Notes to Consolidated Financial Statements

1.       Holding Company  Structure.  Effective March 3, 1988,  Northern  Indiana Public Service Company  (Northern
Indiana)  became  a  subsidiary  of  NiSource  Inc.  (NiSource),  formerly  NIPSCO  Industries,  Inc.,  an  Indiana
corporation.  NIPSCO  Industries,  Inc. changed its name to NiSource Inc. on April 14, 1999.  NiSource is an energy
holding company that provides  natural gas,  electricity  and other products and services to 3.6 million  customers
located  within  the  energy  corridor  that runs from the Gulf  Coast  through  the  Midwest  to New  England.  In
connection  with the  acquisition  of Columbia  Energy  Group  (Columbia)  on November 1, 2000,  NiSource  became a
Delaware  corporation.  NiSource is a registered  holding  company under the Public Utility  Holding Company Act of
1935, as amended, (1935 Act).


2.       Summary of Significant Accounting Policies

A.       Principles  of  Consolidation.  The  consolidated  financial  statements  include the accounts of Northern
Indiana and subsidiaries,  after the elimination of all significant  intercompany items. Certain  reclassifications
were made to conform the prior years' financial statements to the current presentation.

B.       Cash and Cash  Equivalents.  Northern  Indiana  considers all highly liquid  short-term  investments to be
cash equivalents.

C.       Basis of Accounting for Rate-Regulated  Subsidiaries.  Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation"  (SFAS No. 71),  provides that Northern Indiana account
for and  report  assets  and  liabilities  consistent  with the  economic  effect  of the way in  which  regulators
establish  rates,  if the rates  established  are designed to recover the costs of providing the regulated  service
and if the  competitive  environment  makes it  probable  that such rates can be charged  and  collected.  Northern
Indiana follows the accounting and reporting  requirements of SFAS No. 71. Certain  expenses and credits subject to
utility  regulation or rate  determination  normally  reflected in income are deferred on the balance sheet and are
recognized  in income as the  related  amounts  are  included in service  rates and  recovered  from or refunded to
customers.  In the event that regulation  significantly changes the opportunity for Northern Indiana to recover its
costs in the future,  all or a portion of Northern Indiana's  regulated  operations may no longer meet the criteria
for the  application  of SFAS No.  71. In such  event,  a  write-down  of all or a portion  of  Northern  Indiana's
existing  regulatory  assets and  liabilities  could  result,  unless  some form of  transition  cost  recovery  is
established  by the  appropriate  regulatory  body  which  would meet the  requirements  under  generally  accepted
accounting  principles  for  continued  accounting as regulatory  assets during such recovery  period.  If Northern
Indiana will not be able to continue to apply the  provisions of SFAS No. 71, it will have to apply the  provisions
of SFAS No. 101 "Regulated  Enterprises - Accounting for the  Discontinuation  of Application of FASB Statement No.
71." In management's opinion, Northern Indiana will be subject to SFAS No. 71 for the foreseeable future.

Regulatory assets were comprised of the following items:

At December 31, (in thousands)                                                    2000                1999  
Assets
   Reacquisition premium on debt (see Note 12)                          $       36,035      $       39,499
   R. M. Schahfer Unit 17 and Unit 18 carrying charges and deferred
     depreciation (see Note 2E)                                                 49,677              53,894
   Bailly scrubber carrying charges and deferred depreciation (see
     (Note 2E)                                                                   6,372               7,308
   Postemployment and other postretirement costs (see Note 8)                   61,574              67,171
   FERC Order No. 636 transition costs                                           7,936              13,728
   Net regulatory effects of accounting for income taxes (see Note 2O)          25,466              18,208
   Underrecovered gas and fuel costs                                           138,117              27,260  
Total Assets                                                            $      325,177      $      227,068  

Regulatory  assets of  approximately  $275.5 million are not presently  included in the rate base and  consequently
are not earning a return on investment.  These regulatory assets are being recovered  through cost of service.  The
remaining  recovery periods generally range from one to fourteen years.  Regulatory assets of approximately  $129.5
million require specific rate action. All regulatory assets are probable of recovery.

D.       Utility Plant and Related  Depreciation and Maintenance.  Property plant and equipment are stated at cost.
The cost of utility  includes an allowance for funds used during  construction  (AFUDC).  The 2000 before-tax rates
for AFUDC was 6.2%. The 1999 and 1998 before-tax rates for AFUDC were 4.25% and 6.0%, respectively.

Northern  Indiana  provides  depreciation  on a  straight-line  method  over  the  remaining  service  lives of the
electric, gas and common properties.

The  depreciation  provisions  for utility  plant,  as a percentage of the original  cost,  for the periods  ended,
December 31, 2000, 1999 and 1998 were as follows:

                                                              2000                1999                1998  
   Electric                                                   3.7%                3.7%                3.6%
   Gas                                                        5.4%                5.4%                5.4%  

Northern  Indiana  charges  maintenance and repairs,  including the cost of removal of minor items of property,  to
expense as  incurred.  When  property  that  represents  a retired  unit is replaced  or removed,  the cost of such
property is credited to utility plant,  and such cost,  together with the cost of removal less salvage,  is charged
to the accumulated provision for depreciation.

E.       Carrying  Charges and Deferred  Depreciation.  Upon completion of R. M. Schahfer Units 17 and 18, Northern
Indiana  capitalized  the  carrying  charges and deferred  depreciation  in  accordance  with orders of the Indiana
Utility  Regulatory  Commission  (IURC) until the cost of each unit was allowed in rates. Such carrying charges and
deferred depreciation are being amortized over the remaining life of each unit.

Northern  Indiana has  capitalized  carrying  charges and  deferred  depreciation  and certain  operating  expenses
relating to its scrubber  service  agreement for its Bailly  Generating  Station in accordance with an order of the
IURC.  The  accumulated  balance of the deferred  costs and related  carrying  charges is being  amortized over the
remaining life of the scrubber service agreement.

F.       Amortization  of Software  Costs.  External  and  incremental  internal  costs  associated  with  computer
software  developed for internal use are  capitalized.  Capitalization  of such costs commences upon the completion
of the  preliminary  stage of the  project.  Once the  installed  software  is ready  for its  intended  use,  such
capitalized costs are amortized on a straight-line basis over a period of five to ten years.

G.       Revenue  Recognition.  Except as  discussed  below,  revenues  are  recorded  as services  are  delivered.
However,  utility revenues are billed to customers  monthly on a cycle basis.  Revenues are recorded on the accrual
basis and include an estimate for electric  and gas  delivered.  Effective  January 1, 1999,  revenues  relating to
energy  trading  operations  are recorded  based upon changes in the fair values,  net of reserves,  of the related
energy trading contracts.

H.       Accounts  Receivable  Sales Program.  Northern  Indiana enters into  agreements with third parties to sell
certain accounts  receivable  without recourse.  These sales are reflected as reductions of accounts  receivable in
the  accompanying  consolidated  balance  sheets and as  operating  cash flows in the  accompanying  statements  of
consolidated  cash flows. The costs of this program,  which are based upon the purchasers'  level of investment and
borrowing costs, are charged to other income in the accompanying statements of consolidated income.

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

J.       Fuel  Adjustment  Clause.  All metered  electric  rates contain a provision for  adjustment in charges for
electric  energy to  reflect  increases  and  decreases  in the cost of fuel and the fuel cost of  purchased  power
through  operation of a fuel  adjustment  clause.  As prescribed by order of the IURC  applicable to metered retail
rates,  the  adjustment  factor  has been  calculated  based  on the  estimated  cost of fuel and the fuel  cost of
purchased  power in a future  three month  period.  If two  statutory  requirements  relating to expense and return
levels are satisfied,  any under recovery or over recovery  caused by variances  between  estimated and actual cost
in a given three month period will be included in a future filing.  Northern  Indiana records any under recovery or
over recovery as a current  regulatory  asset or current  liability  until such time as it is billed or refunded to
its customers.  The fuel adjustment  factor is subject to a quarterly hearing by the IURC and remains in effect for
a three month period.

K.       Gas Cost  Adjustment  Clause.  Northern  Indiana  defers  differences  between gas purchase  costs and the
recovery of such costs in revenues,  and adjusts  future  billings for such  deferrals on a basis  consistent  with
applicable state approved tariff provisions.

L.       Natural Gas in Storage.  Natural gas in storage is valued using the last-in,  first-out  (LIFO)  inventory
methodology.  Based on the average  cost of gas using the LIFO  method in  December  2000 and  December  1999,  the
estimated  replacement cost of gas in storage at December 31, 2000 and December 31, 1999,  exceeded the stated LIFO
cost by $261.4 million and $48.9 million, respectively.

M.       Affiliated Company  Transactions.  Northern Indiana receives executive,  financial,  gas supply, sales and
marketing,  and administrative  and general services from an affiliate,  NiSource Corporate Services Company (NSC),
a wholly-owned subsidiary of NiSource.

The costs of these  services are charged to Northern  Indiana based on payroll  costs and expenses  incurred by NSC
employees for the benefit of Northern  Indiana.  These costs,  which totaled $21.2 million for the year 2000, $17.8
million for the year 1999 and $21.4  million for the year 1998,  consist  primarily  of employee  compensation  and
benefits.

Northern  Indiana  purchased  natural gas and  transportation  services from affiliated  companies in the amount of
$69.4 million,  $16.3 million and $20.8 million,  representing 10.5%, 4.8% and 6.8% of Northern Indiana's total gas
costs for years 2000, 1999 and 1998, respectively.

Northern  Indiana  subleases a portion of its office  facilities to affiliated  companies for a monthly fee,  which
includes operating expenses, based on space utilization.

The  December 31,  2000,  and 1999  accounts  receivable  balance  include  approximately  $30.4  million and $14.0
million, respectively, due from associated companies.

As  of  December  31,  2000, Northern indiana had an intercompany note payable of $36.0 million to NiSource Finance
Corp. at an interest rate of 7.71%.

N.       Accounting for Risk  Management  Activities.  Northern  Indiana is exposed to commodity  price risk in its
natural gas and electric operations.  A variety of commodity-based  derivative  financial  instruments are utilized
to reduce this price risk. When these  derivatives are used to reduce price risk in non-trading  operations such as
activities in gas supply for regulated gas utilities,or other retail customer  activity,  gains and losses on these
derivative  financial  instruments are deferred as assets and liabilities and are recognized in earnings concurrent
with the  disposition  of the underlying  physical  commodity.  In certain  circumstances,  a derivative  financial
instrument will serve to hedge the acquisition  cost of natural gas injected into storage.  In this situation,  the
gain or loss on the  derivative  financial  instrument  is deferred as part of the cost basis of gas in storage and
recognized upon the ultimate  disposition of the gas. If a derivative  financial  instrument contract is terminated
early because it is probable that a transaction or forecasted  transaction  will not occur,  any gain or loss as of
such date is immediately recognized in earnings. If a derivative financial instrument is terminated

for other  economic  reasons,  any gains or losses as of the  termination  date are deferred and recorded  when the
associated transaction or forecasted transaction affects earnings.

Northern  Indiana also uses derivative  financial  instruments in connection  with trading  activities at its power
trading  operations.  These  derivatives,  along with the related  physical  contracts,  are recorded at fair value
pursuant to Emerging  Issues Task Force (EITF) Issue No. 98-10,  "Accounting for Energy Trading and Risk Management
Activities."  Because the majority of trading  activities  started in 1999,  the impact of adopting  EITF Issue No.
98-10 on January 1, 1999 was  insignificant.  Transactions  related to electric  utility system load  management do
not qualify as a trading  activity under EITF Issue No. 98-10 and are accounted for on an accrual  basis.  Northern
Indiana refers to this activity as Power Management.

O.       Income Taxes and  Investment  Tax  Credits.  Northern  Indiana  records  income  taxes to  recognize  full
interperiod  tax  allocations.  Under the  liability  method of income tax  accounting,  deferred  income taxes are
recognized for the tax  consequences of temporary  differences by applying  enacted  statutory tax rates applicable
to future years to  differences  between the  financial  statement  carrying  amounts and the tax basis of existing
assets and liabilities.

Previously  recorded  investment  tax credits of Northern  Indiana were deferred and are being  amortized  over the
life of the related properties to conform with regulatory policy.

P.       Environmental  Expenditures.  Northern Indiana accrues for costs associated with environmental remediation
obligations  when such costs are probable and can be  reasonably  estimated,  regardless of when  expenditures  are
made.  The  undiscounted  estimated  future  expenditures  are based on  currently  enacted  laws and  regulations,
existing  technology and, when possible,  site-specific  costs.  The reserve is adjusted as further  information is
developed or circumstances change.


3.       Restructuring Activities

During 2000,  NiSource  developed and began the  implementation of a plan to restructure its operations as a result
of the Columbia  acquisition.  The restructuring plan included an involuntary  severance program, a transition plan
to implement operational efficiency throughout NiSource's operations and a voluntary early retirement program.

As a  result  of  the  restructuring  plan,  it  is  estimated  that  approximately  37  management,  professional,
administrative  and  technical  positions  have been or will be eliminated  at Northern  Indiana.  In October 2000,
Northern Indiana recorded pre-tax charges of $2.5 million in operating expense  representing  severance and related
benefits  costs.  This charge  included $1.3 million of estimated  termination  benefits.  As of December 31, 2000,
approximately  25 employees have been terminated as a result of the  restructuring  plan. At December 31, 2000, the
consolidated balance sheets reflected an accrual of $1.2 million related to the restructuring plan.


4.       Impact of Accounting Standards

A.       SFAS No. 133 - Accounting for Derivative  Instruments  and Hedging  Activities.  The Financial  Accounting
Standards  Board (FASB) has issued  Statement of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting for
Derivative  Instruments  and  Hedging  Activities,"  in June  1998 and SFAS No.  137,  "Accounting  for  Derivative
Instruments  and Hedging  Activities-Deferral  of the  Effective  Date of FASB  Statement No. 133" in June 1999 and
SFAS No. 138,  "Accounting for Certain  Derivatives  Instruments  and Certain  Hedging  Activities- an amendment of
FASB No. 133" in June 2000.  Statement No. 133 as amended  standardizes the accounting for derivative  instruments,
including  certain  derivative  instruments  embedded in hybrid  contracts,  by requiring that a company  recognize
those items as assets or  liabilities  in the balance  sheet and measure  them at fair  value.  The  standard  also
suggests in certain circumstances  commodity based contracts may qualify as derivatives.  Special accounting within
this  statement  generally  provides  for  matching  of the  timing  of  gain  or loss  recognition  of  derivative
instruments  qualifying  as  a  hedge  with  the  recognition  of  changes in the fair value of the hedged asset or
liability  through  earnings,  and  requires  that  a  company  must  formally  document,  designate and assess the
effectiveness  of  transactions  that  receive  hedge  accounting  treatment.  The statement also provides that the
effective  portion of hedging instrument's gain or loss on a forecasted transaction be initially  reported in other
comprehensive  income  and  subsequently  reclassified into earnings when the hedged forecasted transaction affects
earnings.  Unless  those  specific  hedge  accounting  criteria  are  met,  SFAS  No.  133 requires that changes in
derivatives' fair value be recognized currently in earnings.

Northern  Indiana  is a party to a number of  contracts  that  have  elements  of a  derivative  instrument.  These
contracts  include,  among others,  binding  purchase  orders,  contracts which provide for the delivery of natural
gas, and service contracts that require the counterparty to provide commodity  storage,  transportation or capacity
service to meet normal  sales  commitments.  Although  many of these  contracts  have the  requisite  elements of a
derivative  instrument,  Northern Indiana  believes these contracts are not subject to the accounting  requirements
of SFAS 133 because  they provide for the  delivery of products or services in  quantities  that are expected to be
used in the normal  course of operating the business or the value of the contract is directly  associated  with the
price or value of a service.  Other contracts do not meet the definition of a derivative  instrument  because these
represent requirements-based commitments.

The adoption of this  statement on January 1, 2001 is  estimated  to result in a cumulative  after-tax  increase to
other comprehensive  income of approximately $4 million.  The adoption is also estimated to result in approximately
$14  million of  derivatives  to be  recognized  on the  balance  sheet as assets and  approximately  $8 million of
derivatives to be recognized as liabilities.

B.       SFAS No. 140 -  Accounting  for  Transfers  and  Servicing  of  Financial  Assets and  Extinguishments  of
Liabilities.  In September 2000, the Financial  Accounting Standards Board issued Statement of Financial Accounting
Standards  No.  140,   "Accounting  for  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishment  of
Liabilities".  This statement replaces FASB Statement No. 125, "Accounting for Transfers and Servicing of Financial
Assets  and  Extinguishments  of  Liabilities"  (SFAS No.  125).  It  revises  the  standards  for  accounting  for
securitizations  and other transfers of financial  assets and collateral and requires certain  disclosures,  but it
carries over most of SFAS No. 125's provisions without reconsideration.

This  statement  provides  accounting and reporting  standards for transfers and servicing of financial  assets and
extinguishments  of  liabilities.  Those  standards are based on consistent  application of a  financial-components
approach that focuses on control. Under that approach, after a transfer of financial  assets, an entity  recognizes
the financial and servicing  assets it controls and the liabilities it has incurred, derecognizes financial  assets
when control has been  surrendered,  and  derecognizes  liabilities  when  extinguished.  This  Statement  provides
consistent  standards  for  distinguishing  transfers of financial  assets that are sales from  transfers  that are
secured borrowings.

C.       SAB No. 101 - Revenue  Recognition  in  Financial  Statements.  In  December  1999,  the SEC issued  Staff
Accounting Bulletin (SAB) No. 101, "Revenue  Recognition in Financial  Statements".  This SAB summarizes certain of
the SEC Staff's views in applying  generally  accepted  accounting  principles to revenue  recognition in financial
statements.  In June 2000, the SEC issued SAB No. 101B, which delayed the  implementation of SAB 101 until no later
than  the  fourth  fiscal  quarter  of  fiscal years  beginning  after December 15, 1999. See Item 8, Note 6, "Risk
Management  Activities"  on  pages  32  through  34  with respect to disclosure of northern Indiana's power trading
operations on a gross revenue and gross cost of energy basis.


5.       Regulatory Matters

Fuel Adjustment  Clause.  On August 18, 1999, the IURC issued a generic order (Generic Order) which established new
guidelines  for the recovery of purchased  power costs through fuel  adjustment  clauses.  The IURC ruled that each
utility had to establish a "benchmark" which is the utility's  highest on-system fuel cost per kilowatt-hour  (kwh)
during the most recent annual  period.  The IURC stated that if the weekly average of a utility's  purchased  power
costs  were less than the  "benchmark",  these  costs per kwh  should be  considered  net  energy  costs  which are
presumed  "fuel  costs  included  in purchased power". If the weekly average of a utility's  purchased  power costs
exceeded the "benchmark", the utility would need to submit additional  evidence  demonstrating  the  reasonableness
of  these costs. The Office of Utility Consumer Counselor (OUCC) appealed the Generic Order to the Indiana Court of
Appeals.  Northern  Indiana  applied  the  Generic Order's guidelines to purchased power transactions  sought to be
recovered for February, March and April 2000.

By an order issued  February 23,  2000,  the IURC  approved  the  recovery of Northern  Indiana's  purchased  power
transactions  during the months of July,  August and September 1999.  Northern Indiana and the OUCC filed petitions
for reconsideration of the February 23, 2000 Order.

On June 30, 2000,  Northern  Indiana and the OUCC filed a joint motion to withdraw  petitions  for  reconsideration
and requested  IURC  approval of a Stipulation  and  Agreement  (Agreement).  The Agreement  establishes a recovery
mechanism for certain purchase power  transactions  for the months of July,  August and September 2000 that will be
utilized in lieu of the IURC's Generic Order  guidelines.  The Agreement calls for Northern  Indiana to return,  by
an  adjustment  to fuel  adjustment  clause  factors,  $1.8  million to retail  ratepayers  during the period  from
November 2000 through  April 2001.  Northern  Indiana has  established  a reserve for these  amounts.  By its order
issued August 9, 2000, the IURC approved the  Agreement.  On September 5, 2000, the Indiana Court of Appeals issued
an order approving a joint stipulation for dismissal, with prejudice, of the OUCC's appeal of the Generic Order.

Gas Cost  Adjustment  Clause.  On August 11, 1999, the IURC approved a flexible gas cost  adjustment  mechanism for
Northern  Indiana.  Under the new  procedure,  the demand  component of the  adjustment  factor will be determined,
after hearings and IURC approval,  and made effective on November 1 of each year. The demand  component will remain
in effect for one year until a new demand  component  is  approved  by the IURC.  The  commodity  component  of the
adjustment  factor will be  determined  by monthly  filings,  which will become  effective on the first day of each
calendar  month,  subject to refund.  The monthly  filings do not require IURC approval but will be reviewed by the
IURC during the annual hearing that will take place regarding the demand  component  filing.  Northern Indiana made
its annual filing on September 1, 2000.

Northern  Indiana's gas cost  adjustment  factor also includes a gas cost incentive  mechanism  (GCIM) which allows
the  sharing of any cost  savings or cost  increases  with  customers  based on a  comparison  of actual gas supply
portfolio cost to a market-based benchmark price.

Other.  During the course of a regularly  scheduled review,  referred to as a Level 1 review, the staff of the IURC
made a  preliminary  determination,  based  on  unadjusted  historical  financial  information  filed  by  Northern
Indiana's  electric  operations,  that  Northern  Indiana was earning  returns that were in excess of its last rate
order and generally  established  standards.  Despite  holding  meetings with the IURC staff during 2000 to explain
several  adjustments  that  needed to be made to the filed  information  to make such an analysis  meaningful,  the
staff has recommended that a formal  investigation be performed.  The IURC has ordered that an investigation begin.
Management  is  unable  at this time to determine if a broader analysis,  which would be performed through a formal
investigation,  could  result  in  a  rate  adjustment  that  would  be  higher  or  lower than  currently  allowed
rates. Management intends to vigorously oppose any efforts to reduce rates that may result from this investigation.


6.       Risk Management Activities

Northern Indiana uses certain  commodity-based  derivative  financial  instruments to manage certain risks inherent
in its business.  Northern  Indiana'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.  The open  positions  resulting  from risk  management
activities  are managed in accordance  with strict  policies  which limit exposure to market risk and require daily
reporting to management of potential financial exposure.


Northern  Indiana uses futures  contracts,  options and swaps to hedge a portion of its price risk  associated with
its  non-trading  activities  in gas supply for its regulated gas utility and other retail  customer  activity.  At
December  31,  2000,  Northern  Indiana had futures  contracts  representing  the hedge of natural gas sales in the
notional amount of 1.7 billion cubic feet (Bcf) resulting in a deferred gain of $4.4 million.

Northern  Indiana's  trading  operations  include the activities of its power trading  business.  Northern  Indiana
employs a value-at-risk  (VaR) model to assess the market risk of its energy trading  portfolios.  Northern Indiana
estimates the one-day VaR across all trading groups which utilize  derivatives  using either Monte Carlo simulation
or  variance/covariance  at a 95%  confidence  level.  Based on the results of the VaR  analysis,  the daily market
exposure for power trading on an average,  high and low basis was $0.8 million,  $2.7 million and effectively  zero
million and $0.4 million,  $1.2 million and effectively zero million during 2000 and 1999,  respectively.  Northern
Indiana  implemented a VaR methodology in 1999 to introduce  additional market  sophistication and to recognize the
developing complexity of its businesses.

The fair market value of Northern  Indiana  power  trading  assets  and  liabilities  were  $30.9 million and $42.6
million,  respectively,  at December 31, 2000,  and $31.7  million and $54 million,  respectively,  at December 31,
1999.  The  average  fair  market  value  of  power  trading  assets  and  liabilities  were $36.6  million and $60
million,  respectively  at December 31, 2000,  and $20.9 million and $32.4  million,  respectively  at December 31,
1999.

Unrealized gains and losses on Northern  Indiana's  trading  portfolio are recorded as price risk management assets
and  liabilities.  The market prices used to value price risk  management  activities  reflect the best estimate of
market prices considering  various factors,  including closing exchange and  over-the-counter  quotations and price
volatility  factors  underlying the commitments.  The accompanying  Consolidated  Balance Sheets reflect price risk
management assets of $30.9 million and $31.7 million at December 31, 2000 and December 31, 1999,  respectively,  of
which $23.2  million and $31.7  million  were  included in "Price risk  management  assets" and $7.7 million and $0
million were included  under the caption  "Prepayments  and other"  included in the Current  Assets at December 31,
2000 and December 31, 1999,  respectively.  The  accompanying  Consolidated  Balance Sheets also reflect price risk
management  liabilities  (including net option  premiums) of $42.6 million and $54.0 million of which $22.0 million
and $54.0  million  were  included in "Price risk  management  liabilities"  and $20.6  million and $0 million were
included in "Other noncurrent liabilities" at December 31, 2000 and December 31, 1999, respectively.

Northern  Indiana  has  recorded  power  trading revenues and cost of sales of $ 485.2 million and $ 472.9 million,
respectively,  at  December 31, 2000.  Northern  Indiana  has recorded  power trading revenues and cost of sales of
$ 237.8 million and $ 230.4 million,  respectively,  at December 31, 1999. These revenues and costs are included in
Other Income (Deductions) in the Statements of Consolidated Income.

Other Income (Deductions) in the Statement of Consolidated Income were comprised of the following items:

   ($ in thousands)                         Gas          Electric         Other        Adjustments        Total    

   2000
     Power trading revenues                      -         485,195              -              -         485,195
     Power trading cost of sales                 -        (472,888)             -              -        (472,888)
     Power trading administrative
       expenses                                  -          (3,387)             -              -          (3,387)
     Power trading unrealized gains              -           2,044              -              -           2,044
     Other                                    1,158         (8,298)         (2,513)           (62)        (9,715)  
     Total other income (deductions)          1,158          2,666          (2,513)           (62)         1,249   

   1999
     Power trading revenues                      -         237,755              -              -         237,755
     Power trading cost of sales                 -        (230,420)             -              -        (230,420)
     Power trading administrative
       expenses                                  -          (2,152)             -              -          (2,152)
     Power trading unrealized gains              -           3,643              -              -           3,643
     Other                                    1,872         (8,093)         (4,806)           (47)       (11,074)  
     Total other income (deductions)          1,872            733          (4,806)           (47)        (2,248)  

7.       Income Taxes

The components of income tax expense are as follows:

   Year Ended December 31, (in thousands)                     2000                1999                1998  
   Income Taxes
   Current
     Federal                                        $      129,103      $      135,787     $       140,364
     State                                                  17,472              18,102              20,156  
   Total Current                                           146,575             153,889             160,520  
   Deferred
     Federal                                               (15,457)            (18,191)            (30,290)
     State                                                  (1,073)             (1,305)             (2,284)  
   Total Deferred                                          (16,530)            (19,496)            (32,574)  
   Deferred Investment Credits                              (7,087)             (7,126)             (7,160)  
   Total utility income taxes                              122,958             127,267             120,786   
   Income tax applicable to non-operating activities
     and income of subsidiaries                              2,009              (1,585)             (1,937)  
Total Income Taxes                                  $      124,967      $      125,682      $      118,849   

Total income taxes from  continuing  operations  are  different  from the amount that would be computed by applying
the statutory  Federal income tax rate to book income before income tax. The major reasons for this  difference are
as follows:

   Year Ended December 31, (in thousands)                    2000                 1999                1998  
   Net income                                          $  226,059           $  222,111          $  220,180
   Add-Income taxes                                       124,967              125,682             118,849  
   Net Income before income taxes                      $  351,026           $  347,793          $  339,029  
   Amount derived by multiplying pretax income by
     by statutory rate                                 $  122,859   35.0%   $  121,728  35.0%   $  118,660  35.0%
   Increases (reductions) in taxes resulting from:
     Book depreciation over related tax depreciation        3,480    1.0         3,934   1.1         3,992   1.2
     Amortization of deferred investment tax credits       (7,087)  (2.0)       (7,126) (2.0)       (7,160) (2.1)
     State income taxes, net of federal income tax benefit 10,284    2.9        10,461   3.0        10,817   3.2
     Reversal of deferred taxes provided at rates in
     excess of the current federal income tax rate         (4,413)  (1.3)       (5,457) (1.6)       (6,472) (1.9)
   Other, net                                                (156)   0.0         2,142   0.6          (988) (0.3)  
   Total Income Taxes                                  $  124,967   35.6%   $  125,682  36.1%   $  118,849  35.1%  


Deferred income taxes result from temporary  differences  between the financial  statement carrying amounts and the
tax basis of existing  assets and  liabilities.  The principal  components  of Northern  Indiana's net deferred tax
liability are as follows:

December 31, (in thousands)                                                       2000                1999  
   Deferred tax liabilities
     Accelerated depreciation and other property differences               $   696,631        $    714,246
     AFUDC-equity                                                               29,084              30,748
     Adjustment clauses                                                         55,391              15,545
     Other regulatory assets                                                    23,352              27,598
     Prepaid pension and other benefits                                         55,052              56,227
     Reacquisition premium on debt                                              13,666              14,980  
   Total Deferred Tax Liabilities                                              873,176             859,344  
   Deferred tax assets
     Deferred investment tax credits                                           (29,763)            (32,451)
     Removal costs                                                            (184,955)           (171,645)
     Other postretirement/postemployment benefits                              (56,570)            (53,061)
     Other                                                                     (35,466)            (27,928)  
   Total Deferred Tax Assets                                                  (306,754)           (285,085)  
   Less:  Deferred income taxes related to current assets and liabilities        3,895             (17,763)  
   Non-Current Deferred Tax Liability                                      $   562,527        $    592,022  

8.       Pension and Other Postretirement Benefits

NiSource has a  noncontributory,  defined benefit  retirement  plans covering the majority of employees of Northern
Indiana. Benefits under the plans reflect the employees' compensation, years of service and age at retirement.

Northern  Indiana  provides  certain 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
Northern Indiana.

The expected  cost of such  benefits is accrued  during the  employees'  years of service.  Current  rates  include
postretirement  benefit costs on an accrual  basis,  including  amortization  of the  regulatory  assets that arose
prior to inclusion of these costs in rates. Cash contributions are remitted to grantor trusts.

Beginning in 2000,  Northern  Indiana is reflecting the information  presented below as of September 30 rather than
December  31. The effect of  utilizing  September  30 rather than  December 31 is not  significant.  The  following
tables  provide a  reconciliation  of the  plans'  funded  status  and  amounts  reflected  in  Northern  Indiana's
Consolidated Balance Sheets at December 31:

The  benefit  obligation  and the fair values of plan assets are  restated  at the  beginning  of 2000 to exclude a
small number of individuals who were employees of NiSource affiliates.

                                                          Pension Benefits            Other Benefits

(in thousands)                                              2000         1999         2000          1999  
   Change in benefit obligation
   Benefit obligation at beginning of year          $    827,355  $   914,273   $  185,640   $   207,079
   Service cost                                           15,570       15,858        4,031         3,010
   Interest cost                                          62,561       61,613       15,166        14,217
   Participants' contributions                               -            -            372         1,191
   Actuarial (gain) loss                                 (29,568)     (50,217)      (3,412)      (15,959)
   Special termination benefits                            6,902          -            -            -     
   Benefits paid                                         (39,500)     (54,823)      (9,426)      (13,883) 
   Benefit obligation at end of year                     843,320      886,704      192,371       195,655  

   Change in plan assets
   Fair value of plan assets at beginning of year      1,023,937      958,435        3,393         2,903
   Actual return on plan assets                           41,020      158,775          521           704
   Employer contributions                                 40,000       35,000        9,054        12,477
   Plan participants' contributions                          -            -            372         1,191
   Benefits paid                                         (39,500)     (54,823)      (9,426)      (13,883) 
   Fair value of plan assets at end of year            1,065,457    1,097,387        3,914         3,392  

   Funded status of plan at end of year                  222,137      210,683     (188,457)     (192,262)
   Unrecognized actuarial net gain                       (98,707)    (140,665)    (103,253)     (103,623)
   Unrecognized prior service cost                        41,427       50,165        2,377         3,178
   Unrecognized transition obligation                     15,304       21,953      120,055       139,719  
   Prepaid (Accrued) Benefit Cost                   $    180,161  $   142,136   $ (169,278)  $  (152,988) 

                                                          Pension Benefits            Other Benefits

                                                           2000         1999         2000         1999  
   Weighted-average assumptions
   Discount rate assumption                                8.00%        7.75%        8.00%         7.75%
   Compensation growth rate assumption                     4.50%        4.50%        5.00%         4.50%
   Medical cost trend assumption                            n/a          n/a         5.00%         5.00%
   Assets earnings rate assumption                         9.00%        9.00%        9.00%         9.00%  

The following table provides the components of the plans expense for each of the three years:

                                                Pension Benefits                  Other Benefits

   (in thousands)                            2000       1999       1998         2000       1999       1998  
   Net periodic cost
   Service cost                         $  15,570  $  15,858  $  15,347    $   4,031  $   3,010  $   3,314
   Interest cost                           62,561     61,613     58,337       15,166     14,217     13,685
   Expected return on assets              (91,308)   (84,488)   (80,329)        (305)      (261)      (216)
   Amortization of transition obligation    5,101      5,488      5,488       10,005     10,748     10,748
   Amortization of prior service cost       5,201      5,596      4,397          228        279        279
   Amortization of (gain) loss             (2,053)        -          -        (4,962)    (5,556)    (5,786)
   Special termination benefits             6,902         -          -            -          -          -   
   Net Periodic Benefits Cost (Benefit) $   1,974  $   4,067  $   3,240    $  24,163  $  22,437  $  22,024  

Assumed health care cost trend rates have a significant  effect on the amounts  reported for the health care plans.
A one-percentage-point change in assumed health care cost trend rates would have the following effects:

                                                                               1% point            1% point
($ in thousands)                                                               increase            decrease  
Effect on service and interest components of net periodic cost                   1,919              (2,210)
Effect on accumulated postretirement benefit obligation                         13,967             (22,198)  

9.       Authorized Classes of Cumulative Preferred and Preference Stocks

The  authorized  classes of par value and no par value  cumulative  preferred  and  preference  stocks of  Northern
Indiana  are as  follows:  Cumulative  Preferred--$100  par  value--2,400,000  shares;  Cumulative  Preferred--no  par
value--3,000,000  shares;  Cumulative  Preference--$50 par value--2,000,000  share (none outstanding);  and Cumulative
Preference--no par value--3,000,000 shares (none outstanding).

The  preferred  shareholders  of  Northern  Indiana  have no voting  rights,  except in the event of default on the
payment of four consecutive  quarterly  dividends,  or as required by Indiana law to authorize additional preferred
shares, or by the Articles of Incorporation in the event of certain merger transactions.

The redemption prices at December 31, 2000, for the cumulative  preferred stock,  which is redeemable solely at the
option of Northern Indiana, in whole or in part, at any time upon thirty days' notice, were as follows:

                                                                                              Redemption
                                                                                Series      Price per Share  
   Cumulative preferred stock-- $100 par value -                                4-1/4%      $       101.20
                                                                                4-1/2%      $       100.00
                                                                                 4.22%      $       101.60
                                                                                 4.88%      $       102.00
                                                                                 7.44%      $       101.00
                                                                                 7.50%      $       101.00
   Cumulative preferred stock-- no par value--adjustable rate
     (6.00% at December 31,2000), Series A (stated value $50 per share)                     $        50.00  

The  redemption  prices at December 31, 2000,  as well as sinking fund  provisions,  for the  cumulative  preferred
stock  subject to  mandatory  redemption  requirements,  or whose  redemption  is outside  the  control of Northern
Indiana, were as follows:

                                                                                   Sinking Fund or Mandatory
   Series                                          Redemption Price Per Share        Redemption Provisions     
   Cumulative preferred stock-- $100 par value-
     8.35%                                        $102.95, reduced periodically    3,000  shares  on or  before
                                                                                    July   1;   increasing   to
                                                                                    6,000  shares  beginning in
                                                                                    2004;        non-cumulative
                                                                                    option  to  double   amount
                                                                                    each year
     7-3/4%                                       $103.70, reduced periodically    2,777  shares  on or  before
                                                                                    December  1;  noncumulative
                                                                                    option  to  double   amount
                                                                                    each year
   Cumulative preferred stock--No par value-
     6.50%                                        $100.00 on October 14, 2002      430,000 shares on
                                                                                    October 14, 2002           

Sinking fund  requirements with respect to redeemable  preferred stocks  outstanding at December 31, 2000, for each
of the four years subsequent to December 31, 2001 were as follows:

   Year Ending December 31, ($ in thousands)                                                                   
   2002                                                                                             43,578
   2003                                                                                                578
   2004                                                                                                878
   2005                                                                                                878     

10.      Common Shares

All of Northern Indiana's common shares are owned by NiSource.


11.      Long-Term Incentive Plans

NiSource has two long-term incentive plans for key management  employees  including  management of Northern Indiana
that were  approved by  shareholders  on April 13, 1988 (1988 Plan) and April 13, 1994 (1994 Plan).  The 1988 Plan,
as amended and restated,  and the 1994 Plan, as amended and restated,  were  re-approved by  shareholders  on April
14, 1999.  The Plans  permit the  following  types of grants,  separately  or in  combination:  nonqualified  stock
options,  incentive stock options,  restricted stock awards, stock appreciation rights and performance units. Under
the Plans,  the exercise  price of each option  equals the market price of common stock on the date of grant.  Each
option has a maximum term of ten years and vests one year from the date of grant.

The 1988 Plan provided for the issuance of up to 5.0 million  common  shares to key  employees  through April 1998.
On January 29, 2000, the Board of Directors of NiSource  approved  certain  additional  amendments to the 1994 Plan
and on June 1, 2000,  the 1994 Plan,  as amended and  restated,  was  approved by  shareholders  at the 2000 Annual
Meeting of  Shareholders  of  NiSource.  The amended and restated  1994 Plan  provides for the issuance of up to 11
million shares through April 2004, and permits contingent stock awards and dividend  equivalents  payable on grants
of options, stock appreciation rights (SARs), performance units and contingent stock awards.  At December 31, 2000,
there were 9,578,000 shares reserved for future awards under the amended and restated 1994 Plan.

SARs may be granted  only in tandem  with stock  options on a  one-for-one  basis and are  payable in cash,  common
shares,  or a  combination  thereof.  Restricted  stock  awards are  restricted  as to transfer  and are subject to
forfeiture for specific  periods from the date of grant.  Restrictions  on shares awarded in 1995 lapsed on January
27,  2000 and  vested  at 116% of the  number  awarded,  due to  attaining  specific  earnings  per share and stock
appreciation  goals.  Restrictions on shares awarded in 1998 lapsed two years from date of grant and vested at 100%
of the number  awarded.  Restrictions  on shares  awarded in 2000 lapse  three years from date of grant and vesting
may vary  from 0% to 200% of the  number  awarded,  subject  to  specific  performance  goals.  If a  participant's
employment is  terminated  prior to vesting other than by reason of death,  disability  or  retirement,  restricted
shares are  forfeited.  There were  679,500 and 513,500  restricted  shares  outstanding  at December  31, 2000 and
December 31, 1999, respectively.

Northern  Indiana  accounts  for its  allocable  portion of these plans  under APB  Opinion No. 25,  under which no
compensation  cost has been  recognized for  nonqualified  stock options.  The  compensation  cost that was charged
against net income for  restricted  stock  awards was $0.6  million  $1.2  million and $0.8 million for three years
ended December 31, 2000, 1999 and 1998, respectively.

Had  compensation  cost been  determined  consistent with the provisions of the SFAS No. 123 fair value method (See
Note 14), Northern Indiana's net income and earnings per share would have been the pro forma amounts below:

   Year Ended December 31 ($ in thousands)                    2000                1999                1998  
   Net Income
     As reported                                           226,059             222,111             220,180
     Pro forma                                             222,803             220,543             219,058  



The fair value of each  option  grant is  estimated  on the date of grant  using the  Black-Scholes  option-pricing
model with a dividend yield of 4.86%, and the following assumptions used for grants in 2000, 1999 and 1998:

                                              August          January             August           August
                                                2000             2000               1999             1998  
   Expected Life                              5.8 yrs.         5.4 yrs.          5.25 yrs.        5.40 yrs.
   Interest Rate                              6.06%            6.6%              5.87%            5.29%
   Volatility                                26.16%           28.98%            15.72%           13.09%    

The weighted  average fair value of options  granted to all plan  participants  was $4.61,  $3.66 and $4.28 for the
years ended December 31, 2000, 1999, 1998,  respectively.  There were 1,235,000,  744,750 and 607,000  nonqualified
stock options granted to all plan participants for the years ended December 31, 2000, 1999, 1998, respectively.


12.      Long-Term Debt

Sinking fund  requirements  and maturities of long-term debt outstanding at December 31, 2000, for each of the four
years subsequent to December 31, 2001, were as follows:

   Year Ending December 31, ($ in thousands)                                                                  
   2002                                                                                             59,000
   2003                                                                                            130,000
   2004                                                                                             32,000
   2005                                                                                             71,275    

Unamortized  debt  expense,  premium and discount on  long-term  debt  applicable  to  outstanding  bonds are being
amortized over the lives of such bonds.  Reacquisition  premiums have been deferred and are being amortized.  These
premiums are not earning a return during the recovery period.

Northern  Indiana is authorized to issue and sell up to $217.7 million  Medium-Term  Notes,  Series E, with various
maturities,  for purposes of refinancing  certain first mortgage bonds and  medium-term  notes.  As of December 31,
2000, $139 million of these medium-term notes had been issued with various interest rates and maturities.


13.      Short-Term Borrowings

Northern  Indiana may borrow under a $200.0 million  364-day  revolving  credit  facility that expires in September
2001. At December 31, 2000,  the facility  supported  $196.2  million of  commercial  paper  borrowings  that had a
weighted  average  interest rate of 7.03%.  Northern Indiana also maintains  multiple  uncommitted  lines of credit
totaling  $178.0 million.  At December 31, 2000,  there were $174.9 million of borrowings  outstanding  under these
uncommitted lines of credit with a weighted average interest rate of 7.70%.

As of December 31, 2000,  Northern  Indiana had an intercompany  note  payable of $36.0 million to NiSource Finance
Corp. at an interest rate of 7.71%.

At December 31, (in thousands)                                                     2000                1999  
   Commercial paper - weighted average interest rate of 7.03%           $      196,200      $       62,565
   Notes payable - weighted average interest rate of 7.70%                     174,900              33,725
   Intercompany note payable - interest rate of 7.71%                           36,000                  -   
Total Short-Term Borrowings                                             $      407,100      $       96,290  



14.      Fair Value of Financial Instruments

The following  methods and assumptions were used to estimate the fair value of each class of financial  instruments
for which it is practicable to estimate fair value:

Investments. Investments are carried at cost, which approximates market value.

Long-term Debt and Preferred  Stock.  The fair values of these  securities are estimated based on the quoted market
prices for the same or similar  issues or on the rates  offered for  securities of the same  remaining  maturities.
Certain premium costs  associated with the early  settlement of long-term debt are not taken into  consideration in
determining fair value.

The carrying values and estimated fair values of financial instruments were as follows:

                                                  Carrying        Estimated      Carrying       Estimated
                                                   Amount        Fair Value       Amount       Fair Value
   At December 31, ($ in thousands)                 2000            2000           1999           1999  
   Long-term investments                                 251            251            251             251
   Long-term debt (including current portion)        920,772        881,736      1,078,413         997,196
   Preferred stock (including current portion)       130,816        105,531        136,972         116,464  

Northern  Indiana  is subject  to  regulation, and gains  or  losses  may be  included  in rates over a  prescribed
amortization period, if in fact settled at amounts approximating those above.

Northern  Indiana  may sell up to $100  million of  certain of its  accounts  receivable  under a sales  agreement,
without recourse, which expires May, 2003. Northern Indiana has received $100 million under this agreement.

Under a separate agreement,  in conjunction with the sales agreement,  Northern Indiana acts as agent for Citibank,
by performing record keeping and cash collection  functions for the accounts receivable sold to Citibank.  Northern
Indiana receives a fee, which provides adequate compensation, for such services.


15.      Other Commitments and Contingencies

A.       Capital  Expenditures.  Northern  Indiana expects that  approximately  $186.4 million will be expended for
construction  purposes during 2001.  Substantial  commitments  have been made in connection with this  construction
program.

B.       Service  Agreements.  Northern  Indiana  has  entered  into a service  agreement  with Pure Air, a general
partnership  between Air Products and Chemicals,  Inc. and Mitsubishi Heavy Industries  America,  Inc., under which
Pure Air provides  scrubber  services to reduce sulfur  dioxide  emissions  for Units 7 and 8 at Bailly  Generating
Station.  Services under this contract  commenced on June 15, 1992 with annual charges  approximating  $20 million.
The agreement  provides that,  assuming various  performance  standards are met by Pure Air, a termination  payment
would be due if Northern Indiana terminates the agreement prior to the end of the twenty-year contract period.

C.       Assets Under Lien.  The first  mortgage  bonds of Northern  Indiana  constitute a first  mortgage  lien on
certain utility property and franchises.

D.       Other  Legal  Proceedings.  In the  normal  course of its  business,  Northern  Indiana  has 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 Northern  Indiana's  consolidated  financial
position or results of operations.


E.       Environmental Matters:
General.  The  operations  of Northern  Indiana are subject to  extensive  and  evolving  federal,  state and local
environmental  laws and regulations  intended to protect the public health and the  environment.  Such  environment
laws and regulations affect operations as they relate to impacts on air, water and land.

Gas  Distribution.  Northern Indiana is a "potentially  responsible  party" (PRP) at waste disposal sites under the
Comprehensive  Environmental  Response  Compensation  and Liability Act (CERCLA)  (commonly known as Superfund) and
similar  state  laws,  including  at  former  manufactured  gas  plant  (MGP)  sites  which  it,  or its  corporate
predecessors,  own or owned or operated.  Northern Indiana may be required to share in the cost of clean-up of such
sites.

Northern  Indiana is party to or  otherwise  involved in clean-up of two waste  disposal  sites under  Superfund or
similar  state  laws.  The  final  costs of  clean-up  have not yet been  determined.  As site  investigations  and
clean-ups proceed,  waste disposal site liability is reviewed  periodically and adjusted as additional  information
becomes available.

A program  has been  instituted  to  identify  and  investigate  former MGP sites where it is the current or former
owner.  The  investigation  has  identified 24 such sites.  Initial  investigation  has been conducted at 20 sites.
Investigation  activities  have been completed at 14 sites and remedial  measures have been selected or implemented
at  13  sites.  Only  those  site  investigation,  characterization  and  remediation  costs  currently  known  and
determinable  can be  considered  "probable  and  reasonable  estimable"  under  Statement of Financial  Accounting
Standards No. 5, "Accounting for Contingencies" (SFAS No. 5).

Northern Indiana intends to continue to evaluate its facilities and properties with respect to  environmental  laws
and regulations and take any required  corrective  action. To the extent site  investigations  have been conducted,
remediation  plans  developed  and the  responsibility  for  remediation  established,  the  appropriate  estimated
liabilities have been recorded.

As of  December  31,  2000,  a  reserve  of  approximately  $15.1  million  has been  recorded  to  cover  probable
environmental  response  actions.  The  ultimate  liability  in  connection  with these sites will depend upon many
factors,  including the volume of material contributed to the site, years of ownership or operation,  the number of
other PRPs and their financial  viability and the extent of  environmental  response actions  required.  Based upon
investigations  and management's  understanding  of current  environmental  laws and regulations,  Northern Indiana
believes  that any  environmental  response  actions  required,  after  consideration  of  insurance  coverage  and
contributions from other PRPs, will not have a material effect on its financial position or results of operations.

Mercury Program. Until the 1960's,  gas regulators  containing small quantities of mercury were installed in homes
on some  natural  gas  systems.  The  purpose of these  regulators  was to reduce the  pressure  of the natural gas
flowing from the service line for use inside of the home.

In 2000,  several  gas  distribution  companies  not  affiliated  with  Northern  Indiana  were  involved in highly
publicized  testing  and  clean-up  programs  resulting  from  mercury  spills  associated  with the removal of gas
regulators  containing  mercury.  Northern  Indiana is known to have utilized gas regulators  that contained  small
quantities of mercury.  Northern  Indiana has  implemented a program for reviewing its  procedures for managing gas
regulators  containing  mercury.  While this program is currently  underway,  it has not identified any significant
problems associated with past or current use or removal of mercury regulators.

On December 7, 2000,  the Environmental Protection Agency (EPA) Region V sent a letter to Northern  Indiana  asking
Northern  Indiana  to  "review  its  records and address any concerns or issues associated with mercury regulators,
manometers,  or  any  other  mercury-containing  measuring  devices."  Northern  Indiana  believes that the program
described in the preceding paragraph will be sufficient to satisfy the EPA's request. We currently believe that any
liability  associated  with  the  current  or  historical  use of gas regulators containing mercury will not have a
material effect on its financial position or results of operations.

Electric  Operations.  The Clean Air Act  Amendments  of 1990  (CAAA)  impose  limits to  control  acid rain on the
emission of sulfur  dioxide and  nitrogen  oxides  (NOx) which  became  fully  effective  in 2000.  All of Northern
Indiana's facilities are in compliance with the sulfur dioxide and NOx limits.

The CAAA also contain other  provisions  that could lead to  limitations  on emissions of hazardous air  pollutants
and other air pollutants  (including NOx as discussed below),  which may require significant  capital  expenditures
for control of these emissions.  Until specific rules have been issued that affect Northern  Indiana's  facilities,
what these requirements will be or the costs of complying with these requirements cannot be predicted.

During 1998, the EPA issued a final rule, the NOx State  Implementation Plan (SIP) call,  requiring certain states,
including Indiana,  to reduce NOx levels from several sources,  including  industrial and utility boilers.  The EPA
stated that the intent of the rule is to lower  regional  transport of ozone  impacting  other  states'  ability to
attain the federal ozone standard.  According to the rule, the State of Indiana must issue regulations implementing
the control program.  The State of Indiana, as well as some other states,  filed a legal challenge in December 1998
to the EPA NOx SIP call  rule.  Lawsuits  have  also been  filed  against  the rule by  various  groups,  including
utilities.  In a March 3, 2000, decision,  the United States Court of Appeals for the D.C. Circuit ruled largely in
favor of the EPA's regional NOx plan and on June 22, 2000, the court extended to October 30, 2000, the deadline for
the state plan  submittals  implementing  the EPA NOx SIP Call. A petition for a hearing  before the United  States
Supreme Court was denied on March 5, 2001. In  anticipation  of this outcome,  the State of Indiana  superceded its
February 2000 proposed NOx control plan designed to address Indiana's ozone  nonattainment areas and regional ozone
transport,  by initiating  rulemaking on a more stringent  rule  compliant  with the EPA's NOx SIP call rule.  That
rulemaking is expected to be finalized by mid-summer 2001.  Northern Indiana is actively involved in the review and
comment of the proposed Indiana rules.

In spite of the state's  efforts,  on December 18, 2000,  the EPA sent Indiana and 10 other SIP call states and the
District of Columbia  deficiency  notices for their failure to submit final rules by the October 30, 2000 deadline.
Because  Indiana  has been  working  with the EPA and is  expected  to finalize  its rule by  mid-summer  2001,  no
additional adverse  requirements are expected.  Any NOx emission  limitations  resulting from the Indiana rules are
expected to be more restrictive  than those imposed on electric  utilities under the CAAA's acid rain NOx reduction
program  described  above.  Northern  Indiana is evaluating any potential  requirements  that could result from the
rules as  implemented  by the State of Indiana.  Northern  Indiana  believes that the costs  relating to compliance
with the new standards may be  substantial,  but such costs are dependent upon the ultimate  control program agreed
to by the targeted states and the EPA.  Northern  Indiana is continuing its programs to reduce NOx emissions at its
electric facilities and will continue to closely monitor developments in this area.

In a related  matter to the NOx SIP call,  several  Northeastern  states  have filed  petitions  with the EPA under
Section 126 of the Clean Air Act.  The  petitions  allege harm and request  relief from sources of emissions in the
Midwest that allegedly cause or contribute to ozone  nonattainment in their states.  Northern Indiana is monitoring
the EPA's  decisions on these  petitions and existing  litigation to determine the impact of these  developments on
programs to reduce NOx emissions at its electric facilities.

The EPA issued final rules revising the National  Ambient Air Quality  Standards for ozone and  particulate  matter
in July 1997. On May 14, 1999, the United States Court of Appeals for the D.C.  Circuit  remanded the new rules for
both ozone and  particulate  matters to the EPA. The Court of Appeals  decision was appealed to the Supreme  Court,
which heard oral  arguments on November 7, 2000.  The Supreme Court  rendered a complex ruling on February 27, 2001
that will require some issues to be resolved by the D.C.  Circuit  Court and EPA before  final  rulemaking  occurs.
Consequently,  final rules specifying a compliance  level,  deadline and controls  necessary for compliance are not
expected in the near future.  Resulting rules could require  additional  reductions in sulfur dioxide,  particulate
matter and NOx emissions from coal-fired  boilers  (including  Northern  Indiana's  electric  generating  stations)
beyond measures  discussed above. Final  implementation  methods will be set by the EPA as well as state regulatory
authorities.  Northern  Indiana  believes  that  the  costs  relating  to  compliance  with any new  limits  may be
substantial  but are dependent upon the ultimate  control  program agreed to by the targeted states and the EPA and
are  currently  not  reasonably  estimable.  Northern Indiana will continue to closely monitor developments in this
area:  however,  the  exact  nature of the impact of the new standards on its operations will not be known for some
time.

In a letter dated September 15, 1999, the Attorney  General of the State of New York alleged that Northern  Indiana
violated  the Clean  Air Act by  constructing  a major  modification  of one of its  electric  generating  stations
without obtaining  pre-construction permits required by the Prevention of Significant  Deterioration (PSD) program.
The major  modification  allegedly  took place at the R. M. Schahfer  Station when,  "in  approximately  1995-1997,
Northern  Indiana's  upgraded  the coal  handling  system  at Unit 14 at the  plant."  While  Northern  Indiana  is
investigating   these   allegations,   Northern   Indiana  does  not  believe  that  the   modifications   required
pre-construction review under the PSD program and believes that all appropriate permits were acquired.

Initiatives  are being  discussed both in the United States and worldwide to reduce  so-called  "greenhouse  gases"
such  as  carbon  dioxide,  a  by-product  of burning  fossil fuels.  Reduction of such  emissions  could result in
significant capital outlays or operating expenses for Northern Indiana.

On  December  20,  2000,  by notice in the  Federal  Register,  the EPA  issued a finding  that the  regulation  of
emissions of mercury and other air toxics from coal and  oil-fired  electric  steam  generating  units is necessary
and appropriate.  The EPA expects to issue proposed regulations by December 15, 2003, and finalized  regulations by
December 15, 2004. The potential  impact,  if any, to Northern  Indiana's  financial results that may occur because
of any potential new regulations concerning emissions of mercury and other air toxics is unknown at this time.

Remediation.  Northern  Indiana is a PRP at four waste  disposal sites under CERCLA and similar state laws, and may
be required to share in the cost of clean-up of such sites.  In addition,  Northern  Indiana has corrective  action
liability  under the  Resource  Conservation  and  Recovery  Act for closure and  clean-up  costs  associated  with
treatment,  storage,  and disposal units. As of December 31, 2000, a reserve of approximately $2.0 million has been
recorded to cover probable  environmental  response  actions at these sites.  The ultimate  liability in connection
with these sites will depend upon many  factors,  including  the volume of material  contributed  to the site,  the
number of other PRPs and their  financial  viability  and the extent of  corrective  actions  required.  Based upon
investigations  and management's  understanding  of current  environmental  laws and regulations,  Northern Indiana
believes that any  corrective  actions  required will not have a material  effect on the its financial  position or
results of operations.

Environmental  Reserves.  It is management's  continued intent to address  environmental issues in cooperation with
regulatory  authorities in such a manner as to achieve mutually acceptable compliance plans. However,  there can be
no assurance that fines and penalties will not be incurred.

As of December 31, 2000, a reserve of  approximately  $17.1 million has been recorded to cover probable  corrective
actions at sites where  Northern  Indiana has  environmental  remediation  liability.  The  ultimate  liability  in
connection  with these sites will depend upon many  factors,  including the volume of material  contributed  to the
site, the number of the other PRPs and their financial  viability,  the extent of corrective  actions  required and
rate  recovery.  Based  upon  investigations  and  management's  understanding  of current  environmental  laws and
regulations,  Northern  Indiana believes that any corrective  actions  required,  after  consideration of insurance
coverages,  contributions  from other PRPs and rate  recovery,  will not have a  material  effect on its  financial
position or results of operations.

F.       Operating  Leases.  Payments made in connection with operating  leases are primarily  charged to operation
and  maintenance  expense as  incurred.  Such amounts were $10.7  million in 2000,  $11.1  million in 1999 and $9.4
million in 1998.

On April 1, 1990,  Northern Indiana entered into a twenty-year  agreement for the rental of office  facilities from
NiSource Development Company,  Inc., a subsidiary of NiSource,  at a current annual rental payment of approximately
$3.5 million.


Future  minimum  rental  payments  required under  operating  leases that have initial or remaining  noncancellable
lease terms in excess of one year are:

   ($ in thousands)                                                                                         
   2001                                                                                              7,031
   2002                                                                                              7,030
   2003                                                                                              7,030
   2004                                                                                              4,901
   2005                                                                                              4,060
   After                                                                                            27,400  


G.       Purchase  Commitments.  Northern  Indiana has service  agreements  that  provide  for  pipeline  capacity,
transportation  and storage  services.  These  agreements  which have  expiration  dates ranging from 2001 to 2014,
provide for Northern  Indiana to pay fixed monthly  charges.  The estimated  aggregate  amounts of such payments at
December 31, 2000, were:

   ($ in thousands)                                                                                         
   2001                                                                                             71,729
   2002                                                                                             50,644
   2003                                                                                             26,067
   2004                                                                                             20,375
   2005                                                                                             11,604
   After                                                                                             8,364  


16.      Segments of Business

Operating  segments  are defined as  components  of an  enterprise  for which  separate  financial  information  is
available and is evaluated  regularly by the chief operating  decision maker in deciding how to allocate  resources
and in assessing performance. Northern Indiana uses pre-tax 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.

Northern Indiana's  reportable  operating  segments include regulated gas and electric  services.  Northern Indiana
supplies gas and electric services to residential,  commercial and industrial customers.  In addition, the electric
segment includes  Northern  Indiana's  wholesale power marketing  operation which markets  wholesale power to other
utilities and electric power  marketers.  The other category  includes gas exploration,  real estate  transactions,
and non-utility revenues and expenses.

Revenues for each segments are attributable to customers in the United States.

The following  tables  provide  information  about  business  segments.  Adjustments  have been made to the segment
information   to  arrive  at  information  included  in the  results  of  operations  and  financial  position. The
accounting policies of the operating segments are the same as those described in "Summary of Significant Accounting
Policies."

($ in thousands)                              Gas         Electric         Adjustments        Total   

   2000
     Operating revenues                     913,836      1,557,867            (485,195)    1,986,508
     Depreciation and amortization           79,146        162,754                 -         241,900
     Utility operating income before
       income taxes                          78,057        363,991             (10,964)      431,084
     Assets                               1,216,971      2,721,890                 -       3,938,861
     Capital expenditures                    61,220        132,193                 -         193,413  

   1999
     Operating revenues                     644,687      1,345,287            (237,755)    1,752,219
     Depreciation and amortization           75,016        158,539                 -         233,555
     Utility operating income before
       income taxes                          72,230        363,424              (8,826)      426,828
     Assets                                 897,879      2,757,575                 -       3,655,454
     Capital expenditures                    61,347        131,491                 -         192,838  

   1998 
     Operating revenues                     572,485      1,076,118                 -       1,648,603
     Depreciation and amortization           71,707        156,840                 -         228,547
     Utility operating income before
       income taxes                          57,968        364,967                 -         422,935
     Assets                                 908,692      2,743,257                 -       3,651,949
     Capital expenditures                    58,544        123,579                 -         182,123  

The  adjustments  above  represent the revenues and net pre-tax  operating  income of Northern  Indiana's  electric
trading  business  which are  reflected  in the  electric  segment  above but are  reported as a component of Other
Income (Deductions)  in the Statements of Consolidated  Income. See Item 8, Note 6 "Risk Management  Activities" on
pages 32 through 34 for further information.

17.      Quarterly Financial Data

Quarterly  financial  data does not always  reveal  the trend of  Northern  Indiana's  business  operations  due to
nonrecurring  items and seasonal weather patterns which affect earnings and related  components of net revenues and
operating income.

                                                      First         Second          Third          Fourth
   (in thousands)                                    Quarter        Quarter        Quarter         Quarter   

   2000
     Operating revenues                          $   517,039   $    385,284   $    411,640    $    672,545
     Operating expenses and taxes                    425,660        324,784        335,448         592,490  
     Operating income                                 91,379         60,500         76,192          80,055
     Other income (deductions)                           560          1,256            270            (837)
     Interest charges                                 19,109         18,819         20,358          25,030  
     Net income                                       72,830         42,937         56,104          54,188

     Dividend requirements on preferred stock          2,005          1,980          1,975           1,857  

     Balance available for common shares         $    70,825   $     40,957   $     54,129    $     52,331  

   1999
     Operating revenues                          $   506,586   $    372,849   $    409,096    $    463,688
     Operating expenses and taxes                    417,511        315,198        329,966         389,983  
     Operating income                                 89,075         57,651         79,130          73,705
     Other income (deductions)                        (1,071)         1,091          1,681          (3,949)
     Interest charges                                 18,612         17,986         18,696          19,908  
     Net income                                       69,392         40,756         62,115          49,848

     Dividend requirements on preferred stock          2,065          2,026          2,021           2,019  

     Balance available for common shares         $    67,327   $     38,730   $     60,094    $     47,829  


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There has not been a change of accountants nor any  disagreements  concerning  accounting and financial  disclosure
within the past two years.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


The following is a list of executive  officers of Northern  Indiana,  including their names, ages and offices held,
as of March 26, 2001.

                                                         PART III

Executive Officers of the Registrant

                                                  Years with
Name                                 Age        Northern Indiana       Offices Held in Past 5 Years                
Robert J. Schacht                    50                28              Executive    Vice    President   and   Chief
                                                                       Operating   Officer,   since  January  2001.
                                                                       Chief  Operating  Officer and Vice President
                                                                       since   November   2000.   Vice   President,
                                                                       Distribution  Operations  from  July 1996 to
                                                                       October 2000.  Vice  President,  Gas Service
                                                                       and Sales  from  January  1994 to June 1996.
                                                                       Director, West Region prior thereto.

Jerry L. Godwin                      58                 6              Vice   President   and   General    Manager,
                                                                       Electric   Supply  since  July  1996.   Vice
                                                                       President,  Electric  Supply  from  November
                                                                       1994 to June 1996.

Jeffrey W. Grossman                  49                 1              Vice  President  at Northern  Indiana  since
                                                                       January 2001.  Vice President and Controller
                                                                       at NiSource since November 2000.

Francis P. Girot, Jr.                56                20              Treasurer  at Northern  Indiana  since March
                                                                       1990.   Treasurer   at  NiSource   Corporate
                                                                       Services Company since July 1996.

Gary W. Pottorff                     43                20              Secretary   at   Northern    Indiana   since
                                                                       November  2000.  Auditor  at  NiSource  from
                                                                       June 1998 to November 2000.  Human Resources
                                                                       Project  Manager at NiSource from April 1998
                                                                       to June 1998. Manager,  Financial Operations
                                                                       at NiSource from March 1996 to March 1998.

Throughout  the past five years,  each of the executive  officers has been  continuously  active in the business of
Northern  Indiana  except  as  follows: Jeffrey W. Grossman was Vice President and Vice President and Controller of
Columbia Energy Group from May 1996 to October 2000.

The following chart gives information about incumbent  directors of Northern Indiana.  On November 1, 2000, Stephen
P. Adik and Jeffrey W. Yundt were  elected  directors  of  Northern  Indiana by the  shareholder  and on January 1,
2001,  Patrick Mulchay was elected  director by the  shareholder.  The prior Board of Directors of Northern Indiana
consisting of Steven C. Beering, Arthur J. Decio, Ian M.  Rolland,  John W.  Thompson,  Robert Welsh and Carolyn Y.
Woo, resigned their positions on November 1, 2000.

Name, Age and Principal Occupations for past five years
              and Present Directorships held                                 Has been Director Since  

Stephen P. Adik, 57-                                                                  2000
Vice Chairman of NiSource since November  2000.  Senior  Executive Vice
President,  Chief  Financial  Officer and  Treasurer of NiSource   from
February   1999  to  October  2000.  Executive  Vice  President,  Chief
Financial  Officer  and  Treasurer  of  NiSource  from  January 1994 to
January   1999.   Offices  held  at  Northern  Indiana:  Executive Vice
President and Chief Financial Officer from April 1997 to October  2000.
Executive  Vice  and  President  Chief  Financial Officer, Finance  and
Administration from April 1996 to March 1997. Executive Vice  President
and  Chief  Financial Officer from April 1994 to March 1996.

Jeffrey W. Yundt, 55-                                                                 2000
Group President,  Energy  Distribution Group of NiSource since November
2000.  Executive  Vice  President of NiSource and  President  and Chief
Executive  Officer  of Bay  State  Gas  Company  since  February  1999.
Executive  Vice  President and Chief  Operating  Officer of Energy USA,
and  President of NI Energy  Services,  Inc.  from July 1996 to January
1999.  Offices held at Northern Indiana: Executive Vice President  from
July  1996  to  October   2000.   Executive   Vice  President and Chief
Operating Officer, Gas from January 1994 to June 1996.

Patrick J. Mulchay, 59-                                                               2001
Group  President,  Merchant  Energy of NiSource  since  November 2000.
Offices  held  at  Northern  Indiana:  President  and  Chief Operating
Officer  from  February 1999 to October 2000. Executive Vice President
and Chief Operating Officer from July 1996 to January 1999.  Executive
Vice President and Chief Operating Officer, Electric from January 1994
to June 1996.

ITEM 11.  EXECUTIVE COMPENSATION


Summary.  The following table summarizes all annual and long-term  compensation  for services  provided to Northern
Indiana  for the years  2000,  1999,  and 1998  awarded  to,  earned by or paid to  executive  officers of Northern
Indiana whose total annual salary and bonus  exceeded  $100,000 (the "Named  Officers").  Gary L. Neale,  the Chief
Executive  Officer of NiSource,  also served as the Chief  Executive  Officer of Northern  Indiana for a portion of
the year 2000. The following table does not include information  relating to the annual and long-term  compensation
for Mr. Neale or other former  executive  officers who provide service both to Northern Indiana and to NiSource and
its subsidiaries.

                                            Summary Compensation Table

                                              Annual Compensation         Long-Term    Compensation
                                                                           Awards        Payouts
                                                                         Securities     Long-Term
                                                                           Under-       Incentive
                                                           Other annual     lying         Plan       All other
                                         Salary     Bonus  compensation   Options/       Payouts   compensation
Name and Principal Position      Year    ($)(1)     ($)(2)    ($)(3)       SARS (#)       ($)(4)       ($)(5)   
Jerry L. Godwin,                 2000    177,500    93,187       -          11,000       446,378       1,120
   Vice President/General        1999    169,583    46,070       -           9,000            -        1,110
   Manager Electric Supply       1998    161,250    83,738    4,118          8,000            -        1,110

Robert J. Schacht                2000    152,000    79,800       -          10,000       446,378          -
   Executive Vice President      1999    144,583    46,795       -           8,000            -           -
   and Chief Operating Officer   1998    136,875    71,050    3,777          8,000            -          553   


(1)      Compensation  deferred at the  election of Named  Officer is  reported in the  category  and year in which
         such compensation was earned.

(2)      Half of the bonuses are paid pursuant to the Senior  Management  Incentive  Plan.  The  incentive  plan is
         designed to supplement a  conservative  base salary with incentive  bonus  payments if targeted  financial
         performance  of NiSource is attained.  The 2000 target  aggregate  payout for the  incentive  plan for the
         Named Officers was $164,750,  which was less than the actual aggregate payout for the Named Officers.  The
         remaining half of the Named  Officers' bonus was determined  based on the on the financial  performance of
         Northern Indiana.

(3)      In accordance with applicable  Securities and Exchange  Commission rules, the other amounts shown for each
         of the Named Officers do not include  perquisites and other personal benefits,  as the aggregate amount of
         such  benefits  is less than the  lesser of  $50,000  and 10% of the total  salary and bonus of such Named
         Officer.

(4)      The  payouts  shown are based on the  value,  at date of  vesting,  of  restricted  shares  awarded  under
         NiSource's  Long-Term  Incentive  Plan which vested  during the years shown.  Vesting was based on meeting
         certain  performance  requirements.  Total  restricted  shares held  (assuming 100% vesting) and aggregate
         market  value at  December  31,  2000  (based on the average of the high and low sale prices of the Common
         Stock as reported in "The Wall Street Journal") for the Named Officers were as follows:  Mr.Godwin,  9,000
         shares valued at $277,920 and Mr.  Schacht,  9,000 shares valued at $277,920.  Dividends on the restricted
         shares are paid to the Named Officers.

(5)      The 2000 amount shown for Mr. Godwin under "Other  Compensation"  represents  NiSource's  contributions of
         $1,120 to the 401K Plan on behalf of Mr. Godwin.


Option Grants in 2000.  The  following  table sets forth grants of options to purchase  NiSource  common stock made
during 2000 to the Named Officers. No stock appreciation rights were awarded during 2000.

                                       Option/SAR Grants In Last Fiscal Year
                                                 Individual Grants

                                 Number of      Percent of Total
                                Securities        Options/SARS
                                Underlying         Granted to                                          Grant Date
                               Options/SARS       Employees in    Exercise or Base      Expiration       Present
Name                          Granted (#)(1)     Fiscal Year (2)   Price ($/Sh)(3)         Date       Value ($)(4)  

Jerry L. Godwin                    5,000               .41             18.4375            01/31/10        18,950
                                   6,000               .49             22.2200            08/22/10        27,660
Robert J. Schacht                  5,000               .41             18.4375            01/31/10        18,950
                                   5,000               .41             22.2200            08/22/10        23,050    


(1)      All options  granted in 2000 are fully  exercisable  commencing  one year from the date of grant.  Vesting
         may be  accelerated  as a result of  certain  events  relating  to a change in control  of  NiSource.  The
         exercise  price and tax  withholding  obligation  related to  exercise  may be paid by delivery of already
         owned shares of common  stock or by reducing  the number of shares of common  stock  received on exercise,
         subject to certain conditions.

(2)      Based on an aggregate of 1,235,000 options granted to all NiSource employees in 2000.

(3)      All options  were  granted at the  average of high and low sale prices of the common  stock as reported in
         "The Wall Street Journal" on the date of grant.

(4)      Grant date present value is determined  using the  Black-Scholes  option  pricing model.  The  assumptions
         used in the  Black-Scholes  option  pricing  model for the January 22, 2000 grants  (expiring  January 31,
         2010)  were as  follows:  volatility  -  28.98%  (calculated  using  daily  common  stock  prices  for the
         twelve-month  period  preceding  the date of  grant);  risk-free  rate of  return - 6.6%  (the  rate for a
         ten-year U.S. treasury);  dividend yield - $1.08;  option term - ten years;  vesting - 100% one year after
         date of grant;  and an expected  option term of 5.4 years.  The  assumptions  used for the August 22, 2000
         grants  (expiring  08/22/10)  were as follows:  volatility - 26.16%  (calculated  using daily common stock
         prices for the  twelve-month  period  preceding the date of grant);  risk-free rate of return - 6.06% (the
         rate for a ten-year U.S. treasury);  dividend yield - $ 1.08; option term - ten years;  vesting - 100% one
         year  after  date of  grant;  and an  expected  option  term of 5.8  years.  No  assumptions  relating  to
         non-transferability  or risk of  forfeiture  were made.  Actual  gains,  if any, on option  exercises  and
         common shares are dependent on the future  performance of the common stock and overall  market  condition.
         There can be no assurance that the amounts reflected in this table will be achieved.


Option  Exercises in 2000. The following  table sets forth certain  information  concerning the exercise of options
or stock  appreciation  rights  during 2000 by each of the Named  Officers and the number and value of  unexercised
options and stock appreciation rights at December 31, 2000.

                                  Aggregated Option Exercises In Last Fiscal Year
                                         And Fiscal Year-End Option Values

                                                           Number of Securities          Value of Unexercised
                                                          Underlying Unexercised             In-the-Money
                           Shares                             Options/SARS at               Options/SARS at
                         Acquired on       Value            Fiscal Year-End (#)         Fiscal Year-End ($) (1)
Name                    Exercise (#)   Realized ($)     Exercisable  Unexercisable     Exercisable  Unexercisable  

Jerry L. Godwin                -               -           51,000         11,000         516,721       114,173
Robert J. Schacht           8,000         103,750          55,000         10,000         596,616       105,513     


(1)      Represents the difference  between the option exercise price and $30.88,  the average of high and low sale
         prices of the common shares on December 29, 2000, as reported in "The Wall Street Journal".


Long-Term  Incentive Plan Awards in 2000. The following  table sets forth shares of restricted  stock and shares of
contingent stock awarded pursuant to the Long-Term Incentive Plan during 2000 to each of the Named Officers.

                           Long-Term Stock Incentive Plans - Awards In Last Fiscal Year

                                                   Performance
                                                    Or Other
                                Number of         Period Until             Estimated Future Payouts Under
                            Shares, Units or       Maturation                Non-Stock Price-Based Plans
Name                        Other Rights (#)        or Payout      Threshold (#)  Target (#)           Maximum (#)  

Jerry L. Godwin                  9,000(1)              3 yrs             -             9,000              18,000
                                 6,000(2)            4-5 yrs             -             6,000              12,000
Robert J. Schacht                9,000(1)              3 yrs             -             9,000              18,000
                                 6,000(2)            4-5 yrs             -             6,000              12,000    


(1)      Represents  restricted  stock awards granted to each Named Officer in 2000. The  restrictions on shares of
         restricted  stock awarded during 2000 lapse three years from the date of grant.  The vesting of the shares
         of restricted  stock varies from 0% to 200% of the number  awarded,  based upon meeting  certain  specific
         financial  performance  objectives,  including  earnings per share targets,  stock price targets and total
         shareholder return. There is a two-year holding period for the shares after the restrictions lapse.

(2)      Represents  contingent  stock awards granted to each Named Officer in 2000. The restrictions on 50% of the
         contingent  stock awarded  during 2000 lapse four years from the date of grant.  The  restrictions  on the
         remaining  50% lapse five years from the date of the grant.  The vesting of the  restricted  shares varies
         from  0% to 200% of the  number  awarded,  based  upon  meeting  certain  specific  financial  performance
         objectives,  including  earnings per share  targets,  stock price  targets and total  shareholder  return.
         There is a one-year holding period for the first 50% of the shares of contingent stock awarded.



Pension Plan and Supplemental Executive Retirement Plan

The following table shows estimated  annual  benefits,  giving effect to NiSource's  Pension Plan and  Supplemental
Retirement  Plan (the  "Supplemental  Plan," as  described  below),  payable  upon  retirement  to  persons  in the
specified remuneration and years-of-service classifications.

                                                Pension Plan Table

                                                                   Years of Service                                
Remuneration                           15                20               25                30               35    
$      250,000                        98,700           131,600           137,820          144,100           144,100
       300,000                       121,200           161,600           169,000          176,600           176,600
       350,000                       143,700           191,600           200,350          209,100           209,100
       400,000                       166,200           221,600           231,600          241,600           241,600
       450,000                       188,700           251,600           262,850          274,100           274,100
       500,000                       211,200           281,600           294,100          306,600           306,600


The credited years of service for each of the Named Officers,  pursuant to the  Supplemental  Plan, are as follows:
Jerry L. Godwin - 6 years and Robert J. Schacht - 28 years.

Upon their  retirement,  regular  employees  and  officers of NiSource  and its  subsidiaries  which adopt the plan
(including  directors who are also full-time  officers),  will be entitled to a monthly  pension in accordance with
the provisions of NiSource's  pension plan,  originally  effective as of January 1, 1945. The directors who are not
and have not been  officers of NiSource  are not  included in the pension  plan.  The pensions are payable out of a
trust fund  established  under the pension plan with The Northern Trust Company,  trustee.  The trust fund consists
of  contributions  made by NiSource  and the  earnings of the fund.  Over a period of years the  contributions  are
intended  to result in  over-all  actuarial  solvency of the trust  fund.  The  pension  plan of NiSource  has been
determined by the Internal Revenue Service to be qualified under Sections 401 of the Internal Revenue Code.

Pension benefits are determined  separately for each participant.  The formula for a monthly payment for retirement
at age 65 is 1.7% of average  monthly  compensation  multiplied by years of service (to a maximum of 30 years) plus
0.6% of average monthly  compensation  multiplied by years of service over 30. Average monthly  compensation is the
average  for the 60  consecutive  highest  paid  months  in the  employee's  last 120  months of  service.  Covered
compensation  is  defined  as wages  reported  as W-2  earnings  (up to a limit set forth in the Code and  adjusted
periodically)  plus any salary reduction  contributions made under the 401(k) Plan, minus any portion of a bonus in
excess of 50% of base pay, and any amounts paid for unused  vacation  time and vacation  days carried  forward from
prior years.  The benefits  listed in the Pension Plan table are not subject to any deduction  for Social  Security
or other offset amounts.

NiSource  also has a  Supplemental  Plan for  officers.  Participants  in the Plan  are  selected  by the  board of
directors. Benefits from the Plan are to be paid from the general assets of NiSource.

The  Supplemental  Plan  provides the greater of (i) 60% of  five-year  average pay less  Primary  Social  Security
Benefits  (prorated  for less than 20 years of service) and an additional  0.5% of 5-year  average pay less Primary
Social Security  Benefits per year for  participants  with between 20 and 30 years of service,  or (ii) the benefit
formula under the NiSource's  Pension Plan. In either case,  the benefit is reduced by the actual  pension  payable
from NiSource'  Pension Plan. In addition,  the Supplemental  Plan provides certain  disability and  pre-retirement
death benefits for the spouse of a participant.

The Supplemental  Executive  Retirement Plan provides the greater of (i) 60% of five-year  average pay less Primary
Social  Security  Benefits  (prorated for less than 20 years of service) and an additional  0.5% of 5-year  average
pay less Primary Social Security  Benefits per year for  participants  with between 20 and 30 years of service,  or
(ii) the benefit formula

under the Company's  Pension Plan. In either case,  the benefit is reduced by the actual  pension  payable from the
Company's Pension Plan. In addition,  the Supplemental  Executive  Retirement Plan provides certain  disability and
pre-retirement death benefits for the spouse of a participant.

NiSource Change In Control and Termination Agreements
The board of directors of NiSource  has  authorized  Change in Control and  Termination  Agreements  with the Named
Officers.  NiSource  believes that these  agreements and related  shareholder  rights  protections  are in the best
interests of the shareholders,  to insure that in the event of extraordinary  events,  totally independent judgment
is enhanced to maximize  shareholder  value.  The  agreements  can be terminated on three years' notice and provide
for the payment of specified  benefits if the executive  terminates  employment for good reason or is terminated by
NiSource  for any reason  other than good cause  within 24 months  following  certain  changes in control.  Each of
these  agreements also provides for payment of these benefits if the executive  voluntarily  terminates  employment
during a specified  one-month  period  within 24 months  following a change in control.  No amounts will be payable
under the  agreements  if the  executive's  employment  is terminated by NiSource for good cause (as defined in the
agreements).

The  agreements  provide  for the  payment of three  times the  executive's  current  annual base salary and target
incentive  bonus  compensation.  The  executive  will also receive a pro rata portion of the  executive's  targeted
incentive  bonus for the year of termination.  The executive  would also receive  benefits from NiSource that would
otherwise  be  earned  during  the  three-year  period  following  the  executive's  termination  under  NiSource's
Supplemental  Executive  Retirement Plan and qualified  retirement  plans.  All stock options held by the executive
would become immediately  exercisable upon the date of termination of employment,  and the restrictions would lapse
on all  restricted  shares  awarded to the  executive.  NiSource will increase the payment made to the executive as
necessary to compensate  the  executive  for any parachute  penalty tax imposed on the payment of the amounts under
the contracts.

During the  three-year  period  following  the  executive's  termination,  the executive and his or her spouse will
continue  to be covered by  applicable  health or welfare  plans of  NiSource.  If the  executive  dies  during the
three-year  period  following the executive's  termination,  all amounts payable to the executive will be paid to a
named beneficiary.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


Not applicable.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Northern Indiana receives executive,  financial,  gas supply,  sales and marketing,  and administrative and general
services from an affiliate, NiSource Corporate Services Company, a wholly-owned subsidiary of NiSource.



                                                      PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) (1)      The Financial Statements filed as part of this report on Form 10-K are included in Item 8.

         (2)      The  following is a list of the  Financial  Statements  Schedule  filed  herewith as part of this
                  report on Form 10-K:

  Schedule                                                            Page of
   Number                     Description                            2000 10-K 
     II           Valuation and Qualifying Accounts                    56-57

(3)      Exhibits - The  exhibits  filed  herewith  as a part of this report on Form 10-K are listed on the Exhibit
                  Index included on pages 59-60.  Each management  contract or compensatory  plan or arrangement of
                  Northern Indiana listed on the Exhibit Index is separately identified by an asterisk.

     (b)          Reports on Form 8-K: None




Schedule II.  Valuation and Qualifying Accounts


                                       Twelve Months Ended December 31, 2000

                COL. A                          COL. B               COL. C                COL. D        COL. E  

                                                                    Additions       
                                                                                       Deductions for
                                                Balance     Charges to       Charged    Purposes for     Balance
                                                Jan. 1,      Costs and      to Other   which Reserves   Dec. 31,
Description ($ in thousands)                     2000        Expenses       Accounts    were Created      2000   
Reserves Deducted In Consolidated
   Balance Sheets From Assets To
   Which They Apply:
     Reserve for accounts receivables             7,804          9,344            -          6,694        10,454

Reserves Classified Under Reserve Section
   Of Consolidated Balance Sheets:
     Injuries and damages reserve                 7,369          5,250            -          4,685         7,934
     Environmental reserves                      17,329          1,548            -          1,778        17,099
     Miscellaneous operating reserves             3,515             -             -             -          3,515
     Restructuring reserves                          -           2,500            -          1,313         1,187  

Schedule II.  Valuation and Qualifying Accounts


                                       Twelve Months Ended December 31, 1999

                COL. A                          COL. B               COL. C                COL. D        COL. E  

                                                                    Additions       
                                                                                       Deductions for
                                                Balance     Charges to       Charged    Purposes for     Balance
                                                Jan. 1,      Costs and      to Other   which Reserves   Dec. 31,
Description ($ in thousands)                     1999        Expenses       Accounts    were Created      1999   
Reserves Deducted In Consolidated
   Balance Sheets From Assets To
   Which They Apply:
     Reserve for accounts receivables             4,458         13,322            -          9,976         7,804

Reserves Classified Under Reserve Section
   Of Consolidated Balance Sheets:
     Injuries and damages reserve                 6,540          5,100            -          4,271         7,369
     Environmental reserves                      18,778          3,710            -          5,159        17,329
     Miscellaneous operating reserves             3,515             -             -             -          3,515  





Schedule II.  Valuation and Qualifying Accounts


                                       Twelve Months Ended December 31, 1998

                COL. A                          COL. B               COL. C                COL. D        COL. E  

                                                                    Additions       
                                                                                       Deductions for
                                                Balance     Charges to       Charged    Purposes for     Balance
                                                Jan. 1,      Costs and      to Other   which Reserves   Dec. 31,
Description ($ in thousands)                     1998        Expenses       Accounts    were Created      1998   
Reserves Deducted In Consolidated
   Balance Sheets From Assets To
   Which They Apply:
     Reserve for accounts receivables             4,524          9,060            -          9,126         4,458

Reserves Classified Under Reserve Section
   Of Consolidated Balance Sheets:
     Injuries and damages reserve                 5,592          4,000            -          3,052         6,540
     Environmental reserves                      18,764          5,203            -          5,189        18,778
     Miscellaneous operating reserves             3,558             -             -             43         3,515  




                                                    SIGNATURES

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, hereunto duly authorized.


                                                           Northern Indiana Public Service Company
                                                                          (Registrant)



Date       March 27, 2001                      By:   /s/                  ROBERT J. SCHACHT                 
                                                                        Robert J. Schacht
                                                      Executive Vice President and Chief Operating Officer
                                                                  (Principal Executive Officer)


Pursuant to the  requirements  of the  Securities  Exchange  Act of 1934,  this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.

    /s/    ROBERT J. SCHACHT                       Executive Vice President and             March 27, 2001
    Robert J. Schacht                              Chief Operating Officer
                                                   (Principal Executive Officer)

    /s/    STEPHEN P. ADIK                         Director                                 March 27, 2001
    Stephen P. Adik

    /s/    FRANCIS P. GIROT, JR.                   Treasurer                                March 27, 2001
    Francis P. Girot, Jr.                          (Principal Financial Officer)

    /s/    JEFFREY W. GROSSMAN                     Vice President                           March 27, 2001
    Jeffrey W. Grossman                            (Principal Accounting Officer)

    /s/    PATRICK J. MULCHAY                      Director                                 March 27, 2001
    Patrick J. Mulchay

    /s/    JEFFREY W. YUNDT                        Director                                 March 27, 2001
    Jeffrey W. Yundt

                                                   EXHIBIT INDEX

Exhibit
Number                                           Description of Item

(3.1)    Amended Articles of  Incorporation  of April 14, 1982  (incorporated by reference to Exhibit 1 to Northern
         Indiana Public Service Company (Northern Indiana) Current Report on Form 8-K dated May 5, 1982).

(3.2)    By-laws  effective August 27, 1996  (incorporated by reference to Exhibit 3 to Northern Indiana  Quarterly
         Report on Form 10-Q for the quarter ended September 30, 1996).

(4.1)    Indenture  dated  August 1, 1939  between  Northern  Indiana and  Trustees  (incorporated  by reference to
         Exhibit 7 to Northern Indiana Registration Statement (Registration No. 2-5178)).

(4.2)    Third  Supplemental  Indenture dated August 1, 1943  (incorporated by reference to Exhibit 7-C to Northern
         Indiana Registration Statement (Registration No. 2-5178)).

(4.3)    Nineteenth  Supplemental  Indenture  dated  October 1, 1968  (incorporated  by  reference  to Exhibit 1 to
         Northern Indiana Current Report on Form 8-K dated November 8, 1968).

(4.4)    Twenty-third  Supplemental  Indenture  dated March 31, 1972  (incorporated  by  reference  to Exhibit 2 to
         Northern Indiana Current Report on Form 8-K dated May 5, 1972).

(4.5)    Thirty-third  Supplemental  Indenture  dated  June 1, 1980  (incorporated  by  reference  to  Exhibit 1 to
         Northern Indiana Quarterly Report on Form 10-Q for the quarter ended June 30, 1980).

(4.6)    Forty-first  Supplemental  Indenture  dated  July 1,  1991  (incorporated  by  reference  to  Exhibit 1 to
         Northern Indiana Current Report on Form 8-K dated March 25, 1992).

(4.7)    Indenture,  dated as of March 1, 1988,  between Northern Indiana and Manufacturers  Hanover Trust Company,
         as  Trustee  (incorporated  by  reference  to  Exhibit  4  to  Northern  Indiana  Registration   Statement
         (Registration No. 33-44193)).

(4.8)    First  Supplemental  Indenture,  dated as of December 1, 1991,  between Northern Indiana and Manufacturers
         Hanover  Trust  Company,  as Trustee  (incorporated  by  reference  to  Exhibit  4.1 to  Northern  Indiana
         Registration Statement (Registration No. 33-63870)).

(4.9)    Memorandum of Agreement with City of Michigan  City,  Indiana  (incorporated  by reference to Exhibit 7 to
         Northern Indiana Registration Statement (Registration No. 2-48531)).

(4.10)   Financing  Agreement  No. 1 dated  November  1, 1988 with Jasper  County,  Indiana  regarding  $37,000,000
         Series  1988A  Pollution  Control  Refunding  Revenue  Bonds.   Identical  financing   agreements  between
         Registrant  and Jasper County  provide for the issuance of $47,000,000  Series 1988B,  $46,000,000  Series
         1988C and $24,000,000  Series 1988D Pollution Control  Refunding Revenue Bonds  (incorporated by reference
         to Exhibit 8 to Northern Indiana Current Report on Form 8-K dated March 16, 1989).

(4.11)   Financing  Agreement  dated July 1, 1991,  with Jasper County Indiana  regarding  $55,000,000  Series 1991
         Collateralized  Pollution  Control  Refunding  Revenue  Bonds  (incorporated  by reference to Exhibit 3 to
         Northern Indiana Current Report of Form 8-K dated March 25, 1992).

(4.12)   Financing  Agreement  dated August 1, 1994,  with Jasper  County,  Indiana  regarding  $10,000,000  Series
         1994A, $18,000,000 Series 1994B and $41,000,000 Series 1994C Pollution Control Refunding Revenue Bonds.

(4.13)   First  Amendment  to  Financing  Agreement  No. 1, dated as of November 1, 2000, between Jasper County and
         Northern  Indiana  regarding  Series  1988A  Pollution  Control Refunding Revenue Bonds.  Northern Indiana
         entered into identical First Amendments to Financing Agreements Nos. 2, 3 and 4, each dated as of November
         1, 2000,  between  Jasper County and Northern Indiana in connection with the Series 1988B, 1988C and 1988D
         Pollution Control Refunding Revenue Bonds.**

(4.14)   First  Amendment  to  Financing Agreement, dated as of November 1, 2000 between Jasper County, Indiana and
         Northern Indiana regarding the Series 1994A, 1994B and 1994C Pollution Control Refunding Revenue Bonds.**

(10.1)   Amended and Restated  Pension Plan  Provisions  effective  January 1, 1989  (incorporated  by reference to
         Exhibit 17 to Northern Indiana Current Report of Form 8-K dated March 25, 1992).*

(10.2)   Service  Agreement  dated  January 1, 2001,  between  NiSource  Corporate  Services  Company and  Northern
         Indiana.**

(23)     Consent of Arthur Andersen LLP.



*Management contract or compensatory plan arrangement of Northern Indiana.
**Exhibit filed herewith.