<SUBMISSION>
<ACCESSION-NUMBER>0000950137-08-006593
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>5
<PERIOD>20080331
<FILING-DATE>20080502
<DATE-OF-FILING-DATE-CHANGE>20080502
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>NISOURCE INC/DE
<CIK>0001111711
<ASSIGNED-SIC>4931
<IRS-NUMBER>352108964
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-16189
<FILM-NUMBER>08798814
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>801 EAST 86TH AVE
<CITY>MERRILLVILLE
<STATE>IN
<ZIP>46410-6272
<PHONE>2196475200
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>801 EAST 86TH AVE
<CITY>MERRILLVILLE
<STATE>IN
<ZIP>46410-6272
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>NEW NISOURCE INC
<DATE-CHANGED>20000412
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>c26228e10vq.htm
<DESCRIPTION>QUARTERLY REPORT
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vq</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 10-Q</B>
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="CENTER" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the quarterly period ended March&nbsp;31, 2008</B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>or</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="center"><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="CENTER" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For
the transition period from
</B><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> <B>to</B> <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission file number </B><U><B>001-16189</B></U></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>NiSource Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt" >(Exact name of registrant as specified in its charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Delaware
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">35-2108964</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction of <BR>
incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer<BR>
Identification No.)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">801 East 86th Avenue</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">Merrillville, Indiana
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">46410</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Zip Code)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><U>(877)&nbsp;647-5990</U><BR>
(Registrant&#146;s telephone number, including area code)</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant: (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days.
Yes <FONT face="Wingdings">&#254;</FONT> No <FONT face="Wingdings">&#111;</FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of &#147;large
accelerated filer,&#148; &#147;accelerated filer&#148; and &#147;smaller reporting
company&#148; in Rule 12b-2 of the Exchange Act. (Check one):</DIV>








<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top">Large accelerated filer
<FONT face="Wingdings">&#254;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Accelerated filer
<FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Non-accelerated filer <FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>Smaller reporting company <FONT face="Wingdings">&#111;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>(Do not check if a smaller reporting company)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>








<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the
Exchange Act).
Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate the number of shares outstanding of each of the issuer&#146;s classes of common stock, as of
the latest practicable date: Common Stock, $0.01 Par Value:
274,207,282 shares outstanding at April
30, 2008.
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>NISOURCE INC.<BR>
FORM 10-Q QUARTERLY REPORT<BR>
FOR THE QUARTER ENDED MARCH 31, 2008</B>
</DIV>

<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>Table of Contents</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="1" style="border-bottom: 1px solid #000000">Page</TD>

    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#101">Defined Terms</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">PART I FINANCIAL INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#103">Item&nbsp;1. Financial Statements &#151; unaudited</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:74px; text-indent:-15px"><A href="#104">Condensed Statements of Consolidated Income</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:74px; text-indent:-15px"><A href="#105">Condensed Consolidated Balance Sheets</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:74px; text-indent:-15px"><A href="#106">Condensed Statements of Consolidated Cash Flows</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:74px; text-indent:-15px"><A href="#107">Notes to Condensed Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#108">Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition
and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#109">Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#110">Item&nbsp;4. Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">PART II OTHER INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#112">Item&nbsp;1. Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#113">Item&nbsp;1A. Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#114">Item&nbsp;2. Unregistered Sales of Equity Securities and Use of Proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#115">Item&nbsp;3. Defaults Upon Senior Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#116">Item&nbsp;4. Submission of Matters to a Vote of Security Holders</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#117">Item&nbsp;5. Other Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#118">Item&nbsp;6. Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#119">Signature</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c26228exv31w1.htm">302 Certification of Chief Executive Officer</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c26228exv31w2.htm">302 Certification of Chief Financial Officer</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c26228exv32w1.htm">906 Certification of Chief Executive Officer</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c26228exv32w2.htm">906 Certification of Chief Financial Officer</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>DEFINED TERMS</B></U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following is a list of frequently used abbreviations or acronyms that are found in this report:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="29%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="68%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>NiSource Subsidiaries and Affiliates</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Bay State
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Bay State Gas Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Capital Markets
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NiSource Capital Markets, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">CER
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia Energy Resources, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">CNR
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia Natural Resources, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Columbia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia Energy Group</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Columbia Deep Water
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia Deep Water Service Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Columbia Energy Services
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia Energy Services Corporation</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Columbia Gulf
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia Gulf Transmission Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Columbia of Kentucky
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia Gas of Kentucky, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Columbia of Maryland
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia Gas of Maryland, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Columbia of Ohio
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia Gas of Ohio, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Columbia of Pennsylvania
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia Gas of Pennsylvania, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Columbia of Virginia
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia Gas of Virginia, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Columbia Transmission
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia Gas Transmission Corporation</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">CORC
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Columbia of Ohio Receivables Corporation</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Crossroads Pipeline
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Crossroads Pipeline Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Granite State Gas
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Granite State Gas Transmission, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hardy Storage
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hardy Storage Company, L.L.C.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kokomo Gas
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Kokomo Gas and Fuel Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lake Erie Land
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lake Erie Land Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Millennium
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Millennium Pipeline Company, L.P.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">NDC Douglas Properties
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NDC Douglas Properties, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">NiSource
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NiSource Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">NiSource Corporate Services
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NiSource Corporate Services Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">NiSource Development Company
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NiSource Development Company, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">NiSource Finance
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NiSource Finance Corp.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Northern Indiana
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Northern Indiana Public Service Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Northern Indiana Fuel and Light
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Northern Indiana Fuel and Light Company</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Northern Utilities
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Northern Utilities, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">NRC
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NIPSCO Receivables Corporation</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">PEI
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PEI Holdings, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">TPC
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">EnergyUSA-TPC Corp.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Whiting Clean Energy
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Whiting Clean Energy, Inc.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Abbreviations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">AFUDC
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Allowance for funds used during construction</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Algonquin
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Algonquin Gas Transmission Co.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">ASM
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ancillary Services Market</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">BBA
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">British Banker Association</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Bcf
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Billion cubic feet</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">BP
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">BP Amoco p.l.c.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">BPAE
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">BP Alternative Energy North America Inc</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">CAIR
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Clean Air Interstate Rule</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">CAMR
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Clean Air Mercury Rule</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">CCGT
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Combined Cycle Gas Turbine</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">CPCN
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certificate of Public Convenience and Necessity</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Day 2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Began April&nbsp;1, 2005 and refers to the operational control of the energy markets by MISO,
including the dispatching of wholesale electricity and generation, managing transmission
constraints, and managing the day-ahead, real-time and financial transmission rights
markets</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dth
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">dekatherms</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">ECR
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Environmental Cost Recovery</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B><U>DEFINED TERMS (continued)</u></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="82%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">ECRM
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Environmental Cost Recovery Mechanism</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">ECT
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Environmental cost tracker</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">EERM
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Environmental Expense Recovery Mechanism</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">EITF Issue No.&nbsp;02-3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">EITF Issue No.&nbsp;02-3, &#147;Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">and Contracts Involved in Energy Trading and Risk Management Activities&#148;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Empire
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Empire State Pipeline</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">EPA
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">United States Environmental Protection Agency</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">EPS
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Earnings per share</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">FAC
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Fuel adjustment clause</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">FASB
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Financial Accounting Standards Board</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">FERC
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Federal Energy Regulatory Commission</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">FIN 47
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FASB Interpretation No.&nbsp;47, &#147;Accounting for Conditional Asset Retirement Obligations&#148;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">FIN 48
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FASB Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in Income Taxes,&#148; an interpretation of SFAS No.
109</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">FIP
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Federal Implementation Plan</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">FSP
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FASB Staff Position</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">FSP FAS 157-2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FASB Staff Position FAS 157-2: Effective Date of FASB Statement No.&nbsp;157</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">FSP FIN 39-1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FASB Staff Position FIN 39-1: Amendment of FASB Interpretation No.&nbsp;39</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">FTRs
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Financial Transmission Rights</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">GAAP
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Generally Accepted Accounting Principles</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">gwh
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Gigawatt hours</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">IBM
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">International Business Machines Corp.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">IBM Agreement
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The Agreement for Business Process &#038; Support Services</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">IDEM
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Indiana Department of Environmental Management</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Iroquois
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Iroquois Gas Transmission System LP</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">IRP
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Integrated Resource Plan</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">IURC
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Indiana Utility Regulatory Commission</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">LDCs
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Local distribution companies</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">LIBOR
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">London InterBank Offered Rate</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">LIFO
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Last-in, first out</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">MISO
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Midwest Independent Transmission System Operator</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">MMDth
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Million dekatherms</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">mw
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Megawatts</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">NAAQS
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National Ambient Air Quality Standards</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">NOV
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Notice of Violation</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">NOx
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Nitrogen oxide</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">NPDES
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National Pollutant Discharge Elimination System</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">NYMEX
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">New York Mercantile Exchange</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">OUCC
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Indiana Office of Utility Consumer Counselor</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Piedmont
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Piedmont Natural Gas Company, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">PPS
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Price Protection Service</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">PUCO
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Public Utilities Commission of Ohio</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SEC
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Securities and Exchange Commission</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SFAS No.&nbsp;71
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement of Financial Accounting Standards No.&nbsp;71, &#147;Accounting for the Effects of Certain Types of
Regulation&#148;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SFAS No.&nbsp;123R
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement of Financial Accounting Standards No.&nbsp;123R, &#147;Share-Based Payment&#148;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SFAS No.&nbsp;133
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement of Financial Accounting Standards No.&nbsp;133, &#147;Accounting for Derivative Instruments and Hedging
Activities,&#148; as amended</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SFAS No.&nbsp;140
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement of Financial Accounting Standards No.&nbsp;140, &#147;Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities &#151; a replacement of FASB Statement 125&#148;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B><U>DEFINED TERMS (continued)</u></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="11%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="86%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">SFAS No.&nbsp;141R
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement of Financial Accounting Standards No.&nbsp;141R, &#147;Business Combinations&#148;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SFAS No.&nbsp;143
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement of Financial Accounting Standards No.&nbsp;143, &#147;Accounting for Asset Retirement Obligations&#148;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SFAS No.&nbsp;157
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement of Financial Accounting Standards No.&nbsp;157, &#147;Fair Value Measurements&#148;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SFAS No.&nbsp;158
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement of Financial Accounting Standards No.&nbsp;158, &#147;Employers&#146; Accounting for Defined Benefit Pension
and Other Postretirement Plans&#148;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SFAS No.&nbsp;159
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement of Financial Accounting Standards No.&nbsp;159, &#147;The Fair Value Option for Financial Assets and
Financial Liabilities &#151; Including an amendment of FASB Statement No.&nbsp;115&#148;</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SFAS No. 160
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"> Statement of Financial Accounting Standards No.&nbsp;160, &#147;Noncontrolling Interests in
Consolidated Financial Statements &#151; an amendment of ARB No.&nbsp;51&#148;</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SFAS No. 161
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"> Statement of Financial Accounting Standards No.&nbsp;161, &#147;Disclosures about Derivative
Instruments and Hedging &#151; an amendment of SFAS No.&nbsp;133&#148;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SIP
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">State Implementation Plan</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">SO2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sulfur dioxide</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">VaR
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Value-at-risk and instrument sensitivity to market factors</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">VADEQ
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Virginia Department of Environmental Quality</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B><u>PART I</u></B>
</DIV>

<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM
1.</u>  <u>FINANCIAL STATEMENTS</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>NiSource Inc.</B>

</DIV>
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Condensed Statements of Consolidated Income (unaudited)</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Three Months Ended March 31, <I>(in millions, except per share amounts)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Revenues</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gas Distribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>2,229.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,844.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gas Transportation and Storage</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>357.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">344.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Electric</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>331.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">326.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>371.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">330.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,289.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,844.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cost of Sales (excluding depreciation and amortization)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,248.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,802.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Net Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,041.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,042.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Expenses</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operation and maintenance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>410.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">376.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>135.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment and (gain)&nbsp;loss on sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(1.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>103.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Operating Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>648.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">613.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Equity Earnings in Unconsolidated Affiliates</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Income</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>394.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">430.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other Income (Deductions)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(91.8</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(99.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(1.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.9</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Other Income (Deductions)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(93.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(102.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income From Continuing Operations Before Income Taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>301.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income Taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>112.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income from Continuing Operations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>189.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">206.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from Discontinued Operations &#151; net of taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain (Loss) on Disposition of Discontinued Operations &#151; net of taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(96.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Income</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>99.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">216.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Basic Earnings Per Share ($)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Continuing operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>0.69</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(0.33</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Basic Earnings Per Share</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>0.36</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.79</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Diluted Earnings Per Share ($)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Continuing operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>0.69</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(0.33</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Diluted Earnings Per Share</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>0.36</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.79</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<tr>
    <TD>&nbsp;</TD>
</tr>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Dividends Declared Per Common Share</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>0.46</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Basic Average Common Shares Outstanding (millions)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>273.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">273.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Diluted Average Common Shares (millions)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>275.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">274.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these unaudited statements.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM
1.</u>  <u>FINANCIAL STATEMENTS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>NiSource Inc.</B>

</DIV>
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 0pt"><B>Condensed Consolidated Balance Sheets (unaudited)</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Property, Plant and Equipment</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Utility Plant</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>17,428.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,295.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(7,819.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,787.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net utility plant</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>9,608.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,508.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other property, at cost, less accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>67.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Property, Plant and Equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>9,676.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,575.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<tr>
    <TD>&nbsp;</TD>
</tr>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Investments and Other Assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Assets of discontinued operations and assets held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>536.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">593.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unconsolidated affiliates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>74.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>113.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Investments and Other Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>724.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">783.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Current Assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>77.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restricted cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable (less reserve of $62.0 and $37.0, respectively)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,086.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gas inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>74.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">452.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Underrecovered gas and fuel costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>245.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Materials and supplies, at average cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>79.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Electric production fuel, at average cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>59.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Price risk management assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>150.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exchange gas receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>389.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">210.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Regulatory assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>176.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">215.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Assets of discontinued operations and assets held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>76.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepayments and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>103.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Current Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,521.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,460.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other Assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Price risk management assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>86.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Regulatory assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>874.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">867.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,677.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,677.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>338.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">341.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Postretirement and postemployment benefits assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>167.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">157.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred charges and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>120.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Other Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,265.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,190.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total Assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>18,186.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,009.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these unaudited statements.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio -->
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Condensed Consolidated Balance Sheets (unaudited) (continued)</B>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions, except share amounts)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>CAPITALIZATION AND LIABILITIES</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Capitalization</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common Stockholders&#146; Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock &#151; $0.01 par value, 400,000,000 shares authorized; 274,167,301
and 274,176,752 shares issued and outstanding, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>2.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4,013.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,011.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,047.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,074.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>24.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Treasury stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(23.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Common Stockholders&#146; Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,064.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,076.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt, excluding amounts due within one year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,383.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,594.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Capitalization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,447.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,671.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Current Liabilities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>89.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>624.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,061.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>755.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">713.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividends declared</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>63.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>114.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Taxes accrued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>327.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest accrued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>90.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Overrecovered gas and fuel costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Price risk management liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>67.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exchange gas payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>571.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">441.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>22.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Regulatory liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>70.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued liability for postretirement and postemployment benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities of discontinued operations and liabilities held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>45.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Temporary LIFO liquidation credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>472.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other accruals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>429.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">505.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Current Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,753.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,397.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other Liabilities and Deferred Credits</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Price risk management liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,494.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,466.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred investment tax credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>51.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>78.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued liability for postretirement and postemployment benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>566.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">547.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities of discontinued operations and liabilities held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>141.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Regulatory liabilities and other removal costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,344.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,337.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Asset retirement obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>129.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other noncurrent liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>169.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Other Liabilities and Deferred Credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,986.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,941.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Commitments and Contingencies (Refer to Note 15)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total Capitalization and Liabilities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>18,186.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,009.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these unaudited
statements.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->8<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT>
</DIV>
<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="left" style="font-size: 10pt"><B>Condensed Statements of Consolidated Cash Flows (unaudited)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Three Months Ended March 31, <I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>99.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">216.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net income to net cash from continuing operations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>135.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net changes in price risk management assets and liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(9.6</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred income taxes and investment tax credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>16.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.8</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(16.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain on sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(3.2</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss on impairment of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Income from unconsolidated affiliates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1.7</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Gain) loss on disposition of discontinued operations &#151; net of taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>96.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Income from discontinued operations &#151; net of taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Amortization of discount/premium on debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">AFUDC Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.8</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Changes in assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(152.9</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(83.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>847.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">705.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>32.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Customer deposits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Taxes accrued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>128.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest accrued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(9.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.7</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Under) Overrecovered gas and fuel costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(93.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(101.9</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Exchange gas receivable/payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(44.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(75.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other accruals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(120.9</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(98.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Prepayments and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Regulatory assets/liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(36.4</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Postretirement and postemployment benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(57.7</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(5.6</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred charges and other noncurrent assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(7.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other noncurrent liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(29.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Operating Activities from Continuing Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>848.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">775.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Operating Activities from or (used for) Discontinued Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(2.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Cash Flows from Operating Activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>846.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">778.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Investing Activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(190.7</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(147.8</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Proceeds from disposition of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Restricted cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>72.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1.4</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.9</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Investing Activities used for Continuing Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(107.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(69.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Investing Activities from or (used for) Discontinued Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Cash Flows used for Investing Activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(104.6</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(70.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Financing Activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Issuance of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Retirement of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Repurchase of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(199.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Change in short-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(436.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(572.2</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Acquisition of treasury stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Dividends paid &#151; common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(63.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(63.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Cash Flows used for Financing Activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(697.9</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(638.7</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>43.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash contributions to discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(0.7</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>34.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash and cash equivalents at end of period</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>77.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Supplemental Disclosures of Cash Flow Information</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cash paid for interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>104.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">101.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest capitalized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cash paid for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.4</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these unaudited
statements.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->9<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
</div>



<DIV align="left">
<A name="107"></A>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 0pt"><FONT style="font-variant: SMALL-CAPS">
<B>Notes to Condensed Consolidated Financial Statements (unaudited)</B></FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Basis of Accounting Presentation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying unaudited condensed consolidated financial statements for NiSource reflect all
normal recurring adjustments that are necessary, in the opinion of management, to present fairly
the results of operations in accordance with generally accepted accounting principles in the United
States of America.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying financial statements should be read in conjunction with the consolidated financial
statements and notes thereto included in NiSource&#146;s Annual Report on Form 10-K for the fiscal year
ended December&nbsp;31, 2007. Income for interim periods may not be indicative of results for the
calendar year due to weather variations and other factors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The
following unaudited condensed consolidated financial statements have been prepared pursuant to the rules and
regulations of the SEC. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to those rules and regulations, although NiSource believes that the
disclosures made are adequate to make the information not misleading.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Recent Accounting Pronouncements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Recently Adopted Accounting Pronouncements</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>SFAS No.&nbsp;157 &#151; Fair Value Measurements. </I></B>In September&nbsp;2006, the FASB issued SFAS No.&nbsp;157 to define
fair value, establish a framework for measuring fair value and to expand disclosures about fair
value measurements. SFAS No.&nbsp;157 defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. SFAS No.&nbsp;157 does not change the
requirements to apply fair value in existing accounting standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under SFAS No.&nbsp;157, fair value refers to the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants in the market in
which the reporting entity transacts. The standard clarifies that fair value should be based on
the assumptions market participants would use when pricing the asset or liability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To increase consistency and comparability in fair value measurements, SFAS No.&nbsp;157 establishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value
into three levels. The level in the fair value hierarchy disclosed is based on the lowest level of
input that is significant to the fair value measurement. The three levels of the fair value
hierarchy defined by SFAS No.&nbsp;157 are as follows:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Level 1 inputs are quoted prices (unadjusted)&nbsp;in active markets for identical asset or
liabilities that the company has the ability to access as of the reporting date.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Level 2 inputs are inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly through corroboration
with observable market data.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Level 3 inputs are unobservable inputs, such as internally developed pricing models for
the asset or liability due to little or no market activity for the asset or liability.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SFAS No.&nbsp;157 became effective for NiSource as of January&nbsp;1, 2008. The provisions of SFAS No.&nbsp;157
are to be applied prospectively, except for the initial impact on the following three items, which
are required to be recorded as an adjustment to the opening balance of retained earnings in the
year of adoption: (1)&nbsp;changes in fair value measurements of existing derivative financial
instruments measured initially using the transaction price under EITF Issue No.&nbsp;02-3, (2)&nbsp;existing
hybrid financial instruments measured initially at fair value using the transaction price
and (3)&nbsp;blockage factor discounts. The adoption of SFAS No.&nbsp;157 did not have an impact on
NiSource&#146;s January&nbsp;1, 2008 balance of retained earnings and is not anticipated to have a material
impact prospectively.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->10<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In February&nbsp;2008, the FASB issued FSP FAS 157-2, which delays the effective date of SFAS No.&nbsp;157
for all nonrecurring fair value measurements of non-financial assets and liabilities until fiscal
years beginning after November&nbsp;15, 2008. NiSource has elected to defer the adoption of the
nonrecurring fair value measurement disclosures of non-financial assets and liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">See Note 10, &#147;Fair Value of Financial Assets and Liabilities,&#148; in the Notes to Condensed
Consolidated Financial Statements for additional information regarding the adoption of SFAS No.
157.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>SFAS No.&nbsp;158 &#151; Employers&#146; Accounting for Defined Benefit Pension and Other Postretirement Plans.</I></B>
In September&nbsp;2006, the FASB issued SFAS No.&nbsp;158 to improve existing reporting for defined benefit
postretirement plans by requiring employers to recognize in the statement of financial position the
overfunded or underfunded status of a defined benefit postretirement plan, among other changes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the fourth quarter of 2006, NiSource adopted the provisions of SFAS No.&nbsp;158. Based on the
measurement of the various defined benefit pension and other postretirement plans&#146; assets and
benefit obligations at September&nbsp;30, 2006, the pretax impact of adopting SFAS No.&nbsp;158 decreased
intangible assets by $46.5&nbsp;million, decreased deferred charges and other assets by $1.1&nbsp;million,
increased regulatory assets by $538.8&nbsp;million, increased accumulated other comprehensive income by
$239.8&nbsp;million and increased accrued liabilities for postretirement and postemployment benefits by
$251.4&nbsp;million. In addition, NiSource recorded a reduction in deferred income taxes of
approximately $96&nbsp;million. With the adoption of SFAS No.&nbsp;158 NiSource determined that for certain
rate-regulated subsidiaries the future recovery of pension and other postretirement plans costs is
probable in accordance with the requirements of SFAS No.&nbsp;71. These rate-regulated subsidiaries
recorded regulatory assets and liabilities that would otherwise have been recorded to accumulated
other comprehensive income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;1, 2007, NiSource adopted the SFAS No.&nbsp;158 measurement date provisions requiring
employers to measure plan assets and benefit obligations as of the fiscal year-end. The pre-tax
impact of adopting the SFAS No.&nbsp;158 measurement date provisions increased deferred charges and
other assets by $9.4&nbsp;million, decreased regulatory assets by $89.6&nbsp;million, decreased retained
earnings by $11.3&nbsp;million, increased accumulated other comprehensive income by $5.3&nbsp;million and
decreased accrued liabilities for postretirement and postemployment benefits by $74.2&nbsp;million.
NiSource also recorded a reduction in deferred income taxes of approximately $2.6&nbsp;million. In
addition, 2007 expense for pension and postretirement benefits reflects the updated measurement
date valuations. Refer to Note 12, &#147;Pension and Other Postretirement Benefits,&#148; in the Notes to
Condensed Consolidated Financial Statements for additional information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>SFAS No.&nbsp;159 &#151; The Fair Value Option for Financial Assets and Financial Liabilities &#151; Including
an amendment of FASB Statement No.&nbsp;115. </I></B>In February&nbsp;2007, the FASB issued SFAS No.&nbsp;159 which
permits entities to choose to measure certain financial instruments at fair value that are not
currently required to be measured at fair value. Upon adoption, a cumulative adjustment would be
made to beginning retained earnings for the initial fair value option remeasurement. Subsequent
unrealized gains and losses for fair value option items will be reported in earnings. SFAS No.&nbsp;159
is effective for fiscal years beginning after November&nbsp;15, 2007 and should not be applied
retrospectively, except as permitted for certain conditions for early adoption. NiSource has
chosen not to elect to measure any applicable financial assets or liabilities at fair value
pursuant to this standard when SFAS No.&nbsp;159 was adopted on January&nbsp;1, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>FSP FIN 39-1 &#151; FASB Staff Position Amendment of FASB Interpretation No.&nbsp;39. </I></B>In April&nbsp;2007, the
FASB posted FSP FIN 39-1 to amend paragraph 3 of FIN 39 to replace the terms <I>conditional contracts</I>
and e<I>xchange contracts </I>with the term <I>derivative instruments </I>as defined in SFAS No.&nbsp;133. This FSP
also amends paragraph 10 of FIN 39 to permit a reporting entity to offset fair value amounts
recognized for the right to reclaim cash collateral or the obligation to return cash collateral
against fair value amounts recognized for derivative instruments executed with the same
counterparty under a master netting arrangement. This FSP became effective for NiSource as of
January&nbsp;1, 2008. NiSource has not elected to net fair value amounts for its derivative instruments
or the fair value
amounts recognized for its right to receive cash collateral or obligation to pay cash collateral
arising from those derivative instruments recognized at fair value, which are executed with the
same counterparty under a master netting arrangement. This is consistent with NiSource&#146;s current
accounting policy prior to the adoption of this amended standard. NiSource discloses amounts
recognized for the right to reclaim cash collateral within &#147;Restricted
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">cash&#148; and amounts recognized for the right to return cash collateral within current liabilities on
the Consolidated Balance Sheets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>FIN 48 &#151; Accounting for Uncertainty in Income Taxes. </I></B>In June&nbsp;2006, the FASB issued FIN 48 to
reduce the diversity in practice associated with certain aspects of the recognition and measurement
requirements related to accounting for income taxes. Specifically, this interpretation requires
that a tax position meet a &#147;more-likely-than-not recognition threshold&#148; for the benefit of an
uncertain tax position to be recognized in the financial statements and requires that benefit to be
measured at the largest amount of benefit that is greater than 50% likely of being realized upon
ultimate settlement. The determination of whether a tax position meets the more-likely-than-not
recognition threshold is based on whether it is probable of being sustained on audit by the
appropriate taxing authorities, based solely on the technical merits of the position. Additionally,
FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after
December&nbsp;15, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;1, 2007, NiSource adopted the provisions of FIN 48. As a result of the implementation
of FIN 48, NiSource recognized a charge of $0.8&nbsp;million to the opening balance of retained
earnings. Refer to Note 11, &#147;Income Taxes,&#148; in the Notes to Condensed Consolidated Financial
Statements for additional information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Recently Issued Accounting Pronouncements</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>SFAS No.&nbsp;161 &#151; Disclosures about Derivative Instruments and Hedging &#151; an amendment of SFAS No.
133. </I></B>In March&nbsp;2008, the FASB issued SFAS No.&nbsp;161 to amend and expand the disclosure requirements
of SFAS No.&nbsp;133 with the intent to provide users of the financial statement with an enhanced
understanding of how and why an entity uses derivative instruments, how these derivatives are
accounted for and how the respective reporting entity&#146;s financial statements are affected. This
Statement is effective for fiscal years and interim periods beginning after November&nbsp;15, 2008, and
earlier application is encouraged. NiSource is currently reviewing the provisions of SFAS No.&nbsp;161
to determine the impact it may have on its disclosures within the Notes to Condensed Consolidated
Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>SFAS No.&nbsp;160 &#151; Noncontrolling Interests in Consolidated Financial Statements &#151; an amendment of ARB
No.&nbsp;51. </I></B>In December&nbsp;2007, the FASB issued SFAS No.&nbsp;160 to improve the relevance, comparability,
and transparency of the financial information that a reporting entity provides in its consolidated
financial statements regarding non-controlling ownership interests in a business and for the
deconsolidation of a subsidiary. This Statement is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December&nbsp;15, 2008 and earlier adoption is
prohibited. NiSource is currently reviewing the provisions of SFAS No.&nbsp;160 to determine the impact
it may have on the Condensed Consolidated Financial Statements and Notes to Condensed Consolidated
Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>SFAS No.&nbsp;141R &#151; Business Combinations. </I></B>In December&nbsp;2007, the FASB issued SFAS No.&nbsp;141R to improve
the relevance, representational faithfulness, and comparability of information that a reporting
entity provides in its financial reports regarding business combinations and its effects, including
recognition of assets and liabilities, the measurement of goodwill and required disclosures. This
Statement is effective for fiscal years, and interim periods within those fiscal years, beginning
on or after December&nbsp;15, 2008 and earlier adoption is prohibited. NiSource is currently reviewing
the provisions of SFAS No.&nbsp;141R to determine the impact on future business combinations.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->12<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>3. Earnings Per Share</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Basic EPS is computed by dividing income available to common stockholders by the weighted-average
number of shares of common stock outstanding for the period. The weighted average shares
outstanding for diluted EPS include the incremental effects of the various long-term incentive
compensation plans. The numerator in calculating both basic and diluted EPS for each period is
reported net income. The computation of diluted average common shares follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Three Months Ended March 31, <I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Denominator
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">
Basic average common shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>273,922</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">273,594</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dilutive potential common shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Nonqualified stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">376</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Shares contingently issuable under employee stock plans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,271</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">636</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Shares restricted under employee stock plans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>174</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted Average Common Shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>275,367</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">274,769</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>4. Restructuring Activities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the fourth quarter of 2005, NiSource announced a plan to reduce its executive ranks by
approximately 15% to 20% of the top-level executive group. As of March&nbsp;31, 2008, 14 employees were
terminated as a result of the executive initiative. In part, this reduction has come through
anticipated attrition and consolidation of certain positions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In previous years, NiSource implemented restructuring initiatives to streamline its operations and
realize efficiencies as a result of the acquisition of Columbia. As of March&nbsp;31, 2008, 1,567
employees were terminated. Of the $1.9&nbsp;million remaining restructuring liability from the Columbia
merger and related initiatives, $0.9&nbsp;million is related to facility exit costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Restructuring reserve by restructuring initiative:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Balance at</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Balance at</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December 31, 2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Benefits Paid</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Adjustments</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">March 31, 2008</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Executive initiative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Columbia merger and related initiatives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>5. Gas in Storage</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Gas Distribution Operations price storage injections at the average of the costs of natural gas
supply purchased during the year. For interim periods, the difference between current projected
replacement cost and the LIFO cost for quantities of gas temporarily withdrawn from storage is
recorded as a temporary LIFO liquidation credit within the Condensed Consolidated Balance Sheets.
Due to seasonality requirements, NiSource expects interim reductions in LIFO layers to be
replenished by year-end. Changes between the temporary LIFO liquidation credit and gas inventory
in the amounts of $472.3 million and $252.4 million during the first quarters of 2008 and 2007, respectively, are
considered non-cash activity for the Condensed Statements of Consolidated Cash Flow.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->13<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. Discontinued Operations and Assets Held for Sale</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The assets and liabilities of discontinued operations and held for sale on the Condensed
Consolidated Balance Sheet at March&nbsp;31, 2008 were:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(in millions)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Property, plant</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Materials and</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Assets of discontinued</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">and equipment,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accounts</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">supplies, at</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Regulatory</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Intangible</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Other</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>operations and held for sale:</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">net</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">receivable, net</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average cost</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">assets</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">assets</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">assets</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">NDC Douglas Properties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>6.1</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">NiSource Corporate Services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7.9</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Lake Erie Land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12.5</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Columbia Transmission</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4.2</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Columbia Gulf Transmission</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4.1</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Northern Indiana</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.2</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granite State Gas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>24.7</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Northern Utilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">144.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>280.5</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Whiting Clean Energy</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">253.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>272.7</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">439.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">80.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>612.9</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Liabilities of discontinued</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accounts</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Deferred</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Deferred</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Regulatory</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Other</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>operations and held for sale:</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff">Debt</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">payable</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">income taxes</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">credits</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">liabilities</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">liabilities</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">NDC Douglas Properties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>6.3</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granite State Gas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14.5</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Northern Utilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>110.6</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Whiting Clean Energy</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>55.4</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">96.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">34.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>186.8</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->14<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The assets and liabilities of discontinued operations and held for sale on the Consolidated Balance
Sheet at December&nbsp;31, 2007 including reclassifications of balances for entities discontinued during
2008, were:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(in millions)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Property, plant</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Materials and</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Assets of discontinued</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">and equipment,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accounts</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">supplies, at</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Regulatory</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Intangible</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Other</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>operations and held for sale:</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">net</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">receivable, net</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average cost</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">assets</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">assets</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">assets</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">NDC Douglas Properties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>6.1</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">NiSource Corporate Services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>9.5</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Lake Erie Land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12.6</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Columbia Transmission</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8.0</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Columbia Gulf Transmission</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4.8</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Northern Indiana</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.2</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granite State Gas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>25.8</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Northern Utilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>307.9</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Whiting Clean Energy</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">269.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>303.3</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">496.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">40.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">80.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">34.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>678.2</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Liabilities of discontinued</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>operations and held for</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Accounts</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Deferred</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Deferred</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Regulatory</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Other</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>sale:</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Debt</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">payable</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">income taxes</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">credits</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">liabilities</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">liabilities</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">NDC Douglas Properties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>6.3</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granite State Gas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5.6</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Northern Utilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>93.5</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Whiting Clean Energy</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>56.0</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">97.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>161.4</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Assets classified as discontinued operations and held for sale are no longer depreciated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource
reached an agreement on April&nbsp;18, 2008 for BPAE to purchase
Whiting Clean Energy for $210 million. Net
assets for Whiting Clean Energy of $217.3&nbsp;million and $247.3&nbsp;million have been reclassified to
assets and liabilities of discontinued operations and held for sale on the Consolidated Balance
Sheet as of March&nbsp;31, 2008 and December&nbsp;31, 2007, respectively. During the quarter ended March&nbsp;31,
2008, NiSource accounted for Whiting Clean Energy as discontinued operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;15, 2008, NiSource reached a definitive agreement under which Unitil Corporation will
acquire NiSource subsidiaries Northern Utilities and Granite State Gas for $160&nbsp;million plus net
working capital at the time of closing. Historically, net working capital has averaged
approximately $25&nbsp;million. Under the terms of the transaction, Unitil Corporation will acquire
Northern Utilities, a local gas distribution company serving 52 thousand customers in 44
communities in Maine and New Hampshire and Granite State Gas, an 86-mile FERC regulated gas
transmission pipeline primarily located in Maine and New Hampshire. The transaction, expected to
be completed by the end of 2008, is subject to federal and state regulatory approvals. Net assets
for Northern Utilities and Granite State Gas combined of $180.1&nbsp;million and $234.6&nbsp;million have
been reclassified to assets and liabilities of discontinued operations and held for sale on the
Consolidated Balance Sheet as of March&nbsp;31, 2008 and December&nbsp;31, 2007, respectively. During the
quarter ended March&nbsp;31, 2008, NiSource accounted for Northern Utilities and Granite State Gas as
discontinued operations. NiSource acquired Northern Utilities and Granite State Gas in 1999 as
part of the company&#146;s larger acquisition of Bay State.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia Gulf is in the process of selling a majority of its offshore facilities. On October&nbsp;30,
2007, Columbia Gulf and Tennessee Gas Pipeline Company executed a definitive purchase and sale
agreement to sell a portion of Columbia Gulf&#146;s offshore assets. Closing of the transaction is
dependent upon the receipt of required regulatory approvals which NiSource anticipates receiving in
the first half of 2008. Tennessee Gas Pipeline Company currently co-owns and utilizes the offshore
assets being sold. In the third quarter of 2007, these assets were classified as assets of
discontinued operations and held for sale.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NDC Douglas Properties, a subsidiary of NiSource Development Company, is in the process of exiting
some of its low income housing investments. One of these investments was disposed of during 2007
and two other investments are expected to be sold or disposed of during 2008. NiSource has
accounted for the investments to be sold as assets and liabilities of discontinued operations and
held for sale.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource Corporate Services is in the process of selling its Marble Cliff facility. In late
February&nbsp;2008 an offer was accepted. NiSource Corporate Services has begun work on a definitive
Purchase and Sale Agreement which is contingent on certain items being met. As a result of the
offer, an impairment loss of $1.6&nbsp;million was recognized during the first quarter of 2008. During
the first quarter of 2007 an impairment loss of $3.2&nbsp;million was recognized due to the current book
value exceeding the estimated fair value of the facility. NiSource has accounted for this facility
as assets held for sale.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Lake Erie Land, which is wholly-owned by NiSource, is in the process of selling real estate over a
10-year period as a part of an agreement reached in June, 2006 with a private real estate
development group. Part of the sale transaction included the assets of the Sand Creek Golf Club,
and NiSource began accounting for the operations of the Sand Creek Golf Club as discontinued
operations at that time. NiSource estimates the property to be sold to the private developer
during the next twelve months and classifies these assets as assets of discontinued operations and
held for sale.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia Transmission is in the process of selling certain facilities that are non-core to the
operation of the pipeline system. In the first quarter of 2008, certain assets in Ohio were sold,
which resulted in a $3.8&nbsp;million decrease to the balance of assets held for sale. Northern Indiana
is also in the process of selling a non-core facility. NiSource has accounted for these facilities
as assets held for sale.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Results from discontinued operations from Whiting Clean Energy, Granite State Gas, Northern
Utilities, NDC Douglas Properties low income housing investments, the golf course assets of Lake
Erie Land and reserve changes for NiSource&#146;s former exploration and production subsidiary, CER, are
provided in the following table:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Three Months Ended March 31, <I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Revenues from Discontinued Operations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>100.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">88.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from discontinued operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income from Discontinued Operations &#151; net of taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>6.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Gain
(Loss) on Disposition of Discontinued Operations &#151;
net of taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(96.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Results from Discontinued Operations for the first three months of 2008 includes the after tax
losses related to the pending sales of Whiting Clean Energy, Northern Utilities and Granite State
Gas of $32.5&nbsp;million, $48.8&nbsp;million and $14.8&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>7. Asset Retirement Obligations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource accounts for its asset retirement obligations in accordance with SFAS No.&nbsp;143 and FIN 47.
Certain costs of removal that have been, and continue to be, included in depreciation rates and
collected in the service rates of the
rate-regulated subsidiaries are classified as regulatory liabilities and other removal costs on the
Condensed Consolidated Balance Sheets.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource activity for asset retirement obligations:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Three Months Ended March 31, <I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accretion expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>0.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accretion recorded as a regulatory asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Increase in Asset Retirement Obligation Liability</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>1.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. Regulatory Matters</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Gas Distribution Operations Regulatory Matters</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Significant Rate Developments. </B>Columbia of Ohio filed a base rate case with PUCO on March&nbsp;3, 2008,
requesting an increase in base rates in excess of $80&nbsp;million annually. Columbia of Ohio is
seeking recovery of increased infrastructure rehabilitation costs, as well as the stabilization of
revenues and cost recovery through rate design. The case is currently pending, and is expected to
be resolved by the fourth quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;28, 2008, Columbia of Pennsylvania filed a base rate case with the Pennsylvania
Public Utility Commission, seeking an increase of approximately $60&nbsp;million annually,
effective October&nbsp;28, 2008. Through this filing, Columbia of Pennsylvania is seeking to
recover costs associated with its significant infrastructure rehabilitation program, as well
as stabilize revenues and cost recovery through modifications to rate design. The case is
currently pending, and is expected to be resolved by the fourth quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On October&nbsp;17, 2007, Bay State petitioned the Massachusetts Department of Public Utilities to allow
the company to collect an additional $7.5&nbsp;million in annual revenue related to usage reductions
occurring since its last rate case. Bay State also requested approval of a steel infrastructure
tracker that would allow for recovery of ongoing infrastructure replacement program investments.
The Massachusetts Department of Public Utilities held hearings on this matter in the first quarter
of 2008 and issued an order denying Bay State&#146;s petition on April 30, 2008. NiSource is in the process of
reviewing the order and assessing its rehearing or appeal options.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Cost Recovery and Trackers. </B>A significant portion of the distribution companies&#146; revenue is
related to the recovery of gas costs, the review and recovery of which occurs via standard
regulatory proceedings. All states require periodic review of actual gas procurement activity to
determine prudence and to permit the recovery of prudently incurred costs related to the supply of
gas for customers. NiSource distribution companies have historically been found prudent in the
procurement of gas supplies to serve customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain operating costs of the NiSource distribution companies are significant, recurring in
nature, and generally outside the control of the distribution companies. Some states allow the
recovery of such costs via cost tracking mechanisms. Such tracking mechanisms allow for
abbreviated regulatory proceedings in order for the distribution companies to implement charges and
recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as
compared with more traditional cost recovery mechanisms. Examples of such mechanisms include gas
cost recovery adjustment mechanisms, tax riders, and bad debt recovery mechanisms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Comparability of Gas Distribution Operations line item operating results is impacted by these
regulatory trackers that allow for the recovery in rates of certain costs such as bad debt
expenses. Increases in the expenses that are the subject of trackers result in a corresponding
increase in net revenues and therefore have essentially no impact on total operating income
results.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain types of natural gas risers, which are owned by customers, on Columbia of Ohio&#146;s
distribution system have been evaluated under a study required by the PUCO and have been found
prone to leak natural gas under certain conditions. On February&nbsp;1, 2007, Columbia of Ohio
announced plans to identify and replace these risers on its distribution system. As of March&nbsp;31,
2008, Columbia of Ohio deferred $7.5&nbsp;million of costs associated with the study and identification
of these natural gas risers as a regulatory asset and currently has estimated approximately $120
million for the cost to identify and replace the risers. On October&nbsp;26, 2007, Columbia of Ohio and
the PUCO Staff filed a Joint Stipulation and Recommendation that provided for Columbia of Ohio&#146;s
assumption of financial responsibility for the repair or replacement of customer-owned service
lines and the replacement of risers prone to leak. In addition, the Stipulation provides for
Columbia of Ohio to capitalize its investment in the service lines and risers, as well as the
establishment of a tracking mechanism that would provide for the recovery of operating and
maintenance costs related to Columbia of Ohio&#146;s capitalized investment and its expenses incurred in
identifying risers prone to leak. On December&nbsp;28, 2007, Columbia of Ohio entered into a
Stipulation with the Ohio Consumers&#146; Counsel and Ohio Partners for Affordable Energy, addressing
the issues of Columbia of Ohio&#146;s authority to assume responsibility for repair or replacement of
hazardous customer owned service lines, the establishment of accounting authority for costs related
to such activities, and the establishment of a mechanism to recover such costs. The parties
recommended approval of the Stipulation to the PUCO, and on April&nbsp;9, 2008, the PUCO issued an order
in this matter approving the Stipulation in all material respects. On April&nbsp;23, 2008, Utility
Service Partners, Inc. requested that the PUCO stay its order, pending the resolution of any
applications on rehearing. Columbia of Ohio filed its response to the motion on April&nbsp;28, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;28, 2007, Columbia of Ohio entered into a Stipulation with the Ohio Consumers&#146; Counsel
and PUCO Staff and other stakeholders resolving litigation concerning a pending Gas Cost Recovery
audit of Columbia of Ohio. The Stipulation calls for an accelerated pass back to customers of
$36.6&nbsp;million that will occur from January&nbsp;31, 2008 through January&nbsp;31, 2009, generated through
off-system sales and capacity release programs, the development of new energy efficiency programs
for introduction in 2009, and the development of a wholesale auction process for customer supply to
take effect in 2010. Approximately $12.7&nbsp;million was passed back through March&nbsp;2008. The
Stipulation also resolves issues related to pending and future Gas Cost Recovery Management
Performance audits through 2008. The PUCO approved this agreement on January&nbsp;23, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Gas Transmission and Storage Operations Regulatory Matters</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Significant FERC Developments. </B>Columbia Gulf and Columbia Transmission are cooperating with the
FERC on an informal, non-public investigation of certain operating practices regarding tariff
services offered by those companies. Although the companies are continuing to cooperate with the
FERC in an effort to reach a consensual settlement, it is likely that any settlement will require
the payment of fines or refunds.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Eastern Market Expansion Project. </B>On May&nbsp;3, 2007, Columbia Transmission filed a certificate
application before the FERC for approval to expand its facilities to provide additional storage and
transportation services and to replace certain existing facilities. This Eastern Market Expansion
project is projected to add 97,000 Dth per day of storage and transportation capacity and is fully
subscribed on a 15-year contracted firm basis. On January&nbsp;14, 2008, the FERC issued a favorable
order which granted a certificate to construct the project and the project is expected to be in
service by spring 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Appalachian Expansion Project. </B>On February&nbsp;29, 2008, Columbia Transmission filed an application
before the FERC for approval to build a new 9,470 horsepower compressor station in West Virginia.
This Appalachian Expansion Project will add 100,000 Dth per day of transportation capacity and is
fully subscribed on a 15-year contracted firm basis. The project is expected to be in service in
the fourth quarter of 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Electric Operations Regulatory Matters </U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Significant Rate Developments. </B>To settle a proceeding regarding Northern Indiana&#146;s request to
recover intermediate dispatchable power costs, Northern Indiana has agreed to file an electric base
rate case on or before July&nbsp;1, 2008.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->18<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During 2002, Northern Indiana settled certain regulatory matters related to an electric rate
review. On September&nbsp;23, 2002, the IURC issued an order adopting most aspects of the settlement.
The order approving the settlement provides that electric customers of Northern Indiana will
receive bill credits of approximately $55.1&nbsp;million each year. The credits will continue at
approximately the same annual level and per the same methodology, until the IURC enters a base rate
order that approves revised Northern Indiana electric rates. The order included a rate moratorium
that expired on July&nbsp;31, 2006. The order also provides that 60% of any future earnings beyond a
specified earnings level will be retained by Northern Indiana. The revenue credit is calculated
based on electric usage; therefore, in times of high usage the credit may be more than $55.1
million. Credits amounting to $12.5&nbsp;million and $13.7&nbsp;million were recognized for electric
customers for the first quarter of 2008 and 2007, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>MISO. </B>As part of Northern Indiana&#146;s participation in the MISO transmission service and wholesale
energy market, certain administrative fees and non-fuel costs have been incurred. IURC Orders have
been issued authorizing the deferral for consideration in a future rate case proceeding of the
administrative fees and certain non-fuel related costs incurred after Northern Indiana&#146;s rate
moratorium, which expired on July&nbsp;31, 2006. During the first quarter of 2008 non-fuel cost credits
of $0.9&nbsp;million were deferred in accordance with the aforementioned orders. In addition,
administrative, FERC and other fees of $1.8&nbsp;million were deferred. In the first quarter of 2008
and 2007, MISO costs of $0.9&nbsp;million and $2.5&nbsp;million, respectively, were deferred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On April&nbsp;25, 2006, the FERC issued an order on the MISO&#146;s Transmission and Energy Markets Tariff,
stating that MISO had violated the tariff on several issues including not assessing revenue
sufficiency guarantee charges on virtual bids and offers and for charging revenue sufficiency
guarantee charges on imports. The FERC ordered MISO to perform a resettlement of these charges
back to the start of the Day 2 Market. The resettlement began on June&nbsp;9, 2007 and ended in January
2008. Certain charge types included in the resettlement were originally considered to be non-fuel
and were recorded as regulatory assets, in accordance with previous IURC orders allowing deferral
of certain non-fuel MISO costs. During the fourth quarter 2007, based on precedent set by an IURC
ruling for another Indiana utility, Northern Indiana reclassified these charges, totaling $16.7
million, as fuel and included them in the fuel cost recovery mechanism in its latest FAC filing.
Prior to the hearing for FAC-78 on April&nbsp;17, 2008, several intervenors objected to a portion of the
$16.7&nbsp;million and Northern Indiana agreed to remove $7.6&nbsp;million from the FAC filing. This amount
represents the portion of the resettlement costs related to periods prior to December&nbsp;9, 2005. The
$7.6&nbsp;million was recorded as a reduction to net revenues in the first quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On September&nbsp;14, 2007, MISO filed a tariff with the FERC outlining the development of an ASM. The
ASM will allow participants to buy and sell operating reserves and regulation services that are
essential to reliability. The pricing of these markets will be simultaneously co-optimized with
the current energy markets with the intent to lower the overall cost of providing electric service.
MISO is currently targeting the start of the ASM for September&nbsp;2008. Northern Indiana is an
active stakeholder in the process used in designing, testing and implementing the ASM and in
developing the surrounding business practices. On January&nbsp;18, 2008, Northern Indiana as part of a
Joint Petition among several other Indiana utilities, filed a request to the IURC to participate in
ASM and seek approval of timely cost recovery for the associated costs of participating. At this
time, Northern Indiana is unable to determine what impact the ASM will have on its operations or
cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Cost Recovery and Trackers. </B>A significant portion of the Northern Indiana&#146;s revenue is related to
the recovery of fuel costs to generate power and the fuel costs related to purchased power. These
costs are recovered through a FAC, a standard, quarterly, &#147;summary&#148; regulatory proceeding in
Indiana.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;30, 2008, the IURC approved a settlement agreement which was reached in October&nbsp;2007
with the OUCC, LaPorte County and a group of Northern Indiana industrial customers to resolve
questions relating to the costs paid by customers for power purchased by Northern Indiana versus
the amount of these costs absorbed by Northern Indiana. The terms of the settlement call for
Northern Indiana to make a one-time payment to resolve this question as it relates to power
purchased from January&nbsp;1, 2006 through September&nbsp;30, 2007. The amount of the refund is set at
$33.5&nbsp;million and will be refunded February&nbsp;2008 through July&nbsp;2008. A reserve for the entire amount
was recorded in the third quarter of 2007. Northern Indiana implemented a new &#147;benchmarking
standard&#148; that will govern the allocation of costs for purchased power between customers and
Northern Indiana. The benchmark defines the price below which customers will pay for power
purchases and above which Northern Indiana must absorb a portion of the costs. The benchmark is
based upon the costs of power generated by a hypothetical natural gas fired CCGT using gas
purchased and delivered to Northern Indiana. Purchased power costs exceeding the
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">benchmark amounted to $3.8&nbsp;million in the first quarter of 2008. These costs were not passed
through to customers, but were absorbed by Northern Indiana. This benchmark will likely result in
Northern Indiana absorbing some purchased power costs that will reduce net revenues during future
periods. The agreement also contemplates Northern Indiana adding generating capacity to its
existing portfolio. The benchmark will be adjusted as new capacity is added. The added generating
capacity will substantially reduce the amount of purchased power and mitigate the impact of the
adjusted benchmark. Further, the settling parties agreed to support Northern Indiana&#146;s deferral
and future recovery of carrying costs and depreciation associated with the acquisition of new
generating facilities. In the approving order, the IURC dictated that, while the parties agreed to
support the deferral of costs mentioned above, the IURC would rule on such deferral in CPCN
proceedings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On November&nbsp;1, 2007, Northern Indiana filed its bi-annual IRP with the IURC. The plan showed the
need to add approximately 1,000 mw of new capacity. Additionally, during November&nbsp;2007, Northern
Indiana filed a CPCN as well as contracts to purchase power generated with renewable energy,
specifically with wind. The CPCN requested approval to purchase two CCGT power plants &#151; the
Whiting Clean Energy facility owned by PEI, a wholly-owned subsidiary of NiSource, and the Sugar
Creek facility located in west central Indiana and owned by LS Power Group. On December&nbsp;22, 2007,
BPAE indicated it would exercise a contractual right of first refusal to purchase the Whiting Clean
Energy facility and subsequently signed a purchase agreement on April&nbsp;18, 2008. As a result, on
January&nbsp;25, 2008, Northern Indiana filed an amended CPCN to address just the Sugar Creek CCGT
facility. The estimated cost of the facility is $329&nbsp;million. The CPCN hearing before the IURC
took place on March&nbsp;25, 2008. Northern Indiana anticipates an order in May&nbsp;2008. The FERC
approved the purchase on February&nbsp;27, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On November&nbsp;26, 2002, Northern Indiana received approval from the IURC for an ECT. Under the ECT,
Northern Indiana is permitted to recover (1)&nbsp;AFUDC and a return on the capital investment expended
by Northern Indiana to implement IDEM&#146;s NOx State Implementation Plan through an ECRM and (2)
related operation and maintenance and depreciation expenses once the environmental facilities
become operational through an EERM. Under the IURC&#146;s November&nbsp;26, 2002 order, Northern Indiana is
permitted to submit filings on a semi-annual basis for the ECRM and on an annual basis for the
EERM. In December&nbsp;2006, Northern Indiana filed a petition with the IURC for appropriate cost
treatment and recovery of emission control construction needed to address the Phase I CAIR
requirements of the Indiana Air Pollution Control Board&#146;s CAIR rules that became effective on
February&nbsp;25, 2007. On July&nbsp;3, 2007, Northern Indiana received an IURC order issuing a CPCN for the
CAIR and CAMR Phase I Compliance Plan Projects, estimated to cost approximately $23&nbsp;million.
Northern Indiana will include the CAIR and CAMR Phase I Compliance Plan costs to be recovered in
the semi-annual and annual ECRM and EERM filing six months after construction costs begin. On
December&nbsp;19, 2007, the IURC approved Northern Indiana&#146;s latest compliance plan with the estimate of
$338.5&nbsp;million. On April&nbsp;2, 2008, the IURC approved ECR-11 for $252.6&nbsp;million in capital
expenditures (net of accumulated depreciation) and EER-5 for $14.1&nbsp;million in expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;9, 2008, the IURC established a procedural schedule to review the October&nbsp;27, 2006 Joint
Petition of Indiana Gasification, LLC, Vectren Energy Delivery of Indiana and Northern Indiana.
The petition seeks IURC approval for a coal gasification facility, the transportation of
electricity and SNG produced at the facility and the recovery of the cost incurred by the Joint
Petitioners. On March&nbsp;27, 2008, Joint Petitioners filed a motion seeking to extend the March&nbsp;31,
2008 deadline for direct testimony. The Joint Petitioners indicated that positive settlement talks
were underway regarding a purchase contract between Vectren Energy Delivery of Indiana, Northern
Indiana and Indiana Gasification, LLC. Northern Indiana currently anticipates that the hearing
will occur in the fourth quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. Risk Management and Energy Marketing Activities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource uses commodity-based derivative financial instruments primarily to manage commodity price
risk and interest rate risk exposure in its business as well as for commercial and industrial
sales. NiSource is not involved in speculative energy trading activity. NiSource accounts for its
derivatives in accordance with SFAS No.&nbsp;133. Under SFAS No.&nbsp;133, if certain conditions are met, a
derivative may be specifically designated as (a)&nbsp;a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm
commitment, or (b)&nbsp;a hedge of the exposure to variable cash flows of a forecasted transaction.
Additionally, certain NiSource subsidiaries enter into forward physical contracts with various
third parties to procure natural gas or power for its operational
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->20<!-- /Folio -->
</DIV>




<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">needs. These forward physical contracts are derivatives which qualify for the normal purchase normal sales exception under SFAS No.&nbsp;133 and do not require mark-to-market accounting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource&#146;s derivatives on the Condensed Consolidated Balance Sheets at March&nbsp;31, 2008 were:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Hedge</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Non-Hedge</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Price risk management assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">120.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">30.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">150.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total price risk management assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">202.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">236.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Price risk management liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">63.8</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">3.7</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">67.5</TD>
    <TD nowrap></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10.0</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10.0</TD>
    <TD nowrap></TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total price risk management liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">73.8</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">3.7</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">77.5</TD>
    <TD nowrap></TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource&#146;s derivatives on the Consolidated Balance Sheets at December&nbsp;31, 2007 were:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Hedge</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Non-Hedge</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Price risk management assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">88.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">102.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total price risk management assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">113.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">127.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Price risk management liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">53.8</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">26.1</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">79.9</TD>
    <TD nowrap></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1.5</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD nowrap></TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total price risk management liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">55.3</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">26.3</TD>
    <TD nowrap></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">81.6</TD>
    <TD nowrap></TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The hedging activity for the first quarter of 2008 and 2007 affecting accumulated other
comprehensive income, with respect to cash flow hedges included the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Three Months Ended March 31, <I>(in millions, net of taxes)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized gains on derivatives qualifying as cash flow
hedges at the beginning of the period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><b>$</B></TD>
    <TD align="right"><B>7.6 </B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">31.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized hedging gains arising during the period on
derivatives qualifying as cash flow hedges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>26.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Reclassification adjustment for net loss (gain)&nbsp;included in net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>9.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized gains on derivatives qualifying as cash flow
hedges at the end of the period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><b>$</B></TD>
    <TD align="right"><B>24.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">59.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the first quarter of 2008 and 2007, a loss of $0.1&nbsp;million and zero, net of taxes
respectively, were recognized in earnings due to the ineffectiveness of derivative instruments
being accounted for as hedges. All derivatives classified as a hedge are assessed for hedge
effectiveness, with any components determined to be ineffective charged to earnings or classified
as a regulatory asset or liability per SFAS No.&nbsp;71 as appropriate. During the first quarter of
2008 and 2007, NiSource did not reclassify any amounts related to its cash flow hedges from
accumulated other comprehensive income to earnings due to the probability that the underlying
forecasted transactions would not occur. It is anticipated that during the next twelve months the
expiration and settlement of cash flow hedge contracts will result in income statement recognition
of amounts currently classified in accumulated other comprehensive income of approximately $18.5
million of income, net of taxes.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->21<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Commodity Price Risk Programs. </B>Northern Indiana, Northern Indiana Fuel and Light, Kokomo Gas,
Columbia of Pennsylvania, Columbia of Kentucky, Columbia of Maryland and Columbia of Virginia use
NYMEX derivative contracts to minimize risk associated with gas price volatility. These derivative
hedging programs must be marked to fair value, but because these derivatives are used within the
framework of the companies&#146; gas cost recovery mechanism, regulatory assets or liabilities are
recorded to offset the change in the fair value of these derivatives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Northern Indiana offers a PPS as an alternative to the standard gas cost recovery mechanism. This
service provides Northern Indiana customers with the opportunity to either lock in the companies
gas cost or place a cap on the total cost that could be charged for any future month specified. In
order to hedge the anticipated physical purchases associated with these obligations, Northern
Indiana has purchased NYMEX futures, NYMEX options and basis contracts that correspond to a fixed
or capped price in the associated delivery month and currently enters into forward physical
contracts to secure forward gas prices. Columbia of Virginia started a program in April&nbsp;2005
similar to the Northern Indiana PPS, which allows non-jurisdictional customers the opportunity to
lock in the companies gas cost. The NYMEX futures and option contracts associated with these
programs are designated and accounted for as cash flow hedges.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Northern Indiana also offers a DependaBill program to its customers as an alternative to the
standard tariff rate that is charged to residential customers. The program allows Northern Indiana
customers to fix their total monthly bill at a flat rate regardless of gas usage or commodity cost.
In order to hedge the anticipated physical purchases associated with these obligations, Northern
Indiana has purchased NYMEX futures, NYMEX options and basis contracts that match the anticipated
delivery needs of the program and currently enters into forward physical contracts to secure
forward gas prices. The NYMEX futures and options contracts associated with this program are
generally designated and accounted for as cash flow hedges.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As part of the MISO Day 2 initiative, Northern Indiana was allocated and has purchased FTRs. These
rights help Northern Indiana offset congestion costs due to the MISO Day 2 activity. The FTRs do
not qualify for hedge accounting treatment, but since congestion costs are recoverable through the
fuel cost recovery mechanism, the related gains and losses associated with these transactions are
recorded as a regulatory asset or liability, in accordance with SFAS No.&nbsp;71. Additionally,
Northern Indiana also uses derivative contracts to minimize risk associated with power price
volatility. These derivative programs must be marked to fair value, but because these derivatives
are used within the framework of their cost recovery mechanism, regulatory assets or liabilities
are recorded to offset the change in the fair value of these derivatives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For regulatory incentive purposes, Northern Indiana enters into gas purchase contracts at first of
the month prices that give counterparties the daily option to either sell an additional package of
gas at first of the month prices or recall the original volume to be delivered. Northern Indiana
charges a fee for this option. The changes in the fair value of these options are primarily due to
the changing expectations of the future intra-month volatility of gas prices. These written
options are derivative instruments, must be marked to fair value and do not meet the requirement
for hedge accounting treatment. However, in accordance with SFAS No.&nbsp;71, Northern Indiana records
the related gains and losses associated with these transactions as a regulatory asset or liability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For regulatory incentive purposes, Columbia of Kentucky, Columbia of Ohio, Columbia of
Pennsylvania, and Columbia of Maryland (collectively, the &#147;Columbia LDCs&#148;) enter into contracts
that allow counterparties the option to sell gas to Columbia LDCs at first of the month prices for
a particular month of delivery. Columbia LDCs charge the counterparties a fee for this option.
The changes in the fair value of the options are primarily due to the changing expectations of the
future intra-month volatility of gas prices. These Columbia LDCs defer a portion of the change in
the fair value of the options as either a regulatory asset or liability in accordance with SFAS No.
71 based on the regulatory customer sharing mechanisms in place, with the remaining changes in fair
value recognized currently in earnings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia Energy Services has fixed price gas delivery commitments to two municipalities in the
United States which expire in July&nbsp;2008 and December&nbsp;2008. Columbia Energy Services entered into a
forward purchase agreement with a gas supplier, wherein the supplier will fulfill the delivery
obligation requirements at a slight premium to index. In order to hedge this anticipated future
purchase of gas from the gas supplier, Columbia Energy
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Services entered into commodity swaps priced
at the locations designated for physical delivery. These commodity swap derivatives are accounted
for as cash flow hedges.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Commodity price risk programs included in price risk assets and liabilities:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">March 31, 2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">December 31, 2007</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Assets</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Liabilities</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Assets</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Liabilities</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gas price volatility program derivatives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(22.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">PPS program derivatives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.8</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">DependaBill program derivatives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Electric energy program derivatives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Regulatory incentive program derivatives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Forward purchase agreements derivatives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total commodity price risk programs included</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">75.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">55.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(29.2</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Interest Rate Risk Activities. </B>Contemporaneously with the pricing of the 5.25% and 5.45% notes
issued September&nbsp;16, 2005, NiSource Finance settled $900&nbsp;million of forward starting interest rate
swap agreements with six counterparties. NiSource paid an aggregate settlement payment of $35.5
million which is being amortized as an increase to interest expense over the term of the underlying
debt, resulting in an effective interest rate of 5.67% and 5.88%, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource has entered into interest rate swap agreements to modify the interest rate characteristics
of its outstanding long-term debt from fixed to variable. On May&nbsp;12, 2004, NiSource Finance
entered into fixed-to-variable interest rate swap agreements in a notional amount of $660&nbsp;million
with six counterparties having a 6 1/2-year term. NiSource Finance will receive payments based
upon a fixed 7.875% interest rate and pay a floating interest amount based on U.S. 6-month BBA
LIBOR plus an average of 3.08% per annum. There was no exchange of premium at the initial date of
the swaps. In addition, each party has the right to cancel the swaps on May&nbsp;15, 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On July&nbsp;22, 2003, NiSource Finance entered into fixed-to-variable interest rate swap agreements in
a notional amount of $500&nbsp;million with four counterparties with an 11-year term. NiSource Finance
will receive payments based upon a fixed 5.40% interest rate and pay a floating interest amount
based on U.S. 6-month BBA LIBOR plus an average of 0.78% per annum. There was no exchange of
premium at the initial date of the swaps. In addition, each party has the right to cancel the
swaps on either July&nbsp;15, 2008 or July&nbsp;15, 2013.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the fixed-to-variable interest rate swap transactions referenced above, $1,160
million of NiSource Finance&#146;s existing long-term debt is now subject to fluctuations in interest
rates. These interest rate swaps are designated as fair value hedges. The effectiveness of the
interest rate swaps in offsetting the exposure to changes in the debt&#146;s fair value is measured
pursuant to SFAS No.&nbsp;133. NiSource had no net gain or loss recognized in earnings due to hedging
ineffectiveness from prior years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Interest rate risk activities programs included in price risk management assets and liabilities:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">March 31, 2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">December 31, 2007</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Assets</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Liabilities</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Assets</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Liabilities</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest rate swap derivatives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">60.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Marketing and Other Activities. </B>The operations of TPC primarily involve commercial and industrial
gas sales, whereby TPC utilizes gas derivatives to hedge its expected future gas purchases. These
derivatives associated with commercial and industrial gas sales are accounted for as cash flow
hedges. In addition, TPC, on behalf of Whiting
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->23<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Clean Energy, has also entered into power and gas derivative contracts to manage commodity price
risk associated with operating Whiting Clean Energy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Marketing and power programs included in price risk management assets and liabilities:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">March 31, 2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">December 31, 2007</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Assets</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Liabilities</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Assets</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Liabilities</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gas marketing derivatives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(73.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(52.4</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Power forward derivatives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total marketing and power programs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(73.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(52.4</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Fair Value of Financial Assets and Liabilities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource adopted the provisions of SFAS No.&nbsp;157 on January&nbsp;1, 2008. There was no impact on
retained earnings as a result of the adoption.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Recurring Fair Value Measurements. </B>The following table presents assets and liabilities measured
and recorded at fair value on NiSource&#146;s Condensed Consolidated Balance Sheet on a recurring basis
and their level within the fair value hierarchy during the three months ended March&nbsp;31, 2008:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Quoted Prices in</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Significant</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Active Markets</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Other</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Significant</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">for Identical</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Observable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Unobservable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Recurring Fair Value Measurements</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Assets</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Inputs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Inputs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Balance as of</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(Level 1)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(Level 2)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(Level 3)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">March 31, 2008</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Price risk management assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">169.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">65.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">236.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Available-for-sale securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">205.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">89.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">295.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Liabilities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Price risk management liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">71.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">77.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">71.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">89.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Price risk management assets and liabilities include commodity exchange-traded and
non-exchange-based derivative contracts. Exchange-traded derivative contracts are generally based
on unadjusted quoted prices in active markets and are classified within Level 1. Certain
non-exchange-traded derivatives are valued using broker or over-the-counter, on-line exchanges. In
such cases, these non-exchange-traded derivatives are classified within Level 2. Non-exchange-based
derivative instruments include swaps, forwards, and options. In certain instances, these
instruments may utilize models to measure fair value. The company uses a similar model to value
similar instruments. Valuation models utilize various inputs that include quoted prices for similar
assets or liabilities in active markets, quoted prices for identical or similar assets or
liabilities in markets that are not active, other observable inputs for the asset or liability, and
market-corroborated inputs, i.e., inputs derived principally from or corroborated by observable
market data by correlation or other means. Where observable inputs are available for substantially
the full term of the asset or liability, the instrument is categorized in Level 2. Certain
derivatives trade in less active markets with a lower availability of pricing information and
models may be utilized in the valuation. When such inputs have a significant impact on the
measurement of fair value, the instrument is categorized in Level 3.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Price risk management assets also include fixed-to-floating interest-rate swaps, which are
designated as fair-value hedges, as a means to achieve its targeted level of variable-rate debt as
a percent of total debt. NiSource uses a
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->24<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">calculation of future cash inflows and estimated future
outflows related to the swap agreements, which are discounted and netted to determine the current
fair value. Additional inputs to the present value calculation include the contract terms, as well
as market parameters such as current and projected interest rates and volatility. As they are
based on observable data and valuations of similar instruments, the interest-rate swaps are
categorized in Level 2 in the fair value hierarchy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Available-for-sale securities include assets in NiSource&#146;s deferred compensation trust and
investments pledged as collateral for trust accounts related to NiSource&#146;s wholly-owned insurance
company. Available-for-sale securities are included within Investments and other in the Condensed
Consolidated Balance Sheets. Securities classified within Level 1 include U.S. Treasury debt
securities which are highly liquid and are actively traded in over-the-counter markets. NiSource
values corporate and mortgage-backed debt securities using a matrix pricing model that incorporates
market-based information. These securities trade less frequently and are classified within Level
2. Unrealized gains and losses from our available-for-sale securities are included in OCI.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource&#146;s deferred compensation plan allows participants to defer certain cash compensation into a
notional investment account. NiSource includes the plan in other noncurrent liabilities in the
Condensed Consolidated Balance Sheets. The value of the deferred compensation obligation is based
on the market value of the participants&#146; notional investment accounts. The notional investments
include balances which are credited based upon published interest and bond yield indices and
investments in mutual funds. NiSource uses the lowest level of input significant to the valuation
to determine the fair value hierarchy classification, and therefore the liability is categorized in
Level 2.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table presents the fair value reconciliation of Level 3 assets and liabilities
measured at fair value on a recurring basis during the three months ended March&nbsp;31, 2008:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Financial</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">(<I>in millions</I>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Transmission Rights</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Other Derivatives</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of January&nbsp;1, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total gains or losses (unrealized/realized)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">
Included in regulatory assets/liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchases, issuances and settlements (net)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11.8</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance as of March&nbsp;31, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in unrealized gains/(losses)
relating to instruments still held as of
March&nbsp;31, 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Realized gains and losses for level 3 recurring items are included in income within Cost of Sales
on the Condensed Statements of Consolidated Income. Unrealized gains and losses from Level 3
recurring items are included within regulatory assets and liabilities on the Condensed Consolidated
Balance Sheets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As part of the MISO Day 2 initiative, Northern Indiana was allocated and has purchased FTRs. These
rights help Northern Indiana offset congestion costs due to the MISO Day 2 activity. These
instruments are considered derivatives and are valued utilizing forecasted congestion source and
sink prices in the Day Ahead market. They are classified as Level 3 and reflected in the table
above. The FTRs do not qualify for hedge accounting treatment, but since congestion costs are
recoverable through the fuel cost recovery mechanism, the related gains and losses associated with
these transactions are recorded as a regulatory asset or liability, in accordance with SFAS No.&nbsp;71.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. Income Taxes</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource&#146;s interim effective tax rates reflect the estimated annual effective tax rate for 2008 and
2007, respectively, adjusted for tax expense associated with certain discrete items. The effective
tax rates for the quarter ended March&nbsp;31, 2008 and March&nbsp;31, 2007 were 37.2% and 37.1%,
respectively. The effective tax rates differ from the federal tax rate of 35% primarily due to the
effects of tax credits, state income taxes, utility rate-making, and other
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->25<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">permanent book-to-tax
differences such as the electric production tax deduction provided under Internal Revenue Code
Section&nbsp;199.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Both the first quarter of 2008 and first quarter of 2007 include increases to tax expense for
discrete items. On March&nbsp;31, 2008, the governor of West Virginia signed legislation that phases in
a reduction in income tax rates from the current rate of 8.75% to 6.5% over the years 2009 through
2014, provided certain state budgetary targets are met. NiSource has West Virginia deferred income
tax benefits recorded on its Consolidated Balance Sheets that, because of the rate decrease, were
required to be written down in the first quarter of 2008. The impact of the write-down on first
quarter of 2008 net income is a reduction of $2.7&nbsp;million. This reduced benefit was offset by a
$0.5&nbsp;million decrease in income tax expense due primarily to the discontinuance of filing
consolidated Kentucky state income tax returns in 2008. The first quarter of 2007 includes an
increase in income tax expense of $1.5&nbsp;million, due mostly to state income tax issues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource adopted the provisions of FIN 48 on January&nbsp;1, 2007, recognizing a charge of $0.8&nbsp;million
to the opening balance of retained earnings. As of December&nbsp;31, 2007, the total liability for
unrecognized tax benefits, which is included in &#147;Other noncurrent liabilities&#148; on the
Consolidated Balance Sheets, was $3.7&nbsp;million ($4.0&nbsp;million including interest). There have been
no material changes in NiSource&#146;s FIN 48 liabilities from the December&nbsp;31, 2007 amounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Effective January&nbsp;1, 2007, NiSource records interest and penalties (if any) on prior year tax
liabilities as a component of income tax expense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. Pension and Other Postretirement Benefits</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource provides defined contribution plans and noncontributory defined benefit retirement plans
that cover its employees. Benefits under the defined benefit retirement plans reflect the
employees&#146; compensation, years of service and age at retirement. Additionally, NiSource provides
health care and life insurance benefits for certain retired employees. The majority of employees
may become eligible for these benefits if they reach retirement age while working for NiSource.
The expected cost of such benefits is accrued during the employees&#146; years of service. Current
rates of rate-regulated companies include postretirement benefit costs, including amortization of
the regulatory assets that arose prior to inclusion of these costs in rates. For most plans, cash
contributions are remitted to grantor trusts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;1, 2007, NiSource adopted the SFAS No.&nbsp;158 measurement date provisions requiring
employers to measure plan assets and benefit obligations as of the fiscal year-end. The pre-tax
impact of adopting the SFAS No.&nbsp;158 measurement date provisions increased deferred charges and
other assets by $9.4&nbsp;million, decreased regulatory assets by $89.6&nbsp;million, decreased retained
earnings by $11.3&nbsp;million, increased accumulated other comprehensive income by $5.3&nbsp;million and
decreased accrued liabilities for postretirement and postemployment benefits by $74.2&nbsp;million.
NiSource also recorded a reduction in deferred income taxes of approximately $2.6&nbsp;million. In
addition, 2007 expense for pension and postretirement benefits reflects the updated measurement
date valuations. In the fourth quarter of 2006, NiSource adopted the provisions of SFAS No.&nbsp;158
requiring employers to recognize in the statement of financial position the overfunded or
underfunded status of a defined benefit postretirement plan, measured as the difference between the
fair value of the plan assets and the benefit obligation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The key assumptions used to measure NiSource&#146;s various postretirement benefits plans&#146; funded status
at December&nbsp;31, 2007 were the same as those used for the previous January&nbsp;1, 2007 measurement date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource expects to make contributions of $17.1&nbsp;million to its pension plans and $38.3&nbsp;million to
its other postretirement benefit plans during 2008. Through March&nbsp;31, 2008, NiSource has
contributed $0.9&nbsp;million to its pension plans and $9.5&nbsp;million to its other postretirement benefit
plans.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->26<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following tables provide the components of the plans&#146; net periodic benefits cost for the first
quarter of 2008 and 2007:
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Pension Benefits</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Other Postretirement Benefits</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Three Months Ended March 31, <I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Components of Net Periodic Benefit Cost</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>9.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>2.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>33.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>11.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expected return on assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(48.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(46.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5.2</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of transitional obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of prior service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Recognized actuarial loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total Net Periodic Benefits Cost</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(4.7</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>11.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. Long-Term Debt</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Whiting Clean Energy. </I></B>On December&nbsp;31, 2007, Whiting Clean Energy redeemed $292.1 of its notes due
June&nbsp;20, 2011, having an average interest rate of 8.30%. The associated redemption premium of
$40.6&nbsp;million was charged to loss on early extinguishment of long-term debt. The redemption was
financed with NiSource borrowings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Jasper County Pollution Control Bonds. </I></B>Northern Indiana has seven series of Jasper County
Pollution Control Bonds with a total principal value of $254&nbsp;million currently outstanding. Prior
to March&nbsp;25, 2008, each of the series bore interest at rates established through auctions that took
place at either 7, 28, or 35&nbsp;day intervals. Between February&nbsp;13, 2008 and March&nbsp;5, 2008, Northern
Indiana received notice that six separate market auctions of four of the series of the Jasper
County Pollution Control Bonds had failed. As a result, those series representing an aggregate
principal amount of $112&nbsp;million of the Jasper County Pollution Control Bonds bore interest at
default rates equal to 15% or 18% per annum. Subsequent auctions were successful, but resulted in
interest rates between 5.13% and 11.0%, which are in excess of historical rates. Northern Indiana
does not believe that these increases in interest rates will have a material impact on its
financial results. These auction failures were attributable to the recent lack of liquidity in the
auction rate securities market, largely driven by the recent turmoil in the bond insurance market.
The Jasper County Pollution Control Bonds are insured by either Ambac Assurance Corporation or MBIA
Insurance Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Northern Indiana converted all seven series of Jasper County Pollution Control Bonds from the
auction rate mode to a variable rate demand bond mode between March&nbsp;25, 2008 and April&nbsp;11, 2008 and
repurchased the bonds as part of the conversion process. As of April&nbsp;11, 2008, all of the Jasper
County Pollution Control Bonds were so purchased and are held in Northern Indiana&#146;s treasury.
Northern Indiana is currently evaluating its options for converting the debt from variable rate
mode into fixed rate mode and subsequently reoffering the debt to the public.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2008, $199.0&nbsp;million of this outstanding debt had been converted to the variable
rate demand bond format and repurchased by Northern Indiana for its own account. The remaining
$55.0&nbsp;million is classified as current portion of long-term debt in the March&nbsp;31, 2008 Condensed
Consolidated Balance Sheet. Northern Indiana has recorded the repurchased bonds as an offset to
long-term debt in the Condensed Consolidated Balance Sheet as the debt is considered extinguished
per SFAS No.&nbsp;140. Unamortized debt expense previously recorded under deferred charges and other
qualifies for regulatory treatment and has been reclassified as a regulatory asset. The repurchase
of the bonds is included in the financing activities section in the Statement of Consolidated
Cash Flow.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->27<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>14. Share-Based Compensation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource currently issues long-term incentive grants to key management employees under a long-term
incentive plan approved by stockholders on April&nbsp;13, 1994 (1994 Plan). The 1994 Plan, as amended
and restated, permits the following types of grants, separately or in combination: nonqualified
stock options, incentive stock options, restricted stock awards, stock appreciation rights,
restricted stock units, contingent stock units and dividend equivalents payable on grants of
options, performance units and contingent stock awards. At March&nbsp;31, 2008, there were 25,858,317
shares reserved for future awards under the amended and restated 1994 Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource recognized stock-based employee compensation expense of $1.6&nbsp;million and $1.1&nbsp;million
during the first quarter of 2008 and 2007, respectively, as well as related tax benefits of $0.6
million and $0.4&nbsp;million, respectively. There were no modifications to awards as a result of the
adoption of SFAS No.&nbsp;123R.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2008, the total remaining unrecognized compensation cost related to nonvested
awards amounted to $17.3&nbsp;million, which will be amortized over the weighted-average remaining
requisite service period of 2.3&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Stock Options. </I></B>As of March&nbsp;31, 2008, approximately 7.3&nbsp;million options were outstanding and
exercisable with a weighted average option price of $22.67.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Restricted and Contingent Stock Unit Awards. </I></B>In March&nbsp;2008, 197,311 restricted stock units subject
to service conditions were granted. The grant date fair-value of the restricted units was $3.5
million, based on the average market price of NiSource&#146;s common stock at the date of grant of
$17.49, which will be expensed net of forfeitures over the vesting period of approximately 3&nbsp;years.
The service conditions lapse on January&nbsp;31, 2011. If before January&nbsp;31, 2011, the employee
terminates employment (1)&nbsp;due to retirement, having attained age 55 and completed ten years of
service, or (2)&nbsp;due to death or disability, the employment conditions will lapse with respect to a
pro rata portion of the restricted units on the date of termination. Termination due to any other
reason will result in all restricted units awarded being forfeited effective the employee&#146;s date of
termination. Employees will be entitled to receive dividends upon vesting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In March&nbsp;2008, 394,604 contingent stock units subject to performance conditions were granted. The
grant date fair-value of the award was $6.9&nbsp;million, which will be expensed net of forfeitures over
the vesting period of approximately 3&nbsp;years. The average market price of NiSource&#146;s common stock
at the date of grant was $17.49. The performance conditions are based on achievement of a non-GAAP
financial measure, cumulative net operating earnings, that NiSource defines as income from
continuing operations adjusted for certain items and cumulative funds from operations that NiSource
defines as net operating cash flows provided by continuing operations. Per the agreement, to the
extent base performance conditions are exceeded during the 3&nbsp;year performance period, the award
will be increased in increments of 10&nbsp;percent up to 50&nbsp;percent. If prior to the lapse of the
performance conditions, the employee terminates employment (1)&nbsp;due to retirement, having attained
age 55 and completed ten years of service, (2)&nbsp;due to disability, or (3)&nbsp;due to death with less
than or equal to 12&nbsp;months remaining in the performance period, the employee will receive a pro
rata portion of the contingent shares if the performance conditions have been met. If prior to the
lapse of the performance conditions, the employee terminates employment due to death with more than
12&nbsp;months remaining in the performance period, the employee will receive a pro rata portion of the
contingent shares as if the performance conditions had been met. Termination due to any other
reason will result in all contingent shares awarded being forfeited effective the employee&#146;s date
of termination. Employees will be entitled to receive dividends upon vesting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In March&nbsp;2007, 320,330 contingent stock units were granted. The grant date fair-value of the award
was $7.5&nbsp;million, based on the average market price of NiSource&#146;s common stock at the date of grant
of $23.46, which will be expensed net of forfeitures over the vesting period of approximately 3
years. The shares are subject to both performance and service conditions. The performance
conditions were based on achievement of a non-GAAP financial measure (net operating earnings) as
described above. Per the agreement, to the extent base performance conditions were exceeded, the
award would be increased in increments of 10&nbsp;percent up to 50&nbsp;percent. If the performance
conditions were not met, the grants would be cancelled and the shares would be forfeited.
Subsequent to meeting the performance conditions, an additional two year service period will then
be required before the shares vest on December&nbsp;31, 2009. If after completing the performance
conditions but prior to completing the service conditions the employee terminates employment (1)
due to retirement, having attained age 55 and completed ten
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->28<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">years of service, or (2)&nbsp;due to death
or disability, the employment conditions will lapse with respect to a pro rata portion of the
contingent shares on the date of termination. Termination due to any other reason will result in
all contingent shares awarded being forfeited effective the employee&#146;s date of termination. During
2007, base performance conditions were exceeded, resulting in an increase of the number of shares
to be issued upon vesting by 20&nbsp;percent. Accordingly, 62,319 additional shares were granted in
January&nbsp;2008. As of March&nbsp;31, 2008 373,911 nonvested contingent shares were remaining. Employees
will be entitled to receive dividends upon vesting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Time-accelerated Awards. </I></B>NiSource awarded restricted shares and restricted stock units that
contain provisions for time-accelerated vesting to key executives under the 1994 Plan. Most of
these awards were issued in January&nbsp;2003 and January&nbsp;2004. The total shareholder return measures
established were not met; therefore these grants do not have an accelerated vesting period. At
March&nbsp;31, 2008, NiSource had 538,456 awards outstanding which contained the time-accelerated
provisions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Non-employee Director Awards. </I></B>The Amended and Restated Non-employee Director Stock Incentive Plan
provides for awards of restricted stock, stock options and restricted stock units, which vest in
20% increments per year, with full vesting after five years. Effective March&nbsp;25, 2008, the board
approved to amend the vesting provisions of the plan such that all outstanding grants and future
grants of restricted stock units will vest immediately. As of March&nbsp;31, 2008, 62,600 restricted
shares and 147,577 restricted stock units had been issued under the Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>15. Other Commitments and Contingencies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>A.&nbsp;Guarantees and Indemnities. </B>As a part of normal business, NiSource and certain subsidiaries
enter into various agreements providing financial or performance assurance to third parties on
behalf of certain subsidiaries. Such agreements include guarantees and stand-by letters of credit.
These agreements are entered into primarily to support or enhance the creditworthiness otherwise
attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient
credit to accomplish the subsidiaries&#146; intended commercial purposes. The total commercial
commitments in existence at March&nbsp;31, 2008 and the years in which they expire were:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">After</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guarantees of subsidiaries debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,119.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">460.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,000.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">315.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,339.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guarantees supporting commodity
transactions of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">526.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">339.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">181.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lines of credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">624.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">624.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Letters of credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other guarantees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">343.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">257.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total commercial commitments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,715.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,062.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">704.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,000.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">332.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,601.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Guarantees of Subsidiaries Debt. </B>NiSource has guaranteed the payment of $5.1&nbsp;billion of debt for
various wholly-owned subsidiaries including NiSource Finance, and through a support agreement,
Capital Markets, which is reflected on NiSource&#146;s Condensed Consolidated Balance Sheet as of March
31, 2008. The subsidiaries are required to comply with certain financial covenants under the debt
instruments and in the event of default, NiSource would be obligated to pay the debt&#146;s principal
and related interest. NiSource does not anticipate its subsidiaries will have any difficulty
maintaining compliance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Guarantees Supporting Commodity Transactions of Subsidiaries. </B>NiSource has issued guarantees,
which support up to approximately $526.0&nbsp;million of commodity-related payments for its current
subsidiaries involved in energy marketing to satisfy requirements under forward gas sales. These
guarantees were provided to counterparties in order to facilitate physical and financial
transactions involving natural gas and electricity. To the extent liabilities exist under the
commodity-related contracts subject to these guarantees, such liabilities are included in the
Condensed Consolidated Balance Sheets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Lines and Letters of Credit. </B>NiSource Finance maintains a five-year revolving line of credit with
a syndicate of financial institutions which can be used either for borrowings or the issuance of
letters of credit. On July&nbsp;7, 2006, NiSource Finance amended the $1.25&nbsp;billion five-year revolving
credit facility, increasing the aggregate
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->29<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">commitment level to $1.5&nbsp;billion and extending the
termination date by one year to July&nbsp;2011. At March&nbsp;31, 2008, NiSource had $624.7&nbsp;million in
short-term borrowings outstanding under the credit facility. Through the five-year revolver and
through other letter of credit facilities, NiSource has issued stand-by letters of credit of
approximately $102.1&nbsp;million for the benefit of third parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Other Guarantees or Obligations.</B>
On April 18, 2008, PEI reached an agreement with BPAE to sell all of
the outstanding stock of Whiting Clean Energy to BPAE for $210 million. The agreement with BPAE contains customary
representations, warranties, covenants and closing conditions. NiSource anticipates the
closing of the transaction to occur in the second or third quarter of 2008. NiSource has
executed purchase and sales agreement guarantees totaling $220 million which guarantee
performance of PEI&#146;s covenants, agreements, obligations,
liabilities, representations and warranties under the agreement with BPAE. No amounts related to the purchase and
sales agreement guarantees are reflected in the Condensed
Consolidated Balance Sheet as of March 31, 2008. NiSource continues
to review the terms of the guarantees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On August&nbsp;29, 2007, Millennium entered into a bank credit
agreement to finance the construction of the Millennium Pipeline project. As a condition precedent
to the credit agreement, NiSource issued a guarantee securing payment for 47.5%, its indirect
ownership interest percentage, of amounts borrowed under the credit agreement up until such time as
the amounts payable under the agreement are paid in full. The permanent financing is expected to
be completed in the first quarter of 2009. As of March&nbsp;31, 2008, Millennium borrowed $193.0
million under the financing agreements, of which NiSource guaranteed $91.7&nbsp;million. NiSource
recorded an accrued liability of approximately $3.7&nbsp;million related to the fair value of this
guarantee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On June&nbsp;29, 2006, Columbia Transmission, Piedmont, and Hardy Storage entered into multiple
agreements to finance the construction of the Hardy Storage project, which is accounted for by
NiSource as an equity investment. Under the financing agreement, Columbia Transmission issued
guarantees securing payment for 50% of any amounts issued in connection with Hardy Storage up until
such time as the project is placed in service and operated within certain specified parameters. As
of March&nbsp;31, 2008, Hardy Storage borrowed $123.4&nbsp;million under the financing agreement, for which
Columbia Transmission recorded an accrued liability of approximately $1.2&nbsp;million related to the
fair value of its guarantee securing payment for $61.7&nbsp;million, which is 50% of the amount
borrowed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource has purchase and sales agreement guarantees totaling $80.0&nbsp;million, which guarantee
performance of the seller&#146;s covenants, agreements, obligations, liabilities, representations and
warranties under the agreements. No amounts related to the purchase and sales agreement guarantees
are reflected in the Condensed Consolidated Balance Sheets. Management believes that the
likelihood NiSource would be required to perform or otherwise incur any significant losses
associated with any of the aforementioned guarantees is remote.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource has issued other guarantees supporting derivative related payments associated with
interest rate swap agreements issued by NiSource Finance, operating leases for many of its
subsidiaries and for other agreements entered into by its current and former subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>B.&nbsp;Other Legal Proceedings. </B>In the normal course of its business, NiSource and its subsidiaries
have been named as defendants in various legal proceedings. In the opinion of management, the
ultimate disposition of these currently asserted claims will not have a material adverse impact on
NiSource&#146;s consolidated financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the case of Tawney, et al. v. Columbia Natural Resources, Inc., the Plaintiffs, who are West
Virginia landowners, filed a lawsuit in early 2003 against CNR alleging that CNR underpaid
royalties on gas produced on their land by improperly deducting post-production costs and not
paying a fair value for the gas. In December&nbsp;2004, the court granted plaintiffs&#146; motion to
add NiSource and Columbia as defendants. Plaintiffs also claimed that the defendants
fraudulently concealed the deduction of post-production charges. The court certified the case
as a class action that includes any person who, after July&nbsp;31, 1990, received or is due
royalties from CNR (and its predecessors or successors) on lands lying within the boundary of
the state of West Virginia. All claims by the government of the United States are excluded
from the class. Although NiSource sold CNR in 2003, NiSource remains obligated to manage this
litigation and for the majority of any damages ultimately awarded to the plaintiffs. On
January&nbsp;27, 2007, the jury hearing the case returned a verdict against all defendants in the
amount of $404.3&nbsp;million; this is comprised of $134.3&nbsp;million in compensatory damages and $270
million in punitive damages. In January&nbsp;2008, the Defendants filed their petition for appeal,
and on March&nbsp;24, 2008, the Defendants filed their amended petition for appeal with the West
Virginia Supreme Court of Appeals, which may or may not accept the appeal. NiSource has not
established a reserve for the punitive damages portion of the verdict.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. Environmental Matters.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>General. </B>The operations of NiSource are subject to extensive and evolving federal, state and local
environmental laws and regulations intended to protect the public health and the environment. Such
environmental laws and regulations affect operations as they relate to impacts on air, water and
land.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A reserve of $76.0&nbsp;million and $77.2&nbsp;million has been recorded as of March&nbsp;31, 2008 and December
31, 2007, respectively, to cover probable corrective actions at sites where NiSource has
environmental remediation liability. Regulatory assets have been recorded to the extent
environmental expenditures are expected to be recovered in rates. NiSource accrues for costs
associated with environmental remediation obligations when the incurrence of such costs is probable
and the amounts can be reasonably estimated, regardless of when the expenditures are actually made.
The undiscounted estimated future expenditures are based on many factors including currently
enacted laws and regulations, existing technology and estimated site-specific costs whereby
assumptions may be made about the nature and extent of site contamination, the extent of cleanup
efforts, costs of alternative cleanup methods and other variables. NiSource&#146;s estimated
environmental remediation liability will be refined as events in the remediation process occur.
Actual remediation costs may differ materially from NiSource&#146;s estimates due to the dependence on
the factors listed above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Proposals for voluntary initiatives and mandatory controls are being discussed both in the United
States and worldwide to reduce so-called &#147;greenhouse gases&#148; such as carbon dioxide, a by-product of
burning fossil fuels, and methane, a component of natural gas. Certain NiSource affiliates engage
in efforts to voluntarily report and reduce their greenhouse gas emissions. NiSource is currently
a participant in the EPA&#146;s Climate Leaders program. On April&nbsp;2, 2007, in Massachusetts v. EPA, the
Supreme Court ruled that the EPA does have authority under the Clean Air Act to regulate emissions
of greenhouse gases if it is determined that greenhouse gases have a negative impact on human
health or the environment. NiSource will continue to monitor and participate in developments
related to efforts to register and potentially regulate greenhouse gas emissions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On March&nbsp;12, 2008, the EPA announced the tightening of the 8-hour ozone NAAQS from 0.08 parts per
million to 0.075 parts per million. The number of areas that do not meet the new standards could
significantly increase across the country. Over the next several years, states will be required to
develop ozone attainment plans to implement the standards and improve air quality in these areas.
This could lead to additional emission reductions of NOx, an ozone precursor, from facilities owned
by NiSource. NiSource will closely monitor developments in these matters and cannot at this time
accurately estimate the timing or cost of emission controls that may eventually be required.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Gas Distribution Operations. </B>Several Gas Distribution Operations subsidiaries are potentially
responsible parties at waste disposal sites under the CERCLA (commonly known as Superfund) and
similar state laws, as well as at MGP sites, which such subsidiaries, or their corporate
predecessors, own or previously owned or operated. Gas Distribution Operations subsidiaries may be
required to share in the cost of cleanup of such sites. In addition, some Gas Distribution
Operations subsidiaries have responsibility for corrective action under the RCRA for closure and
cleanup costs associated with underground storage tanks and under the Toxic Substances Control Act
for cleanup of PCBs. The final costs of cleanup have not yet been determined. As site
investigations and cleanup proceed and as additional information becomes available reserves are
adjusted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A program has been instituted to identify and investigate former MGP sites where Gas Distribution
Operations subsidiaries or predecessors are the current or former owner. The program has
identified up to 86 such sites and initial investigations have been conducted at 54 sites.
Additional investigation activities have been completed or are in progress at 50 sites and remedial
measures have been implemented or completed at 37 sites. This effort includes the sites contained
in the January&nbsp;2004 agreement entered into with the IDEM, Northern Indiana, Kokomo Gas, and other
Indiana utilities under the Indiana Voluntary Remediation Program. Only those site investigation,
characterization and remediation costs currently known and determinable can be considered &#147;probable
and reasonably estimable&#148; under SFAS No.&nbsp;5. As costs become probable and reasonably estimable,
reserves will be adjusted. As reserves are recorded, regulatory assets are recorded to the extent
environmental expenditures are expected to be recovered through rates. NiSource is unable, at this
time, to accurately estimate the time frame and potential costs of the entire program. Management
expects that, as characterization is completed, additional remediation work is performed and more
facts become available, NiSource will be able to develop a probable and reasonable estimate for the
entire program or a major portion thereof consistent with the SEC&#146;s SAB No.&nbsp;92, SFAS No.&nbsp;5 and SOP
No.&nbsp;96-1.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Gas Transmission and Storage Operations. </B>Columbia Transmission continues to conduct
characterization and remediation activities at specific sites under a 1995 EPA Administrative Order
by Consent. The program pursuant to the Administrative Order by Consent covers approximately 245
facilities, approximately 13,000 liquid removal points, approximately 2,200 mercury measurement
stations and about 3,700 storage well locations. Field
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">characterization has been performed at all
sites. Site characterization reports and remediation plans, which must be submitted to the EPA for
approval, are in various stages of development and completion. Remediation has been completed at
the mercury measurement stations, liquid removal point sites and storage well locations and at all
but 7 of the 245 facilities. The AOC was amended in 2007 to facilitate payment of EPA oversight
costs and to remove remediated sites from the AOC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia Transmission and Columbia Gulf are potentially responsible parties at several waste
disposal sites under CERCLA and similar state laws. The potential liability is believed to be de
minimis. However, the final allocation of cleanup costs has yet to be determined. As site
investigations and cleanups proceed and as additional information becomes available reserves will
be adjusted.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;21, 2007, Pennsylvania Department of Environmental Protection provided representatives
of Columbia Transmission with a proposed Consent Order and Agreement covering an unmanned equipment
storage site located in rural southwest Pennsylvania. The proposed order alleges that Columbia
Transmission has violated the state&#146;s Clean Streams Act and Solid Waste Management Act by
discharging petroleum products onto the property and into the waters of the state. In addition to
requiring remediation and monitoring activities at the site, the state has proposed penalties for
these violations. Columbia Transmission plans to engage in further discussions with the agency
regarding the proposed order, including the rationale for the proposed penalty. The site in
question is subject to an existing EPA Administrative Consent Order.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On September&nbsp;26, 2007, Columbia Transmission received an NOV related to bentonite discharge
associated with a horizontal directional drill operation for the Hardy Storage project. On
November&nbsp;29, 2007, Columbia Transmission received an NOV related to the collapse of Swift Run
stream bed associated with the same horizontal directional drill operation. Columbia Transmission
received the Draft Consent Special Order from the VADEQ on March&nbsp;3, 2008. NiSource has provided
comments to the VADEQ on the Draft Consent Special Order and continues to work with the VADEQ on
the content of the Draft Consent Special Order. Stream restoration activities are continuing.
Continued monitoring of the stream will occur for the next six months to two years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Electric Operations.</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Air. </B>In December&nbsp;2001, the EPA approved regulations developed by the State of Indiana to comply
with the EPA&#146;s NOx SIP call. The NOx SIP call requires certain states, including Indiana, to
reduce NOx levels from several sources, including industrial and utility boilers, to lower regional
transport of ozone. Compliance with the NOx limits contained in these rules was required by May
31, 2004. To comply with the rule, Northern Indiana developed a NOx compliance plan, which
included the installation of Selective Catalytic Reduction NOx reduction technology at each of its
active generating stations and is currently in compliance with the NOx limits. In implementing the
NOx compliance plan, Northern Indiana has expended approximately $290&nbsp;million as of December&nbsp;31,
2007. Actual costs may vary depending on a number of factors including market demand and resource
constraints, uncertainty of future equipment and construction costs, and the potential need for
additional control technology.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On March&nbsp;10, 2005, the EPA issued the CAIR final regulations. The rule establishes phased
reductions of NOx and SO2 from 28 Eastern states, including electric utilities in Indiana, by
establishing an annual emissions cap for NOx and SO2 and an additional cap on NOx emissions during
the ozone control season. On March&nbsp;15, 2006, the EPA signed three related rulemakings providing
final regulatory decisions on implementing the CAIR. The EPA, in one of the rulings, denied
several petitions for reconsideration of various aspects of the CAIR, including requests by
Northern Indiana to reconsider SO2 and NOx allocations. On March&nbsp;25, 2008, the U. S. Court of
Appeals for the D. C. Circuit held oral arguments in litigation challenging the CAIR. Northern
Indiana, along with other utilities, directly participated in one of the arguments addressing the
legality of using the allowance allocations of the Acid Rain program for the purpose of complying
with the CAIR SO2 reduction requirements. A decision on these arguments is expected later this
year and such decision could potentially alter CAIR requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On October&nbsp;3, 2007, the Indiana Air Pollution Control Board adopted, with minor changes from the
EPA Clean Air Mercury Rule, the state rule to implement EPA&#146;s CAMR. The rule became effective on
February&nbsp;3, 2008, with compliance required in 2010. The EPA FIP rule, published December&nbsp;22, 2006,
has not been finalized and is intended only as a backstop for states such as Indiana that missed
the November&nbsp;17, 2006 submittal deadline but is working diligently to finalize its state rule. The
IDEM has indicated it is planning on utilizing an option in the FIP that allows the state to submit
a request for partial approval to use the IDEM&#146;s allowance allocation methodology
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">until the EPA is
able to approve the full state plan. The state&#146;s request for partial approval will be due to the
EPA upon the effective date of the final FIP, estimated to be in the first half of 2008. The EPA
would not record allowance allocations for 2010 until September&nbsp;2008. The FIP would be rescinded
upon EPA acceptance of the Indiana rule. On February&nbsp;8, 2008, the United States Court of Appeals
for the District of Columbia Circuit vacated two EPA rules addressing utility mercury emissions
that are the stimulus for the Indiana Air Pollution Control Board&#146;s CAMR. The first is the EPA&#146;s
rule delisting coal and oil-fired electric generating units from the list of sources whose
emissions are regulated under section 112 of the Clean Air Act, 42 U.S.C. &#167; 7412. <I>Revision of
December&nbsp;2000 Regulatory Finding </I>(&#147;Delisting Rule&#148;), 70 Fed. Reg. 15,994 (March&nbsp;29, 2005). The
second is the EPA&#146;s rule that set performance standards for new coal-fired electric generating
units and established total mercury emission limits for States along with a cap-and-trade program
for new and existing coal-fired electric generating units. <I>Standards of Performance for New and
Existing Stationary Sources: Electric Utility Steam Generating Units </I>(&#147;CAMR&#148;), 70 Fed. Reg. 28,606
(May&nbsp;18, 2005). On March&nbsp;24, 2008, the EPA and industry filed petitions with the court for
rehearing of these decisions. The resolution of this legal action and the EPA&#146;s response will
affect the implementation and timing of the installation of controls to address potential mercury
reduction obligations. Northern Indiana will closely monitor developments regarding any further
action by the EPA and subsequent regulatory developments from the EPA and/or the Indiana Air
Pollution Control Board in this matter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Local air quality has improved in three counties in which Northern Indiana generating assets are
located. In recognition of this improvement the IDEM submitted petitions to the EPA seeking
redesignation of the Indiana counties of Lake, Porter, and LaPorte to attainment of the eight-hour
ozone NAAQS. Final EPA rulemaking approving the LaPorte County redesignation became effective on
July&nbsp;19, 2007. The EPA approval for Lake and Porter counties is undergoing further evaluation and
may be delayed until after the 2008 ozone season due to monitored values in 2007 at one site that
put the design value just above the NAAQS. On October&nbsp;3, 2007, the Air Pollution Control Board
adopted the redesignation of LaPorte County to attainment as part of a reformatting of the state
attainment designation rule. The rule became effective January&nbsp;28, 2008. Upon promulgation of the
EPA and subsequent IDEM regulations to implement the redesignations to attainment, new source
review rules are expected to change from nonattainment new source review rules to prevention of
significant deterioration while measures responsible for existing emission reductions would
continue. The March&nbsp;12, 2008 EPA tightening of the 8-hour ozone NAAQS may preclude the approval of
the redesignation requests and may result in these counties remaining and/or again being designated
as nonattainment of the ozone NAAQS. As discussed above under &#147;General,&#148; the EPA ozone NAAQS
revision could lead to additional emission reductions of NOx, an ozone precursor, from facilities
owned by Northern Indiana. Northern Indiana will closely monitor developments in these matters and
cannot at this time accurately estimate the timing or cost of emission controls that may eventually
be required.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In a related matter, the U. S. Court of Appeals for the D. C. Circuit, in late 2006, ruled a
requirement to impose CAA &#167;185 fees on emissions sources located in counties that failed to attain
the previous (1-hr) ozone standard, which had been rescinded by the EPA in May&nbsp;2005, remained
applicable retroactive to November&nbsp;2005. The court remanded the issue to the EPA for
reconsideration. In January&nbsp;2008, the U. S. Supreme Court denied a petition to hear an appeal on
this matter. The EPA has announced that it intends to propose regulations in fall 2008 to specify
how &#167;185 fees will be imposed and calculated. One of Northern Indiana&#146;s operating generating assets
is located in a county where this fee could potentially be applied. Northern Indiana will closely
monitor developments in this matter and cannot estimate the financial impact at this time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In late 1999, the EPA initiated a New Source Review enforcement action against several industries,
including the electric utility industry, concerning rule interpretations that have been the subject
of recent (prospective)&nbsp;reform regulations. Northern Indiana has received and responded to the EPA
information requests on this subject, most recently in June&nbsp;2002. The EPA issued an NOV to
Northern Indiana on September&nbsp;29, 2004, for alleged violations of the Clean Air Act and the SIP.
Specifically, the NOV alleges that modifications were made to certain boiler units at the Michigan
City, Schahfer, and Bailly Generating Stations between the years of 1985 and 1995 without obtaining
appropriate air permits for the modifications. An adverse outcome in this matter could require
capital expenditures beyond the EPA requirements that cannot be determined at this time and could
require payment of substantial penalties. Northern Indiana is unable, at this time, to predict the
timing or outcome of this EPA action.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Water. </B>The Great Lakes Water Quality Initiative program is expected to add new water quality
standards for facilities that discharge into the Great Lakes watershed, including Northern
Indiana&#146;s three electric generating
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">stations located on Lake Michigan. The State of Indiana has
promulgated its regulations for this water discharge permit program and has received final EPA
approval.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The NPDES water discharge permit for Michigan City Generating Station has been issued and became
effective on April&nbsp;1, 2006. The permit requires that the facility meet the Great Lakes Initiative
discharge limits for copper. The Michigan City Generating Station has a four year compliance
schedule to meet these limits, which ends April&nbsp;1, 2010. Northern Indiana is evaluating
alternatives for treating copper in wastewater at the Michigan City Generating Station.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Great Lakes Initiative-based discharge limits for mercury have also been set for both the Michigan
City and Bailly Generating Stations. Northern Indiana will collect data, develop and implement
pollution reduction program plans, to demonstrate progress in reducing mercury discharge.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The permit for the Bailly Generating Station was issued on June&nbsp;26, 2006, and became effective on
August&nbsp;1, 2006. Northern Indiana appealed the Bailly Generating Station NPDES permit, due to an
unacceptable internal outfall monitoring permit condition. On February&nbsp;18, 2008, the Bailly NPDES
permit was modified to resolve the monitoring issue and to address the 316(b) rule status due to
the remand mentioned below. Due to additional pending studies, the cost of complying with the
permit requirements cannot be estimated at this time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;16, 2004, the EPA Administrator signed the Phase II Rule of the Clean Water Act Section
316(b) which requires all large existing steam electric generating stations meet certain
performance standards to reduce the effects on aquatic organisms at their cooling water intake
structures. The rule became effective on September&nbsp;7, 2004. Under this rule, stations will either
have to demonstrate that the performance of their existing fish protection systems meet the new
standards or develop new systems, such as a closed-cycle cooling tower. On January&nbsp;25, 2007, the
Second Circuit in a court decision on the Phase II 316(b) rule, remanded for EPA reconsideration
the options providing flexibility for meeting the requirements of the rule. On March&nbsp;20, 2007, the
EPA issued a guidance memo advising its Regional Administrators that the Agency considers the
316(b), Phase II Rule governing cooling water withdrawals suspended and will be issuing a Federal
Register notice to that effect. On July&nbsp;9, 2007, the EPA published a notice in the Federal
Register suspending the Phase II rule. The notice explained that the EPA is not accepting comments
on the suspension and notes that &#147;best professional judgment&#148; is to be used in making 316(b)
decisions. The EPA will need to propose a revised 316(b) rule and/or provide guidance to address
the impact of the court decision. Northern Indiana will closely monitor the EPA rule developments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On July&nbsp;5, 2007, the Second Circuit Court of Appeals denied the petitions for rehearing asking the
court to reconsider its remand of the Phase II 316(b) ruling. Various parties submitted petitions
for a <I>writ of certiorari </I>to the U. S. Supreme Court in early November seeking to reverse the Second
Circuit Court&#146;s decision. Northern Indiana will continue to closely monitor this activity.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1.</U> <U>FINANCIAL STATEMENTS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>16. Changes in Common Stockholders&#146; Equity and Comprehensive Income</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table displays the changes in Common Stockholders&#146; Equity and Comprehensive Income
for the three months ended March&nbsp;31, 2008 and 2007.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Additional</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Accum</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Common</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Treasury</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Paid-In</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Retained</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Other Comp</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Comp</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Capital</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Earnings</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Income/(Loss)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Income</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance January&nbsp;1, 2008</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>2.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(23.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>4,011.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>1,074.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>11.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>5,076.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive Income:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income, net of tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain/loss on available for sale securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net unrealized losses on derivatives
qualifying as cash flow hedges (b)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unrecognized Pension Benefit
and OPEB cost (c )</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(126.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(126.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Treasury stock acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issued:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Employee stock purchase plan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long-term incentive plan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of Long-term
incentive Plan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance March&nbsp;31, 2008</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>2.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(23.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>4,013.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>1,047.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>24.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>5,064.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Additional</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Accum</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Common</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Treasury</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Paid-In</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Retained</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Other Comp</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Comp</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Stock</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Capital</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Earnings</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Income/(Loss)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Total</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Income</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance January&nbsp;1, 2007</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>2.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(21.2</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>3,998.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>1,012.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>20.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>5,013.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustment to initially apply new measurement
date pursuant to SFAS No.&nbsp;158, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustment to initially apply
FIN 48, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Beginning balance, as adjusted</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>2.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(21.2</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>3,998.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>1,005.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>20.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>5,006.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive Income:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income, net of tax:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain/loss on available for sale securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net unrealized gains on derivatives
qualifying as cash flow hedges (b)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unrecognized Pension Benefit
and OPEB cost (c )</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(126.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(126.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Treasury stock acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issued:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock issuance </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">
Employee stock purchase plan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long-term incentive plan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of Long-term
incentive Plan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance March&nbsp;31, 2007</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>2.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(22.7</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>4,001.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>1,096.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>50.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>5,127.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="29" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(a)</TD>
    <TD>&nbsp;</TD>
    <TD>Net unrealized losses on available for sale securities, net of $1.3&nbsp;million and $2.0
million tax expense in the first three months of 2008 and 2007, respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(b)</TD>
    <TD>&nbsp;</TD>
    <TD>Net unrealized gains (losses)&nbsp;on derivatives qualifying as cash flow hedges, net of
$17.3&nbsp;million and $28.1&nbsp;million tax benefit in the first three months of 2008 and 2007,
respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(c)</TD>
    <TD>&nbsp;</TD>
    <TD>Unrecognized pension benefit and OPEB costs, net of $3.6&nbsp;million tax expense and $3.2&nbsp;million
tax benefit in the first three months of 2008 and 2007, respectively.</TD>
</TR>

</TABLE>




<P align="center" style="font-size: 10pt"><!-- Folio -->35<!-- /Folio -->
</DIV>




<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 1.</u> <u>FINANCIAL STATEMENTS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT><BR>
<b>Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>17. Accumulated Other Comprehensive Income</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table displays the components of Accumulated Other Comprehensive Income, which is
included in &#147;Common Stockholders&#146; Equity,&#148; on the Condensed Consolidated Balance Sheets.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other
comprehensive income (loss), before taxes:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&nbsp;</B></TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unrealized gains on securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>5.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Tax (expense)&nbsp;on unrealized gains on securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(2.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.8</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unrealized gains on cash flow hedges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>39.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Tax (expense)&nbsp;on unrealized gains on cash flow hedges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(14.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Unrecognized pension benefit and OPEB costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6.7</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Tax benefit on unrecognized pension benefit and OPEB costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total Accumulated Other Comprehensive Income, net of taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>24.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18. Business Segment Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Operating segments are components of an enterprise for which separate financial information is
available that is evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The NiSource Chief Executive Officer is the chief
operating decision maker.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource&#146;s operations are divided into four primary business segments. The Gas Distribution
Operations segment provides natural gas service and transportation for residential, commercial and
industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, Maryland, Indiana and
Massachusetts. The Gas Transmission and Storage Operations segment offers gas transportation and
storage services for LDCs, marketers and industrial and commercial customers located in
northeastern, mid-Atlantic, midwestern and southern states and the District of Columbia. The
Electric Operations segment provides electric service in 20 counties in the northern part of
Indiana. The Other Operations segment primarily includes gas and power marketing, and ventures
focused on distributed power generation technologies, including cogeneration facilities, fuel cells
and storage systems.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->36<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 1.</u> <u>FINANCIAL STATEMENTS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.<BR>
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table provides information about business segments. NiSource uses operating income
as its primary measurement for each of the reported segments and makes decisions on finance,
dividends and taxes at the corporate level on a consolidated basis. Segment revenues include
intersegment sales to affiliated subsidiaries, which are eliminated in consolidation. Affiliated
sales are recognized on the basis of prevailing market, regulated prices or at levels provided for
under contractual agreements. Operating income is derived from revenues and expenses directly
associated with each segment.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Three Months Ended March 31, <I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>REVENUES</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Gas Distribution Operations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unaffiliated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>2,440.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,048.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,447.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,055.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Gas Transmission and Storage Operations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unaffiliated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>168.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">163.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>63.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>231.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">229.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Electric Operations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unaffiliated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>332.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">326.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>333.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">327.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other Operations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unaffiliated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>346.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">304.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>13.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>359.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">321.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments and eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(81.4</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(88.2</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Consolidated Revenues</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>3,289.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,844.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Income (Loss)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gas Distribution Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>254.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">254.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gas Transmission and Storage Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>104.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Electric Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>38.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(0.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(2.8</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Consolidated Operating Income</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>394.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">430.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>19. Hartsville and Delhi Compressor Stations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;5, 2008, tornados struck Columbia Gulf&#146;s Hartsville Compressor Station in Macon County,
Tennessee. The damage to the facility forced Columbia Gulf to declare force majeure because no gas
was flowing through this portion of the pipeline system while a facility assessment was being
performed and the current contractual transportation agreements of 2.156 Bcf per day could not be
met. Since that time Columbia Gulf restored gas flow to 1.65 Bcf per day; however, full
contractual agreements still cannot be met. Although temporary solutions are being investigated to
restore system capabilities as soon as possible, a permanent solution for rebuilding the compressor
station may take 18 to 24&nbsp;months. The temporary solutions will begin adding system capacity in the
second quarter and will be completed by July&nbsp;2008. This capacity would remain in
place while the permanent solution is implemented. NiSource expects the majority of the reconstruction costs during the 18 to 24&nbsp;month period for the
compressor station and ancillary facilities plus business interruption losses during the twelve
month period from the event will be recoverable through insurance.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->37<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 1.</u> <u>FINANCIAL STATEMENTS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.<BR>
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)</B></FONT>

</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;14, 2007, Columbia Gulf&#146;s Line 100 ruptured approximately two miles north of its Delhi
Compressor Station in Louisiana. The damage to the pipeline forced Columbia Gulf to declare force
majeure because no gas was flowing through this portion of the pipeline system on Lines 100, 200
and 300 while a facility assessment was performed. As a result the current contractual
transportation agreements of 2.156 Bcf per day could not be met. By December&nbsp;15, 2007 Lines 200
and 300 were returned to service and gas flow was restored to 2.0 Bcf per day on December&nbsp;16, 2007.
On December&nbsp;19, 2007, the U.S. Department of Transportation issued a Corrective Action Order which
was applicable to Line 100 from the Rayne, LA Compressor Station to Leach, KY. The Order required
Columbia Gulf to develop a remedial work plan, which included assessments on Line 100 using in-line
inspection tools. The Order also required a 20% reduction in pressure on Line 100 from the Rayne
Compressor Station to the Corinth Compressor Station which resulted in a reduction in gas flow on
December&nbsp;21, 2007 to 1.6 Bcf per day. The next day the capacity was increased to 1.75 Bcf per day.
Between December&nbsp;22, 2007 and February&nbsp;5, 2008 the capacity varied between 1.6 and 1.75 Bcf per day
as a result of remediation work on Line 100. Columbia Gulf is
continuing its remediation efforts with the goal of lifting the
Corrective Action Order. NiSource expects to recover a portion of the pipeline replacement costs plus business interruption
losses through insurance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">
Over the course of the next 24&nbsp;months, firm
transportation contracts of approximately 1.2 Bcf per day will expire and there is a risk some of
those may not be renewed due to the reduced system capabilities.
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->38<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 2.</u> <u>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Note regarding forward-looking statements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Management&#146;s Discussion and Analysis, including statements regarding market risk sensitive
instruments, contains &#147;forward-looking statements,&#148; within the meaning of Section&nbsp;27A of the
Securities Act of 1933, as amended, and Section&nbsp;21E of the Securities Exchange Act of 1934, as
amended. Investors and prospective investors should understand that many factors govern whether
any forward-looking statement contained herein will be or can be realized. Any one of those
factors could cause actual results to differ materially from those projected. These
forward-looking statements include, but are not limited to, statements concerning NiSource&#146;s plans,
objectives, expected performance, expenditures and recovery of expenditures through rates, stated
on either a consolidated or segment basis, and any and all underlying assumptions and other
statements that are other than statements of historical fact. From time to time, NiSource may
publish or otherwise make available forward-looking statements of this nature. All such subsequent
forward-looking statements, whether written or oral and whether made by or on behalf of NiSource,
are also expressly qualified by these cautionary statements. All forward-looking statements are
based on assumptions that management believes to be reasonable; however, there can be no assurance
that actual results will not differ materially.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Realization of NiSource&#146;s objectives and expected performance is subject to a wide range of risks
and can be adversely affected by, among other things, weather, fluctuations in supply and demand
for energy commodities, growth opportunities for NiSource&#146;s businesses, increased competition in
deregulated energy markets, the success of regulatory and commercial initiatives, dealings with
third parties over whom NiSource has no control, the effectiveness of NiSource&#146;s outsourcing
initiative, actual operating experience of NiSource&#146;s assets, the regulatory process, regulatory
and legislative changes, changes in general economic, capital and commodity market conditions, and
counterparty credit risk, many of which risks are beyond the control of NiSource. In addition, the
relative contributions to profitability by each segment, and the assumptions underlying the
forward-looking statements relating thereto, may change over time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following Management&#146;s Discussion and Analysis should be read in conjunction with NiSource&#146;s
Annual Report on Form 10-K for the fiscal year ended December&nbsp;31, 2007.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>CONSOLIDATED REVIEW</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Executive Summary</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource is an energy holding company whose subsidiaries are engaged in the transmission, storage
and distribution of natural gas in the high-demand energy corridor stretching from the Gulf Coast
through the Midwest to New England and the generation, transmission and distribution of electricity
in Indiana. NiSource generates virtually 100% of its operating income through these rate-regulated
businesses. A significant portion of NiSource&#146;s operations is subject to seasonal fluctuations in
sales. During the heating season, which is primarily from November through March, net revenues
from gas are more significant, and during the cooling season, which is primarily from June through
September, net revenues from electric sales and transportation services are more significant than
in other months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource is a holding company under the Public Utility Holding Company Act of 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For the three months ended March&nbsp;31, 2008, NiSource reported income from continuing operations of
$189.4&nbsp;million, or $0.69 per basic share, compared to $206.5&nbsp;million, or $0.75 per basic share in
2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Decreases in income from continuing operations were due primarily to the following items:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Electric Operations net revenues were negatively impacted by $11.4&nbsp;million in the current
quarter primarily due to non-recoverable power purchased and non-recoverable MISO charges.</TD>
</TR>



</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->39<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 2.</u> <u>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)</u>
</DIV>




<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT>

</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Operation and maintenance expenses increased due to higher employee and administrative
expenses of $15.8&nbsp;million and higher electric generation and maintenance costs of $7.4&nbsp;million.
Employee and administrative costs include payroll, benefits and higher corporate services costs,
including costs associated with the amended IBM Agreement. Employee and administrative expenses
also increased due to adjustments that reduced benefit expense by $7.1&nbsp;million during 2007. The
increased electric generation and maintenance costs resulted from planned turbine and boiler
maintenance and a generator overhaul.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Increases impacting income from continuing operations that partially offset the decreases impacting
income included:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gas Distribution Operations&#146; net revenues increased as a result of higher residential and
commercial volumes. Residential volumes increased 2.4% from the comparable period last year
while commercial volumes increased 4.8%.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Gas Transmission and Storage Operations&#146; net revenues have increased due to higher net
revenues from firm capacity reservation fees related to new interconnects along the Columbia
Gulf pipeline system and deliveries from the Hardy storage field partially offset by insurance
proceeds from a business interruption claim that improved last year&#146;s results.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Interest expense decreased due to lower short-term interest rates and the retirement late
in 2007 of high cost debt associated with the Whiting Clean Energy facility.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">These factors and other impacts to the financial results are discussed in more detail within the
following discussions of &#147;Results of Operations&#148; and &#147;Results and Discussion of Segment
Operations.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Four-Point Platform for Growth</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource has established four key initiatives to build a platform for long-term, sustainable
growth: commercial and regulatory initiatives; commercial growth and expansion of the gas
transmission and storage business; financial management of the balance sheet; and process and
expense management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Commercial and Regulatory Initiatives</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Whiting Clean Energy. </I></B>On April&nbsp;18, 2008, PEI reached an agreement with BPAE to sell all of the
outstanding stock of Whiting Clean Energy to BPAE for $210&nbsp;million. The agreement with BPAE
contains customary representations, warranties, covenants and closing conditions. NiSource
anticipates the closing of the transaction to occur in the second or third quarter of 2008,
depending upon the timing of the satisfaction of closing conditions, including required approvals
from the Federal Energy Regulatory Commission and the termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Rate Development and Other Regulatory Matters. </I></B>NiSource is moving forward on regulatory
initiatives across several distribution company markets. Whether through full rate case filings or
other approaches, NiSource&#146;s goal is to develop strategies that benefit all stakeholders as it
addresses changing customer conservation patterns, develops more contemporary pricing structures,
and embarks on long-term investment programs to enhance its infrastructure. Rate case planning
activities are underway at Northern Indiana with a filing anticipated during 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;28, 2008, Columbia of Pennsylvania filed a base rate case with the Pennsylvania Public
Utility Commission, seeking an increase of approximately $60&nbsp;million annually, effective October
28, 2008. Through this filing, Columbia of Pennsylvania is seeking to recover costs associated
with its significant infrastructure rehabilitation program, as well as stabilize revenues and cost
recovery through modifications to rate design. The case is currently pending, and is expected to
be resolved by the fourth quarter of 2008.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->40<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 2.</u> <u>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia of Ohio filed a base rate case with PUCO on March&nbsp;3, 2008, requesting an increase in base
rates in excess of $80&nbsp;million annually. Columbia of Ohio is seeking recovery of increased
infrastructure rehabilitation costs, as well as the stabilization of revenues and cost recovery
through rate design. The case is currently pending, and is expected to be resolved by the fourth
quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia of Ohio and other stakeholders reached an agreement in the fourth quarter of 2007 that
establishes the framework for operations under Columbia of Ohio&#146;s CHOICE<SUP style="font-size: 85%; vertical-align: text-top">SM</SUP> program for
the next several years and provides for a wholesale gas supply auction by early 2010. On January
23, 2008, the PUCO approved the agreement. During 2007, Columbia of Ohio also filed with the PUCO
a Joint Stipulation that clarifies the company&#146;s operational responsibilities for customer-owned
service lines and faulty risers. The stipulation establishes a recovery mechanism to collect
certain costs associated with repair or replacement of customer-owned service lines and replacement
of risers and resolves outstanding issues related to this important customer safety program. On
April&nbsp;9, 2008, the PUCO issued an order in this matter approving the Stipulation in all material
respects. On April&nbsp;23, 2008, Utility Service Partners, Inc. requested that the PUCO stay its
order, pending the resolution of any applications on rehearing. Columbia of Ohio filed its
response to the motion on April&nbsp;28, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On October&nbsp;17, 2007, Bay State petitioned the Massachusetts Department of Public Utilities to allow
the company to collect an additional $7.5&nbsp;million in annual revenue related to usage reductions
occurring since its last rate case. Bay State also requested approval of a steel infrastructure
tracker that would allow for recovery of ongoing infrastructure replacement program investments.
The Massachusetts Department of Public Utilities held hearings on this matter in the first quarter
of 2008 and issued an order denying Bay State&#146;s petition on
April 30, 2008. NiSource is in the process of reviewing the order and
assessing its rehearing or appeal options.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;30, 2008, the IURC approved a settlement agreement which was reached in October&nbsp;2007
with the OUCC, LaPorte County and a group of Northern Indiana industrial customers to resolve
questions relating to the costs paid by customers for power purchased by Northern Indiana versus
the amount of these costs absorbed by Northern Indiana. The terms of the settlement call for
Northern Indiana to make a one-time payment to resolve this question as it relates to power
purchased from January&nbsp;1, 2006 through September&nbsp;30, 2007. The amount of the refund is set at
$33.5&nbsp;million and will be refunded February&nbsp;2008 through July&nbsp;2008. A reserve for the entire amount
was recorded in the third quarter of 2007. Northern Indiana implemented a new &#147;benchmarking
standard&#148; that will govern the allocation of costs for purchased power between customers and
Northern Indiana. The benchmark defines the price below which customers will pay for power
purchases and above which Northern Indiana must absorb a portion of the costs. The benchmark is
based upon the costs of power generated by a hypothetical natural gas fired CCGT using gas
purchased and delivered to Northern Indiana. This has resulted in Northern Indiana absorbing some
purchased power costs that have reduce net revenues and may reduce net revenues during future
periods. The agreement also contemplates Northern Indiana adding generating capacity to its
existing portfolio. The benchmark will be adjusted as new capacity is added. The added generating
capacity will substantially reduce the amount of purchased power and mitigate the impact of the
adjusted benchmark. Further, the settling parties agreed to support Northern Indiana&#146;s deferral
and future recovery of carrying costs and depreciation associated with the acquisition of new
generating facilities. In the approving order, the IURC dictated that, while the parties agreed to
support the deferral of costs mentioned above, the IURC would rule on such deferral in CPCN
proceedings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On November&nbsp;1, 2007, Northern Indiana filed its bi-annual IRP with the IURC. The plan showed the
need to add approximately 1,000 mw of new capacity. Additionally, during November&nbsp;2007, Northern
Indiana filed a CPCN as well as contracts to purchase power generated with renewable energy,
specifically with wind. The CPCN requested approval to purchase two CCGT power plants &#151; the
Whiting Clean Energy facility owned by PEI, a wholly-owned subsidiary of NiSource, and the Sugar
Creek facility located in west central Indiana and owned by LS Power Group. On December&nbsp;22, 2007,
BPAE indicated it would exercise a contractual right of first refusal to purchase the Whiting Clean
Energy facility and subsequently signed a purchase agreement on April&nbsp;18, 2008. As a result, on
January&nbsp;25, 2008, Northern Indiana filed an amended CPCN to address just the Sugar Creek CCGT
facility. The estimated cost of the facility is $329&nbsp;million. The CPCN hearing before the IURC
took place on March&nbsp;25, 2008. Northern Indiana anticipates an order in May&nbsp;2008. The FERC
approved the purchase on February&nbsp;27, 2008.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->41<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 2.</u> <u>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Refer to the &#147;Results and Discussion of Segment Operations&#148; for a complete discussion of regulatory
matters.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Sale of Northern Utilities and Granite State Gas. </I></B>On February&nbsp;15, 2008, NiSource reached a
definitive agreement under which Unitil Corporation will acquire NiSource subsidiaries Northern
Utilities and Granite State Gas for $160&nbsp;million plus net working capital at the time of closing.
Historically, net working capital has averaged approximately $25&nbsp;million. Under the terms of the
transaction, Unitil Corporation will acquire Northern Utilities, a local gas distribution company
serving 52 thousand customers in 44 communities in Maine and New Hampshire and Granite State Gas,
an 86-mile FERC regulated gas transmission pipeline primarily located in Maine and New Hampshire.
The transaction, expected to be completed by the end of 2008, is subject to federal and state
regulatory approvals. During the quarter ended March&nbsp;31, 2008, NiSource recognized an after tax
loss of $63.6&nbsp;million related to the pending sale and accounted for Northern Utilities and Granite
State Gas as discontinued operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource acquired Northern Utilities and Granite State Gas in 1999 as part of the company&#146;s larger
acquisition of Bay State. NiSource is retaining its ownership of Bay State as a core component of
the company&#146;s long-term, investment-driven growth strategy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Commercial Growth and Expansion of the Gas Transmission and Storage Business</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Master Limited Partnership. </I></B>On December&nbsp;21, 2007, NiSource Energy Partners, L.P., an MLP and
subsidiary of NiSource, filed an S-1 registration statement with the SEC in which it proposed
making an initial public offering of common units in the MLP and NiSource proposed contributing its
interest in Columbia Gulf to the MLP. NiSource management believes the formation of an MLP is a
natural complement to NiSource&#146;s gas transmission and storage growth strategy, and should provide
NiSource access to competitively priced capital to support future growth investment. Due to the
damage sustained at Columbia Gulf&#146;s Hartsville, Tennessee, compressor station, following the
tornados at the facility as described previously, the expected timing of initial public offering is
expected to be delayed until later in 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Millennium Pipeline Project</I></B><B>. </B>In June&nbsp;2007, construction began on the Millennium Pipeline, a
182-mile-long, 30-inch-diameter pipeline across New York&#146;s Southern Tier and lower Hudson Valley.
The project is expected to be completed in November&nbsp;2008 and will transport up to 525,400 Dth per
day of natural gas to markets along its route, as well as to the New York City markets through its
pipeline interconnections. Millennium is jointly owned by affiliates of NiSource, KeySpan
Corporation, and DTE Energy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Hardy Storage Project. </I></B>Hardy Storage completed its first full year of operations, receiving
customer injections and withdrawing natural gas from its new underground natural gas storage
facility in West Virginia. Injections this year will allow the field to deliver up to 150,000 Dth
of natural gas per day during the 2008-2009 winter heating season. Customers withdrew over 5.44 BCF
from the storage field during the 2007-2008 winter heating season. When fully operational in 2009,
the field will have a working storage capacity of 12&nbsp;billion cubic feet, delivering more than
176,000 Dth of natural gas per day. Hardy Storage is a joint venture of subsidiaries of Columbia
Transmission and Piedmont.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia Transmission, the operator of Hardy Storage, is expanding its natural gas transmission
system by 176,000 Dth per day to provide the capacity needed to deliver Hardy Storage supplies to
customer markets. Construction of these transmission facilities is substantially complete and
partially in service. The remainder will be placed in-service in the first half of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Florida Gas Transmission Expansion Project. </I></B>An open season to solicit interest and contracts for
expanded capacity on Columbia Gulf&#146;s system for delivery to Florida Gas Transmission was held in
late 2007 and contracts for 100,000 Dth per day of capacity were executed. The remaining 80,000
Dth per day of capacity is expected to be sold under firm contracts. This project is expected to
be in service during the second quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Eastern Market Expansion Project</I></B><B>. </B>On May&nbsp;3, 2007, Columbia Transmission filed a certificate
application before the FERC for approval to expand its facilities to provide additional storage and
transportation services and to replace certain existing facilities. This Eastern Market Expansion
project is projected to add 97,000 Dth per day of storage and transportation deliverability and is
fully subscribed on a 15-year contracted firm basis. On January&nbsp;14, 2008, the
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->42<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 2.</u> <u>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">FERC issued a favorable order which granted a certificate to construct the project and the project
is expected to be in service by spring 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Ohio Storage Project</I></B><B>. </B>Columbia Transmission concluded successful open seasons to gauge customer
interest in an expansion of its storage in Ohio. The final scope of the project will be determined
based on the outcome of the ongoing customer discussions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Appalachian Expansion Project. </I></B>On February&nbsp;29, 2008, Columbia Transmission filed an application
before the FERC for approval to build a new 9,470 horsepower compressor station in West Virginia.
The Appalachian Expansion Project will add 100,000 Dth per day of transportation capacity and is
fully subscribed on a 15-year contracted firm basis. The project is expected to be in service in
the fourth quarter of 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>New
Penn Transmission Project. </I></B>NiSource Gas Transmission and
Storage Operations concluded a successful open
season to gauge customer interest in a new pipeline system to provide 500,000 Dth per day of firm
service from storage facilities near Leidy to a new interconnection with Millennium Pipeline in
Steuben County, New York in 2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Centerville Expansion Project. </I></B>Columbia Gulf concluded a successful open season to gauge customer
interest in an expansion of firm service made available by the addition of compression to the East
Lateral. This proposed expansion would add 235,000 Dth per day of additional delivery capability
on the East Lateral in late 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Other Growth Projects. </I></B>Columbia Gulf recently expanded interconnection points to provide
incremental delivery capacity of 30,000 Dth per day to Henry Hub and 85,000 Dth per day to Southern
Natural Gas near Lafayette, Louisiana. Columbia Gulf entered into firm contracts for this
capacity and the facilities were placed into service during the third quarter of 2007. A
successful open season was held in the first quarter of 2007 to sell capacity of 380,000 Dth per
day to two interconnection points with Transcontinental Gas Pipeline. This capacity provides
increased access to downstream pipelines and their customers that access mid-Atlantic and Northeast
markets. These interconnection points were placed into service in the fourth quarter of 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Financial Management of the Balance Sheet</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource&#146;s interest expense decreased $7.3&nbsp;million from the comparable quarter last year as a
result of lower interest rates. On December&nbsp;31, 2007, Whiting Clean Energy redeemed $292.1&nbsp;million
of its notes due June&nbsp;20, 2011, having an average interest rate of 8.30%, which was financed with
NiSource borrowings at a lower rate. NiSource&#146;s short-term borrowings at March&nbsp;31, 2008 were
$624.7&nbsp;million. On August&nbsp;31, 2007, NiSource Finance issued $800&nbsp;million of 6.40%, 10.5-year
senior unsecured notes that mature on March&nbsp;15, 2018. Additionally, NiSource has $450&nbsp;million of
floating rate notes and $ 1,160&nbsp;million of fixed-to-variable interest rate swaps on its existing
long-term debt that contributed to the reduction in interest expense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource plans to issue additional long-term debt in excess of $500&nbsp;million during the second
quarter of 2008 to fund future capital expenditures. While the
current capital markets have been adversely impacted by a variety of
negative economic indicators, NiSource believes that it will not
impact its continued access to traditional capital markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Process and Expense Management</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>IBM Agreement. </I></B>In early 2007, a high-level team of NiSource and IBM resources began an overall
reassessment of the 2005 outsourcing initiative primarily to focus on operational and
transformational improvements and remediation and to develop an integrated plan that enables
NiSource to achieve its business objectives going forward. In the first quarter of 2007, NiSource
decided to bring certain finance and accounting functions back within the company. These functions
included general accounting, fixed asset accounting, and budgeting. In December&nbsp;2007, NiSource and
IBM finalized a restructuring of their business services agreement. Under the restructured
agreement, IBM will primarily provide information technology services, with a number of other
business service functions to be transitioned back to the NiSource organization. During the first
quarter of 2008, certain Meter to Cash support services transitioned back to the company including
some Billing &#038; Cash Operation functions. Transition of the remaining business support services
returning to NiSource will continue through the third quarter of 2008. In January&nbsp;2008, NiSource
and IBM also agreed to move forward with the Indiana Deployment of a Work Management System and its
associated transformation initiatives. The Work Management
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->43<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 2.</u> <u>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">System project will provide technologies that standardize, integrate and support transformation of
processes and eliminate costly and inefficient manual work processes while meeting
regulatory/compliance standards. Implementation is planned for late 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Results of Operations</B><br>
<B>Quarter Ended March&nbsp;31, 2008</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Net Income</U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource reported net income of $99.3&nbsp;million, or $0.36 per basic share, for the three months ended
March&nbsp;31, 2008, compared to net income of $216.7&nbsp;million, or $0.79 per basic share, for the first
quarter 2007. Income from continuing operations was $189.4&nbsp;million, or $0.69 per basic share, for
the three months ended March&nbsp;31, 2008, compared to $206.5&nbsp;million, or $0.75 per basic share, for
the first quarter 2007. Operating income was $394.8&nbsp;million, a decrease of $35.6&nbsp;million from the
same period in 2007. All per share amounts are basic earnings per share. Basic average shares of
common stock outstanding at March&nbsp;31, 2008 were 273.9&nbsp;million compared to 273.6&nbsp;million at March
31, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Comparability of line item operating results was impacted by regulatory trackers that allow for the
recovery in rates of certain costs such as bad debt expenses. Therefore, increases in these
tracked operating expenses are offset by increases in net revenues, subject to timing, and have
essentially no impact on total operating income results. An increase in operating expenses of $3.8
million was primarily offset by a corresponding increase to net revenues reflecting recovery of
these costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Net Revenues</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Total consolidated net revenues (gross revenues less cost of sales) for the three months ended
March&nbsp;31, 2008, were $1,041.2&nbsp;million, a $1.4&nbsp;million decrease from the same period last year.
Excluding the impact of $3.8&nbsp;million of trackers discussed above, net revenues decreased by $5.2
million. This decrease in net revenues was primarily due to lower residential and commercial
margins and $11.4&nbsp;million of non-recoverable purchased power costs and non-recoverable MISO charges
within Electric Operations resulting from the settlement reached in 2007 by Northern Indiana with
regulatory stakeholders and large customers as noted previously. The non-recoverable purchased
power costs are due to the settlement, but not the MISO costs. These decreases in net revenues
were partially offset by increased Gas Distribution Operations net revenues of $12.6&nbsp;million primarily
attributable to higher residential and commercial volumes sold. Within Gas Transmission and
Storage Operations, higher net revenues of $5.1&nbsp;million from increased subscriptions for firm
transportations services were partially offset by the impact of business interruption proceeds that
improved last year&#146;s results by $2.6&nbsp;million. Electric Operations net revenues were also impacted
by increases associated with higher industrial volumes and margins, and higher bulk power sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Expenses</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Operating expenses for the first quarter 2008 were $648.4&nbsp;million, an increase of $34.7&nbsp;million
from the 2007 period. Excluding expenses that are recovered through regulatory trackers, that
increase both operating expenses and net revenues (see discussion above), operating expenses
increased $30.9&nbsp;million. This increase was primarily due to higher employee and administrative
expenses of $15.8&nbsp;million across NiSource&#146;s business segments due in part to adjustments that
reduced benefit expense by $7.1&nbsp;million during 2007 and increased electric generation and
maintenance costs of $7.4&nbsp;million that resulted from planned turbine and boiler maintenance and a
generator overhaul. Employee and administrative costs include payroll, benefits and higher
corporate services costs, including costs associated with the amended IBM Agreement. Other
increases in operating expenses included modest increases in environmental costs associated with
former manufactured gas plant sites within Gas Distribution Operations and higher pipeline
integrity management costs within the Gas Transmission and Storage Operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Other Income (Deductions)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Interest expense, net was $91.8&nbsp;million for the quarter, a decrease of $7.3&nbsp;million compared to the
first quarter 2007. This decrease was due primarily to lower short-term interest rates and the
retirement late in 2007 of high cost debt associated with the Whiting Clean Energy facility.
Other, net was a loss of $1.5&nbsp;million for the current quarter compared to a loss of $2.9&nbsp;million
for the comparable 2007 period due to lower costs associated with the sale of accounts receivable.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->44<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 2.</u> <u>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Income Taxes</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Income tax for the first quarter of 2008 was $112.1&nbsp;million, a decrease of $9.8&nbsp;million compared to
the first quarter of 2007 due primarily to lower pretax income. The effective tax rate for the
quarter ended March&nbsp;31, 2008 was 37.2% compared to 37.1% for the comparable period last year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Discontinued Operations</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the first quarter of 2008, NiSource began accounting for the operations of Northern Utilities,
Granite State Gas and Whiting Clean Energy as discontinued operations. As such, net income of $6.0
million from continuing operations was classified to net income from discontinued operations for
the three months ended March&nbsp;31, 2008, and $2.7&nbsp;million was reclassified for the three months ended
March&nbsp;31, 2007. In the first quarter of 2008, NiSource recorded an estimated after-tax loss of
$96.1&nbsp;million for the disposition of these operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Liquidity and Capital Resources</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Generally, cash flow from operations has provided sufficient liquidity to meet operating
requirements. A significant portion of NiSource&#146;s operations, most notably in the gas
distribution, gas transportation and electric businesses, is subject to seasonal fluctuations in
cash flow. During the heating season, which is primarily from November through March, cash
receipts from gas sales and transportation services typically exceed cash requirements. During the
summer months, cash on hand, together with the seasonal increase in cash flows from the electric
business during the summer cooling season and external short-term and long-term financing, is used
to purchase gas to place in storage for heating season deliveries, perform necessary maintenance of
facilities, make capital improvements in plant and expand service into new areas.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Operating Activities</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net cash flows from operating activities for the three months ended March&nbsp;31, 2008 were $846.0
million, an increase of $67.6&nbsp;million from the first three months of 2007. The weather and gas
prices significantly impact working capital. There were significant sources of cash generated from
favorable weather in certain jurisdictions and pricing impacts on inventory and accounts payable.
However, these sources of cash were partially offset by uses of cash from changes in accounts
receivable. In addition, a pension contribution of $45.8&nbsp;million was made in the first quarter of
2007 improving cash flows in 2008 compared to 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Investing Activities</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Cash capital expenditures of $190.7&nbsp;million during the first three months of 2008 were $42.9
million higher than the comparable 2007 period. The spending for the first three months primarily
reflected on-going system improvements and upgrades to maintain service and reliability. Capital
spending is expected to increase in 2008 compared to last year, mainly for increased
integrity-management improvements in the Gas Transmission and Storage Operations segment and
expenditures to replace key components within the Electric Operations segment in addition to new
business projects.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Capital spending, including ongoing infrastructure investments, is projected to be more than $1
billion annually, beginning in 2008 and for the foreseeable future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Restricted cash was $3.8&nbsp;million and $57.7&nbsp;million for the periods ended March&nbsp;31, 2008 and
December&nbsp;31, 2007, respectively. The decrease in restricted cash was due primarily to volatility
in forward gas contracts, which resulted in decreased margin deposits on open derivative contracts
at March&nbsp;31, 2008 as compared to December&nbsp;31, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Financing Activities</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Long-Term Debt. </I></B>NiSource plans to issue additional long-term debt in excess of $500&nbsp;million during
the second quarter of 2008 to fund future capital expenditures. While
the current capital markets have been adversely impacted by a variety
of negative economic indicators, NiSource believes that it will not
impact it's continued access to traditional capital markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Whiting Clean Energy. </I>On December&nbsp;31, 2007, Whiting Clean Energy redeemed $292.1 of its notes due
June&nbsp;20, 2011, having an average interest rate of 8.30%. The associated redemption premium of
$40.6&nbsp;million was charged to loss on early extinguishment of long-term debt. The redemption was
financed with NiSource borrowings.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->45<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM
2.</u>   <U>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Jasper County Pollution Control Bonds</I><B><I>. </I></B>Northern Indiana has seven series of Jasper County
Pollution Control Bonds with a total principal value of $254&nbsp;million currently outstanding.
Prior
to March&nbsp;25, 2008, each of the series bore interest at rates established through auctions that took
place at either 7, 28, or 35&nbsp;day intervals. Between February&nbsp;13, 2008 and March&nbsp;5, 2008, Northern
Indiana received notice that six separate market auctions of four of the series of the Jasper
County Pollution Control Bonds had failed. As a result, those series representing an aggregate
principal amount of $112&nbsp;million of the Jasper County Pollution Control Bonds bore interest at
default rates equal to 15% or 18% per annum. Subsequent auctions were successful, but resulted in
interest rates between 5.13% and 11.0%, which are in excess of historical rates. Northern Indiana
does not believe that these increases in interest rates will have a material impact on its
financial results. These auction failures were attributable to the recent lack of liquidity in the
auction rate securities market, largely driven by the recent turmoil in the bond insurance market.
The Jasper County Pollution Control Bonds are insured by either Ambac Assurance Corporation or MBIA
Insurance Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Northern Indiana converted all seven series of Jasper County Pollution Control Bonds from the
auction rate mode to a variable rate demand bond mode between March&nbsp;25, 2008 and April&nbsp;11, 2008 and
repurchased the bonds as part of the conversion process. As of April&nbsp;11, 2008, all of the Jasper
County Pollution Control Bonds were so purchased and are held in Northern Indiana&#146;s treasury.
Northern Indiana is currently evaluating its options for converting the debt from variable rate
mode into fixed rate mode and subsequently reoffering the debt to the public.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2008, $199.0&nbsp;million of this outstanding debt had been converted to the variable
rate demand bond format and repurchased by Northern Indiana for its own account. The remaining
$55.0&nbsp;million is classified as current portion of long-term debt in the March&nbsp;31, 2008 Consolidated
Balance Sheet. Northern Indiana has recorded the repurchased bonds as an offset to long-term debt
in the Consolidated Balance Sheet as the debt is considered extinguished per SFAS No.&nbsp;140.
Unamortized debt expense previously recorded under deferred charges and other qualifies for
regulatory treatment and has been reclassified as a regulatory asset. The repurchase of the bonds
will be included in the financing activities section in the Condensed Statements of Consolidated
Cash Flow.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Credit Facilities. </I></B>During July&nbsp;2006, NiSource Finance amended its $1.25&nbsp;billion five-year
revolving credit facility increasing the aggregate commitment level to $1.5&nbsp;billion, extending the
termination date by one year to July&nbsp;2011, and reduced the cost of borrowing. The amended facility
will help maintain a reasonable cushion of short-term liquidity in anticipation of continuing
volatile natural gas prices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource Finance had outstanding credit facility borrowings of $624.7&nbsp;million at March&nbsp;31, 2008, at
a weighted average interest rate of 3.10%, and borrowings of $1,061.0&nbsp;million at December&nbsp;31, 2007,
at a weighted average interest rate of 5.43%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2008 and December&nbsp;31, 2007, NiSource Finance had $102.1&nbsp;million and $110.4&nbsp;million
of stand-by letters of credit outstanding, respectively. At March&nbsp;31, 2008, $15.8&nbsp;million of the
$102.1&nbsp;million total outstanding letters of credit resided within a separate bi-lateral letter of
credit arrangement with Barclays Bank that NiSource Finance obtained during February&nbsp;2004. Of the
remaining $86.3&nbsp;million of stand-by letters of credit outstanding at March&nbsp;31, 2008, $83.0&nbsp;million
resided under NiSource Finance&#146;s five-year credit facility and $3.3&nbsp;million resided under an
uncommitted arrangement with another financial institution.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of March&nbsp;31, 2008, $792.3&nbsp;million of credit was available under the credit facility.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Sale of Trade Accounts Receivables. </I></B>On May&nbsp;14, 2004, Columbia of Ohio entered into an agreement to
sell, without recourse, substantially all of its trade receivables, as they originate, to CORC, a
wholly-owned subsidiary of Columbia of Ohio. CORC, in turn, is party to an agreement with Dresdner
Bank AG, also dated May&nbsp;14, 2004, under the terms of which it sells an undivided percentage
ownership interest in the accounts receivable to a commercial paper conduit. On July&nbsp;1, 2006, the
agreement was amended to increase the program limit from $300&nbsp;million to $350&nbsp;million. The
agreement currently expires on June&nbsp;27, 2008. As of March&nbsp;31, 2008, $350&nbsp;million of accounts
receivable had been sold by CORC.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->46<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 2.</u> <u>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the agreement, Columbia of Ohio acts as administrative agent, by performing record keeping
and cash collection functions for the accounts receivable sold by CORC. Columbia of Ohio receives
a fee, which provides adequate compensation, for such services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;30, 2003, Northern Indiana entered into an agreement to sell, without recourse, all of
its trade receivables, as they originate, to NRC, a wholly-owned subsidiary of Northern Indiana.
NRC, in turn, is party to an agreement with Citibank, N.A. under the terms of which it sells an
undivided percentage ownership interest in the accounts receivable to a commercial paper conduit.
The conduit can purchase up to $200&nbsp;million of accounts receivable under the agreement. NRC&#146;s
agreement with the commercial paper conduit has a scheduled expiration date of December&nbsp;19, 2008,
and can be renewed if mutually agreed to by both parties. As of March&nbsp;31, 2008, NRC had sold $200
million of accounts receivable. Under the arrangement, Northern Indiana may not sell any new
receivables if Northern Indiana&#146;s debt rating falls below BBB- or Baa3 at Standard and Poor&#146;s or
Moody&#146;s, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the agreement, Northern Indiana acts as administrative agent, performing record keeping and
cash collection functions for the accounts receivable sold. Northern Indiana receives a fee, which
provides adequate compensation, for such services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Contractual Obligations. </I></B>As of March&nbsp;31, 2008, NiSource has $4.0&nbsp;million of estimated federal and
state income tax liabilities, including interest, recorded on its books in accordance with FIN 48.
If or when such amounts may be settled is uncertain and cannot be estimated at this time. NiSource
does not anticipate any significant changes to its liability for unrecognized tax benefits over the
next twelve months.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Market Risk Disclosures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Risk is an inherent part of NiSource&#146;s energy businesses. The extent to which NiSource properly
and effectively identifies, assesses, monitors and manages each of the various types of risk
involved in its businesses is critical to its profitability. NiSource seeks to identify, assess,
monitor and manage, in accordance with defined policies and procedures, the following principal
risks that are involved in NiSource&#146;s energy businesses: commodity market risk, interest rate risk
and credit risk. Risk management at NiSource is a multi-faceted process with oversight by the Risk
Management Committee that requires constant communication, judgment and knowledge of specialized
products and markets. NiSource&#146;s senior management takes an active role in the risk management
process and has developed policies and procedures that require specific administrative and business
functions to assist in the identification, assessment and control of various risks. In recognition
of the increasingly varied and complex nature of the energy business, NiSource&#146;s risk management
policies and procedures continue to evolve and are subject to ongoing review and modification.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Various analytical techniques are employed to measure and monitor NiSource&#146;s market and credit
risks, including VaR. VaR represents the potential loss or gain for an instrument or portfolio from
changes in market factors, for a specified time period and at a specified confidence level.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Commodity Price Risk</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource is exposed to commodity price risk as a result of its subsidiaries&#146; operations involving
natural gas and power. To manage this market risk, NiSource&#146;s subsidiaries use derivatives,
including commodity futures contracts, swaps and options. NiSource is not involved in speculative
energy trading activity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Commodity price risk resulting from derivative activities at NiSource&#146;s rate-regulated subsidiaries
is limited, since regulations allow recovery of prudently incurred purchased power, fuel and gas
costs through the rate-making process, including gains or losses on these derivative instruments.
If states should explore additional regulatory reform, these subsidiaries may begin providing
services without the benefit of the traditional rate-making process and may be more exposed to
commodity price risk. Some of NiSource&#146;s rate-regulated utility subsidiaries offer commodity price
risk products to its customers for which derivatives are used to hedge forecasted customer usage
under such products. These subsidiaries do not have regulatory recovery orders for these products
and are subject to gains and losses recognized in earnings due to hedge ineffectiveness.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->47<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 2.</u> <u>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">TPC, on behalf of Whiting Clean Energy, enters into power and gas derivative contracts to manage
commodity price risk associated with operating Whiting Clean Energy. These derivative contracts do
not always receive hedge accounting treatment under SFAS No.&nbsp;133 and variances in earnings could be
recognized as a result of marking these derivatives to market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Interest Rate Risk</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource is exposed to interest rate risk as a result of changes in interest rates on borrowings
under revolving credit agreements, variable rate pollution control bonds and floating rate notes,
which have interest rates that are indexed to short-term market interest rates. NiSource is also
exposed to interest rate risk due to changes in interest rates on fixed-to-variable interest rate
swaps that hedge the fair value of long-term debt. Based upon average borrowings and debt
obligations subject to fluctuations in short-term market interest rates, an increase (or decrease)
in short-term interest rates of 100 basis points (1%) would have increased (or decreased) interest
expense by $6.3&nbsp;million and $6.9&nbsp;million for the first quarter of 2008 and 2007, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Credit Risk</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Due to the nature of the industry, credit risk is a factor in many of NiSource&#146;s business
activities. NiSource&#146;s extension of credit is governed by a Corporate Credit Risk Policy. Written
guidelines approved by NiSource&#146;s Risk Management Committee document the management approval levels
for credit limits, evaluation of creditworthiness, and credit risk mitigation procedures.
Exposures to credit risks are monitored by the Corporate Credit Risk function which is independent
of commercial operations. Credit risk arises with the possibility that a customer, supplier or
counterparty will not be able or willing to fulfill its obligations on a transaction on or before
the settlement date. For derivative contracts such as interest rate swaps, credit risk arises when
counterparties are obligated to pay NiSource the positive fair value or receivable resulting from
the execution of contract terms. Exposure to credit risk is measured in terms of both current
obligations and the market value of forward positions. Current credit exposure is generally
measured by the notional or principal value of obligations and direct credit substitutes, such as
commitments, stand-by letters of credit and guarantees. In determining exposure, NiSource
considers collateral that it holds to reduce individual counterparty credit risk.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Market Risk Measurement</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Market risk refers to the risk that a change in the level of one or more market prices, rates,
indices, volatilities, correlations or other market factors, such as liquidity, will result in
losses for a specified position or portfolio. NiSource calculates a one-day VaR at a 95%
confidence level for the gas marketing group that utilize a variance/covariance methodology. The
daily market exposure for the gas marketing portfolio on an average, high and low basis was $0.1
million, $0.2&nbsp;million and zero during the first quarter of 2008, respectively. Prospectively,
management has set the VaR limit at $0.8&nbsp;million for gas marketing. Exceeding this limit would
result in management actions to reduce portfolio risk. Power and gas derivative contracts entered
into to manage price risk associated with Whiting Clean Energy are limited to quantities
surrounding the physical generation capacity of Whiting Clean Energy and the gas requirements to
operate the facility.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Refer to Note 9, &#147;Risk Management and Energy Marketing Activities,&#148; in the Notes to Condensed
Consolidated Financial Statements for further discussion of NiSource&#146;s risk management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Off Balance Sheet Arrangements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a part of normal business, NiSource and certain subsidiaries enter into various agreements
providing financial or performance assurance to third parties on behalf of certain subsidiaries.
Such agreements include guarantees and stand-by letters of credit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource has issued guarantees that
support up to approximately $526.0&nbsp;million of commodity-related
payments for its current subsidiaries involved in energy marketing to satisfy
requirements under forward gas sales. These
guarantees were provided to counterparties in order to facilitate physical and financial
transactions involving natural gas and electricity. To the extent liabilities exist under the
commodity-related contracts subject to these guarantees, such liabilities are included in the
Condensed Consolidated Balance Sheets.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->48<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 2.</u> <u>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource has purchase and sales agreement guarantees totaling $80.0&nbsp;million, which guarantee
performance of the seller&#146;s covenants, agreements, obligations, liabilities, representations and
warranties under the agreements. No amounts related to the purchase and sales agreement guarantees
are reflected in the Condensed Consolidated Balance Sheets. Management believes that the
likelihood NiSource would be required to perform or otherwise incur any significant losses
associated with any of the aforementioned guarantees is remote.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource has other guarantees outstanding. Refer to Note 14-A, &#147;Guarantees and Indemnities,&#148; in
the Notes to Condensed Consolidated Financial Statements for additional information about
NiSource&#146;s off balance sheet arrangements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Other Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Recently Adopted Accounting Pronouncements</U>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>SFAS No.&nbsp;157 &#150; Fair Value Measurements. </I></B>In September&nbsp;2006, the FASB issued SFAS No.&nbsp;157 to define
fair value, establish a framework for measuring fair value and to expand disclosures about fair
value measurements. SFAS No.&nbsp;157 defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. SFAS No.&nbsp;157 does not change the
requirements to apply fair value in existing accounting standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under SFAS No.&nbsp;157, fair value refers to the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants in the market in
which the reporting entity transacts. The standard clarifies that fair value should be based on
the assumptions market participants would use when pricing the asset or liability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To increase consistency and comparability in fair value measurements, SFAS No.&nbsp;157 establishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value
into three levels. The level in the fair value hierarchy disclosed is based on the lowest level of
input that is significant to the fair value measurement. The three levels of the fair value
hierarchy defined by SFAS No.&nbsp;157 are as follows:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Level 1 inputs are quoted prices (unadjusted)&nbsp;in active markets for identical asset or
liabilities that the company has the ability to access as of the reporting date.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Level 2 inputs are inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly through corroboration
with observable market data.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Level 3 inputs are unobservable inputs, such as internally developed pricing models for
the asset or liability due to little or no market activity for the asset or liability.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">SFAS No.&nbsp;157 became effective for NiSource as of January&nbsp;1, 2008. The provisions of SFAS No.&nbsp;157
are to be applied prospectively, except for the initial impact on the following three items, which
are required to be recorded as an adjustment to the opening balance of retained earnings in the
year of adoption: (1)&nbsp;changes in fair value measurements of existing derivative financial
instruments measured initially using the transaction price under EITF Issue No.&nbsp;02-3, (2)&nbsp;existing
hybrid financial instruments measured initially at fair value using the transaction price and (3)
blockage factor discounts. The adoption of SFAS No.&nbsp;157 did not have an impact on NiSource&#146;s
January&nbsp;1, 2008 balance of retained earnings and is not anticipated to have a material impact
prospectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In February&nbsp;2008, the FASB issued FSP FAS 157-2, which delays the effective date of SFAS No.&nbsp;157
for all nonrecurring fair value measurements of non-financial assets and liabilities until fiscal
years beginning after November&nbsp;15, 2008. NiSource has elected to defer the adoption of the
nonrecurring fair value measurement disclosures of non-financial assets and liabilities.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->49<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u>ITEM 2.</u> <u>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)</u>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>Ni</B></FONT><FONT style="font-variant: SMALL-CAPS"><B>Source Inc.</B></FONT>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">See Note 10, &#147;Fair Value of Financial Assets and Liabilities,&#148; in the Notes to Condensed
Consolidated Financial Statements for additional information regarding the adoption of SFAS No.
157.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>SFAS No.&nbsp;158 &#150; Employers&#146; Accounting for Defined Benefit Pension and Other Postretirement Plans.</I></B>
In September&nbsp;2006, the FASB issued SFAS No.&nbsp;158 to improve existing reporting for defined benefit
postretirement plans by requiring employers to recognize in the statement of financial position the
overfunded or underfunded status of a defined benefit postretirement plan, among other changes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the fourth quarter of 2006, NiSource adopted the provisions of SFAS No.&nbsp;158. Based on the
measurement of the various defined benefit pension and other postretirement plans&#146; assets and
benefit obligations at September&nbsp;30, 2006, the pretax impact of adopting SFAS No.&nbsp;158 decreased
intangible assets by $46.5&nbsp;million, decreased deferred charges and other assets by $1.1&nbsp;million,
increased regulatory assets by $538.8&nbsp;million, increased accumulated other comprehensive income by
$239.8&nbsp;million and increased accrued liabilities for postretirement and postemployment benefits by
$251.4&nbsp;million. In addition, NiSource recorded a reduction in deferred income taxes of
approximately $96&nbsp;million. With the adoption of SFAS No.&nbsp;158 NiSource determined that for certain
rate-regulated subsidiaries the future recovery of pension and other postretirement plans costs is
probable in accordance with the requirements of SFAS No.&nbsp;71. These rate-regulated subsidiaries
recorded regulatory assets and liabilities that would otherwise have been recorded to accumulated
other comprehensive income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;1, 2007, NiSource adopted the SFAS No.&nbsp;158 measurement date provisions requiring
employers to measure plan assets and benefit obligations as of the fiscal year-end. The pre-tax
impact of adopting the SFAS No.&nbsp;158 measurement date provisions increased deferred charges and
other assets by $9.4&nbsp;million, decreased regulatory assets by $89.6&nbsp;million, decreased retained
earnings by $11.3&nbsp;million, increased accumulated other comprehensive income by $5.3&nbsp;million and
decreased accrued liabilities for postretirement and postemployment benefits by $74.2&nbsp;million.
NiSource also recorded a reduction in deferred income taxes of approximately $2.6&nbsp;million. In
addition, 2007 expense for pension and postretirement benefits reflects the updated measurement
date valuations. Refer to Note 12, &#147;Pension and Other Postretirement Benefits,&#148; in the Notes to
Condensed Consolidated Financial Statements for additional information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>SFAS No.&nbsp;159 &#150; The Fair Value Option for Financial Assets and Financial Liabilities &#150; Including an
amendment of FASB Statement No.&nbsp;115. </I></B>In February&nbsp;2007, the FASB issued SFAS No.&nbsp;159 which permits
entities to choose to measure certain financial instruments at fair value that are not currently
required to be measured at fair value. Upon adoption, a cumulative adjustment would be made to
beginning retained earnings for the initial fair value option remeasurement. Subsequent unrealized
gains and losses for fair value option items will be reported in earnings. SFAS No.&nbsp;159 is
effective for fiscal years beginning after November&nbsp;15, 2007 and should not be applied
retrospectively, except as permitted for certain conditions for early adoption. NiSource has
chosen not to elect to measure any applicable financial assets or liabilities at fair value
pursuant to this standard when SFAS No.&nbsp;159 was adopted on January&nbsp;1, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>FSP
FIN 39-1 &#151; FASB Staff Position Amendment of FASB Interpretation
No.&nbsp;39.</I></B> In April&nbsp;2007, the
FASB posted FSP FIN 39-1 to amend paragraph 3 of FIN 39 to replace the terms <I>conditional contracts</I>
and e<I>xchange contracts </I>with the term <I>derivative instruments </I>as defined in SFAS No.&nbsp;133. This FSP
also amends paragraph 10 of FIN 39 to permit a reporting entity to offset fair value amounts
recognized for the right to reclaim cash collateral or the obligation to return cash collateral
against fair value amounts recognized for derivative instruments executed with the same
counterparty under a master netting arrangement. This FSP became effective for NiSource as of
January&nbsp;1, 2008. NiSource has not elected to net fair value amounts for its derivative instruments
or the fair value amounts recognized for its right to receive cash collateral or obligation to pay
cash collateral arising from those derivative instruments recognized at fair value, which are
executed with the same counterparty under a master netting arrangement. This is consistent with
NiSource&#146;s current accounting policy prior to the adoption of this amended standard. NiSource
discloses amounts recognized for the right to reclaim cash collateral within &#147;Restricted cash&#148; and
amounts recognized for the right to return cash collateral within current liabilities on the
Consolidated Balance Sheets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>FIN 48 &#150; Accounting for Uncertainty in Income Taxes. </I></B>In June&nbsp;2006, the FASB issued FIN 48 to
reduce the diversity in practice associated with certain aspects of the recognition and measurement
requirements related to
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->50<!-- /Folio -->
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
2.</u>  <U> MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">accounting for income taxes. Specifically, this interpretation requires that a tax position meet a
&#147;more-likely-than-not recognition threshold&#148; for the benefit of an uncertain tax position to be
recognized in the financial statements and requires that benefit to be measured at the largest
amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The
determination of whether a tax position meets the more-likely-than-not recognition threshold is
based on whether it is probable of being sustained on audit by the appropriate taxing authorities,
based solely on the technical merits of the position. Additionally, FIN 48 provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. FIN 48 is effective for fiscal years beginning after December&nbsp;15, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;1, 2007, NiSource adopted the provisions of FIN 48. As a result of the implementation
of FIN 48, NiSource recognized a charge of $0.8&nbsp;million to the opening balance of retained
earnings. Refer to Note 11, &#147;Income Taxes,&#148; in the Notes to Condensed Consolidated Financial
Statements for additional information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Recently Issued Accounting Pronouncements</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>SFAS No.&nbsp;161 &#150; Disclosures about Derivative Instruments and Hedging &#151; an amendment of SFAS No.&nbsp;133.</I></B>
In March&nbsp;2008, the FASB issued SFAS No.&nbsp;161 to amend and expand the disclosure requirements of
SFAS No.&nbsp;133 with the intent to provide users of the financial statement with an enhanced
understanding of how and why an entity uses derivative instruments, how these derivatives are
accounted for and how the respective reporting entity&#146;s financial statements are affected. This
Statement is effective for fiscal years and interim periods beginning after November&nbsp;15, 2008, and
earlier application is encouraged. NiSource is currently reviewing the provisions of SFAS No.&nbsp;161
to determine the impact it may have on its disclosures within the Notes to Condensed Consolidated
Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>SFAS No.&nbsp;160 &#151; Noncontrolling Interests in Consolidated Financial Statements &#151; an amendment of ARB
No.&nbsp;51. </I></B>In December&nbsp;2007, the FASB issued SFAS No.&nbsp;160 to improve the relevance, comparability,
and transparency of the financial information that a reporting entity provides in its consolidated
financial statements regarding non-controlling ownership interests in a business and for the
deconsolidation of a subsidiary. This Statement is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December&nbsp;15, 2008 and earlier adoption is
prohibited. NiSource is currently reviewing the provisions of SFAS No.&nbsp;160 to determine the impact
it may have on the Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial
Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>SFAS No.&nbsp;141R &#150; Business Combinations. </I></B>In December&nbsp;2007, the FASB issued SFAS No.&nbsp;141R to improve
the relevance, representational faithfulness, and comparability of information that a reporting
entity provides in its financial reports regarding business combinations and its effects, including
recognition of assets and liabilities, the measurement of goodwill and required disclosures. This
Statement is effective for fiscal years, and interim periods within those fiscal years, beginning
on or after December&nbsp;15, 2008 and earlier adoption is prohibited. NiSource is currently reviewing
the provisions of SFAS No.&nbsp;141R to determine the impact on future business combinations.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>RESULTS AND DISCUSSION OF SEGMENT OPERATIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Presentation of Segment Information</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource&#146;s operations are divided into four primary business segments; Gas Distribution Operations,
Gas Transmission and Storage Operations, Electric Operations, and Other Operations.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->51<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
2.</u>  <U> MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Gas Distribution Operations</B>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Three Months Ended March 31, <I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Revenues</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sales Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>2,447.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,055.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Less: Cost of gas sold (excluding depreciation and amortization)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,828.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,448.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>618.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">606.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Expenses</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operation and maintenance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>239.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>56.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment and gain on sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(2.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>69.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Operating Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>364.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">352.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>254.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">254.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px dOUBLE #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Revenues ($ in Millions)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Residential</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,428.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,283.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Commercial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>496.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">439.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Industrial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>102.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Off System</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>334.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>85.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,447.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,055.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Sales and Transportation (MMDth)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Residential</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>137.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Commercial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>78.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Industrial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>103.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Off System</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>37.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>356.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">332.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Heating Degree Days</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,679</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,623</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Normal Heating Degree Days</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,665</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,636</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>% Colder (Warmer) than Normal</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>1</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0</TD>
    <TD nowrap>%)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Customers</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Residential</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,050,085</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,051,512</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Commercial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>280,729</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281,306</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Industrial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,039</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,152</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>77</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,338,930</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,341,045</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource&#146;s natural gas distribution operations serve approximately 3.3&nbsp;million customers in seven
states: Ohio, Indiana, Pennsylvania, Massachusetts, Virginia, Kentucky and Maryland. The
regulated subsidiaries offer both traditional bundled services as well as transportation only for
customers that purchase gas from alternative suppliers. The operating results reflect the
temperature-sensitive nature of customer demand with over 73% of annual residential and commercial
throughput affected by seasonality. As a result, segment operating income is higher in the first
and fourth quarters reflecting the heating demand during the winter season.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->52<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>ITEM
2.</u> <U> MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Gas Distribution Operations (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Regulatory Matters</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Significant Rate Developments. </B>Columbia of Ohio filed a base rate case with PUCO on March&nbsp;3, 2008,
requesting an increase in base rates in excess of $80&nbsp;million annually. Columbia of Ohio is
seeking recovery of increased infrastructure rehabilitation costs, as well as the stabilization of
revenues and cost recovery through rate design. The case is currently pending, and is expected to
be resolved by the fourth quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;28, 2008, Columbia of Pennsylvania filed a base rate case with the Pennsylvania Public
Utility Commission, seeking an increase of approximately $60&nbsp;million annually, effective October
28, 2008. Through this filing, Columbia of Pennsylvania is seeking to recover costs associated
with its significant infrastructure rehabilitation program, as well as stabilize revenues and cost
recovery through modifications to rate design. The case is currently pending, and is expected to
be resolved by the fourth quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On October&nbsp;17, 2007, Bay State petitioned the Massachusetts Department of Public Utilities to allow
the company to collect an additional $7.5&nbsp;million in annual revenue related to usage reductions
occurring since its last rate case. Bay State also requested approval of a steel infrastructure
tracker that would allow for recovery of ongoing infrastructure replacement program investments.
The Massachusetts Department of Public Utilities held hearings on this matter in the first quarter
of 2008 and issued an order denying Bay State&#146;s petition on April 30, 2008.
NiSource is in the process of reviewing the order and assessing its rehearing or appeal options.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Cost Recovery and Trackers. </B>A significant portion of the distribution companies&#146; revenue is
related to the recovery of gas costs, the review and recovery of which occurs via standard
regulatory proceedings. All states require periodic review of actual gas procurement activity to
determine prudence and to permit the recovery of prudently incurred costs related to the supply of
gas for customers. NiSource distribution companies have historically been found prudent in the
procurement of gas supplies to serve customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain operating costs of the NiSource distribution companies are significant, recurring in
nature, and generally outside the control of the distribution companies. Some states allow the
recovery of such costs via cost tracking mechanisms. Such tracking mechanisms allow for
abbreviated regulatory proceedings in order for the distribution companies to implement charges and
recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as
compared with more traditional cost recovery mechanisms. Examples of such mechanisms include gas
cost recovery adjustment mechanisms, tax riders, and bad debt recovery mechanisms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Comparability of Gas Distribution Operations line item operating results is impacted by these
regulatory trackers that allow for the recovery in rates of certain costs such as bad debt
expenses. Increases in the expenses that are the subject of trackers result in a corresponding
increase in net revenues and therefore have essentially no impact on total operating income
results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain of the NiSource distribution companies are embarking upon plans to replace significant
portions of their operating systems that are nearing the end of their useful lives. Those
companies are currently evaluating requests for increases in rates in order to allow recovery of
the additional capital expenditures required for such plans. Each LDC&#146;s approach to cost recovery
may be unique, given the different laws, regulations and precedent that exist in each jurisdiction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain types of natural gas risers, which are owned by customers, on Columbia of Ohio&#146;s
distribution system have been evaluated under a study required by the PUCO and have been found
prone to leak natural gas under certain conditions. On February&nbsp;1, 2007, Columbia of Ohio
announced plans to identify and replace these risers on its distribution system. As of March&nbsp;31,
2008, Columbia of Ohio deferred $7.5&nbsp;million of costs associated with the study and identification
of these natural gas risers as a regulatory asset and currently has estimated approximately $120
million for the cost to identify and replace the risers. On October&nbsp;26, 2007, Columbia of Ohio and
the PUCO Staff filed a Joint Stipulation and Recommendation that provided for Columbia of Ohio&#146;s
assumption of financial responsibility for the repair or replacement of customer-owned service
lines and the replacement of risers prone to leak. In addition, the Stipulation provides for
Columbia of Ohio to capitalize its investment in the service lines and risers, as well as the
establishment of a tracking mechanism that would provide for the recovery of operating and
maintenance costs related to Columbia of Ohio&#146;s capitalized investment and its expenses incurred in
identifying
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->53<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
2</u>  <U>. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Gas Distribution Operations (continued)</B>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">risers prone to leak. On December&nbsp;28, 2007, Columbia of Ohio entered into a Stipulation with the
Ohio Consumers&#146; Counsel and Ohio Partners for Affordable Energy, addressing the issues of Columbia
of Ohio&#146;s authority to assume responsibility for repair or replacement of hazardous customer owned
service lines, the establishment of accounting authority for costs related to such activities, and
the establishment of a mechanism to recover such costs. The parties recommended approval of the
Stipulation to the PUCO, and on April&nbsp;9, 2008, the PUCO issued an order in this matter approving
the Stipulation in all material respects. On April&nbsp;23, 2008, Utility Service Partners, Inc.
requested that the PUCO stay its order, pending the resolution of any applications on rehearing.
Columbia of Ohio filed its response to the motion on April&nbsp;28, 2008.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;28, 2007, Columbia of Ohio entered into a Stipulation with the Ohio Consumers&#146; Counsel
and PUCO Staff and other stakeholders resolving litigation concerning a pending Gas Cost Recovery
audit of Columbia of Ohio. The Stipulation calls for an accelerated pass back to customers of
$36.6&nbsp;million that will occur from January&nbsp;31, 2008 through January&nbsp;31, 2009, generated through
off-system sales and capacity release programs, the development of new energy efficiency programs
for introduction in 2009, and the development of a wholesale auction process for customer supply to
take effect in 2010. Approximately $12.7&nbsp;million was passed back through March&nbsp;2008. The
Stipulation also resolves issues related to pending and future Gas Cost Recovery Management
Performance audits through 2008. The PUCO approved this agreement on January&nbsp;23, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Customer Usage. </B>The NiSource distribution companies have experienced declining usage by customers,
due in large part to the sensitivity of sales to increases in commodity prices. A significant
portion of the LDCs&#146; operating costs are fixed in nature. Historically, rate design at the
distribution level has been structured such that a large portion of cost recovery is based upon
throughput, rather than in a fixed charge. Many of NiSource&#146;s LDCs are evaluating mechanisms that
would &#147;de-couple&#148; the recovery of fixed costs from throughput, and implement recovery mechanisms
that more closely link the recovery of fixed costs with fixed charges. Each of the states in which
the NiSource LDCs operate has different requirements regarding the procedure for establishing such
changes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Environmental Matters</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Currently, various environmental matters impact the Gas Distribution Operations segment. As of
March&nbsp;31, 2008, a reserve has been recorded to cover probable environmental response actions.
Refer to Note 15-C, &#147;Environmental Matters,&#148; in the Notes to Condensed Consolidated Financial
Statements for additional information regarding environmental matters for the Gas Distribution
Operations segment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Restructuring</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Payments made for all restructuring initiatives within Gas Distribution Operations amounted to
effectively zero for the first quarter of 2008 and the restructuring liability remaining at March
31, 2008 was $0.9&nbsp;million. Refer to Note 4, &#147;Restructuring Activities,&#148; in the Notes to Condensed
Consolidated Financial Statements for additional information regarding restructuring initiatives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Sale of Northern Utilities </U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;15, 2008, NiSource reached a definitive agreement under which Unitil Corporation will
acquire NiSource subsidiaries Northern Utilities and Granite State Gas for $160&nbsp;million plus net
working capital at the time of closing. Northern Utilities is a local gas distribution company
serving 52 thousand customers in 44 communities in Maine and New Hampshire. In the first quarter
of 2008, NiSource began accounting for the operations of Northern Utilities as discontinued
operations. As such, net income of $5.7&nbsp;million from continuing operations for Northern Utilities,
which affected the Gas Distribution Operations segment, was classified to net income from
discontinued operations for the three months ended March&nbsp;31, 2008, and $4.6&nbsp;million was
reclassified for the three months ended March&nbsp;31, 2007. Refer to Note 6, &#147;Discontinued Operations
and Assets Held for Sale,&#148; in the Notes to Condensed Consolidated Financial Statements for
additional information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Weather</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In general, NiSource calculates the weather related revenue variance based on changing customer
demand driven by weather variance from normal heating degree-days. Normal is evaluated using
heating degree days across the NiSource distribution region. While the temperature base for
measuring heating degree-days (i.e. the estimated
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->54<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
2.</u>  <U> MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Gas Distribution Operations (continued)</B>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">average daily temperature at which heating load begins) varies slightly across the region, the
NiSource composite measurement is based on 62 degrees.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Weather in the Gas Distribution Operation&#146;s territories for the first quarter of 2008 was 1% colder
than normal and 2% colder than the comparable quarter in 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Throughput</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Total volumes sold and transported of 356.5 MMDth for the first quarter of 2008 increased 23.8
MMDth from the same period last year. This increase in volume was primarily due to higher
residential and commercial usage and off-system sales in the current period compared to the same
period last year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Net Revenues</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net revenues for the three months ended March&nbsp;31, 2008 were $618.9&nbsp;million, an increase of $12.6
million from the same period in 2007, due primarily to increased net revenues from regulatory and
service programs of $8.5&nbsp;million and increased residential and commercial usage.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Operating Income</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For the first quarter of 2008,
Gas Distribution Operations reported operating income of $254.9
million compared to operating income of $254.1&nbsp;million for the same period in 2007. The increase
in operating income was primarily attributable to increased net revenues described above.
Operating expenses, after adjusting for increased expenses of $3.0&nbsp;million that are recovered
through regulatory and tax trackers and corresponding increases in net revenues, increased by $8.8
million compared to the same period last year. Operating expense increases were primarily due to
higher employee and administrative expenses of $3.0&nbsp;million, increased property and other taxes of
$1.6&nbsp;million, higher environmental expenses of $1.1&nbsp;million pertaining mostly to former
manufactured gas plant sites and higher depreciation. Employee and administrative costs include
payroll, benefits and higher corporate services costs, including costs associated with the amended
IBM Agreement.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->55<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
2.</u>  <U> MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Gas Transmission and Storage Operations</B>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Three Months Ended March 31, <I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Revenues</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Transportation revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>184.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">182.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Storage revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>45.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Operating Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>231.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">229.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Cost of gas sold (excluding depreciation and amortization)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>231.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">229.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Expenses</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operation and maintenance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>84.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>29.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Operating Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>128.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity Earnings in Unconsolidated Affiliates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>104.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">106.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Throughput (MMDth)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Columbia Transmission</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Market Area</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>386.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">385.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Columbia Gulf</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Mainline</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>159.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">147.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-haul</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>75.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Columbia Pipeline Deep Water</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Crossroads Gas Pipeline</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intrasegment eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(132.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(128.2</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>499.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">455.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource&#146;s Gas Transmission and Storage Operations segment consists of the operations of Columbia
Transmission, Columbia Gulf, Columbia Deep Water, Crossroads Pipeline, and Central Kentucky
Transmission. In total NiSource owns a pipeline network of approximately 16 thousand miles
extending from offshore in the Gulf of Mexico to New York and the eastern seaboard. The pipeline
network serves customers in 16 northeastern, mid-Atlantic, midwestern and southern states, as well
as the District of Columbia. In addition, the NiSource Gas Transmission and Storage Operations
segment operates one of the nation&#146;s largest underground natural gas storage systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>NiSource Energy Partners, L.P.</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;21, 2007, NiSource Energy Partners, L.P., an MLP and subsidiary of NiSource, filed an
S-1 registration statement with the SEC in which it proposed making an initial public offering of
common units in the MLP and NiSource proposed contributing its interest in Columbia Gulf to the
MLP. NiSource management believes the formation of an MLP is a natural complement to NiSource&#146;s
gas transmission and storage growth strategy, and should provide NiSource access to competitively
priced capital to support future growth investment. Due to the damage sustained at Columbia Gulf&#146;s
Hartsville, Tennessee, compressor station, following the tornados at the facility as described
previously, the expected timing of initial public offering is expected to be delayed until later in
2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Millennium Pipeline Project</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Millennium received FERC approval for a pipeline project, in which Columbia Transmission is
participating, which will provide access to a number of supply and storage basins and the Dawn,
Ontario trading hub. The reconfigured project, which was approved by the FERC in a certificate
order issued December&nbsp;21, 2006, will begin at an interconnect with Empire, an existing pipeline
that originates at the Canadian border and extends easterly towards Syracuse, New York. Empire
will construct a lateral pipeline southward to connect with Millennium near Corning,
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->56<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
2.</u>  <U> MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Gas Transmission and Storage Operations (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">New York. Millennium will extend eastward to an interconnect with Algonquin at Ramapo, New York.
The Millennium partnership is currently made up of the following companies: Columbia Transmission
(47.5%), DTE Millennium (26.25%), and KeySpan Millennium (26.25%). Columbia Transmission is the
operator.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The reconfigured Millennium project relies on completion of some or all of several other related
pipeline projects proposed by Empire, Algonquin, and Iroquois collectively referred to as the
&#147;Companion Pipelines.&#148; The December&nbsp;21, 2006 certificate order also granted the necessary project
approvals to the Companion Pipelines. Construction began on June&nbsp;22, 2007 with a projected
in-service date of November&nbsp;1, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On August&nbsp;29, 2007, Millennium entered into a bank credit agreement to finance the construction of
the Millennium Pipeline project. As a condition precedent to the credit agreement, NiSource issued
a guarantee securing payment for its indirect ownership interest percentage of amounts borrowed
under the financing agreement up until such time as the amounts payable under the agreement are
paid in full. The permanent financing is expected to be completed in the first quarter of 2009.
Additional information on this guarantee is provided in Note 15-A, &#147;Guarantees and Indemnities,&#148; in
the Notes to Condensed Consolidated Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Hardy Storage Project</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Hardy Storage completed its full year of operations, receiving customer injections and withdrawing
natural gas from its new underground natural gas storage facility in West Virginia. Injections
this year will allow the field to deliver up to 150,000 Dth of natural gas per day during the
2008-2009 winter heating season. Customers withdrew over 5.44 BCF from the storage field during the
2007-2008 winter heating season. When fully operational in 2009, the field will have a working
storage capacity of 12&nbsp;billion cubic feet, delivering more than 176,000 Dth of natural gas per day.
Hardy Storage is a joint venture of subsidiaries of Columbia Transmission and Piedmont.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia Transmission, the operator of Hardy Storage, is expanding its natural gas transmission
system by 176,000 Dth per day to provide the capacity needed to deliver Hardy Storage supplies to
customer markets. Construction of these transmission facilities is substantially complete and
partially in service.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Florida Gas Transmission Expansion Project</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">An open season to solicit interest and contracts for expanded capacity on Columbia Gulf&#146;s system
for delivery to Florida Gas Transmission was held in late 2007 and contracts for 100,000 Dth per
day of capacity were executed. The remaining 80,000 Dth per day of capacity is expected to be sold
under firm contracts. This project is expected to be in service during the second quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Eastern Market Expansion Project</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;3, 2007, Columbia Transmission filed a certificate application before the FERC for approval
to expand its facilities to provide additional storage and transportation services and to replace
certain existing facilities. This Eastern Market Expansion project is projected to add 97,000 Dth
per day of storage and transportation deliverability and is fully subscribed on a 15-year
contracted firm basis. On January&nbsp;14, 2008, the FERC issued a favorable order which granted a
certificate to construct the project and the project is expected to be in service by spring 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Ohio Storage Project</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia Transmission concluded successful open seasons to gauge customer interest in an expansion
of its storage in Ohio. The final scope of the project will be determined based on the outcome of
the ongoing customer discussions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Appalachian Expansion Project</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;29, 2008, Columbia Transmission filed an application before the FERC for approval to
build a new 9,470 horsepower compressor station in West Virginia. The Appalachian Expansion
Project will add 100,000 Dth per day of transportation capacity and is fully subscribed on a
15-year contracted firm basis. The project is expected to be in service in the fourth quarter of
2009.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->57<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
2.</u>  <U>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Gas Transmission and Storage Operations (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>New Penn Transmission Project</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource Gas Transmission and
Storage Operations concluded a successful open season to gauge customer interest
in a new pipeline system to provide 500,000 Dth per day of firm service from storage facilities
near Leidy to a new interconnection with Millennium Pipeline in Steuben County, New York in 2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Centerville Expansion Project </U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia Gulf concluded a successful open season to gauge customer interest in an expansion of firm
service made available by the addition of compression to the East Lateral. This proposed expansion
would add 235,000 Dth per day of additional delivery capability on the East Lateral in late 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Other Growth Projects</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia Gulf recently expanded interconnection points to provide incremental delivery capacity of
30,000 Dth per day to Henry Hub and 85,000 Dth per day to Southern Natural Gas near Lafayette,
Louisiana. Columbia Gulf entered into firm contracts for this capacity and the facilities were
placed into service during the third quarter of 2007. A successful open season was held in the
first quarter of 2007 to sell capacity of 380,000 Dth per day to two interconnection points with
Transcontinental Gas Pipeline. This capacity provides increased access to downstream pipelines and
their customers that access mid-Atlantic and Northeast markets. These interconnection points were
placed into service in the fourth quarter of 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Sales and Percentage of Physical Capacity Sold</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia Transmission and Columbia Gulf compete for transportation customers based on the type of
service a customer needs, operating flexibility, available capacity and price. Columbia Gulf and
Columbia Transmission provide a significant portion of total transportation services under firm
contracts and derive a smaller portion of revenues through interruptible contracts, with management
seeking to maximize the portion of physical capacity sold under firm contracts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Firm service contracts require pipeline capacity to be reserved for a given customer between
certain receipt and delivery points. Firm customers generally pay a &#147;capacity reservation&#148; fee
based on the amount of capacity being reserved regardless of whether the capacity is used, plus an
incremental usage fee when the capacity is used. Annual capacity reservation revenues derived from
firm service contracts generally remain constant over the life of the contract because the revenues
are based upon capacity reserved and not whether the capacity is actually used. The high
percentage of revenue derived from capacity reservation fees mitigates the risk of revenue
fluctuations within the Gas Transmission and Storage Operations segment due to changes in near-term
supply and demand conditions. For the three months ended March&nbsp;31, 2008 approximately 90.7% of the
transportation revenues were derived from capacity reservation fees paid under firm contracts and
4.4% of the transportation revenues were derived from usage fees under firm contracts. This is
compared to approximately 88.7% of the transportation revenues derived from capacity reservation
fees paid under firm contracts and 4.3% of transportation revenues derived from usage fees under
firm contracts for the three months ended March&nbsp;31, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Interruptible transportation service is typically short term in nature and is generally used by
customers that either do not need firm service or have been unable to contract for firm service.
These customers pay a usage fee only for the volume of gas actually transported. The ability to
provide this service is limited to available capacity not otherwise used by firm customers, and
customers receiving services under interruptible contracts are not assured capacity in the pipeline
facilities. Gas Transmission and Storage Operations provides interruptible service at competitive
prices in order to capture short term market opportunities as they occur and interruptible service
is viewed by management as an important strategy to optimize revenues from the gas transmission
assets. For the three months ended March&nbsp;31, 2008 and 2007, approximately 4.9% and 7.0% of the
transportation revenues were derived from interruptible contracts, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Significant FERC Developments</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Columbia Gulf and Columbia Transmission are cooperating with the FERC on an informal, non-public
investigation of certain operating practices regarding tariff services offered by those companies.
Although the companies are continuing to cooperate with the FERC in an effort to reach a
consensual settlement, it is likely that any settlement will require the payment of fines or
refunds.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->58<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
2.</u>  <U>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Gas Transmission and Storage Operations (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Hartsville and Delhi Compressor Stations</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;5, 2008, tornados struck Columbia Gulf&#146;s Hartsville Compressor Station in Macon County,
Tennessee. The damage to the facility forced Columbia Gulf to declare force majeure because no gas
was flowing through this portion of the pipeline system while a facility assessment was being
performed and the current contractual transportation agreements of 2.156 Bcf per day could not be
met. Since that time Columbia Gulf restored gas flow to 1.65 Bcf per day; however, full
contractual agreements still cannot be met. Although temporary solutions are being investigated to
restore system capabilities as soon as possible, a permanent solution for rebuilding the compressor
station may take 18 to 24&nbsp;months. The temporary solutions will begin adding system
capacity in the
second quarter and will be completed by July&nbsp;2008. This capacity would
remain in
place while the permanent solution is implemented.
NiSource expects the majority of the reconstruction costs, during the 18 to 24&nbsp;month period, for
the compressor station and ancillary facilities plus business interruption losses, during the
twelve month period from the event, will be recoverable through insurance.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;14, 2007, Columbia Gulf&#146;s Line 100 ruptured approximately two miles north of its Delhi
Compressor Station in Louisiana. The damage to the pipeline forced Columbia Gulf to declare force
majeure because no gas was flowing through this portion of the pipeline system on Lines 100, 200
and 300 while a facility assessment was performed. As a result the current contractual
transportation agreements of 2.156 Bcf per day could not be met. By December&nbsp;15, 2007 Lines 200
and 300 were returned to service and gas flow was restored to 2.0 Bcf per day on December&nbsp;16, 2007.
On December&nbsp;19, 2007, the U.S. Department of Transportation issued a Corrective Action Order which
was applicable to Line 100 from the Rayne, LA Compressor Station to Leach, KY. The Order required
Columbia Gulf to develop a remedial work plan, which included assessments on Line 100 using in-line
inspection tools. The Order also required a 20% reduction in pressure on Line 100 from the Rayne
Compressor Station to the Corinth Compressor Station which resulted in a reduction in gas flow on
December&nbsp;21, 2007 to 1.6 Bcf per day. The next day the capacity was increased to 1.75 Bcf per day.
Between December&nbsp;22, 2007 and February&nbsp;5, 2008 the capacity varied between 1.6 and 1.75 Bcf per day
as a result of remediation work on Line 100.
Columbia Gulf is continuing its remediation efforts with the goal of lifting the Corrective Action Order.
NiSource expects to recover a portion of the pipeline replacement costs plus business interruption
losses through insurance.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> Over the course of the next 24&nbsp;months, firm
transportation contracts of approximately 1.2 Bcf per day will expire and there is a risk some of
those may not be renewed due to the reduced system capabilities.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Sale of Granite State Gas</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;15, 2008, NiSource reached a definitive agreement under which Unitil Corporation will
acquire NiSource subsidiaries Northern Utilities and Granite State Gas for $160&nbsp;million plus net
working capital at the time of closing. Granite State Gas is an 86-mile FERC regulated gas
transmission pipeline primarily located in Maine and New Hampshire. In the first quarter of 2008,
NiSource began accounting for the operations of Granite State Gas as discontinued operations. As
such, net income of $0.3&nbsp;million from continuing operations for Granite State Gas, which affected
the Gas Transmission and Storage Operations segment, was classified to net income from discontinued
operations for the three months ended March&nbsp;31, 2008, and $0.3&nbsp;million was reclassified for the
three months ended March&nbsp;31, 2007. Refer to Note 6, &#147;Discontinued Operations and Assets Held for
Sale,&#148; in the Notes to Condensed Consolidated Financial Statements for additional information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Environmental Matters</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Currently, various environmental matters impact the Gas Transmission and Storage Operations
segment. As of March&nbsp;31, 2008, a reserve has been recorded to cover probable environmental
response actions. Refer to Note 15-C, &#147;Environmental Matters,&#148; in the Notes to Condensed
Consolidated Financial Statements for additional information regarding environmental matters for
the Gas Transmission and Storage Operations segment.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->59<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>ITEM
2.</u>  <U>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<B>Gas Transmission and Storage Operations (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Restructuring</U></div>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Payments made for all restructuring initiatives within Gas Transmission and Storage Operations
amounted to $0.3&nbsp;million for the first quarter of 2008 and the restructuring liability remaining at
March&nbsp;31, 2008 was $1.0&nbsp;million. Refer to Note 4, &#147;Restructuring Activities,&#148; in the Notes to
Condensed Consolidated Financial Statements for additional information regarding restructuring
initiatives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Throughput</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Throughput for the Gas Transmission and Storage Operations segment totaled 499.4 MMDth for the
first quarter of 2008, compared to 455.6 MMDth for the same period in 2007. The increase of 43.8
MMDth is due primarily to incremental volumes transported from new interconnects along the Columbia
Gulf pipeline system.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Net Revenues</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net revenues were $231.3&nbsp;million for the first quarter of 2008, an increase of $2.0&nbsp;million from
the same period in 2007, primarily due to increased subscriptions for firm transportation services
of $5.1&nbsp;million related to new interconnects along the Columbia Gulf pipeline system and deliveries
from the Hardy storage field as described above, partially offset by insurance proceeds from a
business interruption claim that improved last year&#146;s results by $2.6&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Operating Income</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Operating income was $104.8&nbsp;million for the first quarter of 2008 compared to $106.6&nbsp;million in the
first quarter of 2007. Increases in net revenues described above were more than offset by
increased operating expenses of $4.3&nbsp;million. Operation and maintenance expenses increased as a
result of higher pipeline integrity management cost of approximately $2&nbsp;million and increased
employee and administrative costs of $1.9&nbsp;million. Employee and administrative costs include
payroll, benefits and higher corporate services costs, including costs associated with the amended
IBM Agreement.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->60<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
2.</u>  <U>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<FONT style="font-variant: SMALL-CAPS"><B>E</B></FONT><B>lectric Operations</B>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Three Months Ended March 31, <I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Revenues</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Sales revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>333.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">327.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Less: Cost of sales (excluding depreciation and amortization)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>149.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>183.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Expenses</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operation and maintenance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>83.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>47.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Operating Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>145.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>38.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">73.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Revenues ($ in millions)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Residential</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>86.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Commercial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>78.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Industrial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>143.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Wholesale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>333.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">327.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Sales (Gigawatt Hours)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Residential</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>806.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">845.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Commercial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>944.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">928.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Industrial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,514.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,341.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Wholesale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>144.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">137.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>34.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4,444.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,279.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Electric Customers</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Residential</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>400,452</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398,493</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Commercial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>52,920</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,199</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Industrial</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,499</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,512</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Wholesale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>756</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">757</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>456,631</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">453,965</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource generates and distributes electricity, through its subsidiary Northern Indiana, to
approximately 457 thousand customers in 20 counties in the northern part of Indiana. The operating
results reflect the temperature-sensitive nature of customer demand with annual sales affected by
temperatures in the northern part of Indiana. As a result, segment operating income is generally
higher in the second and third quarters, reflecting cooling demand during the summer season.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Electric Supply</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On November&nbsp;1, 2007, Northern Indiana filed its bi-annual IRP with the IURC. The plan showed the
need to add approximately 1,000 mw of new capacity. Additionally, during November&nbsp;2007, Northern
Indiana filed a CPCN as well as contracts to purchase power generated with renewable energy,
specifically with wind. The CPCN requested approval to purchase two CCGT power plants &#151; the
Whiting Clean Energy facility owned by PEI, a wholly-owned subsidiary of NiSource, and the Sugar
Creek facility located in west central Indiana and owned by LS Power Group.
On December&nbsp;22, 2007, BPAE indicated it would exercise a contractual right of first refusal to
purchase the Whiting Clean Energy facility and subsequently signed a purchase agreement on April
18, 2008. As a result, on January&nbsp;25, 2008, Northern Indiana filed an amended CPCN to address
just the Sugar Creek CCGT facility. The estimated cost
of the facility is $329&nbsp;million. Northern Indiana is requesting the IURC to approve the purchase
by the second quarter of 2008. The FERC approved the purchase on February&nbsp;27, 2008.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->61<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
2.</u>  <U>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<FONT style="font-variant: SMALL-CAPS"><B>E</B></FONT><B>lectric Operations (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Regulatory Matters</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Significant Rate Developments. </B>To settle a proceeding regarding Northern Indiana&#146;s request to
recover intermediate dispatchable power costs, Northern Indiana has agreed to file an electric base
rate case on or before July&nbsp;1, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During 2002, Northern Indiana settled certain regulatory matters related to an electric rate
review. On September&nbsp;23, 2002, the IURC issued an order adopting most aspects of the settlement.
The order approving the settlement provides that electric customers of Northern Indiana will
receive bill credits of approximately $55.1&nbsp;million each year. The credits will continue at
approximately the same annual level and per the same methodology, until the IURC enters a base rate
order that approves revised Northern Indiana electric rates. The order included a rate moratorium
that expired on July&nbsp;31, 2006. The order also provides that 60% of any future earnings beyond a
specified earnings level will be retained by Northern Indiana. The revenue credit is calculated
based on electric usage; therefore, in times of high usage the credit may be more than $55.1
million. Credits amounting to $12.5&nbsp;million and $13.7&nbsp;million were recognized for electric
customers for the first quarter of 2008 and 2007, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>MISO. </B>As part of Northern Indiana&#146;s participation in the MISO transmission service and wholesale
energy market, certain administrative fees and non-fuel costs have been incurred. IURC Orders have
been issued authorizing the deferral for consideration in a future rate case proceeding of the
administrative fees and certain non-fuel related costs incurred after Northern Indiana&#146;s rate
moratorium, which expired on July&nbsp;31, 2006. During the first quarter of 2008 non-fuel cost credits
of $0.9&nbsp;million were deferred in accordance with the aforementioned orders. In addition,
administrative, FERC and other fees of $1.8&nbsp;million were deferred. In the first quarter of 2008
and 2007, MISO costs of $0.9&nbsp;million and $2.5&nbsp;million, respectively, were deferred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On April&nbsp;25, 2006, the FERC issued an order on the MISO&#146;s Transmission and Energy Markets Tariff,
stating that MISO had violated the tariff on several issues including not assessing revenue
sufficiency guarantee charges on virtual bids and offers and for charging revenue sufficiency
guarantee charges on imports. The FERC ordered MISO to perform a resettlement of these charges
back to the start of the Day 2 Market. The resettlement began on June&nbsp;9, 2007 and ended in January
2008. Certain charge types included in the resettlement were originally considered to be non-fuel
and were recorded as regulatory assets, in accordance with previous IURC orders allowing deferral
of certain non-fuel MISO costs. During the fourth quarter 2007, based on precedent set by an IURC
ruling for another Indiana utility, Northern Indiana reclassified these charges, totaling $16.7
million, as fuel and included them in the fuel cost recovery mechanism in its latest FAC filing.
Prior to the hearing for FAC-78 on April&nbsp;17, 2008, several intervenors objected to a portion of the
$16.7&nbsp;million and Northern Indiana agreed to remove $7.6&nbsp;million from the FAC filing. This amount
represents the portion of the resettlement costs related to periods prior to
December&nbsp;9, 2005. The
$7.6&nbsp;million was recorded as a reduction to net revenues in the first quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On September&nbsp;14, 2007, MISO filed a tariff with the FERC outlining the development of an ASM. The
ASM will allow participants to buy and sell operating reserves and regulation services that are
essential to reliability. The pricing of these markets will be optimized with the current energy
markets and MISO is targeting the start of the ASM for 2008. Northern Indiana is an active
stakeholder in the process used in designing, testing and implementing the ASM and in developing
the surrounding business practices. On January&nbsp;18, 2008, Northern Indiana as part of a joint
petition to the IURC, filed a request to participate in ASM and seek approval of cost recovery
methodologies for associated costs. At this time, Northern Indiana is unable to determine what
impact the ASM will have on its operations or cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Cost Recovery and Trackers. </B>A significant portion of the Northern Indiana&#146;s revenue is related to
the recovery of fuel costs to generate power and the fuel costs related to purchased power. These
costs are recovered through a FAC, a standard, quarterly, &#147;summary&#148; regulatory proceeding in
Indiana.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;30, 2008, the IURC approved a settlement agreement which was reached in October&nbsp;2007
with the OUCC, LaPorte County and a group of Northern Indiana industrial customers to resolve
questions relating to the costs paid by customers for power purchased by Northern Indiana versus
the amount of these costs absorbed by Northern Indiana. The terms of the settlement call for
Northern Indiana to make a one-time payment to resolve this question as it relates to power
purchased from January&nbsp;1, 2006 through September&nbsp;30, 2007. The amount of the
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->62<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
2.</u>  <U>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<FONT style="font-variant: SMALL-CAPS"><B>E</B></FONT><B>lectric Operations (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">refund is set at $33.5&nbsp;million and will be refunded February&nbsp;2008 through July&nbsp;2008. A reserve for
the entire amount was recorded in the third quarter of 2007. Northern Indiana implemented a new
&#147;benchmarking standard&#148; that will govern the allocation of costs for purchased power between
customers and Northern Indiana. The benchmark defines the price below which customers will pay for
power purchases and above which Northern Indiana must absorb a portion of the costs. The benchmark
is based upon the costs of power generated by a hypothetical natural gas fired CCGT using gas
purchased and delivered to Northern Indiana. Purchased power costs exceeding the benchmark
amounted to $3.8&nbsp;million in the first quarter of 2008. These costs were not passed through to
customers, but were absorbed by Northern Indiana. This benchmark will likely result in Northern
Indiana absorbing some purchased power costs that will reduce net revenues during future periods.
The agreement also contemplates Northern Indiana adding generating capacity to its existing
portfolio. The benchmark will be adjusted as new capacity is added. The added generating capacity
will substantially reduce the amount of purchased power and mitigate the impact of the adjusted
benchmark. Further, the settling parties agreed to support Northern Indiana&#146;s deferral and future
recovery of carrying costs and depreciation associated with the acquisition of new generating
facilities. In the approving order, the IURC dictated that, while the parties agreed to support
the deferral of costs mentioned above, the IURC would rule on such deferral in CPCN proceedings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On November&nbsp;1, 2007, Northern Indiana filed its bi-annual IRP with the IURC. The plan showed the
need to add approximately 1,000 mw of new capacity. Additionally, during November&nbsp;2007, Northern
Indiana filed a CPCN as well as contracts to purchase power generated with renewable energy,
specifically with wind. The CPCN requested approval to purchase two CCGT power plants &#151; the
Whiting Clean Energy facility owned by PEI, a wholly-owned subsidiary of NiSource, and the Sugar
Creek facility located in west central Indiana and owned by LS Power Group. On December&nbsp;22, 2007,
BPAE indicated it would exercise a contractual right of first refusal to purchase the Whiting Clean
Energy facility and subsequently signed a purchase agreement on April&nbsp;18, 2008. As a result, on
January&nbsp;25, 2008, Northern Indiana filed an amended CPCN to address just the Sugar Creek CCGT
facility. The estimated cost of the facility is $329&nbsp;million. The CPCN hearing before the IURC
took place on March&nbsp;25, 2008. Northern Indiana anticipates an order in May&nbsp;2008. The FERC
approved the purchase on February&nbsp;27, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On November&nbsp;26, 2002, Northern Indiana received approval from the IURC for an ECT. Under the ECT,
Northern Indiana is permitted to recover (1)&nbsp;AFUDC and a return on the capital investment expended
by Northern Indiana to implement IDEM&#146;s NOx State Implementation Plan through an ECRM and (2)
related operation and maintenance and depreciation expenses once the environmental facilities
become operational through an EERM. Under the IURC&#146;s November&nbsp;26, 2002 order, Northern Indiana is
permitted to submit filings on a semi-annual basis for the ECRM and on an annual basis for the
EERM. In December&nbsp;2006, Northern Indiana filed a petition with the IURC for appropriate cost
treatment and recovery of emission control construction needed to address the Phase I CAIR
requirements of the Indiana Air Pollution Control Board&#146;s CAIR rules that became effective on
February&nbsp;25, 2007. On July&nbsp;3, 2007, Northern Indiana received an IURC order issuing a CPCN for the
CAIR and CAMR Phase I Compliance Plan Projects, estimated to cost approximately $23&nbsp;million.
Northern Indiana will include the CAIR and CAMR Phase I Compliance Plan costs to be recovered in
the semi-annual and annual ECRM and EERM filing six months after construction costs begin. On
December&nbsp;19, 2007, the IURC approved Northern Indiana&#146;s latest compliance plan with the estimate of
$338.5&nbsp;million. On April&nbsp;2, 2008, IURC approved ECR-11 for $252.6&nbsp;million in capital expenditures
(net of accumulated depreciation) and EER-5 for $14.1&nbsp;million in expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;9, 2008, the IURC established a procedural schedule to review the October&nbsp;27, 2006 Joint
Petition of Indiana Gasification, LLC, Vectren Energy Delivery of Indiana and Northern Indiana.
The petition seeks IURC approval for a coal gasification facility, the transportation of
electricity and SNG produced at the facility and the recovery of the cost incurred by the Joint
Petitioners. On March&nbsp;27, 2008, Joint Petitioners filed a motion seeking to extend the March&nbsp;31,
2008 deadline for direct testimony. The Joint Petitioners indicated that positive settlement talks
were underway regarding a purchase contract between Vectren Energy Delivery of Indiana, Northern
Indiana and Indiana Gasification, LLC. Northern Indiana currently anticipates that the hearing
will occur in the fourth quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Environmental Matters</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Currently, various environmental matters impact the Electric Operations segment. As of March&nbsp;31,
2008, a reserve has been recorded to cover probable environmental response actions. Refer to Note
15-C, &#147;Environmental Matters,&#148;
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->63<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
2.</u>   <U>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<FONT style="font-variant: SMALL-CAPS"><B>E</B></FONT><B>lectric Operations (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">in the Notes to Condensed Consolidated Financial Statements for additional information regarding
environmental matters for the Electric Operations segment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Sales</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Electric Operations sales quantities for the first quarter of 2008 were 4,444.3 gwh, compared to
4,279.0 gwh in the first quarter of 2007. The increase was primarily due to higher industrial
volumes for the first three months of 2008 compared to the same period last year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Net Revenues</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the first quarter of 2008, electric net revenues of $183.4&nbsp;million decreased by $15.0&nbsp;million
from the comparable 2007 period. This decrease was due to $11.4&nbsp;million of non-recoverable
purchased power and non-recoverable MISO charges. Lower residential and commercial margins were
partially offset by higher industrial volumes and margins and increased wholesale margins.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Operating Income</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Operating income for the first quarter of 2008 was $38.4&nbsp;million, a decrease of $34.6&nbsp;million from
the same period in 2007. The decrease in operating income was due to lower net revenues described
above and increased operating expenses of $19.6&nbsp;million. Operating expenses increased primarily
due to higher employee and administrative costs of $13.3&nbsp;million and higher electric generation and
maintenance expenses of $7.4&nbsp;million. Part of the increase in employee and administrative costs
were due to adjustments that reduced benefit expenses by $5.7&nbsp;million during 2007. Employee and
administrative costs include payroll, benefits and higher corporate services costs, including costs
associated with the amended IBM Agreement. The higher generation and maintenance expenses were
primarily attributable to a planned turbine and boiler maintenance and a generator overhaul.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->64<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>ITEM
2.</u>  <U>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<FONT style="font-variant: SMALL-CAPS"><B>O</B></FONT><B>ther Operations</B>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Three Months Ended March 31, <I>(in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Revenues</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Products and services revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>359.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">321.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Less: Cost of products purchased (excluding depreciation and amortization)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>352.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">313.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Expenses</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operation and maintenance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Operating Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating Income (Loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(0.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Other Operations segment participates in energy-related services including gas marketing, power
and gas risk management and ventures focused on distributed power generation technologies,
including a cogeneration facility, fuel cells and storage systems. PEI operates the Whiting Clean
Energy project at BP&#146;s Whiting, Indiana refinery, which is a 525 mw cogeneration facility that uses
natural gas to produce electricity for sale in the wholesale markets and also provides steam for
industrial use. Additionally, the Other Operations segment is involved in real estate and other
businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>PEI Holdings, Inc. </U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Whiting Clean Energy</B>. On July&nbsp;27, 2007, Whiting Clean Energy submitted a proposal in response to
the Northern Indiana-issued RFP &#147;2008 Combined Cycle Request for Proposals&#148;. Whiting Clean Energy
was notified during October&nbsp;2007 that its proposal to sell its facility was selected by Northern
Indiana based on a purchase price of $210&nbsp;million. On December&nbsp;22, 2007, BPAE offered to purchase
the facility under an exercised contractual right of first refusal triggered by Northern Indiana&#146;s
offer to purchase the facility. The carrying amount of the Whiting Clean Energy facility was
approximately $270&nbsp;million at December&nbsp;31, 2007. On April&nbsp;18, 2008, PEI reached an agreement with
BPAE to sell all of the outstanding stock of Whiting Clean Energy to BPAE for $210&nbsp;million. The
agreement with BPAE contains customary representations, warranties, covenants and closing
conditions. NiSource anticipates the closing of the transaction to occur in the second or third
quarter of 2008, depending upon the timing of the satisfaction of closing conditions, including
required approvals from the Federal Energy Regulatory Commission and the termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the first quarter of 2008, NiSource began accounting for the operations of Whiting Clean Energy
as discontinued operations. As such, net income of $0.1&nbsp;million from continuing operations was
classified to net income from discontinued operations for the three months ended March&nbsp;31, 2008,
and a loss of $2.2&nbsp;million was reclassified for the three months ended March&nbsp;31, 2007. In the
first quarter of 2008, NiSource recorded an estimated after-tax loss of $32.5&nbsp;million for the
disposition of these operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Lake Erie Land Company, Inc.</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Lake Erie Land, which is wholly-owned by NiSource, is in the process of selling real estate over a
10-year period as a part of an agreement reached in June, 2006 with a private real estate
development group. Part of the sale transaction included the assets of the Sand Creek Golf Club,
and NiSource began accounting for the operations of the Sand Creek Golf Club as discontinued
operations at that time. NiSource estimates the property to be sold to the private developer
during the next twelve months and classifies these assets as assets of discontinued operations and
held for sale.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->65<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>ITEM
2.</u>   <U>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT><BR>
<FONT style="font-variant: SMALL-CAPS"><B>O</B></FONT><B>ther Operations (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>NDC Douglas Properties</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NDC Douglas Properties, a subsidiary of NiSource Development Company, is in the process of exiting
some of its low income housing investments. One of these investments was disposed of during 2007
and two other investments are expected to be sold or disposed of during 2008. NiSource has
accounted for the investments to be sold as assets and liabilities of discontinued operations and
held for sale.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Net Revenues</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Net revenues of $7.2&nbsp;million for the first quarter of 2008 decreased by $1.0&nbsp;million from the first
quarter of 2007, as a result of decreased commercial and industrial gas marketing revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Operating Loss</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Other Operations reported an operating loss of $0.5&nbsp;million for the first quarter of 2008, versus
operating income of $0.2&nbsp;million for the comparable 2007 period. The operating loss resulted
primarily from decreased net revenues described above.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->66<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
3.</u>  <U>QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For a discussion regarding quantitative and qualitative disclosures about market risk see
&#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations &#151; Market
Risk Disclosures.&#148;
</DIV>
<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 4. CONTROLS AND PROCEDURES</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Evaluation of Disclosure Controls and Procedures</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NiSource&#146;s chief executive officer and its principal financial officer, after evaluating the
effectiveness of NiSource&#146;s disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)), have concluded based on the evaluation required by paragraph (b)&nbsp;of
Exchange Act Rules&nbsp;13a-15 and 15d-15 that, as of the end of the period covered by this report,
NiSource&#146;s disclosure controls and procedures are considered ineffective due to the ongoing
remediation of the material weakness described below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In the fourth quarter of 2007, Northern Indiana detected an error in its unbilled revenue
calculation and revised its estimate for unbilled electric and gas revenues. Over a period of
several years, Northern Indiana used incorrect customer usage data to calculate its unbilled
revenue and effective controls from both a design and operating effectiveness perspective were not
in place to ensure the adequate calculation and recording of unbilled revenues. As a result, this
correction reduced net revenues by $25.5&nbsp;million in the fourth quarter of 2007. The unbilled
revenue estimates were never billed to customers. This error resulted in a material weakness and
internal controls were determined to be ineffective for the fourth quarter of 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Changes in Internal Controls</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the first quarter of 2008, management has designed and implemented internal controls to
ensure the adequate calculation and recording of Northern Indiana&#146;s unbilled revenues. Management
is still in the process of performing operating effectiveness testing which will be completed in
the second quarter of 2008, at which time management is confident that the material weakness will
be remediated and internal controls will be effective.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Other than the internal control changes referenced above, there have been no other changes in
NiSource&#146;s internal control over financial reporting during the fiscal period covered by this
report that has materially affected, or is reasonably likely to affect, NiSource&#146;s internal control
over financial reporting.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->67<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U><B>PART II</B></U>
</DIV>

<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
1.</u>   <U>LEGAL PROCEEDINGS</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stand Energy Corporation, et al. v. Columbia Gas Transmission Corporation, et al., Kanawha
County Court, West Virginia</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On July&nbsp;14, 2004, Stand Energy Corporation filed a complaint in Kanawha County Court in West
Virginia. The complaint contains allegations against various NiSource companies, including
Columbia Transmission and Columbia Gulf, and asserts that those companies and certain &#147;select
shippers&#148; engaged in an &#147;illegal gas scheme&#148; that constituted a breach of contract and
violated state law. The &#147;illegal gas scheme&#148; complained of by the plaintiffs relates to the
Columbia Transmission and Columbia Gulf gas imbalance transactions that were the subject of
the FERC enforcement staff investigation and subsequent settlement approved in October&nbsp;2000.
Columbia Transmission and Columbia Gulf filed a Motion to Dismiss on September&nbsp;10, 2004. In
October&nbsp;2004, however, the plaintiffs filed their Second Amended Complaint, which clarified
the identity of some of the &#147;select shipper&#148; defendants and added a federal antitrust cause of
action. To address the issues raised in the Second Amended Complaint, the Columbia companies
revised their briefs in support of the previously filed motions to dismiss. In June&nbsp;2005, the
Court granted in part and denied in part the Columbia companies&#146; motion to dismiss the Second
Amended Complaint. The Columbia companies have filed an answer to the Second Amended
Complaint. On December&nbsp;1, 2005, Plaintiffs filed a motion to certify this case as a class
action. The Columbia companies filed their opposition to this motion in March&nbsp;2008; this
issue has now been fully briefed, and is awaiting a decision by the Court. Discovery
continues on the merits.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>United States of America ex rel. Jack J. Grynberg v. Columbia Gas Transmission Corporation,
et al., U.S. District Court, E.D. Louisiana</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The plaintiff filed a complaint in 1995, under the False Claims Act, on behalf of the United
States of America, against approximately seventy pipelines, including Columbia Gulf and
Columbia Transmission. The plaintiff claimed that the defendants had submitted false royalty
reports to the government by mismeasuring natural gas produced on Federal land and Indian
lands. The Plaintiff&#146;s original complaint was dismissed without prejudice for misjoinder of
parties and for failing to plead fraud with specificity. In 1997, the plaintiff filed over
sixty-five new False Claims Act complaints against over 330 defendants in numerous Federal
courts. One of those complaints was filed in the Federal District Court for the Eastern
District of Louisiana against Columbia and thirteen affiliated entities (collectively, the
&#147;Columbia defendants&#148;). This complaint repeats the mismeasurement claims previously made and
adds valuation claims alleging that the defendants undervalued natural gas for royalty
purposes in various ways, including sales to affiliated entities at artificially low prices.
This case was transferred, along with most of the other new Grynberg cases, to Federal court
in Wyoming in 1999.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On October&nbsp;20, 2006, the Federal District Court issued an Order granting the Columbia
defendants&#146; motion to dismiss for lack of subject matter jurisdiction. The Plaintiff has
appealed the dismissal of the Columbia defendants.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Tawney, et al. v. Columbia Natural Resources, Inc., Roane County, WV Circuit Court</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Plaintiffs, who are West Virginia landowners, filed a lawsuit in early 2003 against CNR
alleging that CNR underpaid royalties on gas produced on their land by improperly deducting
post-production costs and not paying a fair value for the gas. In December&nbsp;2004, the court
granted plaintiffs&#146; motion to add NiSource and Columbia as defendants. Plaintiffs also
claimed that the defendants fraudulently concealed the deduction of post-production charges.
The court certified the case as a class action that includes any person who, after July&nbsp;31,
1990, received or
is due royalties from CNR (and its predecessors or successors) on lands lying within the
boundary of the state of West Virginia. All claims by the government of the United States are
excluded from the class. Although NiSource sold CNR in 2003, NiSource remains obligated to
manage this litigation and for the majority of any damages ultimately awarded to the
plaintiffs. On January&nbsp;27, 2007, the jury hearing the case returned a verdict against all
defendants in the amount of $404.3&nbsp;million; this is comprised of $134.3&nbsp;million in
compensatory damages and $270
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->68<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM
1.</u>  <U>LEGAL PROCEEDINGS (continued)</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">million in punitive damages. In January&nbsp;2008, the Defendants filed their petition for appeal, and
on March&nbsp;24, 2008, the Defendants filed their amended petition for appeal with the West
Virginia Supreme Court of Appeals, which may or may not accept the appeal. NiSource has not
established a reserve for the punitive damages portion of the verdict.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>4.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>John Thacker, et al. v. Chesapeake Appalachia, L.L.C., U.S. District Court, E.D. Kentucky</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;8, 2007, Plaintiff filed this purported class action, alleging that Chesapeake
Appalachia, L.L.C. (&#147;Chesapeake&#148;) has failed to pay royalty owners the correct amounts
pursuant to the provisions of their oil and gas leases covering real property located within
the state of Kentucky. Columbia has assumed the defense of Chesapeake in this matter pursuant
to the provisions of the Stock Purchase Agreement dated July&nbsp;3, 2003, among Columbia,
NiSource, and Triana Energy Holding, Inc., Chesapeake&#146;s predecessor in interest. Plaintiffs
filed an amended complaint on March&nbsp;19, 2007, which, among other things, added NiSource and
Columbia as defendants. On March&nbsp;31, 2008, the Court denied the Defendants&#146; Motions to
Dismiss; the Defendants filed their answers to the complaint on April&nbsp;25, 2008.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>5.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Environmental Protection Agency Notice of Violation</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On September&nbsp;29, 2004, the EPA issued an NOV to Northern Indiana for alleged violations of the
Clean Air Act and the Indiana SIP. The NOV alleges that modifications were made to certain
boiler units at three of Northern Indiana&#146;s generating stations between the years of 1985 and
1995 without obtaining appropriate air permits for the modifications. Northern Indiana is
currently in discussions with the EPA regarding possible resolutions to this NOV.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>6.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Pennsylvania Department of Environmental Protection Proposed Consent Order and Agreement</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;21, 2007, Pennsylvania Department of Environmental Protection provided
representatives of Columbia Transmission with a proposed Consent Order and Agreement covering
an unmanned equipment storage site located in rural southwest Pennsylvania. The site in
question is also subject to the EPA&#146;s Administrative Order by Consent (Refer to Note 18-E,
&#147;Environmental Matters,&#148; in the Notes to Condensed Consolidated Financial Statements for
additional information regarding the Administrative Order by Consent). Pursuant to that
order, Columbia Transmission has submitted a remediation plan to the EPA and the Pennsylvania
Department of Environmental Protection. The EPA has approved the remediation plan and
discussions are ongoing with the Pennsylvania Department of Environmental Protection regarding
the proposed remediation. Pennsylvania Department of Environmental Protection&#146;s proposed
order alleges that Columbia Transmission has violated the state&#146;s Clean Streams Act and Solid
Waste Management Act by discharging petroleum products onto the property and into the waters
of the state. In addition to requiring remediation and monitoring activities at the site, the
state has proposed penalties for these violations. Columbia Transmission plans to engage in
further discussions with the agency regarding the proposed order, including the rationale for
the proposed penalty.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->69<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 1A.</U> <U>RISK FACTORS</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There were no material changes from the risk factors disclosed in NiSource&#146;s 2007 Form 10-K filed
on March&nbsp;5, 2008.
</DIV>
<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 2.</U> <U>UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">None
</DIV>

<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 3.</U> <U>DEFAULTS UPON SENIOR SECURITIES</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">None
</DIV>

<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 4.</U> <U>SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">None
</DIV>

<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 5.</U> <U>OTHER INFORMATION</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">None
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->70<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>ITEM 6.</U> <U>EXHIBITS</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(31.1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Robert C. Skaggs, Jr., Chief Executive Officer, pursuant to Section&nbsp;302
of the Sarbanes-Oxley Act of 2002. *</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(31.2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Michael W. O&#146;Donnell, Chief Financial Officer, pursuant to Section&nbsp;302
of the Sarbanes-Oxley Act of 2002. *</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(32.1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Robert C. Skaggs, Jr., Chief Executive Officer, pursuant to Section&nbsp;906
of the Sarbanes-Oxley Act of 2002 (furnished herewith). *</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(32.2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Michael W. O&#146;Donnell, Chief Financial Officer, pursuant to Section&nbsp;906
of the Sarbanes-Oxley Act of 2002 (furnished herewith). *</TD>
</TR>

</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>



<DIV style="margin-top: 1pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">

    <TD width="1%" nowrap align="CENTER">*</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit filed herewith.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to Item&nbsp;601(b)(4)(iii) of Regulation&nbsp;S-K, NiSource hereby agrees to furnish the SEC, upon
request, any instrument defining the rights of holders of long-term debt of NiSource not filed as
an exhibit herein. No such instrument authorizes long-term debt securities in excess of 10% of the
total assets of NiSource and its subsidiaries on a consolidated basis.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->71<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>SIGNATURE</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><FONT style="font-variant: SMALL-CAPS"><B>NiSource Inc.</B></FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">NiSource Inc.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Registrant)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: May&nbsp;2, 2008
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">/s/ Jeffrey W. Grossman</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Jeffrey W. Grossman</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Vice President and Controller</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Principal Accounting Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">and Duly Authorized Officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->72<!-- /Folio -->
</DIV>




</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>c26228exv31w1.htm
<DESCRIPTION>302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Certification Pursuant to<BR>
Section&nbsp;302 of the Sarbanes-Oxley Act of 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">I, Robert C. Skaggs, Jr., certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this Quarterly Report of NiSource Inc. on Form 10-Q for the quarter
ended March&nbsp;31, 2008;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules&nbsp;13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the registrant&#146;s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter
(the registrant&#146;s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant&#146;s
internal control over financial reporting; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrant&#146;s
auditors and the audit committee of the registrant&#146;s board of directors (or persons
performing the equivalent functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrant&#146;s ability to record, process, summarize and report financial
information; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant&#146;s internal control over financial
reporting.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="21%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: May&nbsp;2, 2008
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">/s/ Robert C. Skaggs, Jr.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="centER" valign="top">Robert C. Skaggs, Jr.<BR>

Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>c26228exv31w2.htm
<DESCRIPTION>302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>exv31w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Certification Pursuant to<BR>
Section&nbsp;302 of the Sarbanes-Oxley Act of 2002</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">I, Michael W. O&#146;Donnell, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this Quarterly Report of NiSource Inc. on Form 10-Q for the quarter
ended March&nbsp;31, 2008;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules&nbsp;13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the registrant&#146;s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter
(the registrant&#146;s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant&#146;s
internal control over financial reporting; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrant&#146;s
auditors and the audit committee of the registrant&#146;s board of directors (or persons
performing the equivalent functions):</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrant&#146;s ability to record, process, summarize and report financial
information; and</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant&#146;s internal control over financial
reporting.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: May&nbsp;2, 2008
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">/s/ Michael W. O&#146;Donnell
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Michael W. O&#146;Donnell</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="center">Executive Vice President and Chief Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>4
<FILENAME>c26228exv32w1.htm
<DESCRIPTION>906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;32.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Certification Pursuant to<BR>
Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the Quarterly Report of NiSource Inc. (the &#147;Company&#148;) on Form 10-Q for the
quarter ending March&nbsp;31, 2008 as filed with the Securities and Exchange Commission on the date
hereof (the &#147;Report&#148;), I, Robert C. Skaggs, Jr., Chief Executive Officer of the Company, certify,
pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="68%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Robert C. Skaggs, Jr.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Robert C. Skaggs, Jr.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chief Executive Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Date:  May&nbsp;2, 2008
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>5
<FILENAME>c26228exv32w2.htm
<DESCRIPTION>906 CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<HTML>
<HEAD>
<TITLE>exv32w2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;32.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Certification Pursuant to<BR>
Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with the Quarterly Report of NiSource Inc. (the &#147;Company&#148;) on Form 10-Q for the
quarter ending March&nbsp;31, 2008 as filed with the Securities and Exchange Commission on the date
hereof (the &#147;Report&#148;), I, Michael W. O&#146;Donnell, Executive Vice President and Chief Financial
Officer of the Company, certify, pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002, that:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="63%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Michael W. O&#146;Donnell</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Michael W. O&#146;Donnell
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Executive Vice President and Chief Financial Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Date:  May&nbsp;2, 2008
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>




</BODY>
</HTML>
</TEXT>
</DOCUMENT>
</SUBMISSION>
