~million,~~per ~~respectively. The~~day ~~increases were due primarily to higher revenue from~~ production ~~sales~~at ~~and increased equity investment income from~~ the ~~EnerVest~~time ~~partnership~~of ~~primarily due to~~ the ~~sale of developed property ($4~~acquisition.~~0 million and $5.4 million). Offsetting these effects, in part, were higher operating expenses ($1.5 million and $3.7 million) and increased depletion expenses ($2.4 million and $5.6 million).~~

OnRevenues ~~April~~and ~~26,~~operating ~~2001,~~and ~~the~~equity ~~Company~~investment ~~acquired~~income ~~interests~~for inthe ~~South~~three-month ~~Texas~~period ~~properties~~increased ~~consisting~~$6.4 ofmillion ~~approximately~~and 11$3.1 million,~~500~~ ~~gross~~respectively, ~~acres~~compared ~~(8,900~~with ~~net)~~the ofprevious ~~developed~~period ~~and~~due ~~undeveloped~~mainly ~~oil~~to an increase in net realized prices and higher production. Realized gas ~~leasehold,~~prices ~~which~~increased ~~are~~from ~~operated~~$3.10 byper ~~Peoples~~Mcf ~~Energy~~in ~~Production,~~the previous quarter to $3.61 per Mcf in the ~~Company's~~current ~~oil~~quarter. First ~~and~~quarter 2003 gas production ~~subsidiary~~increased 28 percent to 59.7 MMcf per day compared with 46.8 MMcf per day for the previous period. The properties acquired ~~reserves,~~from 91Magnum ~~percent~~Hunter ofduring ~~which~~the ~~are~~first ~~natural~~quarter ~~gas,~~added ~~were~~7.4 ~~purchased~~MMcf per day of gas production for ~~about~~the ~~$120.0~~quarter ~~million~~with the remaining 5. ~~The~~5 ~~transaction~~MMcf ~~increased~~per day of the increase coming from the Company's ~~total~~drilling ~~proved~~and ~~reserves~~workover toprograms ~~approximately~~and ~~130~~the ~~billion~~East ~~cubic~~White ~~feet~~Point ofacquisition ~~gas~~closed ~~equivalent,~~in ~~and~~June ~~its~~2002. Oil ~~net~~ production ~~capability~~was toflat ~~approximately~~compared 55to ~~million~~the ~~cubic~~previous ~~feet~~period ofat ~~gas~~1.2 ~~equivalent~~MBbls per day. Results from the segment's equity investment in EnerVest, which is in the process of being liquidated, improved for the quarter.

~~Operating~~As ~~income~~of December 31, 2002, the Company had hedges in ~~fiscal~~place ~~2001~~for is13,937 MMbtus of its remaining expected tofiscal ~~increase~~2003 ~~due~~production. These tohedges ~~full~~are a combination of swaps and no cost collars. As of December 31, 2002, the weighted average hedge price for the remainder of fiscal year ~~impacts~~2003 was $3.53 utilizing the collar floors. In addition, as of ~~reserves~~December ~~acquired~~31, 2002, the Company had hedges in ~~2000~~place for 195,450 ~~development~~Bbls ~~drilling~~of ~~and~~its ~~the~~remaining ~~impact~~expected fiscal 2003 oil production at an average price of $21.25 per Bbl. The majority of these hedges are valued against the ~~South~~New ~~Texas~~York ~~acquisition~~Merchantile Exchange's Henry Hub Natural Gas Contract.

The Company's ~~objective~~anticipates isquarterly toearnings ~~become~~over athis ~~top-fifty~~fiscal ~~owner~~year ofto ~~natural~~be ~~gas~~impacted, ~~reserves. Existing~~either ~~oil~~positively ~~and~~or ~~gas~~negatively, ~~properties~~as ~~will~~its beequity ~~developed~~investment is exited through ~~drilling~~the ~~and~~periodic ~~operational~~sale ~~enhancements~~of EnerVest's properties. The ~~Company~~gains ~~will~~or ~~continue~~losses toon ~~hedge~~the asale ~~substantial~~of ~~portion~~these ofproperties ~~its~~will ~~production~~be recognized in ~~order~~the toquarter ~~mitigate~~in ~~price~~which ~~risk~~they ~~and~~occur. The ~~will~~Company ~~pursue~~continues ~~oil~~to work with EnerVest and ~~gas~~the ~~reserve~~other ~~acquisitions~~partners ~~that~~to ~~are~~maximize ~~consistent~~the ~~with~~value ~~its~~of ~~growth~~the ~~strategy~~partnership.

The following table summarizes operating statistics for the Oil and Gas Production segment:

	Three Months Ended December 31,
	2002	2001
Total production - gas equivalent (MMcfe) ⁽¹⁾	6,182	4,962
Daily average production - gas equivalent (MMcfed)⁽¹⁾	67.2	53.9
Gas production (percentage)	89%	87%
Net realized gas prices received - ($/Mcf)	$3.61	$3.10
Net realized oil price received - ($/Bbl)	$20.57	$22.36
Depreciation, depletion and amortization rate ($/Mcfe)	$1.67	$1.39

(1) Oil production is converted to gas equivalents based on a conversion of six Mcf of gas per barrel of oil.

The increase in the depreciation, depletion and amortization rate was caused by the development of reserves that were previously classified as proved, undeveloped and the transfer of acquisition and development costs related to properties previously classified as probable, which are now classified as proved. Such costs have been added to the depreciation, depletion and amortization pool.

Other Segment

The Company is involved in other activities such as district heating and cooling ~~and~~through ~~the~~its ~~development~~Trigen-Peoples ofDistrict ~~fueling~~Energy ~~stations for natural gas vehicles. The~~ Company ~~has~~(Trigen-Peoples) ~~invested~~partnership inand ~~Enertech~~miscellaneous ~~Capital~~nonmaterial ~~Partners II, L~~investments.~~P., a venture capital fund specializing in energy-related and telecommunication entities.~~ These and certain business development activities do not fall under the above segments and are reported in the Other segment. ~~Results~~The ~~for~~reported ~~the~~results ~~three-~~also ~~and~~include ~~nine-month~~income ~~periods~~from ~~were~~the ~~virtually~~operation ~~unchanged~~of ~~from~~fueling ~~the~~stations ~~prior~~for ~~year~~natural ~~periods~~gas vehicles.

Operating and equity investment income for the three-month period remained relatively flat as compared with the year-ago period.

Corporate and Adjustments

~~This~~Corporate ~~category encompasses corporate~~ activities that support the ~~six~~ business segments, as well as consolidating adjustments, are included in Corporate and Adjustments.

The ~~$1.8~~operating ~~million~~ and ~~$9.2~~equity ~~million~~investment ~~decreases~~loss ~~in operating income~~ for the three- ~~and nine-~~month ~~periods,~~period ~~respectively,~~was ~~are~~$6.5 ~~mainly~~million ~~due~~compared to ~~increased operating expenses~~$10. ~~The~~1 ~~three-~~million ~~and~~in ~~nine-month periods reflect~~ the ~~mark-to-market~~previous ~~pricing~~period. The ofdecrease ~~unrealized~~was ~~liabilities~~mainly ~~for~~a ~~stock~~result ~~appreciation~~of ~~rights~~lower ~~granted to certain employees under the Company's long-term incentive~~ compensation ~~plans~~costs ~~($695,000~~ and ~~$5.3~~a ~~million). Also~~reduction ~~negatively~~in ~~affecting the three- and nine-month periods were increased~~ outside services ~~expenses ($115,000 and $1~~expense.~~7 million).~~

Other Income and ~~Deductions~~Expense

Other income, ~~and~~net ~~deductions~~of ~~for~~other ~~the~~expense, ~~Company~~ for the three-month period ~~decreased~~for ~~by $127,000 to $1.8 million. For~~ the ~~nine-month~~Company ~~period,~~decreased ~~other income and deductions increased by~~ $~~3.6 million to $7.~~1 ~~million~~. ~~Negatively~~4 ~~affecting both periods was a $2.8~~ million ~~loss~~compared ~~due~~with to the ~~withdrawal~~previous ~~from~~period ~~the~~due ~~Whitecap~~mainly ~~Energy System partnership. Also negatively affecting the fiscal year-~~to~~-date~~ ~~was~~ a ~~loss~~reduction ~~on the disposition of equipment associated with development of the Company's Calumet site ($2.8 million). Offsetting these impacts~~ in ~~both periods were~~ interest income ~~associated with advances to Elwood Energy~~ ($1.7 million ~~and $4.8 million~~) ~~and interest income from a note receivable originating from the cancellation of equipment purchases associated with the development of the Company's Calumet site ($863,000 and $2~~.~~6 million). The fiscal year-to-date also benefited from an interest rate swap ($1.5 million) and from an increase in imputed interest on amounts recoverable from customers ($1.4 million).~~

Other income ~~and deductions for Peoples Gas decreased $395~~,~~000~~ tonet ~~$768,000~~of ~~and~~other ~~$473~~expense,~~000~~ ~~to $1.9 million~~ for the three- ~~and nine-~~month ~~periods,~~period ~~respectively. Negatively~~for ~~affecting~~ both ~~periods~~Peoples ~~was~~Gas aand ~~decrease~~North inShore ~~miscellaneous~~Gas ~~revenues~~were ~~($977,000~~insignificant ~~and~~compared ~~$831,000). Negatively~~with ~~impacting~~ the ~~fiscal year-to-date was the~~ prior period~~'s recognition of the allowance for other funds used during construction ($1~~.~~1 million) and a current period loss on the disposition of property ($221,000).~~ ~~Offsetting these impacts were increased imputed interest on amounts recoverable from customers ($226,000 and $1.2 million) and increased income from securities ($285,000 and $357,000).~~

Other income and deductions for North Shore Gas decreased $71,000 to $105,000 for the three-month period due mainly to a reduction in miscellaneous interest revenues ($177,000) offset, in part, by increased income from securities ($87,000) and an increase in imputed interest recoverable from customers ($19,000). Fiscal year-to-date reflected an increase of $51,000 to $316,000, due primarily to an increase in imputed interest recoverable from customers ($203,000) and to an increase in income from securities ($42,000) offset, in part, by a decrease in miscellaneous interest revenues ($242,000).
Interest Expense

~~For~~Interest ~~purposes~~expense offor the ~~following~~Company ~~discussion,~~for ~~long~~the three-~~term~~month ~~obligations~~period ~~refer~~decreased to$3.1 ~~instruments~~million ~~with~~as ~~maturity~~compared ~~dates~~to ~~over~~the ~~one~~previous ~~year~~period, ~~including~~primarily ~~obligations~~due ~~classified~~to aslower average short-term ~~debt~~borrowing inrequirements and to lower interest rates on the ~~balance~~short-term ~~sheet~~borrowings. Average short-term borrowing requirements were reduced due to ~~tender~~a ~~provisions~~combination of factors including lower working capital requirements at the utilities and advances to Elwood prior to project-financing at that facility.

For ~~the~~Peoples ~~three- and nine-month periods~~Gas, interest expense for the ~~Company~~three-month ~~increased~~period ~~$4.9~~decreased ~~million to~~ $~~18.~~1.5 million ~~and~~as ~~$16.0~~compared ~~million~~ to ~~$54.3~~the ~~million~~previous period, ~~respectively. Short-term~~due ~~interest expense in both periods increased~~ primarily ~~due~~ to ~~increased~~reduced ~~working~~interest ~~capital~~rates ~~needs of the utilities ($1.9 million~~ and ~~$7.3~~lower ~~million)~~average ~~partially offset by a decrease in Peoples Energy's corporate~~ short-term ~~interest~~borrowing ~~expense ($3~~requirements.~~3 million and $2.6 million).~~ ~~Peoples~~The ~~Energy's~~reduction ~~long-term~~in interest ~~expense~~rates ~~increased~~was ~~($6.8~~primarily ~~million and $14.9 million)~~ due to ~~the~~financing ~~issuances of long~~short-term ~~debt~~needs inprincipally ~~July~~with ~~2000~~commercial ~~and~~paper ~~January~~in ~~2001. Partially~~the ~~offsetting~~current ~~these~~period ~~effects~~and ~~was~~principally ~~lower~~with ~~interest~~higher oncost ~~Peoples~~notes ~~Gas'~~in ~~long~~the prior period. Average short-term ~~debt~~borrowings were reduced due to ~~prior~~lower ~~year~~working ~~refinancing~~capital ~~($935,000 and $4~~needs.~~6 million).~~

~~Interest~~For ~~expense~~North ~~for~~Shore ~~Peoples~~ Gas, ~~for~~ the ~~three-~~variation ~~and nine-month periods increased $933,000 to $8.8 million and $3.3 million to $28.9 million respectively. The increase~~ in ~~short-term~~ interest expense ~~is primarily due to additional working capital required to pay~~ for ~~gas~~the ~~supply in advance of collections from customers ($1.9 million and $7.0 million). Peoples Gas issued $200 million in one~~three-~~year~~month ~~notes~~period ~~to fund these working capital needs. Offsetting this impact~~ was ~~a decrease in interest expense on long-term debt due to the prior year refinancing ($935,000 and $4~~insignificant.~~6 million).~~

~~Interest~~Critical ~~expense~~Accounting for North Shore Gas for the nine-month period increased $296,000 to $4.2 million due mainly to additional working capital required to pay gas supply in advance of collections from customers ($289,000).Policies

~~Income~~ See ~~Taxes~~Management's Discussion and Analysis of Results of Operations and Financial Condition (MD&A) in the Company's Annual Report on Form 10-K for the year ended September 30, 2002 for a detailed discussion of the Company's critical accounting policies. These policies include Regulated Operations, Environmental Activities Relating to Former Manufactured Gas Operations, Retirement and Postretirement Benefits, Derivative Instruments and Hedging Activities and Depreciation, Depletion and Amortization.

For the three and nine months ended, income taxes for the Company increased $840,000 to $4.4 million and $8.4 million to $63.5 million, respectively, due mainly to higher pre-tax income. A partial offset for the fiscal year-to-date period was an increase of $733,000 in Section 29 tax credits associated with production from certain oil and gas production properties.
Income taxes for Peoples Gas decreased $568,000 to $5.3 million for the three months ended due mainly to lower pre-tax income. Income taxes for the nine-month period increased $11.7 million to $61.1 million due primarily to higher pre-tax income. For the three-month period for North Shore Gas, income taxes decreased $196,000 to $205,000 due primarily to lower pre-tax income. Income taxes for the nine-month period increased $1.1 million to $8.6 million due mainly to higher pre-tax income.
Other Matters
OnAccounting ~~August 2, 2001, the Company announced a special early retirement program for its non-union employees~~Standards. ~~The~~ program will result in a one time charge (which cannot be estimated at this time) to fiscal 2001 earnings, but produce ongoing labor savings beginning in fiscal 2002. Assuming 50% of eligible employees participate, the program is estimated to yield annual labor savings of about $7.0 million. Benefit payments will be borne by the Company's pension plan trust, which will continue to be well funded.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51." The Company does not expect FIN 46 to significantly affect the Company's financial condition or results of operations.

Fiscal 2001 Outlook
The Company expects fiscal 2001 earnings to be consistent with its previously announced range of $3.15 to $3.25 per share. The diversified business segments are expected to produce approximately 20 percent of the Company's total earnings. Actual results could vary from the above estimate due to many uncertainties including fourth quarter weather, results of utility collection activities, changes in costs estimates associated with the Company's mercury inspection program and costs associated with an early retirement program.
Accounting Standards
On October 1, 2000 the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. See Note 1 of the Notes to Consolidated Financial Statements. The standard involves assessing and recording the effectiveness of a cash flow hedge when incurred and may result in additional volatility in reported earnings.
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 is effective for business combinations completed after June 30, 2001 and SFAS No. 142 is effective for fiscal year 2002. The Company does not expect the adoption of these standards to have a material effect on its financial condition or results of operations.
LIQUIDITY AND CAPITAL RESOURCES

The following is a summary of cash flows for the Company, ~~Peoples Gas and North Shore Gas~~ for the ~~nine~~three months ended ~~June~~December ~~30, 2001 and 2000~~31:

	The Company		Peoples Gas		North Shore Gas
	For the Three Months Ended December 31,
(In Thousands)	~~2001~~2002	~~2000~~2001	~~2001~~	~~2000~~	~~2001~~	~~2000~~
Net cash provided by operations	$102,791	$ 60,576	$80,131	$86,606	$26,667	$18,413
Net cash provided by (used in) operations	($24,251)	$8,374
Net cash (used in) investing activities	($272,284)	($209,720)	($79,413)	($69,247)	($11,663)	($910)
Net cash provided by (used in) investing activities	($62,001)	$168,008
Net cash provided by (used in) financing activities	$~~186~~94,~~336~~488	($~~164~~234,~~959~~016)	~~$17,013~~	~~($16,735)~~	~~($14,402)~~	~~($9,849)~~

~~See~~The primary decrease in cash from operations at December 31, 2002 over 2001 is due to an increase in utility receivables caused by colder weather and higher gas prices. The net cash provided by investing activities in the ~~consolidated~~prior ~~statement~~period was due to the repayment of advances made in connection with the expansion of the Elwood facility. The net cash ~~flows~~used in investing activities for the current period reflects normal capital spending, including an oil and gas acquisition. The increase in net cash provided by financing activities is primarily due to the ~~discussion~~increased use of ~~major~~commercial ~~balance~~paper ~~sheet~~to ~~fluctuations~~meet ~~for~~working ~~more~~capital ~~detail~~needs in the current period as compared to a reduction in short term debt in the prior period resulting from the project financing of the Elwood facility. Partially offsetting this increase was a reduction in long-term debt in the current period.

See the Consolidated Statement of Cash Flows and the discussion of major balance sheet variations for more detail.

Balance Sheet Variations

InThe ~~addition to a comparison of the June 30, 2001 balance sheet to the prior fiscal year ended balance sheet, the~~ Company,'s ~~Peoples~~total ~~Gas~~assets ~~and~~at ~~North~~December ~~Shore Gas have included the comparable June 30~~31, ~~2000~~2002 ~~balance~~increased ~~sheet~~$231. ~~Many~~0 ofmillion ~~the~~compared ~~fluctuations between the current quarter and the prior fiscal year end are due~~ to ~~weather~~September ~~seasonality~~30, ~~and volatility in natural gas prices~~2002.

The ~~Company's~~increase in total assets ~~at June 30, 2001 increased $510.3 million, or 20 percent, from September 30, 2000. The increase~~ was primarily due to aan ~~$272.1 million~~ increase in ~~utility~~ customer accounts receivable ~~resulting from historically high gas prices and an increase~~ of $46169.4 million inas ~~other~~a ~~receivables. Also~~result ~~affecting~~of ~~the~~colder ~~change~~weather inand ~~total~~higher ~~assets~~gas ~~were~~prices. Also, ~~increases~~an ofincrease ~~$87.5~~in ~~million~~the inoil ~~advances~~and togas ~~Elwood~~property, ~~Energy~~plant ~~for~~and ~~expansion~~equipment of ~~the peaking facility and~~ $3639.87 million inwas ~~prepaid~~primarily ~~pension~~a ~~costs. These~~result ~~effects~~of ~~were~~the ~~partially~~Company ~~offset~~acquiring byan ainterest ~~$49.7~~in ~~million~~five ~~reduction~~properties in ~~gas~~south ~~costs~~Texas ~~recoverable through rate adjustments~~ and athe ~~$37.9~~upper ~~million~~Texas ~~reduction~~gulf ~~in gas in storage~~area.

~~The~~Short-term ~~utility~~debt ~~accounts~~increased ~~receivable~~$143.7 ~~balances~~million atresulting ~~June~~from ~~30,~~an ~~2001~~increase ~~increased~~in ~~$248.5~~commercial ~~million~~paper borrowing to ~~$399.5~~meet ~~million~~working ascapital ~~compared~~needs. The toincrease ~~June~~in ~~30,~~current ~~2000~~regulatory liabilities primarily ~~due~~reflects tothe impact of the ~~higher~~Gas ~~unit~~Distribution ~~cost~~segment entering into derivative contracts to protect the price of expected natural gas ~~and~~purchases. The ~~the~~current ~~effects~~mark-to-market value of ~~colder~~the contracts is recorded in other receivables with a contra entry to current regulatory liabilities. Partially offsetting the mark-to-market effect on other receivables was the previous year weather insurance accrual.

~~During~~The increase in the ~~first~~debit ~~nine~~balance ~~months~~in ofAOCI ~~fiscal~~is ~~2001,~~due ~~record~~to ~~prices~~larger ~~for~~deferred ~~natural~~losses ~~gas~~on ~~occurred~~cash ~~during~~flow ~~the~~hedges ~~same~~in ~~period~~place asrelated ~~extremely~~to ~~cold~~future ~~weather~~oil and gas production at Peoples Energy Production. AsThese alosses ~~consequence,~~result ~~the~~from ~~utilities~~higher ~~have~~natural ~~experienced~~gas anand ~~increase~~oil incommodity ~~past~~prices ~~due~~and ~~amounts~~will be amortized to income when production is sold.

The ~~utilities~~change ~~have~~in ~~offered,~~the ~~and~~net ~~many~~ of ~~their~~gas ~~customers~~costs ~~participate~~recoverable ~~in, budget payment programs~~ and ~~other~~gas ~~programs~~costs ~~designed~~refundable tois ~~assist~~a ~~customers~~short-term intiming ~~paying~~difference ~~their~~between ~~bills~~cost ~~and avoiding shutoff. At June 30, 2001, over $152.0 million~~ of ~~receivables~~gas ~~represented~~delivered ~~amounts owed~~ by ~~customers~~Peoples ~~who~~Gas ~~have~~and ~~utilized~~North ~~these~~Shore ~~programs. Timing~~Gas ~~of cash receipts~~ and ~~reduction~~the ofgas ~~accounts~~costs ~~receivable~~billed ~~have~~to ~~been affected by these programs, making period comparison less meaningful~~customers.

Customers of the utilities have received over $39.0 million in Low Income Home Energy Assistance Program funds during this fiscal year, and the Company is actively seeking additional federal energy assistance for its customers. The utilities have also been working with the State of Illinois and the City of Chicago to develop programs that provide funds for assistance to customers in paying off their balances. One such program has provided $7.0 million to reduce past due balances of customers who made a required contribution.
The utilities
The Company is continuing its outreach efforts to its customers and taking serious steps to collect past due accounts, including shut offs for nonpayment. The ultimate outcome of these efforts is uncertain, and further increases to the reserve for uncollectibles may be required in future periods.
As a means of providing stability to customer bills, Peoples Gas and North Shore Gas have begun fixing the prices to be paid to suppliers for a portion of future supply requirements of utility customers. The program is designed to mitigate the adverse impacts of severe price volatility, our customer bills and the utilities uncollectible expense and working capital costs. Gas purchases under the program qualify for recovery from customers under the terms of the utilities gas charge.
The Company's current liabilities rose at June 30, 2001 by $112.6 million from September 30, 2000. The change was mostly a result of a temporary LIFO liquidation credit ($87.2 million) in the current period due to the anticipated replenishment of the lower cost LIFO price layer by fiscal year end. Also affecting the change were increases in accrued taxes ($51.9 million) and accounts payable ($66.0 million) due to higher gas costs, partially offset by a decrease in short-term debt ($86.2 million).
Variations in the Company's deferred credits and other liabilities and accumulated other comprehensive income are due to the adoption of SFAS No. 133, (See Note 1 of the Notes to Consolidated Financial Statements.)
Total assets of Peoples Gas at June 30, 2001 increased $282.0 million, or 16 percent, from September 30, 2000 primarily due to higher customer accounts receivable ($249.9 million) and prepaid pension costs ($36.2 million). These increases were partially offset by a decrease in gas in storage ($38.3 million) due to increased demand during colder weather periods and decreased gas costs recoverable ($40.6 million) resulting from higher gas charges and increased volumes due to colder weather. Current liabilities increased $205.2 million due to increased accrued taxes ($50.0 million) and to a higher level of accounts payable ($43.0 million) resulting from higher gas costs. Short-term debt was $56.2 million higher to supplement working capital needs. The estimated LIFO liquidation credit ($70.4 million) anticipates the replenishment of the lower cost LIFO price layer by fiscal year end. The LIFO adjustment was also greater than in the comparable fiscal year period because of additional withdrawals due to colder weather and higher gas prices.
The accounts receivable at June 30, 2001 for Peoples Gas increased $229.1 million to $364.0 million as compared to June 30, 2000 primarily due to the higher unit cost of natural gas and the effects of colder weather. The bad debt reserve at June 30, 2001 totaled $41.1 million, an increase of $16.9 million from the June 30, 2000 balance. The average gas charge for the current nine-month period was 70.58 cents per therm versus 35.83 cents per therm for the prior year period.
Total assets of North Shore Gas at June 30, 2001 increased $18.2 million, or seven percent, from September 30, 2000 primarily due to higher customer accounts receivable ($22.2 million). Offsetting this effect, in part, was a decrease in gas costs recoverable ($9.1 million) resulting from higher gas charges and increased volumes due to colder weather. Current liabilities increased $10.4 million due to increases in accrued taxes ($3.0 million) and to the estimated LIFO liquidation credit ($16.9 million) which anticipates the replenishment of the lower cost LIFO price layer by fiscal year end. The LIFO adjustment was also greater than in the comparable fiscal year period because of additional withdrawals due to colder weather and higher gas prices.
The accounts receivable at June 30, 2001 for North Shore increased $19.4 million to $35.6 million as compared to June 30, 2000 primarily due to the higher unit cost of natural gas and the effects of colder weather. The bad debt reserve at June 30, 2001 totaled $1.8 million, an increase of $720,000 from the June 30, 2000 balance. The average gas charge for the current nine-month period was 70.80 cents per therm versus 36.58 cents per therm for the prior year period.
Financial Sources

InThe ~~the~~Company ~~first~~and ~~quarter,~~its ~~Peoples~~two ~~Gas~~regulated ~~issued~~utilities ~~short-term~~have ~~debt~~access ~~of $200 million~~ to ~~supplement~~outside ~~working~~ capital ~~needs and replace maturing short-term obligations. The Company~~markets, ascommercial ofpaper ~~June~~markets ~~30, 2001 has lines of credit of $305.0 million~~ and ~~had~~internal ~~unused~~sources ~~credit available from banks~~ of ~~$221.9~~funds ~~million. Peoples~~that ~~Gas~~together ~~had~~provide ~~$190.0~~sufficient ~~million~~resources ~~of available credit facilities of which $24.0 million was available~~ to ~~North~~meet ~~Shore~~cash ~~Gas~~requirements. AtThe ~~June~~Company ~~30,~~does ~~2001,~~not ~~Peoples~~anticipate ~~Gas~~any ~~had~~changes ~~unused~~that ~~credit~~would ~~available~~materially ~~from~~alter ~~banks~~its ofcurrent ~~$190.0~~liquidity ~~million of which $24~~position.~~0 million was available to North Shore Gas.~~

InDue ~~January~~to ~~2001~~the seasonal nature of gas usage, ~~the~~a ~~Company~~major ~~issued~~portion ~~$325.0~~of ~~million~~the ~~6.9%~~utilities' ~~Notes,~~cash ~~due~~collections occurs between January ~~15,~~and ~~2011~~June. InBecause ~~April~~of ~~2001,~~timing ~~the~~differences ~~Company~~in ~~completed~~the anreceipt ~~exchange~~and ~~offering~~disbursement of ~~all~~cash and the level of ~~its~~construction ~~outstanding~~requirements, 6the utility subsidiaries borrow from time-to-time on a short-term basis.9% Short-term ~~Notes~~borrowings ~~due~~are ~~January~~repaid ~~15,~~with ~~2011~~cash from operations, ~~for~~other anshort-term ~~equal~~borrowings ~~amount~~or ofrefinanced ~~6.9%~~on ~~Notes~~a ~~due~~permanent ~~January~~basis ~~15,~~with ~~2011~~debt or equity, ~~Series~~depending Aon market conditions and capital structure considerations.

In addition to cash generated internally by operations, as of December 31, 2002, the Company had credit facilities of $257.7 million which primarily support its commercial paper borrowing, of which $170.3 million was available. The Company's credit facilities provide that the lenders under such facilities may terminate the credit commitments and declare any outstanding amounts due and payable if the Company's debt-to-total capital ratio exceeds 65 percent during any period of time that the Company's senior unsecured debt rating falls below A- (Standard & Poor's) or A3 (Moody's Investor Services). Also, Peoples Gas has $142.3 million of credit facilities of which up to $41.0 million may be utilized by North Shore Gas. As of December 31, 2002, none of the $142.3 million was available. As of December 31, 2002, Peoples Gas and North Shore Gas had outstanding loans from the Company of $40.1 million and $15.8 million, respectively. The credit facilities of the Company as well as those of the utilities are expected to be renewed when they expire, although the exact amount of the renewals will be evaluated at that time and may change from the current levels.

The Company has been assigned corporate credit ratings of A3 by Moody's, A- by Standard & Poor's and A+ by Fitch Ratings. The commercial paper ratings are P-2, A-2 and F-1, respectively. The senior unsecured debt rating is BBB+ by Standard & Poor's, A3 by Moody's and A+ by Fitch Ratings. Senior secured debt of each utility subsidiary is rated Aa3 by Moody's, A- by Standard & Poor's and AA by Fitch Ratings. The commercial paper of each utility subsidiary is rated P-1 by Moody's, A-2 by Standard & Poor's and F-1+ by Fitch Ratings.

Off-balance sheet debt at December 31, 2002 and December 31, 2001 consists of the Company's pro rata share of nonrecourse debt of various equity investments, including Trigen-Peoples ($15.6 million and $15.8 million), EnerVest ($2.7 million and $18.4 million) and Elwood ($196.9 million and $201.0 million). At December 31, 2002 and 2001, this debt amounted to $215.2 million and $235.2 million, respectively.

The Company has amended its shelf registration statement to allow for the issuance from time-to-time of up to 1.5 million shares of common stock pursuant to a continuous equity offering in one or more negotiated transactions or "at-the-market" offerings.

Financial Uses
Capital Spending.
In the three-month period, the Company spent $58.4 million on capital projects and investments in equity investees. The Gas Distribution segment spent $17.1 million on property, plant and equipment of which $15.2 million was spent by Peoples Gas and $1.9 million was spent by North Shore Gas. The remaining $41.3 million was spent by the diversified business segments. The Oil and Gas segment spent $39.7 million on drilling projects, the exploitation of existing assets and the acquisition of properties from a subsidiary of Magnum Hunter. Total forecasted capital spending for fiscal 2003 is approximately $200.0 million.

~~The~~Retirement ~~Company increased its advances to joint venture partnerships ($87.5 million) to complete the expansion~~ of ~~the Elwood facility~~Debt. ~~The funds will be repaid when project financing on the entire facility is completed in the fourth quarter.~~
In the first quarter of 2002, Peoples Gas retired short-term debt of $200.0 million that was issued in the first quarter of 2001 using cash on hand, intercompany loans and commercial paper.

On December 5, 2002, North Shore Gas redeemed $24.6 million of its First Mortgage Bonds, Series J, using cash on hand, intercompany loans and commercial paper.

On January 9, 2003, Peoples Gas received authorization from the Illinois Development Finance Authority (IDFA) to issue $100.0 million of tax-exempt debt to refinance its $50.0 million of First and Refunding Mortgage Bonds, Series X, which will result in the redemption of the City of Chicago Gas Supply Revenue Bonds, 1985 Series A (The Peoples Gas Light and Coke Company Project), and $50.0 million of First and Refunding Mortgage Bonds, Series GG, which will result in the redemption of the City of Chicago Gas Supply Revenue Bonds, 2000 Series A (The Peoples Gas Light and Coke Company Project). The $50.0 million of First and Refunding Mortgage Bonds, Series X, were called for redemption on February 6, 2003.

Issuance of Bonds.
On February 6, 2003 the IDFA issued $50.0 million aggregate principal amount of 5.00% Gas Supply Refunding Revenue Bonds, Series 2003A, which are secured by an equal amount of Peoples Gas' 30-year first mortgage bonds, Series KK. The net proceeds will be used for the redemption of the First and Refunding Mortgage Bonds, Series X.

Dividends
. On February 5, 2003, the Directors of the Company voted to increase the regular quarterly dividend on the Company's common stock from 52 cents per share to 53 cents per share.

Commitments and Contingencies
Contractual Obligations.
Since the filing of the September 30, 2002 Annual Report on Form 10-K there have been no significant change to commitments and contingencies.

Guarantees of Unconsolidated Equity Investees and Standby Letters of Credit.
As of December 31, 2002, there were $55.4 million of guarantees for debt service and operational guarantees of the Company's unconsolidated equity investments. Standby letters of credit were $5.9 million.


	Commitments Due by Period
	Total
(In millions)	Amounts	Less than	1 to 3	4 to 5	More than
Other commercial commitments	Committed	1 Year	Years	Years	5 Years
Standby letters of credit	$ 5.9	$ 3.8	$ -	$ -	$ 2.1
Guarantees of unconsolidated equity investees	55.4	-	12.5	-	42.9
Total other commercial commitments	$ 61.3	$ 3.8	$ 12.5	$ -	$ 45.0

Peoples Gas has two standby letters of credit totaling $3.9 million as of December 31, 2002. North Shore Gas has none.

			As of December 31, 2002
			(In Millions)
Guarantees of unconsolidated equity investees
Elwood	- Debt service reserve account	$13.9
	- Operational	22.5
Trigen-Peoples	- Operational	19.0
Total guarantees of unconsolidated equity investees			$55.4

In connection with Elwood's project financing, the Company and Dominion have each guaranteed 50 percent of the amount required to be maintained by Elwood in a debt service reserve account. The amount of the Company's guarantee varies over the life of the loan but will not exceed $16.5 million. Subject to the Company's right to terminate the guarantee upon Elwood's depositing sufficient cash in the debt service reserve account, the guarantee continues until Elwood's payment of its outstanding bonds in full, expected to occur July 5, 2026.

The Company has guaranteed 50 percent of Elwood's financial obligations to Aquila in connection with the Aquila power sales agreements. The Company's aggregate liability under the guarantees is limited to $10.0 million. The guarantees terminate August 31, 2016 and August 31, 2017. The Company has also guaranteed 50 percent of Elwood's financial obligations to Engage in connection with the Engage power sales agreement. The Company's aggregate liability under this guarantee is limited to $12.5 million. The guarantee terminates December 31, 2004.

The Company and Trigen Energy Corporation (Trigen) are equal partners in Trigen-Peoples, which provides heating and cooling services to the Metropolitan Pier and Exposition Authority (MPEA) at the McCormick Place Exposition Center in Chicago pursuant to a Development and Energy Services Agreement (MPEA Agreement). Under the MPEA Agreement, Trigen-Peoples must deliver to MPEA and maintain a standby letter of credit to secure Trigen-Peoples' obligations. In addition, the Company and Trigen have provided MPEA with a joint and several guarantee of Trigen-Peoples' obligations under the MPEA Agreement. The guarantee is limited to $11.0 million, plus providing from $4.0 million to $8.0 million in replacement letters of credit, of which the Company would be entitled to collect half of such amounts from Trigen. The guarantee continues for the term of the MPEA Agreement, which ends January 1, 2022.

The Company and Trigen are also party to a Sponsor Support and Equity Contribution Agreement (Sponsor Agreement) with Trigen-Peoples' lender, Prudential Insurance Company of America (Prudential). Under the Sponsor Agreement, the Company and Trigen each agree to pay Prudential 50 percent of Trigen-Peoples' outstanding loan obligations only upon the occurrence of certain events relating to material destruction of the plant, taking of the plant by eminent domain, purchase of the plant by MPEA or default by Trigen-Peoples, the Company or Trigen of certain obligations under the MPEA Agreement and only to the extent that proceeds received by Trigen-Peoples as a result of any such events, plus other cash of Trigen-Peoples, are not sufficient to pay the Prudential loan obligations. None of such events is currently expected to occur. Trigen-Peoples outstanding loan from Prudential was $31.2 million at December 31, 2002. The guarantee continues until payment of the Prudential loan in full, expected to occur December 31, 2017. The Company is not able to estimate the maximum potential amount of future payments under the Sponsor Agreement, if any, because it cannot ascertain the amount of eminent domain proceeds that would be available to the partnership in the unlikely event of a government taking of the plant, nor can it estimate the amount of yield maintenance premium payable with respect to the partnership's loan obligations as such amount is a function of the outstanding loan balance and interest rates at the time the event occurs.

Environmental Matters
. The Company's Gas Distribution utility subsidiaries are conducting environmental investigations and remedial work at certain sites that were the location of former manufactured gas operations. (See Note 4 of the Notes to Consolidated Financial Statements.)

In 1994, North Shore Gas received a demand from a responsible party under CERCLA ~~for reimbursement~~, ~~indemnification and contribution~~ for ~~response~~environmental costs ~~incurred~~associated atwith a former mineral processing site in Denver, Colorado. ~~North~~The ~~Shore~~demand ~~Gas~~alleged ~~filed a declaratory judgment action in the District Court for the Northern District of Illinois asking the court to declare~~ that North Shore Gas is ~~not~~a ~~liable~~successor ~~for response costs relating~~ to the ~~site. The~~liability ~~defendant~~of ~~filed~~ a ~~counterclaim~~former ~~for~~entity ~~costs~~that ~~incurred~~allegedly bydisposed ~~the~~of ~~defendant~~mineral ~~with~~processing ~~respect~~wastes tothere ~~the~~between ~~site~~1934 and 1941. (See Note 4 of the Notes to Consolidated Financial Statements.)

~~Peoples~~Risk ~~Gas and North Shore Gas are conducting a mercury inspection and remediation program. (See Note 4 of the Notes to Consolidated Financial Statements.)~~Management
Market Risk ~~Management~~.
The Company's earnings may vary due to changes in commodity prices (market risk) through its subsidiaries operations and investments. To manage this market risk, the Company uses forward contracts and financial instruments, including commodity futures contracts, swaps, no cost collars and options contracts. These instruments are commonly referred to as derivatives because they derive their values from the price of an underlying physical commodity or security.

~~Commodity~~ The ~~Price~~following ~~Risk.~~table presents the valuation of outstanding contracts at December 31, 2002 and 2001:

Peoples Gas and North Shore Gas are not directly exposed to market risk caused by changes in commodity prices. This is due to current Illinois rate regulation, which allows for all reasonably incurred costs of natural gas to be recovered from the utilities' customers through the operation of the utilities' Gas Charges. (See Liquidity and Capital Resources - "Balance Sheet Variations" for discussion of increased accounts receivables due to high gas prices and the related impact on bad debt reserves.)

	Derivative Type
	Cash Flow		Fair Value
	Hedges		Hedges		Mark-to-Market
(In Thousands)	2003	2002	2003	2002	2003	2002
Value of contracts outstanding at the beginning of the quarter	$ (13,720)	$ 14,246	$ (201)	$ -	$ 31,042	$ -
Less: contracts realized or otherwise settled during the period	(1,947)	2,805	(40)	-	7,513	-
Plus: value of new contracts entered into during the period
and outstanding at year-end	(2,648)	2,479	(325)	-	7,004	-
Plus: changes in fair value attributable to changes in valuation
techniques and assumptions	-	-	-	-	-	-
Plus: other changes in fair values	(8,802)	1,020	57	-	21,955	-
Value of contracts outstanding at the end of the quarter	$ (23,223)	$ 14,940	$ (429)	$ -	$ 52,488	$ -

~~Investments~~The bymaturity of the ~~Company's~~fair ~~diversified~~value ~~businesses~~hedges ~~are~~and ~~subject~~the mark-to-market acontracts ~~thorough~~fall ~~analysis~~within ofthe ~~related~~next ~~market~~12 ~~risk~~months. Included ~~and~~in anthe ~~acceptable~~value ~~plan~~of ~~for~~mark-to-market ~~each~~contracts ~~investment~~are ~~formulated~~amounts relating to ~~manage~~the ~~this~~utility ~~risk~~subsidiaries' gas price protection program ($51.7 million). ~~After~~All agains ~~risk~~or ~~management~~losses ~~program~~from ~~for~~these ~~the~~contracts ~~investment~~at ismaturity ~~approved,~~will ~~both~~be included in the ~~operating~~gas ~~unit's~~charge ~~and~~to customers. The maturities of the ~~Company's~~cash ~~senior~~flow ~~management~~hedges are ~~kept~~detailed ~~apprised~~in ofthe ~~any~~table ~~remaining~~below. All ~~market~~valuations ~~risk~~are ~~through~~based ~~daily~~on ~~MTM~~NYMEX ~~reports~~closing ~~and~~prices ~~established~~at ~~notification~~December ~~policies~~31, 2002.

The Company has working interests in natural gas and crude oil producing properties. Using swaps and options, approximately 62 percent of the production estimated as of June 30, 2001 for the next twelve months is hedged, thereby removing market risk on that portion of the production. Price movements in natural gas and crude oil swaps and futures are highly correlated to any price changes in the underlying physical commodities. Therefore, a loss in the market value of the hedged commodity should be substantially offset by an equal gain in value resulting from the financial transaction. Sensitivity analyses are used to estimate the Company's price exposure to the market risk of its physical natural gas and oil reserves and related financial instruments used to mitigate the price exposure. As of June 30, 2001, the sensitivity analysis for oil and gas producing properties demonstrated an instantaneous 10 percent adverse movement in the NYMEX forward curve for natural gas and oil would have reduced future Earnings Before Income Taxes (EBIT) by approximately $14.4 million for all proved reserves.

Cash Flow Hedges
Value by Year of Maturity
(In Thousands)

		Less than	1 to 2	2 to 3	3 to 4	4 to 5	More than
	Total	1 Year	Years	Years	Years	Years	5 Years
Value at December 31, 2002	$ (23,223)	$ (14,285)	$ (5,811)	$ (1,583)	$ (1,544)	$ -	$ -
MMbtue	41,324	19,223	11,226	7,989	2,886	-	-
Average Hedge Price	$ 3.46	$ 3.45	$ 3.48	$ 3.58	$ 3.12	$ -	$ -

Value at December 31, 2001	$ 14,940	$ 8,790	$ 3,953	$ 2,059	$ 1,315	$ (1,177)	$ -
MMbtue	36,947	15,290	8,650	5,829	5,138	2,040	-
Average Hedge Price	$ 3.35	$ 3.28	$ 3.36	$ 3.41	$ 3.65	$ 2.94	$ -

~~The~~Interest ~~Company~~Rate ~~sells fixed price and variable priced products as part of its retail energy services businesses.~~ Risk is reduced through the use of fixed price supplier contracts and future contracts that hedge the expected price for monthly volume of customer usage. Variations in monthly actual usage from expected usage can expose the Company to additional price risk. Risk management trading and optimization of storage assets are utilized to mitigate this intramonth risk. As of June 30, 2001, the exposure from open financial positions was immaterial.
. The Company periodically utilizes derivative instruments to reduce interest rate risk associated with the issuance of debt. At December 31, 2002, the Company held treasury lock agreements that hedge the 10-year treasury component of $80.0 million of anticipated 2003 debt financings.

~~The~~Indenture Elwood partnership owns a natural gas-fired electric generating peaking facility. Elwood has agreed to sell all of the facility's current generation capacity and energy produced at fixed demand and commodity charges under multi-year contracts. The power sales contracts with the customers were renegotiated March 1, 2001 to essentially eliminate fuel price risk. Therefore, Elwood has no price risk for fuel purchases or power sales during the term of these contracts. Restrictions

~~The~~Peoples ~~Company~~District ~~has~~Energy anowns ~~equity~~a ~~investment~~50 inpercent ~~enovate. It~~equity ~~may~~interest ~~participate~~ in ~~trading activities other than for hedging purposes and hold a number of open, uncovered positions~~Trigen-Peoples. ItThe isSponsor ~~subject~~Support ~~to position, dollar~~ and ~~Value~~Equity atContribution ~~Risk~~Agreement ~~loss~~related ~~limits~~to ~~established~~Trigen-Peoples' byproject ~~the~~financing ~~Company~~prohibits ~~and~~any ~~Enron~~distribution ~~through the risk management policy of enovate. Management believes~~ that ~~these~~would ~~maximum~~result ~~loss~~in ~~limits~~the ~~are~~partners' attotal acapital ~~level~~account ~~such~~in ~~that~~Trigen-Peoples ~~any~~to ~~adverse~~be ~~results~~less ~~from~~than ~~such~~$7.0 ~~trading~~million. At ~~activity~~December ~~would~~31, ~~not~~2002, ~~have a material adverse effect on~~ the ~~results~~partners' ofcapital ~~operations~~account orwas ~~the~~$7.8 ~~financial condition of the Company~~million.

~~Interest~~ Elwood's ~~Rate~~trust ~~Risk~~indenture and other agreements related to its project financing prohibit Elwood from making distributions, unless Elwood has maintained certain minimum historic and projected debt service coverage ratios. At January 6, 2003, the most recent semi-annual distribution date, the minimum debt service coverage ratio of 1.2 to 1.0 was required and Elwood's actual debt service coverage ratio was approximately 1.5 to 1.0.

The Company manages its interest rate risk exposure by maintaining a mix of fixed and variable rate debt. The Company currently has outstanding a mix of $302.0 million in variable rate bonds and notes (taxable and taxFORWARD-~~exempt)~~LOOKING and $280.0 million in other short-term borrowings. Assuming interest rates are 10 percent higher than the rates reported at the end of June 30, 2001, the Company's annualized interest expense would increase by approximately $2.4 million before considering the effect of income taxes.INFORMATION

This MD&A contains statements that may be considered forward-looking, such as: management's expectations, the statements of the Company's business and financial goals regarding its business segments, the effect of weather on net income, cash position, source of funds, financing activities, market risk, the insignificant effect on income arising from changes in revenue from customers' gas purchases from entities other than the Gas Distribution subsidiaries, the adequacy of the Gas Distribution segment's reserves for uncollectible accounts, capital expenditures of the Company's subsidiaries and environmental matters. These statements speak of the Company's plans, goals, beliefs, or expectations, refer to estimates or use similar terms. Generally, the words "may," "could," "project," "believe," "anticipate," "estimate," "plan," "forecast," "will be" and similar words identify forward-looking statements. Actual results could differ materially, because the realization of those results is subject to many uncertainties including:

~~Included~~Adverse decisions in ~~the~~proceedings ~~Company's~~before ~~variable~~the ~~rate~~Commission ~~debt~~concerning ~~are its $100.0 million Notes due August 1, 2002. The Company's interest rate risk has been further reduced due to an interest rate swap effective February 1, 2001, to fix~~ the ~~rate~~prudence ~~for~~review ~~$75.0 million~~ of the ~~$100.0~~utility ~~million~~subsidiaries' atgas ~~6.8 percent.~~purchases;

~~OPERATING~~the ~~STATISTICS~~future health of the United States and Illinois economies;

	Three Months Ended		Nine Months Ended
	June 30,		June 30,
	2001	2000	2001	2000
Operating Revenues (In Thousands):
Gas Distribution Sales
Residential
Heating	$ 154,622	$ 138,904	$ 1,302,061	$ 683,485
Non-heating	11,618	10,714	49,378	45,252
Commercial	18,933	21,599	192,938	105,750
Industrial	2,422	2,291	37,346	19,107
	187,595	173,508	1,581,723	853,594
Gas Distribution Transportation
Residential	5,751	6,311	30,118	29,087
Commercial	8,116	8,400	41,645	38,044
Industrial	4,261	5,283	19,303	20,306
Contract Pooling	6,088	1,614	22,183	6,188
	24,216	21,608	113,249	93,625
Other Gas Distribution Revenues	7,183	4,599	14,023	21,766
Diversified Segment Revenues	99,507	61,533	400,277	229,410
Total Operating Revenues	318,501	261,248	2,109,272	1,198,395
Less - Cost of Energy Sold	183,892	127,766	1,469,508	634,139
Gross Margin	$ 134,609	$ 133,482	$ 639,764	$ 564,256
Gas Distribution Deliveries (MDth):
Gas Sales
Residential
Heating	13,527	17,480	116,376	106,252
Non-heating	562	660	2,746	2,863
Commercial	1,824	3,032	17,833	17,332
Industrial	324	272	3,617	3,529
	16,237	21,444	140,572	129,976
Transportation
Residential	3,284	3,916	22,225	21,249
Commercial	6,617	7,562	38,826	35,659
Industrial	5,599	7,679	24,298	28,561
	15,500	19,157	85,349	85,469
Total Gas Distribution Deliveries	31,737	40,601	225,921	215,445

the timing and extent of changes in interest rates and energy commodity prices, including but not limited to the effect of unusually high gas prices on cost of gas supplies, accounts receivable and the provision for uncollectible accounts and interest expense;

	Three Months Ended		Nine Months Ended
	June 30,		June 30,
	2001	2000	2001	2000
Operating Revenues (In Thousands):
Gas Sales
Residential
Heating	$ 129,211	$ 117,753	$ 1,099,248	$ 586,177
Non-heating	11,320	10,439	47,685	36,015
Commercial	16,147	18,276	159,612	89,083
Industrial	1,560	1,648	29,663	15,480
	158,238	148,116	1,336,208	726,755
Transportation
Residential	5,530	6,048	29,082	27,999
Commercial	7,213	7,278	37,412	33,429
Industrial	3,636	4,556	16,871	17,653
Contract Pooling	5,848	1,428	20,579	5,589
	22,227	19,310	103,944	84,670
Diversified Segment Revenues	1,479	951	4,670	6,457
Other	6,718	3,647	15,120	10,073
Total Operating Revenues	188,662	172,024	1,459,942	827,955
Less - Gas Costs	86,245	66,699	934,158	373,141
Gross Margin	$ 102,417	$ 105,325	$ 525,784	$ 454,814
Deliveries (MDth):
Gas Sales
Residential
Heating	11,032	14,526	96,879	88,792
Non-heating	539	630	2,633	2,751
Commercial	1,559	2,531	14,558	14,383
Industrial	221	158	2,817	2,821
	13,351	17,845	116,887	108,747
Transportation
Residential	3,180	3,784	21,573	20,595
Commercial	5,859	6,433	34,662	30,823
Industrial	4,561	6,462	20,381	24,184
	13,600	16,679	76,616	75,602
Total Deliveries

adverse resolution of material litigation;

	Three Months Ended		Nine Months Ended
	June 30,		June 30,
	2001	2000	2001	2000
Operating Revenues (In Thousands):
Gas Sales
Residential
Heating	$ 25,411	$ 21,151	$ 202,813	$ 105,621
Non-heating	298	275	1,693	924
Commercial	2,786	3,323	33,326	16,667
Industrial	862	643	7,683	3,627
	29,357	25,392	245,515	126,839
Transportation
Residential	221	263	1,036	1,088
Commercial	903	1,122	4,233	4,615
Industrial	625	727	2,432	2,653
Contract Pooling	240	187	1,604	600
	1,989	2,299	9,305	8,956
Other	465	272	1,017	653
Total Operating Revenues	31,811	27,963	255,837	136,448
Less - Gas Costs	18,575	13,623	187,550	74,315
Gross Margin	$ 13,236	$ 14,340	$ 68,287	$ 62,133
Deliveries (MDth):
Gas Sales
Residential
Heating	2,495	2,954	19,497	17,460
Non-heating	23	30	113	112
Commercial	265	501	3,275	2,949
Industrial	103	114	800	708
	2,886	3,599	23,685	21,229
Transportation
Residential	104	132	652	654
Commercial	758	1,129	4,164	4,836
Industrial	1,038	1,217	3,917	4,377
	1,900	2,478	8,733	9,867
Total Deliveries	4,786	6,077	32,418	31,096

business and competitive conditions resulting from deregulation and consolidation of the energy industry;

	Three Months Ended		Nine Months Ended
	June 30,		June 30,
	2001	2000	2001	2000
Average daily production:
Gas (MMCFD)	44.6	38.4	34.2	27.8
Oil (MBOD)	1.2	1.3	1.1	0.7
Gas equivalent (MMCFED)	51.8	46.4	40.9	32.1
Average daily hedged volumes:
Gas (MMCFD)	29.5	26.7	25.3	19.4
Oil (MBOD)	0.5	0.4	0.5	0.3
Percentage hedged:
Gas	66%	70%	74%	70%
Oil	41%	30%	49%	49%
Average hedge price:
Gas ($/MCF)	$ 3.26	$ 2.40	$ 2.70	$ 2.37
Oil ($/BBL)	$ 20.18	$ 18.75	$ 20.96	$ 17.58
Net realized price:
Gas ($/MCF)	$ 3.64	$ 2.66	$ 3.25	$ 2.46
Oil ($/BBL)	$ 20.91	$ 24.31	$ 23.17	$ 21.71
Equivalent ($/MCFE)	$ 3.62	$ 2.90	$ 3.35	$ 2.61

effectiveness of the Company's risk management policies and the creditworthiness of customers and counterparties;

~~FORWARD~~regulatory ~~LOOKING~~developments ~~INFORMATION~~in the United States, Illinois and other states where the Company does business;

the future health of the U.S. and Illinois economies;
the timing and extent of changes in energy commodity prices, including but not limited to the effect of unusually high gas prices on cost of gas supplies, accounts receivable and the provision for uncollectible accounts, and interest expense;
litigation concerning North Shore Gas' liability for CERCLA response costs relating to a former mineral processing site in Denver, Colorado;
developments regarding Peoples Gas' and North Shore Gas' mercury investigation and remediation program;
regulatory developments in the U.S., or in Illinois and other states where the Company does business;
changes in the nature of the Company's competition resulting from industry consolidation, legislative change, regulatory change and other factors, as well as action taken by particular competitors;

the Company's success in identifying diversified business segment projects on financially acceptable terms and generating earnings from projects in a reasonable time;

~~drilling~~operational ~~risks~~factors ~~and~~affecting the ~~inherent~~Company's ~~uncertainty~~Gas ofDistribution, ~~gas~~Power Generation and ~~oil~~Oil ~~reserve~~and ~~estimates~~Gas Production segments;

~~weather~~Aquila's ~~related~~financial ~~energy~~ability ~~demand~~to perform under its power sales tolling agreements with Elwood;

~~the~~drilling ~~timing~~risks and ~~extent~~the inherent uncertainty of ~~changes~~oil inand ~~interest~~gas ~~rates;~~reserve ~~and~~estimates;

~~employee~~weather ~~participation~~related inenergy ~~the~~demand; ~~Company's early retirement program~~ and ~~changes in the Company's future labor requirements and costs.~~

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

Some of these uncertainties that may affect future results are discussed in more detail in Item 1 - Business of the Annual Report on Form 10-K. All forward-looking statements included in this MD&A are based upon information presently available, and the Company assumes no obligation to update any forward-looking statements.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures ~~About~~about Market ~~risk~~Risk are reported ~~under~~in ~~"Management's~~Item ~~Discussion~~2. ~~and~~MD&A ~~Analysis of Results of Operations and Financial Condition~~ - ~~Market~~ Risk Management," ~~and Note 1 of the Notes to Consolidated Financial Statements~~Activities.

ITEM 4. Controls and Procedures

The Company, Peoples Gas and North Shore Gas maintain disclosure controls and procedures (as defined in Rule 13a-14 of the Securities Exchange Act of 1934, as amended) which are designed to ensure that information required to be disclosed by the Company, Peoples Gas and North Shore Gas in the reports that are submitted or filed with the Commission is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. Thomas M. Patrick, principal executive officer and Thomas A. Nardi, principal financial officer of the Company, Peoples Gas and North Shore Gas, have evaluated the disclosure controls and procedures within 90 days of the filing of this report. Based upon that evaluation, Messrs. Patrick and Nardi have concluded that the disclosure controls and procedures are effective.

There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of Messrs. Patrick's and Nardi's most recent evaluation.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings See Note 4 of the Notes to Consolidated Financial Statements for a discussion pertaining to environmental matters.


Item 1. Legal Proceedings

See Note 4 of the Notes to Consolidated Financial Statements for a discussion pertaining to environmental matters.
Item 2. Changes in Securities and Use of Proceeds

None.
Item 3. Defaults Upon Senior Securities

None.
Item 4. Submission of Matters to a Vote of Security Holders

None.
Item 5. Other Information

None.
Item 6. Exhibits and Reports on Form 8-K

	Peoples Energy Corporation :

		a. Exhibits

			Exhibit
			Number	Description of Document

			3(a)	Amendment to the By-Laws of the Registrant, dated December 4, 2002

			3(b)	By-Laws of the Registrant, amended as of December 4, 2002

			10(a)	Amendment to Transportation Rate Schedule DSS Agreement between Peoples Gas and Natural Gas Pipeline Company of America dated February 22, 2002

			10(b)	Amendment to Transportation Rate Schedule DSS Agreement between North Shore Gas and Natural Gas Pipeline Company of America dated February 22, 2002

			10(c)	Executive Deferred Compensation Plan, amended as of December 4, 2002

			10(d)	Long-Term Incentive Compensation Plan, amended as of December 4, 2002

			10(e)	Long-Term Incentive Plan for Diversified Business Units, amended as of December 4, 2002

			10(f)	Short Term Incentive Compensation Plan, amended as of December 4, 2002

Item 5. Other Information None.


			12		Statement re: Computation of Ratio of Earnings to Fixed Charges for the Company

			99(a)		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

			99(b)		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Item 6. Exhibits and Reports on Form 8-K
		b. Reports on Form 8-K filed or furnished during the quarter ended December 31, 2002
	Peoples Energy Corporation:
			Date of Report - October 25, 2002
			a. Exhibits
			Item 9 - Regulation FD Disclosure
				Exhibit
			Press Release and Conference Call Script
				Number	Description of Document
			Date of Report - October 25, 2002
					None
			Item 5 - Other Events
		b. Reports on Form 8-K filed during the quarter ended June 30, 2001
			Forward Looking Financial Information
				Date of Report - April 27, 2001
			Date of Report - November 13, 2002
			Item 9 - Regulation FD Disclosure	~~Item 9 - Regulation FD Disclosure~~
				Preliminary Financial Results
			Item 7 - Financial Statements and Exhibits
				Date of Report - April 27, 2001
			Security Analyst Presentation
				Item 9 - Regulation FD Disclosure
				Script of Analyst Conference Call
				Date of Report - April 27, 2001
				Item 5 - Other Events
				Forward Looking Financial Information
				Date of Report - May 7, 2001
				Item 5 - Other Events
				Item 9 - Financial Statements and Exhibits
				Forward Looking Financial Information - Security Analysts Presentation
				Date of Report - May 7, 2001
				Item 9 - Regulation FD Disclosure
				Security Analysts Presentation
				Date of Report - May 15, 2001
				Item 5 - Other Events
				Withdrawal from Whitecap
				Date of Report - May 19, 2001
				Item 5 - Other Events
				Labor Negotiations

Date of Report - June 29, 2001 Item 5 - Other Events Item 9 - Financial Statements and Exhibits Forward Looking Financial Information - Press Release

The Peoples Gas Light and Coke Company :

	a. Exhibits

		Exhibit
		Number	Description of Document

		10(a)	Amendment to Transportation Rate Schedule DSS Agreement between Peoples Gas and Natural Gas Pipeline Company of America dated February 22, 2002

		99(a)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

		99(b)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	b. Reports on Form 8-K filed during the quarter ended December 31, 2002

			None

The Peoples Gas Light and Coke Company:
	a. Exhibits
		Exhibit
		Number	Description of Document
			None
	b. Reports on Form 8-K filed during the quarter ended June 30, 2001
		Date of Report - May 19, 2001
		Item 5 - Other Events
		Labor Negotiations
North Shore Gas Company:
	a. Exhibits
		Exhibit
		Number	Description of Document
			None
		10(b)	Amendment to Transportation Rate Schedule DSS Agreement between North Shore Gas and Natural Gas Pipeline Company of America dated February 22, 2002
	b. Reports on Form 8-K filed during the quarter ended June 30, 2001
		99(a)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		99(b)	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	b. Reports on Form 8-K filed during the quarter ended December 31, 2002
		None.

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
		Peoples Energy Corporation
		(Registrant)
August 10, 2001		By: /s/ J. M. LUEBBERS
February 11, 2003		By: /s/ THOMAS A. NARDI
(Date)		J.Thomas MA. ~~Luebbers~~Nardi
		Vice President, Chief Financial Officer and Controller
		Senior Vice President, Chief Financial Officer and Treasurer
		(Same as above)
		Principal Accounting Officer
		Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
		The Peoples Gas Light and Coke Company
		(Registrant)
August 10, 2001		By: /s/ J. M. LUEBBERS
February 11, 2003		By: /s/ THOMAS A. NARDI
(Date)		JThomas. MA. ~~Luebbers~~Nardi
		Vice President, Chief Financial Officer and Controller
		Senior Vice President, Chief Financial Officer and Treasurer
		(Same as above)
		Principal Accounting Officer
		Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
		North Shore Gas Company
		(Registrant)
August 10, 2001		By: /s/ J. M. LUEBBERS
February 11, 2003		By: /s/ THOMAS A. NARDI
(Date)		JThomas. MA. ~~Luebbers~~Nardi
		Vice President, Chief Financial Officer and Controller
		Senior Vice President, Chief Financial Officer and Treasurer
		(Same as above)
		Principal Accounting Officer
		Principal Financial Officer

CERTIFICATIONS

I, Thomas M. Patrick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Peoples Energy Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 11, 2003

/s/ Thomas M. Patrick

Thomas M. Patrick
Chairman of the Board, President
and Chief Executive Officer

I, Thomas A. Nardi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Peoples Energy Corporation;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

Date: February 11, 2003

/s/ Thomas A. Nardi

Thomas A. Nardi
Senior Vice President,
Chief Financial Officer and Treasurer

I, Thomas M. Patrick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Peoples Gas Light and Coke Company;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

Date: February 11, 2003

/s/ Thomas M. Patrick

Thomas M. Patrick
Chairman of the Board
and Chief Executive Officer

I, Thomas A. Nardi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Peoples Gas Light and Coke Company;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

Date: February 11, 2003

/s/ Thomas A. Nardi

Thomas A. Nardi
Senior Vice President,
Chief Financial Officer and Treasurer

I, Thomas M. Patrick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of North Shore Gas Company;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

Date: February 11, 2003

/s/ Thomas M. Patrick

Thomas M. Patrick
Chairman of the Board
and Chief Executive Officer

I, Thomas A. Nardi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of North Shore Gas Company;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

Date: February 11, 2003

/s/ Thomas A. Nardi

Thomas A. Nardi
Senior Vice President,
Chief Financial Officer and Treasurer

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