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Securities registered pursuant to Section 12(b) of the Act:

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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      [x]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Peoples Energy Corporation	Yes [x]   No [ ]

The Peoples Gas Light and Coke Company	Yes [ ]   No [x]

North Shore Gas Company	Yes [ ]   No [x]

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The aggregate market value of the voting stock held by non-affiliates of the registrants as of the last business day of the registrant’s most recently completed second fiscal quarter:

Indicate the number of shares outstanding of each of the registrant’s classes of Common Stock, as of the latest practicable date (November 30, 2004):

	Peoples Energy Corporation
	Common Stock, no par value, 37,847,573 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-K 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-K with the reduced disclosure format permitted by General Instruction I(2).

Documents Incorporated by Reference

	WHERE TO FIND MORE INFORMATION
	Peoples Energy Corporation makes available through its Internet Web site, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act as soon as reasonably practicable after it electronically files such material with, or furnishes it to the Securities and Exchange Commission. The Company’s Internet Web site address is http://www.PeoplesEnergy.com.

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Throughout this document, Peoples Energy Corporation, together with its consolidated subsidiaries, may be referred to as “Peoples Energy,” “the Company,” “management,” “we,” “us” or “our.” References to Peoples Gas and to North Shore Gas refer to The Peoples Gas Light and Coke Company and North Shore Gas Company, respectively. References to the Registrants mean Peoples Energy, Peoples Gas and North Shore Gas, unless the context clearly indicates otherwise. Additional abbreviations or acronyms used in this filing are defined below:

*	denotes that oil reserves have been converted to their cubic feet equivalents at a rate of 6 Mcf per barrel

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This document 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:

	•	adverse decisions in proceedings before the Commission concerning the prudence review of the utility subsidiaries’ gas purchases;
	•	the effects of the Company’s announced strategic restructuring;
	•	the future health of the United States and Illinois economies;
	•	the timing and extent of changes in interest rates and energy commodity prices, including but not limited to the effect of gas prices on cost of gas supplies, accounts receivable and the provision for uncollectible accounts and interest expense;
	•	adverse resolution of material litigation;
	•	effectiveness of the Company’s risk management policies and the creditworthiness of customers and counterparties;
	•	regulatory developments in the United States, 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;
	•	operational factors affecting the Company’s Gas Distribution, Oil and Gas Production and Power Generation segments;
	•	Aquila, Inc. (Aquila)’s financial ability to perform under its PSAs with Elwood Energy LLC (Elwood);
	•	drilling risks and the inherent uncertainty of oil and gas reserve estimates;
	•	weather and price effects on energy demand; and
	•	terrorist activities.

	Some of these uncertainties that may affect future results are discussed in more detail in Item 1— Business and Item 7— MD&A. All forward-looking statements included in this document are based upon information presently available, and the Company, Peoples Gas and North Shore Gas assume no obligation to update any forward-looking statements.

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	GENERAL
	Peoples Energy is solely a holding company and does not engage directly in any business of its own, but does provide administrative services that support the business activities of its subsidiaries. Income is derived principally from the Company’s regulated utility subsidiaries, Peoples Gas and North Shore Gas. The Company also derives income from its other subsidiaries, Peoples Energy Resources Company, LLC (Peoples Energy Resources), Peoples Energy Services Corporation (Peoples Energy Services), Peoples Energy Production Company (Peoples Energy Production) and Peoples District Energy Corporation (Peoples District Energy). The Company and its subsidiaries had 2,370 employees at September 30, 2004 prior to restructuring. (See Item 7— MD&A— Executive Summary.)
	The Company was incorporated in 1967 under the Illinois Business Corporation Act and has its principal executive offices at 130 East Randolph Drive, Chicago, Illinois 60601-6207 (Telephone (312) 240-4000).
	The Company has six reportable business segments: Gas Distribution, Oil and Gas Production, Power Generation, Midstream Services, Retail Energy Services and Corporate and Other. (See Note 2 of the Notes to Consolidated Financial Statements for financial information about the Company’s business segments for the last three fiscal years.)
	1.    GAS DISTRIBUTION SEGMENT
	Principal Products and Markets
	The Gas Distribution segment is the Company’s core business. Its two regulated utilities (Peoples Gas and North Shore Gas) purchase, store, distribute, sell and transport natural gas to approximately one million customers through a 6,000-mile distribution system serving Chicago and 54 communities in northeastern Illinois. The customer base includes residential, commercial and industrial sales and transportation accounts that provide a broad and diversified foundation for the utilities’ business.
	For fiscal 2004 and on September 30, 2004, the Gas Distribution segment accounted for 66 percent of revenues, 82 percent of operating income and 82 percent of capital assets.
	Peoples Gas was formed in 1855 and had 1,636 employees at September 30, 2004, of which 892 are union employees, prior to restructuring. (See Item 7— MD&A— Executive Summary.) It has approximately 812,000 residential, commercial and industrial retail sales and transportation customers in Chicago.
	North Shore Gas was formed in 1900 and had 210 employees at September 30, 2004, of which 145 are union employees, prior to restructuring. (See Item 7— MD&A— Executive Summary.) It has approximately 153,000 residential, commercial and industrial retail sales and transportation customers within its service area of approximately 275 square miles, located in northeastern Illinois.
	The basic marketing plans of Peoples Gas and North Shore Gas are to maintain their existing shares in traditional market segments, which include space-heating, water heating, clothes drying and cooking. North Shore Gas’ service territory has potential for expansion through increasing population density.
	Competition
	Competition in varying degrees exists between natural gas and other fuels or forms of energy available to consumers in the Midwest and the utilities’ respective service territories, such as electricity and diesel fuel.
	Absent extraordinary circumstances, potential competitors are barred from constructing competing gas distribution systems in the utility subsidiaries’ service territories by a judicial doctrine known as the “first in the field” doctrine. In addition, the high cost of installing duplicate distribution facilities would render the construction of a competing system impractical.

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	A pipeline may seek to provide transportation service directly to end-users. Such direct service by a pipeline to an end-user would bypass the local distributor’s service and reduce the distributor’s earnings. No Peoples Gas customers have been lost to bypass service; only one end-user in North Shore Gas’ service territory is served directly by a pipeline supplier. Both utility subsidiaries have a bypass rate approved by the Commission, which allows the utilities to negotiate rates with customers that are potential bypass candidates.
	Since 2002, all customers have had the opportunity to choose a gas supplier. A substantial portion of the gas that Peoples Gas and North Shore Gas deliver to their customers consists of gas that the subsidiaries’ customers purchase directly from producers and marketers rather than from the utilities (see Current Sources and Availability of Natural Gas below). These direct customer purchases have little 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.
	Current Sources and Availability of Natural Gas
	Peoples Gas and North Shore Gas have each entered into long-term and short-term firm gas supply contracts with various suppliers, including BP Canada Energy Marketing Corp., Occidental Energy Marketing, Inc., Oneok Energy Services Company, L.P., and Tenaska Marketing Ventures, with contract terms up to four years. When used in conjunction with contract peaking and contract storage, company-owned storage and peak-shaving facilities, such supply is deemed sufficient to meet current and foreseeable peak and annual market requirements. Although the Company believes North American gas supply to be sufficient to meet current and prospective United States market demands, it is unable to quantify or otherwise make specific representations regarding national supply availability and the cost of the supply.
	Peoples Gas and North Shore Gas purchase firm transportation and storage services from interstate pipelines in the ordinary course of business. Seven interstate pipelines interconnect with Peoples Gas’ utility system and two interstate pipelines and one LDC interconnect with North Shore Gas’ utility system. Having multiple pipelines that serve the utilities’ service territories improves reliability, provides access to diverse supply and fosters competition among these service providers that can lead to favorable conditions for the utilities when negotiating new agreements.
	The following table shows the expected design peak-day availability of gas in MDth during the 2004-2005 heating season for Peoples Gas and North Shore Gas:

	Peoples Gas and North Shore Gas forecast maximum peak day demands of 2,342 MDth and 414 MDth, respectively.

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	The sources of gas supply (including gas transported for customers) in MDth for Peoples Gas and North Shore Gas were as follows:

	Importance of Regulatory Environment
	Legislation and Regulation at State Level. Peoples Gas and North Shore Gas are subject to the jurisdiction of and regulation by the Commission, which has general supervisory and regulatory powers over practically all phases of the public utility business in Illinois. These include rates and charges, issuance of securities, services and facilities, systems of accounts, investments, safety standards, transactions with affiliated interests and other matters.
	Peoples Gas and North Shore Gas are authorized, by statute and/or certificates of public convenience and necessity, to conduct operations in the territories they serve. In addition, these subsidiaries operate under franchises and license agreements granted to them by the municipalities they serve. Peoples Gas holds a perpetual, nonexclusive franchise to serve Chicago. North Shore Gas’ franchises with municipalities within its service territory are of various terms and expiration dates.
	Impact on Sales and Rates. Peoples Gas and North Shore Gas sell natural gas having an average heating value of approximately 1,000 Btu per cubic foot. Sales are made and service rendered by Peoples Gas and North Shore Gas pursuant to rate schedules on file with the Commission containing various service classifications largely reflecting customers’ different uses and levels of consumption. In addition to the rate for distribution of gas, Peoples Gas and North Shore Gas each bills a gas charge representing the cost of gas and transportation and storage services purchased. This gas charge is determined in accordance with a rider to the rate schedules (Rider 2, Gas Charge) to recover the costs incurred by Peoples Gas and North Shore Gas to purchase, transport and store gas supplies. The level of the Gas Charge under both subsidiaries’ rate schedules is adjusted monthly to reflect increases or decreases in natural gas supplier charges, gains, losses and costs incurred under its hedging program, purchased storage service costs, transportation charges and liquefied petroleum gas costs. In addition, 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 refundable to or recoverable from customers. (See Notes 1I and 7 of the Notes to Consolidated Financial Statements.)
	Commission rules place restrictions on when the utility subsidiaries may terminate or deny service to customers who do not pay their bills for utility service. Though each utility’s current rates were established to recover an estimated bad debt expense, in recent years bad debt expense has exceeded these estimates by significant amounts, particularly for Peoples Gas. Both the federal and state governments have legislation that provides for additional funding for assistance to low-income energy users, including customers of the Company’s utility subsidiaries. The state legislation creates a fund, financed by charges to electric and gas customers of public utilities, participating municipal utilities and electric co-ops, which supplements currently available federal energy assistance.
	Legislation and Regulation at Federal Level. The Company is a holding company as defined in the Public Utility Holding Company Act of 1935 (1935 Act). By Order entered on December 6, 1968 (Holding Company Act Release No. 16233), the SEC, pursuant to Section 3(a)(1) of the 1935 Act, exempted the Company and its subsidiary companies as such from the provisions of the 1935 Act, other than Section 9(a)(2) thereof.
	Most of the gas distributed by Peoples Gas and North Shore Gas is transported to the utilities’ distribution systems by interstate pipelines. The pipelines’ services (transportation and storage service) are regulated by the FERC

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	under the Natural Gas Act and the Natural Gas Policy Act of 1978. (See Impact on Sales and Rates and Current Sources and Availability of Natural Gas.)
	Under United States Department of Transportation regulations, the Commission is responsible for monitoring Peoples Gas’ and North Shore Gas’ safety compliance program for its pipelines under 49 CFR Part 192 (Transportation of Natural and Other Gas by Pipeline: Minimum Federal Safety Standards) and 49 CFR Part 195 (Transportation of Hazardous Liquids by Pipeline).
	The Pipeline Safety Improvement Act of 2002 makes numerous changes to pipeline safety law, the most significant of which is the requirement that operators of pipeline facilities implement written integrity management programs. Such programs must include a baseline integrity assessment of an operator’s transmission facilities that must be completed within 10 years after enactment of the legislation. Peoples Gas owns and operates 429 miles of pipelines subject to this requirement, and North Shore Gas owns and operates 95 miles of pipelines subject to this requirement. Implementation of this legislation is not expected to have a material adverse effect on the financial condition or operations of the Company.
	Seasonality
	The business of the Company’s utility subsidiaries is influenced by seasonal weather conditions because a large element of the subsidiaries’ customer load consists of space heating. Therefore, weather-related deliveries can have a significant positive or negative impact on net income. (For discussion of the Company’s weather insurance arrangements mitigating the effect of the seasonal nature of gas revenues on cash flow, see Item 7A— Quantitative and Qualitative Disclosures About Market Risk— Risk Management Activities— Weather Risk.)
	During fiscal 2004, the Gas Distribution segment recorded 68 percent of its revenues from November through March.
	Practices Relating to Working Capital
	The seasonality of revenues causes the timing of cash collections to be concentrated from January through June. A portion of the winter gas supply needs is typically purchased and stored from April through November. Also, planned capital spending on the Gas Distribution facilities is concentrated in April through November. Because of these timing differences, the cash flow from customers is likely to be supplemented with temporary increases of short-term commercial paper and bank loans during the late summer and fall. Short-term debt is likely reduced over the January through June period.
	Effects of Environmental Legislation
	The Company and its subsidiaries are subject to federal and state environmental laws. Peoples Gas and North Shore Gas are conducting environmental investigations and remedial work at the sites of former manufactured gas plant operations. (See Note 6A of the Notes to Consolidated Financial Statements.) In 1994, North Shore Gas received a demand for payment of environmental response costs at a former mineral processing site in Denver, Colorado (Denver Site). North Shore Gas does not believe that it has liability for the response costs but cannot determine the matter with certainty. (See Note 6B of the Notes to Consolidated Financial Statements.)
	Peoples Gas and North Shore Gas did not incur and do not anticipate any material expenditures to construct environmental control facilities due to normal operations.
	2.    OIL AND GAS PRODUCTION SEGMENT
	The 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 the United States through direct ownership in oil, gas and mineral leases. Peoples Energy Production also has a 30 percent equity investment in EnerVest Energy, L.P. (EnerVest), which develops and manages a portfolio of oil and gas producing properties. Peoples Energy Production’s primary focus is on natural gas, with growth coming from low to moderate risk drilling opportunities and acquisition of proved reserves with upside potential that can be realized through drilling, production enhancements and reservoir optimization programs. Certain producing properties owned by Peoples Energy Production previously qualified for income tax credits as defined in Section 29 of the Internal Revenue Code of 1986. These credits expired on December 31, 2002.

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	Competition in acquiring oil and gas leases and producing properties in the Company’s targeted onshore basins is substantial. Competitors include the major oil companies, as well as many independents, some of which have significantly greater resources. In order to grow the current asset base, replace and expand reserves, and increase operating income, the Company must select and acquire from third parties quality producing properties and prospects for future drilling. The Company has no control over the timing of when these opportunities may become available. When available, the Company believes that it has the ability to evaluate opportunities quickly and to acquire properties without a financing contingency, which may give it a competitive advantage.
	Extensive federal, state and local laws govern oil and natural gas operations, regulate the discharge of materials into the environment or otherwise relate to the protection of the environment. Numerous governmental agencies issue rules and regulations to implement and enforce such laws that are often difficult and costly to comply with and which may carry substantial administrative, civil and even criminal penalties for failure to comply. The regulatory burden on the oil and natural gas extractive industry increases its cost of doing business and consequently affects its profitability. These laws, rules and regulations affect the Company’s operations, as well as the oil and gas exploration and production industry in general. The costs of such compliance have not been material to Peoples Energy Production to date. The Company believes that it is in substantial compliance with current applicable environmental laws, rules and regulations and that continued compliance with existing requirements will not have a material adverse impact on the Oil and Gas Production segment. The Company currently has no material estimated capital expenditures for environmental control facilities.
	3.    POWER GENERATION SEGMENT
	The Power Generation segment, through Peoples Energy Resources, is engaged in the development, operation and ownership of electric generation facilities for sales to electric utilities and marketers. Currently, the Company has an ownership interest in two electric generation facilities. Peoples Energy Resources and Dominion Energy, Inc. (Dominion) are equal investors in Elwood, which owns and operates a 1,400-megawatt peaking facility near Chicago. The plant capacity has been sold through long-term contracts with Exelon Generation Company, LLC (Exelon), Engage Energy America LLC (Engage) and Aquila. Due to the structure of these contracts and the fact that Elwood is a peaking facility, the majority of Elwood’s revenues and the Company’s equity earnings in this investment are recognized in the Company’s third and fourth fiscal quarters. Peoples Energy Resources is also a 29 percent owner of SCEP, a 350-megawatt peaking facility on Chicago’s southeast side. Power generated by SCEP is sold through a long-term contract with Exelon and revenue is recognized evenly throughout the year.
	Peoples Energy Resources has also been involved in developing three power generation projects in the western United States. The projects, which are in the early stages of development, are located in New Mexico, Oregon and Texas. The proposed project in New Mexico is a 280-megawatt gas-fired peaking facility. The proposed Oregon project is a 1,150-megawatt gas-fired combined cycle facility located near Klamath Falls, Oregon, near the California-Oregon Border trading hub. The Texas project activity to date consists primarily of acquiring land options. The investments in the New Mexico and Oregon facilities have been limited to permitting work and buying land and water options. Peoples Energy Resources continues to work towards monetizing these power development sites.
	Under the 1935 Act, an exempt wholesale generator (EWG) is exempt from being deemed a public utility for purposes of the 1935 Act and no company will become a holding company under the 1935 Act as a result of owning an interest in an EWG. To qualify as an EWG, an entity must be engaged exclusively in the business of owning or operating an eligible facility and selling electricity at wholesale. An eligible facility is a generating facility used solely to produce electricity exclusively for sale at wholesale. Elwood was first certified as an EWG by FERC in 1999 and SCEP was first certified as an EWG by FERC in fiscal 2002.
	Both Elwood and SCEP are public utilities under the Federal Power Act and subject to the jurisdiction of FERC with respect to wholesale electric rates and other matters. Elwood has received authority from FERC to make wholesale sales of electricity at market-based rates. The FERC’s order, as is customary with market-based rate schedules, reserves the right to revoke Elwood’s market-based rate authority if it is subsequently determined that Elwood or its affiliates possess excessive market power. SCEP has on file with the FERC a cost-based wholesale PSA with Exelon.

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	Air quality regulations of the EPA and the IEPA in accordance with the federal Clean Air Act and the Clean Air Act Amendments of 1990 require permits to construct and operate certain emission sources and impose restrictions on the emission of certain pollutants, including sulfur dioxide and nitrogen oxide. Elwood and SCEP are currently in compliance with these permitting requirements. The 1990 Amendments require the reduction of sulfur dioxide emissions from electric generating utilities to reduce acid rain. Elwood and SCEP comply with the sulfur dioxide emission limitations by purchasing sulfur dioxide allowances. The price of sulfur dioxide allowances is not expected to fluctuate in a manner that would have a material effect on Elwood or SCEP. Illinois has adopted regulations requiring reductions in nitrogen oxide emissions to begin in 2004. Elwood has complied with these reductions with the use of NOx allowances received from IEPA through the New Source Set Aside (NSSA) allowances. SCEP has complied with these reductions by receiving the necessary nitrogen oxide emission allowances from Exelon.
	Illinois has enacted “multi-pollutant” legislation that establishes a rulemaking process that could lead to emission reduction requirements for nitrogen oxide, sulfur dioxide and mercury from certain electric generating units such as Elwood and SCEP and authorizes IEPA to establish a voluntary program for reducing greenhouse gas emissions. IEPA has not promulgated regulations implementing this legislation. Accordingly, management is not able to evaluate the impact, if any, of the legislation.
	4.    MIDSTREAM SERVICES SEGMENT
	The Midstream Services segment provides wholesale services to marketers, utilities, pipelines and gas-fired power generation facilities. Peoples Energy Resources and Peoples Gas engage in activities in this segment. This segment is focused on the Midwest by providing value-added asset-based supply and services and is capitalizing on the reliability of hard assets and the strength of the Company’s balance sheet to assure performance.
	“Asset-based” means that the Midstream Services segment has the physical assets, either through direct ownership or through contractual transportation and storage agreements, to provide services to utilities, pipelines, power plants and gas marketers in the upper Midwest marketplace. These services include gas transportation, storage and supply services. The phrase “asset-based” is intended to differentiate Peoples Energy Resources’ business from that of certain marketers in the wholesale natural gas business who enter into gas supply and storage contracts without the backing of physical or contractual assets, intending instead to always settle with counterparties on the delivery date through the payment of money without delivery of gas. The quarterly results of operations should not be considered indicative of the year as a whole.
	Peoples Energy Resources is authorized by the FERC to sell gas for resale at negotiated rates. The FERC conferred this authority in a rulemaking (Order 547), and Peoples Energy Resources did not need to seek specific approval to make sales for resale at negotiated rates. The FERC does not regulate the sales rates, nor are there any reporting requirements associated with these sales. The FERC, in November 2003, issued Order 644 in which it established a code of conduct applicable to entities making sales pursuant to Order 547 and required such sellers to report to the FERC whether they report prices to publications that publish natural gas price indices.
	Peoples Energy Resources owns a propane-based peaking plant and has several contractual assets of pipeline transportation and storage in the Midwest region which enables it to perform in other asset-based wholesale activities. Peoples Energy Resources also owns approximately 40 miles of small diameter pipes which are used to provide services to local refineries in the Chicago area.
	As part of this segment, Peoples Gas utilizes its storage and pipeline supply assets as a natural gas hub. Hub activity is recorded as part of Midstream Services’ results due to the nature of its service to wholesalers. This activity is regulated by FERC and consists of providing wholesale transportation and storage services in interstate commerce.
	5.    RETAIL ENERGY SERVICES SEGMENT
	Peoples Energy Services, the major contributor to the Retail Energy Services segment, provides gas, electricity and energy management services to industrial, commercial and residential customers regionally within Illinois.

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	Peoples Energy Services’ operating income can be influenced by seasonal weather conditions. Although margins per unit may not vary materially month-to-month, total margin can be impacted by usage. In addition, revenue sensitive items such as customer accounts receivable balances are typically impacted when natural gas or electric prices increase as certain products of the segment are tied to an index. However, some risk to accounts receivables and reserves for uncollectible accounts can be mitigated because of fixed price products. The quarterly results of operations and balances should not be considered indicative of the year as a whole.
	Peoples Energy Services is one of the largest nonutility energy marketers in the northern Illinois retail energy marketplace. It is certified by the Commission as an Alternative Retail Electric Supplier (ARES), authorizing it to be a nonutility marketer of electricity, and as an Alternative Gas Supplier (AGS), authorizing it to be a nonutility marketer of natural gas for residential and small commercial customers; AGS certification is not required to serve other customers. As of September 30, 2004, there were a total of 12 ARESs in addition to three electric utilities offering supply service outside their service territories and nine AGSs in Illinois, as well as several other national gas marketers focused on the commercial and industrial segment. Peoples Energy Services was also recently licensed as an AGS by the Michigan Public Service Commission and expects to begin operations in this state in fiscal 2005. Peoples Energy Services has customers from a wide variety of commercial and industrial segments, as well as residential customers. This minimizes the impacts of business cycle risks in any one segment. The Company continually evaluates opportunities to further diversify its customer base and product offerings.
	6.    CORPORATE AND OTHER SEGMENT
	Peoples District Energy is involved in district heating and cooling as a partner in Trigen-Peoples District Energy Company (Trigen-Peoples). This and certain business development activities do not fall under the five major business segments and are reported in the Corporate and Other segment. Corporate administrative activities that support the business segments, as well as consolidating adjustments, are also included in Corporate and Other.

	The Company’s assets consist primarily of its investments in its subsidiaries. The principal properties of those subsidiaries are described below.
	GAS DISTRIBUTION
	The properties of Peoples Gas and North Shore Gas consist primarily of its gas distribution system, which includes 6,357 miles of gas mains, approximately 610,995 service pipes, and odorization and regulation facilities. Peoples Gas owns and operates an underground gas storage reservoir and a liquefied natural gas plant at Manlove Field located in central Illinois. Peoples Gas also owns a natural gas pipeline system that runs from Manlove Field to Chicago with seven major interstate pipeline interconnects at various points. The underground storage reservoir also serves North Shore Gas under a contractual arrangement. General properties include a substantial investment in office and service buildings, garages, repair shops and motor vehicles, together with the equipment, tools and fixtures necessary to conduct utility business.
	Most of the principal plants and properties of Peoples Gas and North Shore Gas, other than mains, services, meters, regulators and cushion gas in underground storage, are located on property owned in fee. Substantially all gas mains are located under public streets, alleys and highways, or under property owned by others under grants of easements. Meters and house regulators in use and a portion of services are located on premises being served. Certain storage wells and other facilities of the Manlove Field storage reservoir and certain portions of the transmission system are located on land held pursuant to leases, easements or permits. Peoples Gas leases its headquarters office in Chicago.
	Substantially all of the physical properties now owned or hereafter acquired by Peoples Gas or North Shore Gas are subject to (a) the first-mortgage lien of each utility’s respective mortgage to U.S. Bank National Association, as Trustee, to secure each utility’s respective outstanding first mortgage bonds and (b) in certain cases, other exceptions and defects that do not interfere with the use of the property.

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	OIL AND GAS PRODUCTION
	The Oil and Gas Production segment, through Peoples Energy Production, owns working interests in substantial oil and gas leasehold positions located in various areas of Texas, Louisiana, New Mexico, Arkansas, Oklahoma and North Dakota. The Company operates a number of Texas, New Mexico and Louisiana properties, with its principal operating areas being located in South Texas and along the Gulf Coast of Texas. As of September 30, 2004, total proved reserves were approximately 189.5 Bcfe, of which approximately 80 percent are operated by the Company. The Company also owns a 30 percent equity investment interest ($19.2 million) in EnerVest, which manages and develops a portfolio of oil and gas producing properties.
	Information detailing the Company’s gas and oil operations is presented below:

Location of Oil and Gas Properties— Distribution of Production and Reserves

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	The following tables summarize certain property and drilling statistics for Peoples Energy Production’s oil and gas production activities.

	(1)	28 gross (12 net) wells have multiple completions.

	As of September 30, 2004, 1 gross (0.25 net) well was in progress.
	Peoples Energy Production leases office space in Houston, Texas. Total capital outlays in fiscal 2004 for drilling and exploration projects were approximately $102 million.

See Notes 6 and 7 of the Notes to Consolidated Financial Statements for a discussion of material legal proceedings. The Company, Peoples Gas and North Shore Gas are involved in various other claims and legal actions arising out of the normal course of business. Management does not expect that the outcome of these other proceedings will have a material adverse effect on the Company’s, Peoples Gas’ and North Shore Gas’ financial position or results of operations.

	None.

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	The following is a list of the names, ages and positions of the executive officers of the Company. Executive officers were elected to serve for a term of one year or until their successors are duly elected and qualified.

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	The common stock of the Company is listed on the New York Stock, Chicago Stock and Pacific Exchanges (trading symbol: PGL). At November 30, 2004, there were 20,134 registered shareholders. There were no issuances of unregistered stock in the current fiscal quarter (See Notes 15 and 16 of the Notes to Consolidated Financial Statements).
	All of the outstanding shares of common stock of Peoples Gas and North Shore Gas are owned by the Company.
	The following table provides information about the Company’s purchases of its equity securities in fiscal 2004:

	(1)	Represents options surrendered to the Company in connection with the exercise of options by one director under the Directors Stock and Option Plan, effective December 1, 1999, as amended in December 2002.
	(2)	Represents shares of restricted stock cancelled to pay for taxes related to the vesting of restricted stock under the 1990 LTIC Plan. The 2004 Incentive Compensation Plan replaced the 1990 LTIC Plan.
	(3)	Maximum number of shares cannot be determined as amounts to be purchased vary with individual tax status and market price of Company common stock.

Peoples Energy Corporation
(In Thousands, Except Per-Share Amounts)

	(1)	Includes $152.0 million of long-term debt of Peoples Gas classified as short-term debt due to bondholder tender rights.
	(2)	Includes $90.0 million of long-term debt ($75.0 million for Peoples Gas and $15.0 million for North Shore Gas) retired in fiscal 2003 and $202.0 million of long-term debt of Peoples Gas classified as short-term debt due to bondholder tender rights.
	(3)	Includes $100.0 million of long-term debt retired in fiscal 2002 and $202.0 million of long-term debt of Peoples Gas classified as short-term due to bondholder tender rights.

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	INTRODUCTION
	In this section, management discusses the financial condition, results of operations, cash flows, and expected future performance of the Company and its five primary business segments. The discussion applies to Peoples Energy and its business segments on a consolidated basis with the exception of the section titled “Peoples Gas and North Shore Gas Discussions,” which provide information specific to the Company’s two regulated utility subsidiaries. Certain other results of operations and information specific to Peoples Gas and North Shore Gas are also found in Item 1— Business— Gas Distribution Segment and in this Item 7 under Liquidity and Capital Resources.
	Management’s discussion should be read in conjunction with the Company’s Consolidated Financial Statements and related notes. Unless otherwise noted, earnings per share are presented on a diluted basis.
	EXECUTIVE SUMMARY
	Peoples Energy is a diversified energy company comprised of five main business segments:

	•	Gas Distribution
	•	Oil and Gas Production
	•	Power Generation
	•	Midstream Services
	•	Retail Energy Services

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	The restructuring resulted in the elimination of over 100 salaried positions, or about 10 percent of the Company’s non-union workforce. Overall, about 300 employees accepted the voluntary severance offer that accompanied the restructuring. In addition, the restructuring plan included key senior management changes affecting the Company and its utility subsidiaries, Peoples Gas and North Shore Gas. William E. Morrow was elected Executive Vice President of Operations for Peoples Energy. Desiree G. Rogers was elected President of Peoples Gas and North Shore Gas, succeeding Donald M. Field, who retired on September 30, 2004. (See Note 3 of the Notes to Consolidated Financial Statements.)
	Accounts Receivable Adjustment. The Company’s fiscal 2004 financial statements include fourth quarter adjustments to operating income of $6.9 million ($4.2 million or $0.11 per diluted share after taxes). These adjustments were identified as part of the year-end financial reporting and control processes. Operating income of Peoples Gas and North Shore Gas reflect fourth quarter adjustments of $5.8 million ($3.5 million after taxes) and $1.1 million ($0.7 million after taxes), respectively. These adjustments on an after tax basis include amounts related to prior years totaling $3.0 million (net of taxes of $2.0 million), $2.6 million (net of taxes of $1.7 million) and $0.4 million (net of taxes of $0.3 million) for the Company, Peoples Gas and North Shore Gas, respectively.
	The adjustments were identified as a result of reconciliations between the detailed customer billing records and the general ledger accounting systems of the Company’s two Gas Distribution utilities, Peoples Gas and North Shore Gas. These adjustments were made to bring the utilities’ accounting records into agreement with the customer records. They were not the result of any errors in customer bills. Differences between the two systems occurred over the past five years primarily due to certain routine billing adjustments made to detailed customer account records which were not correctly reflected in the utilities’ accounting system and resulting financial statements. (See Item 9A— Controls and Procedures for a discussion of this matter as it relates to management’s evaluation of disclosure controls and procedures).
	The Company believes that the effects of these differences are not material to the results of operations and the financial condition of Peoples Energy, Peoples Gas and North Shore Gas for each of the affected years or to the trend of earnings for each company. If the adjustments had been recorded in the years in which the differences occurred, impacts on the Company’s consolidated net income would have been 1.5 percent or less for each of the affected years.
	Fiscal 2004 Results
	Net income for fiscal 2004 on a GAAP basis was $81.6 million, or $2.18 per diluted share, and includes a fourth-quarter charge of $17 million ($0.27 per share after taxes) for expenses related to the Company’s restructuring of its utility and corporate support areas. Fiscal 2004 ongoing net income (non-GAAP), defined as GAAP net income adjusted to exclude the effects of the restructuring charge, was $91.8 million, or $2.45 per diluted share. Fiscal 2003 GAAP net income was $103.9 million, or $2.87 per diluted share. Management believes that ongoing net income (non-GAAP) and ongoing operating income (non-GAAP) are useful for year over year comparisons since restructuring-related charges of this magnitude are infrequent and affect the comparability of ongoing operating results. Ongoing net income and ongoing operating income are used internally to measure performance against budget and in reports for management and the Board of Directors. While the decline in fiscal 2004 earnings was disappointing, reflecting the decline in deliveries and cost pressures, in other respects it was a very positive year. In addition to the corporate restructuring discussed earlier, operating income from our diversified energy businesses continues to grow and we have achieved progress in reducing utility bad debt expense.
	Reconciliation of Fiscal 2004 GAAP and Non-GAAP Earnings

	RESULTS OF OPERATIONS
	Income Statement Variations
	Fiscal 2004. The Company’s revenues and cost of energy sold increased $121.8 million and $138.8 million, respectively, for fiscal 2004 compared to fiscal 2003 due to:

	•	higher realized commodity prices;

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	•	increased sales volumes in the Oil and Gas Production and Retail Energy Services segments, partially offset by a 7.6 percent decrease in Gas Distribution deliveries in fiscal 2004 resulting from warmer weather and lower normalized deliveries.

	Operation and maintenance expense for fiscal 2004, excluding the restructuring charge (non-GAAP), increased $5.8 million, or two percent, compared to fiscal 2003. Significant items to note in fiscal 2004 were:

	•	Higher pension expense of $11.6 million. Pension expense increased due to the ongoing effects of both lower pension plan returns in recent years and a lower discount rate. Pension expense for fiscal 2004 was $10.1 million.
	•	Higher outside professional services ($4.2 million) mainly related to higher legal costs associated with the utilities’ ongoing gas reconciliation cases before the Commission.
	•	Higher expense in the Oil and Gas Production segment ($5.6 million) resulting primarily from an increase in lease operating expense and exploration expense.
	•	Insurance recoveries of $2.5 million related to mercury clean-up costs incurred in prior years.
	•	Decreased provision for uncollectible accounts ($6.2 million), mainly as a result of improving credit and collection metrics in the Gas Distribution segment.
	•	Lower corporate expenses resulting from the impact of a lower Peoples Energy stock price on the value of SARs ($2.5 million).
	•	Lower utility environmental costs of $4.0 million. These costs are recovered through the utilities’ rate mechanism and a like amount is included in revenues; therefore, these costs do not affect operating income.

	Other Variances for 2004.

	•	Fiscal 2004 includes a $17.0 million restructuring charge resulting from the Company’s restructuring of its utility and corporate support areas.
	•	DD&A for fiscal 2004 increased $7.3 million compared to fiscal 2003 mainly resulting from higher production and a higher depletion rate in the Oil and Gas Production segment and from higher depreciable property in the Gas Distribution segment.
	•	Taxes, other than income taxes, which are typically directly related to the level of utility revenues, increased for fiscal 2004 by $2.8 million compared to fiscal 2003 primarily due to adjustments to reduce municipal and state utility tax accruals ($10.0 million) recorded in fiscal 2003. Absent this impact, these taxes declined due to lower levels of utility revenues. The comparison was also affected by a change in the state law for certain taxes, shifting the taxpayer liability from the Company to certain customers. This resulted in the Company recording the collected taxes only as a remittance liability where previous period amounts were recorded as both revenue and tax expense.
	•	Equity investment income increased $2.5 million, primarily driven by EnerVest activity in the Oil and Gas Production segment.
	•	Fiscal 2004 interest expense for the Company decreased $1.0 million from fiscal 2003 due primarily to lower interest rates. The reduction in rates was primarily the result of lower interest on variable rate debt and the retirement or refinancing of higher cost notes and bonds.
	•	Income tax expense for fiscal 2004 decreased $21.3 million compared to fiscal 2003 resulting primarily from lower pretax income in fiscal 2004 and a lower effective tax rate due to fiscal 2004 adjustments in accrued income taxes based on updated estimates of income tax liabilities. Also impacting the variation was the ability under recent tax legislation to realize tax benefits from dividends reinvested in Peoples Energy stock under the Company’s Employee Stock Ownership Plan.

	Fiscal 2003. The Company’s revenues and cost of energy sold increased $655.9 million and $546.9 million, respectively, for fiscal 2003 compared to fiscal 2002 due to:

	•	higher realized commodity prices;
	•	increased volumes sold in the Gas Distribution, Retail Energy Services and Midstream Services segments due to colder weather;
	•	increased production in the Oil and Gas Production segment.

	Operation and maintenance expense for fiscal 2003 increased $44.3 million compared to fiscal 2002. Significant items to note in fiscal 2003 were:

	•	Higher pension expense ($21.7 million) due to the ongoing effects of both lower pension plan returns in recent years and a lower discount rate. Pension credits for 2003 totaled $1.5 million.

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	•	Higher operation expense in the Oil and Gas Production segment ($6.6 million) resulting primarily from an increase in lease operating expense and exploration expense.
	•	Increased utility environmental costs of $14.7 million. These costs are recovered through the utilities’ rate mechanism and a like amount is included in revenues; therefore, these costs do not affect operating income.

	Other Variances for 2003.

	•	DD&A for fiscal 2003 increased $13.0 million compared to fiscal 2002 mainly resulting from increased production in the Oil and Gas Production segment.
	•	Taxes, other than income taxes, increased for fiscal 2003 by $31.3 million compared to fiscal 2002 due to higher revenues in the Gas Distribution segment, offset by adjustments to reduce municipal and state utility tax accruals ($10.0 million).
	•	Other income, net of other expense, for fiscal 2003 decreased $4.4 million compared to fiscal 2002 mainly due to a reduction in interest income along with the effects of a prior year insurance settlement.
	•	Equity investment income increased $6.5 million primarily from income generated from a full year of activity at SCEP and increased contributions from Elwood and EnerVest.
	•	Interest expense for fiscal 2003 decreased $7.0 million compared to fiscal 2002 due primarily to lower interest rates and reduced average borrowings outstanding.
	•	Income tax expense for fiscal 2003 increased $12.9 million compared to fiscal 2002 resulting primarily from higher pretax income along with the expiration on December 31, 2002, of Section 29 income tax credits related to the Oil and Gas Production segment.

	Segment Discussion
	A summary of the Company’s operating income by segment (GAAP), and variations between periods, is presented below.

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	effects was a decrease in the provision for uncollectible accounts ($6.0 million) mainly as a result of improved credit and collection experience, gains on property sales ($3.2 million) and an insurance recovery ($2.5 million) related to mercury clean-up costs incurred in prior years.
	Fiscal 2003 revenues increased $445.1 million over fiscal 2002 resulting from higher gas prices ($315.0 million) and from increased deliveries due to weather that was almost 19 percent colder ($150.0 million). Operating income in fiscal 2003 increased $4.8 million compared with fiscal 2002 due mainly to the effects of weather ($29.6 million) and a reduction in the municipal and state utility tax accrual ($10.0 million), partially offset by fiscal 2002 weather insurance revenue ($8.7 million). The revenue tax accrual adjustment resulted primarily from the effect of higher uncollectibles on the tax liabilities, which are paid based upon cash receipts. Lower pension credits ($21.7 million), an increase in group insurance expense ($2.7 million) and higher other nonlabor operating expense partially reduced operating income. The fiscal 2003 pension credits totaled $2.1 million. The decrease in pension credits was expected due to the ongoing effects of both lower pension plan returns in recent years and the effect of falling interest rates on the discount rate assumption.
	The utilities continue to improve in the collection of accounts receivable. Peoples Gas and North Shore Gas believe that their reserves are adequate given what is known at this time. The reserve for uncollectible accounts remains an estimate and could require future adjustments. The following table summarizes collection statistics for Peoples Gas and North Shore Gas combined.

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	The following table summarizes revenue, deliveries and other statistics for the Gas Distribution segment

Gas Distribution Statistics