FORM 10-Q

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 March 31, 1997

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

Commission File Number 1-5540

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
34,981,897 shares of Common Stock, without par value, outstanding
at April 30, 1997.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Peoples Energy Corporation
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

Three Six Twelve
Months Ended Months Ended Months Ended
March 31, March 31, March 31,
------------------ ------------------ ----------------------
1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- ---------- ----------
(Thousands, except per-share amounts)

OPERATING REVENUES:
Gas sales $508,824 $452,290 $852,124 $727,463 $1,181,431 $ 978,307
Transportation 54,463 43,135 93,392 82,406 139,862 127,155
Other 4,698 3,131 9,617 6,293 16,335 12,592
-------- -------- -------- -------- ---------- ----------
Total Operating Revenues 567,985 498,556 955,133 816,162 1,337,628 1,118,054
-------- -------- -------- -------- ---------- ----------
OPERATING EXPENSES:
Gas costs 320,068 244,033 508,662 373,904 664,633 474,219
Operation 49,567 62,462 103,726 116,592 207,433 217,287
Maintenance 9,937 11,108 21,463 21,162 45,942 43,030
Depreciation and amortization 18,392 17,876 36,844 34,532 72,946 67,585
Taxes - Income 36,589 37,120 59,933 58,632 57,921 47,340
- State & local revenue 56,590 51,880 95,884 85,644 131,412 118,074
- Other 5,362 5,806 10,389 10,879 21,511 21,833
-------- -------- -------- -------- ---------- ----------
Total Operating Expenses 496,505 430,285 836,901 701,345 1,201,798 989,368
-------- -------- -------- -------- ---------- ----------
OPERATING INCOME 71,480 68,271 118,232 114,817 135,830 128,686
-------- -------- -------- -------- ----------
OTHER INCOME
AND (DEDUCTIONS):
Interest income 2,091 508 2,579 3,162 4,813 10,078
Allowance for funds used
during construction 35 -- 62 -- 85 --
Interest on long-term debt
of subsidiaries (8,935) (9,004) (17,862) (19,955) (35,733) (43,164)
Other interest expense (859) (1,663) (1,773) (3,662) (3,226) (7,748)
Income taxes (785) (2,660) (867) (1,735) (4,970) (4,336)
Miscellaneous - net 231 6,563 378 5,504 9,257 5,823
-------- -------- -------- -------- ---------- ----------
Total Other Income
and Deductions (8,222) (6,256) (17,483) (16,686) (29,774) (39,347)
-------- -------- -------- -------- ---------- ----------
NET INCOME $ 63,258 $ 62,015 $100,749 $ 98,131 $ 106,056 $ 89,339
======== ======== ======== ======== ========== ==========
Average Shares of Common Stock
Outstanding 34,981 34,939 34,976 34,933 34,964 34,922

Earnings Per Share of Common Stock $ 1.81 $ 1.77 $ 2.88 $ 2.81 $ 3.03 $ 2.56
======== ======== ======== ======== ========== ==========
Dividends Declared Per Share $ .47 $ .46 $ .93 $ .91 $ 1.85 $ 1.81
======== ======== ======== ======== ========== ==========
<FN>
The Notes to Consolidated Financial Statements are an integral part of these
statements.

Peoples Energy Corporation

CONSOLIDATED BALANCE SHEETS

March 31, March 31,
1997 September 30, 1996
(Unaudited) 1996 (Unaudited)
---------- ---------- ----------
(Thousands of Dollars)

PROPERTIES AND OTHER ASSETS

CAPITAL INVESTMENTS:
Property, plant and equipment,
at original cost $2,070,420 $2,046,156 $2,011,391
Less - Accumulated depreciation 691,931 665,077 644,919
---------- ---------- ----------
Net property, plant and equipment 1,378,489 1,381,079 1,366,472
Other investments 14,091 12,348 10,230
---------- ---------- ----------
TOTAL CAPITAL INVESTMENTS - NET 1,392,580 1,393,427 1,376,702
---------- ---------- ----------
CURRENT ASSETS:
Cash 16,790 4,684 6,871
Cash equivalents 33,080 33,086 73,752
Receivables -
Customers, net of allowance for
uncollectible accounts of $33,348,
$26,211, and $23,390, respectively 232,099 68,675 190,264
Other 31,081 32,399 54,631
Accrued unbilled revenues 61,847 29,314 67,236
Materials and supplies, at average cost 16,722 16,128 16,800
Gas in storage, at last-in, first-out cost 29,887 65,502 40,064
Gas costs recoverable through rate adjustments -- 19,920 51,078
Prepayments 28,784 12,287 3,457
Other 15,900 900 900
---------- ---------- ----------
TOTAL CURRENT ASSETS 466,190 282,895 505,053
---------- ---------- ----------
OTHER ASSETS:
Regulatory assets of subsidiaries 71,680 91,498 60,993
Deferred charges 20,030 15,930 14,807
---------- ---------- ----------
TOTAL OTHER ASSETS 91,710 107,428 75,800
---------- ---------- ----------
TOTAL PROPERTIES AND OTHER ASSETS $1,950,480 $1,783,750 $1,957,555
========== ========== ==========

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

Peoples Energy Corporation

CONSOLIDATED BALANCE SHEETS

March 31, March 31,
1997 September 30, 1996
(Unaudited) 1996 (Unaudited)
---------- ---------- ----------
(Thousands of Dollars)

CAPITALIZATION AND LIABILITIES

CAPITALIZATION:

Common Stockholders' Equity:
Common stock, without par value
Authorized - 60,000,000 shares
Outstanding - 34,981,897, 34,960,399,
and 34,940,815 shares, respectively $ 278,335 $ 277,881 $ 277,648
Retained earnings 471,521 403,304 430,918
---------- ---------- ----------
Total Common Stockholders' Equity 749,856 681,185 708,566
Long-term debt of subsidiaries,
exclusive of sinking fund payments
and maturities due within one year 527,039 527,064 527,104
---------- ---------- ----------
TOTAL CAPITALIZATION 1,276,895 1,208,249 1,235,670
---------- ---------- ----------
CURRENT LIABILITIES:

Interim loans of subsidiaries 700 2,625 8,700
Accounts payable 144,080 147,972 197,335
Dividends payable on common stock 16,441 16,082 16,073
Customer gas service and credit deposits 17,837 42,390 19,390
Accrued taxes 97,439 32,821 95,166
Gas sales revenue refundable through
rate adjustments 11,817 13,921 22,559
Accrued interest 10,599 10,796 10,679
Temporary LIFO liquidation credit 56,603 -- 66,704
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 355,516 266,607 436,606
---------- ---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:

Deferred income taxes - primarily
accelerated depreciation 238,973 230,948 212,023
Investment tax credits being amortized
over the average lives of related property 34,648 35,439 36,249
Other 44,448 42,507 37,007
---------- ---------- ----------
TOTAL DEFERRED CREDITS AND
OTHER LIABILITIES 318,069 308,894 285,279
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $1,950,480 $1,783,750 $1,957,555
========== ========== ==========

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

Peoples Energy Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Six Months Ended
March 31,
1997 1996
-------- --------
(Thousands of Dollars)

OPERATING ACTIVITIES:
Net Income $100,749 $ 98,131
Adjustments to reconcile net income to net cash:
Depreciation and amortization 36,844 34,532
Deferred income taxes and investment tax credits - net 4,664 (150)
Change in deferred credits and other liabilities 4,511 10,528
Change in other assets 12,911 (21,723)
Other -- 32
Change in current assets and liabilities:
Receivables - net (162,106) (186,283)
Accrued unbilled revenues (32,533) (46,069)
Materials and supplies (594) (334)
Gas in storage 35,615 60,483
Gas costs recoverable 19,920 (44,873)
Accounts payable (3,892) 94,958
Customer gas service and credit deposits (24,553) (21,187)
Accrued taxes 64,618 67,006
Gas sales revenue refundable (2,104) (56,943)
Accrued interest (197) (2,117)
Temporary LIFO liquidation credit 56,603 66,704
Prepayments (16,497) (1,155)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 93,959 51,540
-------- --------
INVESTING ACTIVITIES:
Capital expenditures of subsidiaries - construction (31,207) (38,312)
Other assets 528 12,481
Other capital investments (2,511) 106
Other temporary cash investments (15,000) 200
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (48,190) (25,525)
-------- --------
FINANCING ACTIVITIES:
Interim loans of subsidiaries - net (1,925) 7,800
Trust fund - bond redemption -- 237
Retirement of long-term debt of subsidiaries (25) (98,770)
Dividends paid on common stock (32,173) (31,433)
Proceeds from issuance of common stock 454 535
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (33,669) (121,631)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,100 (95,616)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 37,770 176,239
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 49,870 $ 80,623
======== ========

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

Peoples Energy Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

The accompanying consolidated financial statements include the
accounts of Peoples Energy Corporation (Company) and its wholly
owned subsidiaries, The Peoples Gas Light and Coke Company
(Peoples Gas), North Shore Gas Company (North Shore Gas), Peoples
District Energy Corporation (Peoples District Energy), Peoples
Energy Services Corporation, Peoples Energy Resources Corp., and
Peoples NGV Corp., and comprise the assets, liabilities, revenues,
expenses, and underlying common stockholder's equity of these
companies. Income is principally derived from the Company's
utility subsidiaries, Peoples Gas and North Shore Gas. The
statements have been prepared by the Company in conformity with
the rules and regulations of the Securities and Exchange
Commission (SEC) and reflect all adjustments that are, in the
opinion of management, necessary to present fairly the results for
the interim periods herein and to prevent the information from
being misleading.

Certain footnote disclosures and other information, normally
included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or
omitted from these interim financial statements, pursuant to SEC
rules and regulations. Therefore, the statements should be read
in conjunction with the consolidated financial statements and
related notes contained in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1996. Certain items
previously reported for the prior periods have been reclassified
to conform with the presentation in the current periods.

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

2. SIGNIFICANT ACCOUNTING POLICIES

2A Use of Estimates

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.

2B Revenue Recognition

Gas sales revenues are recorded on the accrual basis for all gas
delivered during the month, including an estimate for gas
delivered but unbilled at the end of each month.

2C Regulated Operations

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

2D Income Taxes

The Company follows the liability method of accounting for
deferred income taxes. Under the liability method, deferred
income taxes have been recorded using currently enacted tax rates
for the differences between the tax basis of assets and
liabilities and the basis reported in the financial statements.
Due to the effects of regulation on Peoples Gas and North Shore
Gas, certain adjustments made to deferred income taxes are, in
turn, debited or credited to regulatory assets or liabilities.

2E Statement of Cash Flows

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

Income taxes and interest paid (excluding capitalized
interest) were as follows:

For the six months
ended March 31, 1997 1996
-----------------------------------------------
(Thousands)

Income taxes paid $28,903 $26,717
Interest paid 19,195 23,218

2F Recovery of Gas Costs, Including Charges for Transition Costs

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

The Commission conducts annual proceedings regarding, for each
gas utility, the reconciliation of revenues from the Gas Charge
and related costs incurred for gas. In such proceedings, costs
recovered by a utility through the Gas Charge are subject to
challenge. Such proceedings regarding Peoples Gas and North Shore
Gas for fiscal years 1995 and 1996 are currently pending before
the Commission.

Pursuant to Federal Energy Regulatory Commission (FERC) Order
636 and successor orders, pipelines are allowed to recover from
their customers so-called transition costs. These costs arise
from the restructuring of pipeline service obligations required by
the 636 Orders. The utilities are currently recovering pipeline
charges for transition costs through the Gas Charge. (See Notes
3A and 3B.)

3. RATES AND REGULATION

3A Utility Rate Proceedings

Peoples Gas' Rate Order. On November 8, 1995, the Commission
issued an order approving changes in rates of Peoples Gas that were
designed to increase annual revenues by approximately $30.8
million, exclusive of additional charges for revenue taxes.
Peoples Gas was allowed a rate of return on original-cost rate base
of 9.19 per cent, which reflected an 11.10 per cent cost of common
equity. The new rates were implemented on November 14, 1995. A
group of industrial transportation customers have appealed the
Commission's order to the Illinois Appellate Court. Any change
made by the Appellate Court would have a prospective effect only.

North Shore Gas' Rate Order. On November 8, 1995, the Commission
issued an order approving changes in rates of North Shore Gas that
were designed to increase annual revenues by approximately $5.6
million, exclusive of additional charges for revenue taxes. North
Shore Gas was allowed a rate of return on original-cost rate base
of 9.75 per cent, which reflected an 11.30 per cent cost of common
equity. The new rates were implemented on November 14, 1995. A
group of industrial transportation customers has appealed the
Commission's order to the Illinois Appellate Court. Any change
made by the Appellate Court would have a prospective effect only.

FERC Order 636 Cost Recovery. In 1994, the Commission issued
orders providing for the full recovery of pipeline charges for FERC
Order 636 transition costs from gas service customers of Peoples
Gas and North Shore Gas. The Commission directed that gas supply
realignment (GSR) costs (one of the four categories of transition
costs) be recovered on a uniform volumetric basis from all
transportation and sales customers. A group of industrial
transportation customers has filed a petition with the Illinois
Supreme Court appealing the Commission's orders. If the Illinois
Supreme Court accepts the appeal, any changes made by it to the
Commission's orders would have a prospective effect only. (See
Notes 2F and 3B.)

3B FERC Orders 636, 636-A, and 636-B

FERC Order 636 and successor orders require pipelines to make
separate rate filings to recover transition costs. The utilities
are subject to charges for transition cost recovery by Natural Gas
Pipeline Company of America (Natural). Under a Stipulation and
Agreement filed by Natural and approved by FERC, Natural's charges
to the utilities for GSR transition costs (the largest category of
such costs for Peoples Gas and North Shore Gas) are subject to a
cap of approximately $103 million for Peoples Gas and $25 million
for North Shore Gas. Peoples Gas and North Shore Gas are currently
recovering transition costs through the Gas Charge. At March 31,
1997, Peoples Gas and North Shore Gas have made payments of $83.2
million and $20.4 million, and have accrued an additional $19.8
million and $4.6 million, respectively, toward the caps.

The 636 Orders are not expected to have a material effect on
financial position or results of operations of the Company or its
subsidiaries. (See Notes 2F and 3A.)

4. ENVIRONMENTAL MATTERS

4A 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. Three of the Manufactured Gas Sites are discussed in
more detail below. Peoples Gas and North Shore Gas, under the
supervision of the Illinois Environmental Protection Agency (IEPA),
are conducting investigations of an additional 29 Manufactured Gas
Sites. These investigations may require the utility subsidiaries
to perform additional investigation and remediation. The
investigations are in a preliminary stage and are expected to occur
over an extended period of time.

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 Gas Site
located in Waukegan, Illinois, where manufactured gas and coking
operations were formerly conducted (Waukegan Site). The RI/FS is
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 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/or 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 agreed to share 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.

Peoples Gas has observed what appear to be gas purification
wastes on a Manufactured Gas Site in Chicago, formerly called the
110th Street Station, and property contiguous thereto (110th Street
Station Site). Peoples Gas has fenced the 110th Street Station
Site and is conducting a study under the supervision of the IEPA to
determine the feasibility of a limited removal action.

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 and an order
directing Peoples Gas to remediate 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 Gas Sites,
including related legal expenses, pending recovery through rates or
from insurance carriers or other entities. At March 31, 1997, the
total of the costs deferred by the subsidiaries, net of recoveries
and amounts billed to other entities, was $16.5 million. This
amount includes an estimate of the costs of completing the studies
required by the EPA at the Waukegan Site and the investigations
being conducted under the supervision of the IEPA referred to
above. The amount also includes an estimate of the costs of
remediation at the Waukegan Site and at the 110th Street Station
Site in
Chicago, at the minimum amount of the current estimated range of
such costs. The costs of remediation at the other sites cannot be
determined at this time. While each subsidiary intends to seek
contributions 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 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 Gas Sites in Chicago and Waukegan. The utilities are
also asking the court to award damages stemming from the insurers'
breach of their contractual obligation to defend and indemnify the
utilities against these costs. At this time, management cannot
determine the timing and extent of the subsidiaries' recovery of
costs from their insurance carriers. Accordingly, the costs
deferred at March 31, 1997, have not been reduced to reflect
recoveries from insurance carriers.

Costs incurred by Peoples Gas or North Shore Gas for
environmental activities relating to former manufactured gas
operations will be recovered 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 financial position or results of
operations of the subsidiaries. Peoples Gas and North Shore Gas
are recovering the costs of environmental activities relating to
the utilities' former manufactured gas operations, including
carrying charges on the unrecovered balances, under rate mechanisms
approved by the Commission. At March 31, 1997, the subsidiaries
had recovered $11.5 million of such costs through rates.

4B 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. Shattuck is a wholly owned subsidiary of
Salomon, Inc. (Salomon). The demand alleged that North Shore Gas
was a successor-in-interest to certain companies that were
allegedly responsible during the period 1934-1941 for the disposal
of mineral processing wastes containing radium and other hazardous
substances at the site. The cost of the remedy at the site has
been estimated by Shattuck to be approximately $31 million.
Salomon has provided financial assurance for the performance of the
remediation at 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 incurred or to be incurred at the
Denver site. On May 5, 1997, the District Court denied Salomon's
request to alter or amend its ruling. Salomon filed a counterclaim
for costs to be incurred by Salomon and Shattuck with respect to
the site. On March 7, 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. On May 5, 1997, the District Court denied Salomon's request
to alter or amend its ruling. Salomon may appeal the ruling of the
district court to the United States Court of Appeals, Seventh
Circuit.

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.

4C Gasoline Release in Wheeling, Illinois

In June 1995, North Shore Gas received a letter from the IEPA
informing North Shore Gas that it was not in compliance with
certain provisions of the Illinois Environmental Protection Act
which prohibit water pollution within the State of Illinois. On
November 14, 1995, the Illinois Attorney General filed a complaint
in the Circuit Court of Cook County naming North Shore Gas and four
other parties as defendants. The complaint alleges that the
violations are the result of a gasoline release that occurred in
Wheeling, Illinois in June 1992 when a contractor who was
installing a pipeline for North Shore Gas accidentally struck a
gasoline pipeline owned by West Shore Pipeline Company. North
Shore Gas is contesting this suit. Management does not believe the
outcome of this suit will have a material adverse effect on
financial position or results of operations of the Company or North
Shore Gas.

5. COVENANTS REGARDING RETAINED EARNINGS

North Shore Gas' indenture relating to its first mortgage bonds
contains provisions and covenants restricting the payment of cash
dividends and the purchase or redemption of capital stock. At
March 31, 1997, such restrictions amounted to $11.6 million out of
North Shore Gas' total retained earnings of $75.6 million.

6. EXPIRATION OF GAS STORAGE CONTRACTS

Peoples Gas and North Shore Gas had certain natural gas storage
contracts with Natural that expired on or before December 1, 1995.
Associated with the expiration of the contracts, the utilities
realized a gain, after income taxes, of approximately $5.1 million
for the 12-months ended March 31, 1997.

7. TAX MATTERS

On September 30, 1993, the Company received notification from
the Internal Revenue Service (IRS) that settlement of past income
tax returns had been reached for fiscal years 1978 through 1990.
The IRS settlement resulted in payments of principal and interest
to the Company in 1994 in total amount of approximately $28
million, or $21.6 million after income taxes. Both Peoples Gas and
North Shore Gas received regulatory authorization to defer the
recognition of the settlement amount in income for fiscal year
1993, and to recognize their respective portions of the settlement
amount in income for fiscal years 1994 and 1995. Each utility
represented to the Commission that, having received this accounting
authorization, it would not file a request for an increase in base
rates before December 1994.

As a result of the Commission's accounting authorization,
Peoples Gas and North Shore Gas amortized to operation expense
approximately $3.6 million, or $2.7 million after income taxes, for
the 12-months ended March 31, 1996. The effect was to offset
increases in costs that the utilities incurred during the period.

8. LONG-TERM DEBT

8A Interest-Rate Adjustments

The rate of interest on the City of Joliet 1984 Series C Bonds,
which are secured by Peoples Gas' Adjustable-Rate First Mortgage
Bonds, Series W, is subject to adjustment annually on October 1.
Owners of the Series C Bonds have the right to tender such bonds at
par during a limited period prior to that date. Peoples Gas is
obligated to purchase any such bonds tendered if they cannot be
remarketed. All Series C Bonds that were tendered prior to October
1, 1996, have been remarketed. The interest rate on such bonds is
3.95 per cent for the period October 1, 1996, through September 30,
1997.

The rate of interest on the City of Chicago 1993 Series B Bonds,
which are secured by Peoples Gas' Adjustable-Rate First Mortgage
Bonds, Series EE, is subject to adjustment annually on December 1.
Owners of the Series B Bonds have the right to tender such bonds at
par during a limited period prior to that date. Peoples Gas is
obligated to purchase any such bonds tendered if they cannot be
remarketed. All Series B Bonds that were tendered prior to
December 1, 1996, have been remarketed. The interest rate on such
bonds is 3.70 per cent for the period December 1, 1996, through
November 30, 1997.

Peoples Gas classifies these adjustable-rate bonds as long-term
liabilities, since it would refinance them on a long-term basis if
they could not be remarketed. In order to ensure its ability to do
so, on February 1, 1994, Peoples Gas established a $37.4 million
three year line of credit with The Northern Trust Company, which
has since been extended to January 31, 1999.

8B Bonds Redeemed

On December 29, 1995, Peoples Gas redeemed, from general
corporate funds, approximately $87 million aggregate principal
amount of the City of Joliet's 1984 Gas Supply Revenue Bonds,
Series A and B, which were secured by Peoples Gas' Series U and V
First and Refunding Mortgage Bonds.

On February 1, 1996, North Shore Gas redeemed $8 million
aggregate principal amount of its Series I First Mortgage Bonds
using the proceeds of a short-term bank loan as well as other
monies of North Shore Gas. The final payment on the short-term
bank loan was made by North Shore Gas on August 1, 1996.

9. PENSION EXPENSE

Pension expense for the Company decreased $9.9 million, $11.2
million, and $20.5 million for the three-, six-, and 12-month
periods, respectively. The decrease in pension expense was caused
by the Company's adoption of settlement accounting, an increase in
the number of employees choosing early retirement and changes in
actuarial assumptions.

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

RESULTS OF OPERATIONS

Net Income

Net income increased $1.2 million, to $63.3 million, for the
three-months ended March 31, 1997, from the results of last year's
like quarter, due mainly to decreased pension expense caused by the
Company's adoption of settlement accounting, an increase in the
number of employees choosing early retirement and changes in
actuarial assumptions. (See Note 9 of the Notes to Consolidated
Financial Statements.) In addition, net income benefited from a
tax accrual adjustment, reduced other operation and maintenance
expenses, and an increase in interest income. These positive
impacts were partially offset by reduced gas deliveries,
attributable to warmer weather and conservation, and last year's
gain associated with the expiration of gas storage contracts. (See
Note 6 of the Notes to Consolidated Financial Statements.)

Net income increased $2.6 million, to $100.7 million for the
current six-months ended March 31, 1997, from the results of last
year's like period, due mainly to the aforementioned decreased
pension expense and tax accrual adjustment. In addition, the
Company benefited from a full six-month effect of the utilities'
rate increases (see Note 3A of the Notes to Consolidated Financial
Statements), increased miscellaneous operating revenues, and a
reduction in interest expense. However, these positive effects
were partially offset by the same negative factors that impacted
the current second quarter as well as by lower interest income due
to lower cash balances.

Net income increased $16.7 million, to $106.1 million, for the
current 12-month period, from the results of the similar prior
period, due primarily to the aforementioned decreased pension
expense, the full 12-month benefit of the utilities' rate increases
(see Note 3A of the Notes to Consolidated Financial Statements), a
reduction in interest expense and a gain associated with the
expiration of certain gas storage contracts. These beneficial
developments were partially offset by reduced gas deliveries and
lower interest income.

A summary of variations affecting income between periods is
presented below, with explanations of significant differences
following:

Three Months Ended Six Months Ended 12-Months Ended
March 31, 1997 March 31,1997 March 31, 1997
Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
from Prior Period from Prior Period from Prior Period
------------------- ------------------- -------------------
(Thousands of dollars) Amount % Amount % Amount %
- ---------------------------------------------------------------------------------------

Net operating revenues (a) $(11,316) (5.6) $(6,027) (1.7) $15,822 3.0
Operation and
maintenance expenses (14,066) (19.1) (12,565) (9.1) (6,942) (2.7)
Depreciation and
amortization expense 516 2.9 2,312 6.7 5,361 7.9
Income taxes (531) (1.4) 1,301 2.2 10,581 22.4
Other income and deductions 1,966 31.4 797 4.8 (9,573) (24.3)
Net Income 1,243 2.0 2,618 2.7 16,717 18.7

<FN>
(a) Operating revenues, net of gas costs and revenue taxes.

Net Operating Revenues

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

Since income is not significantly affected by changes in revenue
from customers' gas purchases from producers or marketers rather
than from the subsidiaries, changes in gas costs, or changes in
revenue taxes, the discussion below pertains to "net operating
revenues" (operating revenues, net of gas costs and revenue taxes).
The Company considers net operating revenues to be a more pertinent
measure of operating results than gross revenues.

Net operating revenues decreased $11.3 million, to $191.3
million, and $6.0 million, to $350.6 million, for the current
three- and six-month periods, respectively, reflecting lower gas
deliveries due to warmer weather and conservation. The current
six-month period also benefited from a full six month's effect of
the utilities' rate increases.

Net operating revenues increased $15.8 million, to $541.6
million, for the current 12-month period, due to the full effect of
the utilities rate increases. However, this was partially offset
by decreased gas deliveries due to conservation and warmer weather.

See Other Matters - Operating Statistics for details of selected
financial and operating information by gas service classification.

Operation and Maintenance Expenses

Operation and maintenance expenses decreased $14.1 million, to
$59.5 million, and $12.6 million, to $125.2 million, for the
current three- and six-month periods due mainly to a $9.9 million
and an $11.2 million decrease in pension expense caused by the
Company's adoption of settlement accounting, an increase in the
number of employees choosing early retirement and by changes in
actuarial assumptions in the three- and six-month periods,
respectively. (See Note 9 of the Notes to Consolidated Financial
Statements.) In addition, labor costs decreased $1.1 million,
during the three-month period. The positive developments in the
current six-month period were partially offset by an increase of
$2.1 million in the provision for uncollectible accounts due to
increased gas sales revenues.

Operation and maintenance expenses decreased $6.9 million, to
$253.4 million for the current 12-month period due primarily to a
$20.5 million reduction in pension expense caused by the Company's
adoption of settlement accounting, an increase in the number of
employees choosing early retirement and changes in pension
assumptions. (See Note 9 of the Notes to Consolidated Financial
Statements.) This decrease in costs was partially offset by an
increase in the provision for uncollectible accounts of $4.7
million, due to increased gas sales revenues; the prior period's
recognition of an IRS settlement (see Note 7 of the Notes to
Consolidated Financial Statements) which accounted for a $3.6
million reduction of expense; and an increase in other non-labor
operation and maintenance expenses.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $516,000, to
$18.4 million, for the current three-month period, due primarily to
net property additions.

Depreciation and amortization expense increased $2.3 million, to
$36.8 million, and $5.4 million to $72.9 million, for the current
six- and 12-month periods, due primarily to depreciable property
additions and the amortization of costs associated with the closing
of the SNG Plant. (See Note 7 of the Notes to Consolidated
Financial Statements.)

Income Taxes

Income taxes, exclusive of income taxes included in other income
and deductions, decreased $531,000, to $36.6 million for the
three-month period due to an adjustment to reduce taxes accrued.
This decrease was partially offset by increased income taxes due to
higher pre-tax income.

Income taxes, exclusive of income taxes included in other income
and deductions, increased $1.3 million, to $59.9 million and $10.6
million to $57.9 million for the current six- and 12-month periods,
due primarily to increased pre-tax income. These increases were
partially offset by an adjustment to reduce taxes accrued.

Other Income and Deductions

Other income and deductions increased $2.0 million for the
current three-month period, due chiefly to the prior year's gain of
$3.8 million, after income taxes, associated with the expiration of
certain natural gas storage contracts. (See Note 8 of the Notes to
the Consolidated Financial Statements.) This was partially offset
by higher interest income and lower interest expense.

Other income and deductions increased $797,000 for the current
six-month period, due primarily to the prior year's gain of $3.8
million, after income taxes, associated with the expiration of
certain natural gas storage contracts (see Note 8 of the Notes to
the Consolidated Financial Statements) and to lower interest income
due to lower cash balances. The effects were partially offset by
lower interest expense.

Other income and deductions decreased $9.6 million for the
current 12-month period, due primarily to decreased interest
expense, due to reductions in long-term debt and amounts refundable
to customers, and to a gain associated with the expiration of
certain natural gas storage contracts. These positive impacts were
partially offset by lower interest income due to lower cash
balances.

Other Matters

Effect of Weather. Weather variations affect the volumes of gas
delivered for heating purposes and, therefore, can have a
significant positive or negative impact on net income, cash
position, and coverage ratios.

Accounting Standards. In March 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of ". This statement requires recognition of impairment
losses on long-lived assets when an asset's book value may not be
recoverable. For regulated companies, the statement requires that
regulatory assets be probable of recovery at every balance sheet
date. This statement requires adoption no later than the Company's
1997 fiscal year. The Company does not expect the adoption of SFAS
No. 121 to have a material effect on its financial position or
results of operations.

In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". This statement requires companies to
either recognize compensation costs measured at fair value
attributable to employee stock options or similar equity
instruments at the grant date in net income, or, in the
alternative, provide pro forma footnote disclosure on net income
and earnings per share. This statement requires adoption no later
than the Company's 1997 fiscal year. The Company anticipates
electing the pro forma footnote disclosure provisions of this
statement in 1997.

FERC Order 636 Costs. In 1992, the FERC issued Order 636 and
successor orders that required substantial restructuring of the
service obligations of interstate pipelines. (See Notes 2F, 3A,
and 3B of the Notes to Consolidated Financial Statements.)

In 1994, the Commission entered orders providing for full
recovery by Peoples Gas and North Shore Gas of FERC Order 636
transition costs from the Companies' respective gas service
customers. The Commission's orders have been appealed to the
Illinois Supreme Court. (See Notes 2F, 3A, and 3B of the Notes to
Consolidated Financial Statements.)

Large Volume Gas Service Agreements. Peoples Gas has entered into
gas service contracts with certain large volume customers under a
specific rate schedule approved by the Commission. These contracts
were negotiated to overcome the potential threat of bypassing the
utility's distribution system. The impact on the net income of
Peoples Gas as a result of these contracts is not material.

Operating Statistics. The following table represents gas
distribution margin components:

Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
------------------ ---------------- --------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----

Operating Revenues (thousands):
Gas sales
Residential $425,151 $370,911 $716,633 $604,687 $ 995,046 $ 819,639
Commercial 68,720 66,121 112,294 100,102 153,786 129,884
Industrial 14,953 15,258 23,197 22,674 32,599 28,784
-------- -------- -------- -------- ---------- ----------
508,824 452,290 852,124 727,463 1,181,431 978,307

Transportation
Residential 13,967 12,387 25,421 24,732 37,823 37,521
Commercial 18,123 18,901 33,365 35,577 49,038 52,623
Industrial 9,610 11,847 18,997 22,097 32,958 37,011
Contract Pooling 12,757 -- 15,203 -- 19,637 --
Other 6 -- 406 -- 406 --
-------- -------- -------- -------- ---------- ----------
54,463 43,135 93,392 82,406 139,862 127,155
-------- -------- -------- -------- ---------- ----------
Other Revenues 4,698 3,131 9,617 6,293 16,335 12,592
-------- -------- -------- -------- ---------- ----------
Total Operating Revenues 568,985 498,556 955,133 816,162 1,337,628 1,118,054
Less - Gas Costs 320,068 244,033 508,662 373,904 664,633 474,219
- Revenues Taxes 56,590 51,880 95,884 85,644 131,412 118,074
-------- -------- -------- -------- ---------- ----------
Net Operating Revenues $191,327 $202,643 $350,587 $356,614 $ 541,583 $ 525,761
======== ======== ======== ======== ========== ==========
Deliveries (MDth):
Gas Sales
Residential 64,427 71,389 111,093 119,182 146,038 152,430
Commercial 10,979 13,649 18,564 21,066 24,888 26,794
Industrial 2,584 3,288 4,152 5,113 5,842 6,512
-------- -------- -------- -------- ---------- ----------
77,990 88,326 133,809 145,361 176,768 185,736
-------- -------- -------- -------- ---------- ----------
Transportation (a)
Residential 11,701 9,952 10,105 18,814 17,814 25,775
Commercial 16,079 16,685 28,876 30,457 40,880 43,425
Industrial 11,497 13,769 22,985 25,913 40,438 43,518
Other 224 -- 234 -- 234 --
--------- -------- -------- -------- ---------- ----------
39,501 40,406 62,200 75,184 99,366 112,718
--------- -------- -------- -------- ---------- ----------
Total Gas Sales
and Transportation 117,491 128,732 196,009 220,545 276,134 298,454
========= ======== ======== ======== ========== ==========
Margin per Dth
delivered $1.63 $1.57 $1.79 $1.62 $1.96 $1.76

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

LIQUIDITY AND CAPITAL RESOURCES

Indenture Restrictions. North Shore Gas' indenture relating to its
first mortgage bonds contains provisions and covenants restricting
the payment of cash dividends and the purchase or redemption of
capital stock. At March 31, 1997, such restrictions amounted to
$11.6 million out of North Shore Gas' total retained earnings of
$75.6 million. (See Note 5 of the Notes to Consolidated Financial
Statements.)

Rate Order. On November 8, 1995, the Commission issued orders
approving changes in rates of Peoples Gas and North Shore Gas.
(See Note 3A of the Notes to Consolidated Financial Statements.)

Environmental Matters. The Company's utility subsidiaries are
conducting environmental investigations and work at certain sites
that were the location of former manufactured gas operations. (See
Note 4A 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 costs incurred at a former mineral
processing site in Denver, Colorado. North Shore Gas filed a
declaratory judgment action asking the court to declare that North
Shore Gas is not liable for response costs relating to the site.
Salomon filed a counterclaim for costs to be incurred by Salomon
and Shattuck with respect to the site. On March 7, 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. On May 5, 1997,
the District Court denied Salomon's request to alter or amend its
ruling. Salomon may appeal the ruling of the district court to the
United States Court of Appeals, Seventh Circuit. (See Note 4B of
the Notes to Consolidated Financial Statements.)

On November 14, 1995, the Illinois Attorney General filed a
complaint in the Circuit Court of Cook County naming North Shore
Gas and four other parties as defendants. The complaint alleges
violations arising out of a gasoline release that occurred in
Wheeling, Illinois in June 1992 when a contractor who was
installing a pipeline for North Shore Gas accidentally struck a
gasoline pipeline owned by West Shore Pipeline Company. North
Shore Gas is currently contesting this suit. (See Note 4C of the
Notes to Consolidated Financial Statements.)

District Energy. Peoples District Energy is a 50 per cent
participant in a partnership, Trigen-Peoples District Energy
Company, that provides district energy services to the McCormick
Place Exposition and Convention Center, as well as to the adjacent
Hyatt Regency McCormick Place Hotel, in Chicago, Illinois. Neither
the partnership nor its partners are regulated as a public utility.
The Company and Trigen Energy Corporation have provided a joint and
several limited guarantee to the owner and operator of McCormick
Place and also have certain limited obligations to the
partnership's lender under a Sponsors Support and Equity
Contribution Agreement.

Bonds Redeemed. On December 29, 1995, Peoples Gas redeemed, from
general corporate funds, approximately $87 million aggregate
principal amount of the City of Joliet's 1984 Gas Supply Revenue
Bonds, Series A and B, which were secured by Peoples Gas' Series U
and V First and Refunding Mortgage Bonds. (See Note 8B of the
Notes to Consolidated Financial Statements.)

On February 1, 1996, North Shore Gas redeemed $8 million
aggregate principal amount of its Series I First Mortgage Bonds
using the proceeds of a short-term bank loan as well as other
monies of North Shore Gas. (See Note 8B of the Notes to
Consolidated Financial Statements.)

Credit Lines. The utility subsidiaries have lines of credit of
$129.4 million. At March 31, 1997, the utility subsidiaries had
unused credit available of $128.6 million.

Interest Coverage. The fixed charges coverage ratios for Peoples
Gas for the 12-months ended March 31, 1997, and for fiscal 1996 and
1995 were 5.29, 4.84, and 2.76, respectively.

The corresponding coverage ratios for North Shore Gas for the
same periods were 6.07, 5.62, and 2.93, respectively.

Dividends. On February 5, 1997, the Directors of the Company voted
to increase the regular quarterly dividend on the Company's common
stock to 47 cents per share from 46 cents per share previously in
effect. The annualized dividend rate now amounts to $1.88 per
share.

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 4. Submission of Matters to a Vote of Security Holders

a. The Company held its Annual Meeting of Shareholders on
February 28, 1997.

b. The following matters were voted upon at the Annual
Meeting of Shareholders.
There were no broker non-votes with respect to any
matters voted upon.

1. The election of nominees for directors who will
serve for a one-year term or until their respective
successors shall be duly elected. The nominees, all of
whom were elected, were as follows: Pastora San Juan
Cafferty, J. Bruce Hasch, Frederick C. Langenberg, Homer
J. Livingston, Jr., William G. Mitchell, Earl L. Neal,
Michael S. Reeves, Richard E. Terry, Richard P. Toft, and
Arthur R. Velasquez. The Inspectors of Election certified
the following vote tabulations:

FOR WITHHELD
Pastora San Juan Cafferty . . . . . . 28,680,491 352,624
J. Bruce Hasch. . . . . . . . . . . . . . . 28,716,850 352,624
Frederick C. Langenberg . . . . . . . 28,675,502 352,624
Homer J. Livingston, Jr. . . . . . . . . 28,725,021 352,624
William G. Mitchell . . . . . . . . . .. 28,716,434 352,624
Earl L. Neal . . . . . . . . . . . . . . . . .28,672,772 352,624
Michael S. Reeves . . . . . . . . . . . . 28,406,037 352,624
Richard E. Terry . . . . . . . . . . . . . 28,690,370 352,624
Richard P. Toft . . . . . . . . . . . . . . 28,729,010 352,624
Arthur R. Velasquez . . .. . . . . . . . 28,693,893 352,624

2. A proposal to ratify the recommendation of the
Audit Committee and the appointment by the Board of
Directors of Arthur Andersen LLP as the independent public
accountants for the Company and its subsidiaries for the
fiscal year ending September 30, 1997. The Inspectors of
Election certified the following vote tabulations:

FOR AGAINST ABSTAIN
28,512,605 350,302 199,955

Item 6. Exhibits and Reports on Form 8-K
---------------------------------
a. Exhibits

Exhibit
Number Description of Document
------- -------------------------

3(a) Amendment to the By-Laws of the Registrant
dated December 4, 1996. (Effective
February 28, 1997)

3(b) By-Laws of the Registrant, as amended,
dated February 28, 1997.

10 Peoples Energy Corporation Long-Term
Incentive Compensation Plan, as amended
December 4, 1996.

27 Financial Data Schedule.

b. Reports on Form 8-K filed during the quarter ended March
31, 1997

Date of Report - March 24, 1997.
Item 5. Other Events
Environmental Matters

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)

May 13, 1997 By: /s/ K. S. BALASKOVITS
------------ ----------------------------------
(Date) K. S. Balaskovits
Vice President and Controller

(Same as above)
--------------------------------
Principal Accounting Officer