INDIANA GAS CO INC, 10-K405, 1997-12-17

INDIANA GAS CO INC
10-K405, 1997-12-17
NATURAL GAS DISTRIBUTION

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December 17, 1997

Securities and Exchange Commission
Operations Center
6432 General Green Way
Alexandria, VA 22312-2413

Gentlemen:

We are transmitting herewith Indiana Gas Company, Inc.'s
Annual Report on Form 10-K for the year ended
September 30, 1997, pursuant to the requirements of Section 13
of the Securities Exchange Act of 1934.

Very truly yours,

/s/Douglas S. Schmidt
Douglas S. Schmidt

DSS:tmw

Enclosures

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549

FORM 10-K

(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 1997

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

For the transition period from _______________ to _______________

Commission File Number 1-6494

INDIANA GAS COMPANY, INC.
(Exact name of Registrant as specified in its charter)

INDIANA 35-0793669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1630 North Meridian Street,Indianapolis, Indiana 46202
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code 317-926-3351

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

Name of each exchange on
Title of each class which registered
None None

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

None

(Title of Class)

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

Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date.

Common Stock-Without par value 9,080,770 November 30, 1997
Class Number of shares Date

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

Table of Contents

Page
Part I
Business
Property
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Executive Officers of the Company
Part II
Market for the Registrant's Common Equity and Related
Stockholder Matters
Selected Financial Data
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants
Part III
Directors and Executive Officers of the Registrant
Executive Compensation
Securities Ownership of Certain Beneficial Owners and
Management
Certain Relationships and Related Transactions
Part IV
Exhibits, Financial Statements Schedules, and Reports on
Form 8-K

Part I

Item 1. Business

(a) General Development of the Business.

Indiana Gas Company, Inc. (Indiana Gas or the
company) is an operating public utility engaged in
the business of providing gas utility service in
the state of Indiana. It was incorporated under
the laws of the state of Indiana on July 16, 1945.
All of the outstanding shares of common stock of
the company are owned by Indiana Energy, Inc.
(Indiana Energy), which is a public holding
company.

During fiscal 1997, Indiana Gas supplied gas
to about 477,000 residential, commercial and
industrial customers in 281 communities in 48 of
the 92 counties in the state of Indiana. The
service area has a population of approximately 2
million and contains diversified manufacturing
and agriculture-related enterprises. The
principal industries served include automotive
parts and accessories, feed, flour and grain
processing, metal castings, aluminum products,
gypsum products, electrical equipment, metal
specialties and glass.

The largest communities served include
Muncie, Anderson, Lafayette-West Lafayette,
Bloomington, Terre Haute, Marion, New Albany,
Columbus, Jeffersonville, New Castle and
Richmond. While Indiana Gas does not serve in
Indianapolis, it does serve the counties and
communities which border that city.

For the fiscal year ended September 30,
1997, residential customers provided 62 percent
of revenues, small commercial 23 percent and
contract (large commercial and industrial) 15
percent. At such date, approximately 99 percent
of Indiana Gas' customers used gas for space
heating, and space heating revenues from these
customers for the fiscal year were 85 percent of
total operating revenues. Sales of gas are
seasonal and strongly affected by variations in
weather conditions. During the fiscal year ended
September 30, 1997, Indiana Gas added
approximately 12,100 residential and commercial
customers.

Indiana Gas sells gas directly to
residential, small commercial and contract
customers at approved rates. Indiana Gas also
transports gas through its pipelines at approved
rates to contract customers which have purchased
gas directly from producers or through brokers
and marketers. The total volumes of gas provided
to both sales and transportation customers is
referred to as throughput.

Gas transported on behalf of end-use
customers in fiscal 1997 represented 34 percent
(41,874 MDth) of throughput compared to 27
percent (34,165 MDth) in 1996 and 30 percent
(33,312 MDth) in 1995. Although revenues are
lower, rates for transportation generally provide
the same margins as would have been earned had
the gas been sold under normal sales tariffs.

Effective April 1, 1996, Indiana Gas
purchases all of its natural gas from ProLiance
Energy, LLC, a gas marketing affiliate of Indiana
Energy (see Item 7, ProLiance Energy, LLC).
Indiana Gas has separate contracts with pipelines
for storage of natural gas.

Prices for gas and related services
purchased by Indiana Gas are determined primarily
by market conditions and rates established by the
Federal Energy Regulatory Commission. Indiana Gas'
rates and charges, terms of service, accounting
matters, issuance of securities, and certain other
operational matters are regulated by the Indiana
Utility Regulatory Commission (IURC).

Adjustments to Indiana Gas' rates and
charges related to the cost of gas are made
through gas cost adjustment (GCA) procedures
established by Indiana law and administered by
the IURC. The IURC has applied the statute
authorizing the GCA procedures to reduce rates
when necessary so as to limit net operating
income, after adjusting to normal weather, to the
level authorized in the last general rate order.
The earnings test provides that no refund be paid
to the extent a utility has not earned its
authorized utility operating income over the
previous 60 months (or during the period since
the utility's last rate order, if longer). On
November 9, 1995, the IURC approved a settlement
agreement among Indiana Gas, the Office of the
Utility Consumer Counselor and a group of large-
volume gas users which provided for authorized
utility operating income (weather normalized) of
$54.2 million for Indiana Gas beginning in fiscal
1996.

Information regarding environmental matters
affecting the company is incorporated herein by
reference to Item 7, Environmental Matters.

Indiana Gas had 949 full-time employees and 35
part-time employees as of September 30, 1997.

For fiscal 1997, the Indiana Gas Board of
Directors authorized management to undertake the
actions necessary and appropriate to restructure
Indiana Gas' operations. These actions by
Indiana Gas were consistent with Indiana Energy,
Inc.'s (Indiana Gas' parent) growth strategy that
was approved by its board of directors during
fiscal 1997. See Item 7, New Growth Strategy and
Corporate Restructuring.

Item 2. Property

The properties of Indiana Gas are used for
the purchase, production, storage and
distribution of gas and are located primarily
within the state of Indiana. As of September 30,
1997, such properties included 10,542 miles of
distribution mains; 484,643 meters; four
reservoirs currently being used for the
underground storage of purchased gas with
approximately 72,951 acres of land held under
storage easements; 8,699,322 Dth of gas in
company-owned underground storage with a daily
deliverability of 134,160 Dth; 4,941,395 Dth of
gas in contract storage with a daily
deliverability of 53,563 Dth; and five liquefied
petroleum (propane) air-gas manufacturing plants
with a total daily capacity of 36,700 Dth of gas.

Indiana Gas' capital expenditures during the
fiscal year ended September 30, 1997, amounted to
$71.9 million.

Item 3. Legal Proceedings

See Item 8, Note 10 for litigation matters
involving insurance carriers pertaining to
Indiana Gas' former manufactured gas plants and
storage facilities.

See Item 8, Note 12 for discussion of the
IURC's decision in the complaint proceeding
relating to the gas supply and portfolio
administration agreements between ProLiance and
Indiana Gas and ProLiance and Citizens Gas, and
discussion of the subsequent appeal to that
decision.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted during the fourth
quarter of the fiscal year ended September 30,
1997, to a vote of security holders.

Item 4a. Executive Officers of the Company

The Executive Officers of the company are as
follows:

<TABLE>
Family
Relation- Office or Date Elected
Name Age ship Position Held Or Appointed(1)
<S> <C> <C> <C> <C>
Lawrence A. Ferger 63 None Chairman and Chief
Executive Officer Oct. 1, 1997
Chairman, President
and Chief Executive
Officer Jan. 26, 1996
President and Chief
Executive Officer July 1, 1987

Niel C. Ellerbrook 48 None President Oct. 1, 1997
Executive Vice President
and Chief Financial
Officer Jan. 22, 1997
Senior Vice President
and Chief Financial
Officer July 1, 1987

Paul T. Baker 57 None Executive Vice
President and Chief
Operating Officer Oct. 1, 1997
Senior Vice President
and Chief Operating
Officer Aug. 1, 1991

Anthony E. Ard 56 None Senior Vice President
of Corporate Affairs Jan. 9, 1995
(through
Sep. 30, 1997)
Vice President -
Corporate Affairs Jan. 11, 1993
Vice President and
Secretary Sep. 30, 1988

Timothy M. Hewitt 47 None Vice President of
Operations
and Engineering Jan. 9, 1995
Vice President of Sales
and Field Operations Jan. 14, 1991

(1) Each of the officers has served continuously since the dates
indicated unless otherwise noted.

</TABLE>

Part II

Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters

All of the outstanding shares of Indiana Gas'
common stock are owned by Indiana Energy, Inc., and
are not traded.

During fiscal 1997, the company paid dividends
of $6.5 million, $6.5 million, $6.5 million and $6.8
million in the first, second, third and fourth
quarters, respectively.

During fiscal 1996, the company paid dividends
of $6.3 million, $6.3 million, $6.3 million and $6.5
million in the first, second, third and fourth
quarters, respectively.

Item 6. Selected Financial Data

<TABLE>

INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES
(Thousands)

Year Ended September 30 1997(2) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating revenues $530,407 $530,594 $403,810 $475,297 $499,278
Margin 207,885 210,463 185,315 194,309 185,725
Operating expenses 178,874 156,910 139,127 146,466 141,452
Operating income 29,011 53,553 46,188 47,843 44,273
Interest and other - net 15,533 14,923 14,079 13,247 15,739
Net income 13,478 38,630 32,109 34,596 28,534
Dividends on preferred stock - - - - 285
Earnings available for
common stock $ 13,478 $ 38,630 $ 32,109 $ 34,596 $ 28,249

Ratio of earnings to fixed 2.2 4.6 4.1 4.1 3.5
charges

Common shareholder's equity $268,762 $281,534 $268,154 $260,295 $249,099
Long-term debt (1) 154,733 174,733 173,693 156,851 184,901
$423,495 $456,267 $441,847 $417,146 $434,000

Total throughput 122,846 126,742 109,508 116,285 111,354

Annual heating degree days
as a percent of normal 100% 108% 87% 102% 99%

Utility customers served -
average 477,235 465,166 454,817 443,498 433,000

Total Assets at Year-End $665,719 $672,907 $655,933 $649,982 $621,658

(1) Includes current maturities; excludes sinking fund requirements.
(2) Reflects the recording of pre-tax restructuring costs of $39.5
million during the fourth quarter of fiscal 1997
(see Item 8, Note 2).

</TABLE>

Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition

Results of Operations

Net income before restructuring costs decreased slightly to $38.0
million in fiscal 1997 from $38.6 million in fiscal 1996 due
primarily to weather that was 7 percent warmer than last year.
This decrease was offset substantially by lower operating expenses,
as well as the addition of new residential and commercial
customers.

For fiscal 1997, the Indiana Gas Board of Directors authorized
management to undertake the actions necessary and appropriate to
restructure Indiana Gas' operations and recognize a resulting after-
tax restructuring charge of $24.5 million. These actions by Indiana
Gas were consistent with Indiana Energy, Inc.'s (Indiana Gas'
parent) growth strategy that was approved by its board of directors
during fiscal 1997 (See New Growth Strategy and Corporate
Restructuring). Net income for 1997 after the restructuring charge
was $13.5 million.

Net income increased to $38.6 million in fiscal 1996 from $32.1
million in fiscal 1995 primarily as a result of weather that was 25
percent colder than the prior year, as well as the addition of new
residential and commercial customers. This increase was offset
somewhat by higher operation and maintenance expenses.

Margin (Revenues Less Cost of Gas)
In 1997, margin decreased 1 percent ($2.6 million) when compared to
1996. The decrease is primarily attributable to normal weather
which was 7 percent warmer than the same period last year, offset
substantially by the addition of new residential and commercial
customers.

In 1996, margin increased 14 percent ($25.1 million) when compared
to 1995. The increase was primarily attributable to weather that
was 25 percent colder than the prior year and 8 percent colder than
normal. Additional residential and commercial customers, as well as
rate recovery (beginning May 1995) of postretirement benefit costs
recognized in accordance with Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions (SFAS 106), also contributed to the
increase.

In 1997, total system throughput (combined sales and
transportation) decreased 3 percent (3.9 MMDth) when compared to
last year. In 1996, throughput increased 16 percent (17.2 MMDth)
when compared to 1995. Indiana Gas' rates for transportation
generally provide the same margins as are earned on the sale of gas
under its sales tariffs. Approximately one-half of total system
throughput represents gas used for space heating and is affected by
weather.

Total average cost per dekatherm of gas purchased (average
commodity and demand) was $3.64 in 1997, $3.14 in 1996 and $2.53 in
1995. The price swings are due primarily to changing commodity
costs in the marketplace.

Operating Expenses
Operation and maintenance expenses decreased approximately $4.6
million in 1997 when compared to 1996. The decrease is due in part
to lower distribution system costs than in 1996 when certain
projects were accelerated because of the increased margin resulting
from the very cold weather. Lower costs for uncollectible accounts
also contributed to the decrease.

Operation and maintenance expenses increased approximately $8.5
million in 1996 when compared to 1995. The increase was primarily
attributable to higher performance-based compensation and the
recognition (beginning May 1995) of postretirement benefit costs in
accordance with SFAS 106. In addition, the increased margin
resulting from the very cold weather allowed for the acceleration
of certain projects to help maintain and strengthen the
distribution system.

Restructuring costs of $39.5 million (pre-tax) were recorded in
1997 related to the implementation of Indiana Energy, Inc.'s new
growth strategy (see New Growth Strategy and Corporate
Restructuring).

Depreciation and amortization expense increased in both 1997 and
1996 as the result of additions to utility plant to serve new
customers and to maintain dependable service to existing customers.

Federal and state income taxes decreased in 1997 due primarily to
the recording of restructuring costs. Federal and state income
taxes increased in 1996 due to an increase in taxable income.

Taxes other than income taxes increased in 1997 due primarily to
higher property tax expense as the result of additions to utility
plant. Taxes other than income taxes increased in 1996 due to
higher property tax expense, and higher gross receipts tax expense
resulting from increased revenue.

Interest Expense
Interest expense increased in 1997 and 1996 due to increases in
average debt outstanding, slightly offset by decreases in interest
rates.

Other Operating Matters

New Growth Strategy and Corporate Restructuring
In April 1997, the Board of Directors of Indiana Energy, Inc.
(Indiana Energy), Indiana Gas' parent, approved a new growth
strategy designed to support Indiana Energy's transition into a
more competitive environment. As part of this new growth strategy,
Indiana Energy will endeavor to become a leading regional provider
of energy products and services and to grow its consolidated
earnings per share by an average of 10 percent annually over the
next five years. To achieve such earnings growth, Indiana Energy's
aim is to grow the earnings contribution from nonutility operations
to over 20 percent of its total annual earnings within the next
five years, and to aggressively manage costs within its utility
operations.

For fiscal 1997, the Indiana Gas Board of Directors authorized
management to undertake the actions necessary and appropriate to
restructure Indiana Gas' operations and recognize a resulting
restructuring charge of $39.5 million ($24.5 million after-tax) as
described below. These actions by Indiana Gas were consistent with
Indiana Energy's new growth strategy.

In July 1997, Indiana Gas advised its employees of its plan to
reduce its work force from about 1,025 full-time employees at June
30, 1997, to approximately 800 employees within five years. The
reductions are being implemented through involuntary separation and
attrition. As a result of initial work force reductions during
September 1997, employees totaled approximately 950 as of September
30, 1997. Indiana Gas recorded restructuring costs of $5.4 million
related to the 1997 and planned work force reductions. These costs
include separation pay in accordance with Indiana Gas' severance
policy, and net curtailment losses related to these employees'
postretirement and pension benefits.

Further, Indiana Gas' management has committed to sell, abandon or
otherwise dispose of certain assets, including buildings, gas
storage fields and intangible plant. Indiana Gas recorded
restructuring costs of $34.1 million to adjust the carrying value
of those assets to estimated fair value.

In October 1997, Indiana Energy formed a new business unit, IEI
Services, LLC (IEI Services), to provide support services to
Indiana Energy and its subsidiaries, as well as to third-parties in
the future. Services to be provided include human resources
functions, information technology and various financial services.
These services had been provided by Indiana Gas in the past. IEI
Services has been designed to avoid duplicate business unit support
costs, eliminate low-value support activities and to assist in cost
containment, which should help Indiana Energy in meeting its
earnings growth targets.

As a result of the restructuring, Indiana Energy expects reductions
in future operating expenses, which should help it to be more
successful in an increasingly competitive energy marketplace.

ProLiance Energy, LLC
ProLiance Energy, LLC (ProLiance), a nonregulated marketing
affiliate of Indiana Energy, began providing natural gas and
related services to Indiana Gas and Citizens Gas and Coke Utility
(Citizens Gas) effective April, 1, 1996. ProLiance also provides
products and services to other utilities and customers in Indiana
and surrounding states. ProLiance assumed the business of Indiana
Energy Services, Inc., an indirect wholly owned subsidiary of
Indiana Energy, which had provided similar services to other
customers and from January 1, 1996, to March 31, 1996, to Indiana
Gas.

The sale of gas and provision of other services to Indiana Gas by
Indiana Energy's marketing affiliates are subject to regulatory
review through the quarterly gas cost adjustment proceeding
currently pending before the IURC.

On September 12, 1997, the Indiana Utility Regulatory Commission
(IURC) issued the decision in the complaint proceeding relating to
the gas supply and portfolio administration agreements between
ProLiance and Indiana Gas and ProLiance and Citizens Gas. The IURC
concluded that these agreements are consistent with the public
interest. The management of Indiana Energy believes that the
decision is supportive of the utilities' relationship with
ProLiance in all material respects.

This decision is particularly important because the IURC has
recognized that significant customer benefits can be achieved if
utilities are encouraged to work toward innovative customer
solutions in the changing energy marketplace. As a result of
ProLiance's provision of service to Indiana Gas and Citizens Gas,
in excess of $50 million in gas costs savings will be realized for
the customers of those utilities over the initial four and one-half
year term of the utilities' agreements. Further, the IURC has
recognized that benefits for investors are appropriate when risks
are being assumed by those investors.

The IURC's decision suggests that all material provisions of the
agreements between ProLiance and the utilities are reasonable. In
the decision the IURC acknowledged that the utilities' purchases of
gas commodity from ProLiance at index prices, as compared to
ProLiance's actual cost, is not unreasonable. The IURC also
acknowledged that the amounts paid by ProLiance to the utilities
for the prospect of using pipeline entitlements if and when they
are not required to serve the utilities' firm customers, and the
fees paid by the utilities to ProLiance for portfolio
administration services are not unreasonable. Nevertheless, with
respect to each of these matters, the IURC concluded that
additional findings in the gas cost adjustment (GCA) process would
be appropriate and directed that these matters be considered
further in the pending, consolidated GCA proceeding involving
Indiana Gas and Citizens Gas. The IURC has not yet established a
schedule for conducting these additional proceedings.

On October 6, 1997, counsel for Indiana Gas was served with certain
filings made with the Indiana Court of Appeals (Court) by the
Petitioners and the Indiana Office of Utility Consumer Counselor
(OUCC). The effect of these filings is to initiate an appeal of the
IURC's decision by the Petitioners and the OUCC.

Pursuant to the procedure governing appeals of IURC decisions, at
this time neither the Petitioners nor the OUCC have indicated on
what basis they will attempt to challenge the IURC's decision. The
schedule for the appeal proposed by the Petitioners and the OUCC
indicates that the earliest they will likely disclose such a basis
would be on January 12, 1998, when they would be obligated to file
the IURC's record of proceedings with the Court.

Although Indiana Gas' management believes that based upon
applicable Indiana law and the IURC's record of proceedings in the
ProLiance case the IURC's decision should be upheld by the Court,
there can be no assurance as to that outcome.

While the results of the appeal and the pending GCA proceeding
cannot be predicted, management does not expect this matter to have
a material impact on Indiana Gas' financial position or results of
operations.

CIGMA, LLC
On April 1, 1997, IGC Energy and Citizens By-Products Coal Company
formed CIGMA, LLC (CIGMA), a jointly and equally owned limited
liability company. CIGMA provides materials acquisition and related
services that are used by Indiana Gas and Citizens Gas, as well as
similar services for third parties. CIGMA is generating cost
savings for the utilities by enabling purchase discounts and more
efficient purchasing, warehousing and distribution of materials and
equipment.

Environmental Matters
Indiana Gas is currently conducting environmental investigations
and work at certain sites that were the locations of former
manufactured gas plants. It has been seeking to recover the costs
of the investigations and work from insurance carriers, other
potentially responsible parties (PRPs) and customers.

During 1995, Indiana Gas received an order from the IURC in which
the Commission concluded that the costs incurred by Indiana Gas to
investigate and, if necessary, clean-up former manufactured gas
plant sites are not utility operating expenses necessary for the
provision of service and, therefore, are not recoverable as
operating expenses from utility customers. This ruling was affirmed
by the Indiana Court of Appeals. On August 15, 1997, the Indiana
Supreme Court denied Indiana Gas' petition for transfer and the
IURC order became final.

On August 12, 1997, Indiana Gas and PSI Energy, Inc. (PSI) signed
an agreement with respect to thirteen of the nineteen sites where
PSI is a PRP, which provides for an equal sharing between Indiana
Gas and PSI of past and future response costs at the thirteen
sites. Indiana Gas and PSI must jointly approve future management
of the sites and the decisions to spend additional funds. Indiana
Gas previously entered into an agreement with PSI providing for the
sharing of costs related to another site. Five other sites are
already the subject of an agreement between Indiana Gas and
Northern Indiana Public Service Company (NIPSCO) which provides for
coordination of efforts and sharing of investigation and clean-up
costs incurred and to be incurred at the sites. Indiana Gas
further expects in the near future to commence negotiations with
PSI and NIPSCO regarding these five sites for the purpose of
including PSI in the Indiana Gas-NIPSCO agreement.

On April 14, 1995, Indiana Gas filed suit in the United States
District Court for the Northern District of Indiana, Fort Wayne
Division (the Court) against a number of insurance carriers for
payment of claims for investigation and clean-up costs already
incurred, as well as for a determination that the carriers are
obligated to pay these costs in the future. On October 2, 1996, the
Court granted several motions filed by defendant insurance carriers
for summary judgment on a number of issues relating to the
insurers' obligations to Indiana Gas under insurance policies
issued by these carriers. For example, the Court held that because
the placement of residuals on the ground at the sites was done
intentionally, there was no "fortuitous accident" and therefore no
"occurrence" subject to coverage under the relevant policies.
Based on discussions with counsel, the management of Indiana Gas
believes that a number of the Court's rulings are contrary to
Indiana law and has appealed all adverse rulings to the United
States Court of Appeals for the Seventh Circuit. However, if these
rulings are not reversed on appeal, they would effectively
eliminate coverage under most of the policies at issue. The appeal
has been set for oral argument on January 6, 1998. There can be no
assurance as to whether Indiana Gas will prevail on this appeal. As
of September 30, 1997, Indiana Gas has obtained settlements from
some insurance carriers in an aggregate amount of approximately
$14.7 million.

The Court's rulings have had no material impact on earnings since
Indiana Gas has previously recorded all costs (in aggregate $14.7
million) which it presently expects to incur in connection with
remediation activities. It is possible that future events may
require additional remediation activities which are not presently
foreseen.

For further information regarding the status of investigation and
remediation of the sites, PRPs and financial reporting see Note 10
of the Notes to Consolidated Financial Statements.

Postretirement Benefits Other Than Pensions
On May 3, 1995, the IURC issued an order authorizing Indiana Gas to
recover the costs related to postretirement benefits other than
pensions under the accrual method of accounting consistent with
Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions (SFAS
106). The Office of Utility Consumer Counselor appealed the order;
however, on January 21, 1997, the Indiana Court of Appeals affirmed
the IURC decision authorizing recovery.

Gas Cost Adjustment
Adjustments to Indiana Gas' rates and charges related to the cost
of gas are made through gas cost adjustment (GCA) procedures
established by Indiana law and administered by the IURC. The GCA
passes through increases and decreases in the cost of gas to
Indiana Gas' customers dollar for dollar.

In addition, the IURC has applied the statute authorizing the GCA
procedures to reduce rates when necessary so as to limit utility
operating income, after adjusting to normal weather, to the level
authorized in the last general rate order. The earnings test
provides that no refund be paid to the extent a utility has not
earned its authorized utility operating income over the previous 60
months (or during the period since the utility's last rate order,
if longer). On November 9, 1995, the IURC approved a settlement
agreement among Indiana Gas, the Office of Utility Consumer
Counselor and a group of large-volume gas users which provided for
authorized utility operating income (weather normalized) of $54.2
million for Indiana Gas beginning in fiscal 1996.

Liquidity and Capital Resources
Indiana Gas' capitalization objectives are 55-65 percent common
equity and preferred stock and 35-45 percent long-term debt.
Indiana Gas' common equity component was 59 percent of its total
capitalization at September 30, 1997.

New construction, normal system maintenance and improvements, and
information technology investments needed to provide service to a
growing customer base will continue to require substantial
expenditures. Total capital required to fund capital expenditures
and refinancing requirements for 1996 and 1997, along with
estimated amounts for 1998 through 2000, is as follows:

<TABLE>

Thousands 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
Capital expenditures $66,000 $72,000 $56,000 $58,000 $59,000
Refinancing requirements 19,000 - 35,000 10,000 -
$85,000 $72,000 $91,000 $68,000 $59,000

</TABLE>

Indiana Gas' long-term goal is to internally fund at least 75
percent of its capital expenditure program. This will help Indiana
Gas to maintain its high creditworthiness. The long-term debt of
Indiana Gas is currently rated Aa3 by Moody's Investors Service and
AA- by Standard & Poor's Corporation. In 1997, 58 percent of
Indiana Gas' capital expenditures was funded internally (i.e. from
utility income less dividends plus charges to utility income not
requiring funds). In 1996, 70 percent of capital expenditures was
provided by funds generated internally. External funds required for
the 1997 construction program were obtained primarily through a
combination of short-term and long-term debt. Indiana Gas' ratio
of earnings to fixed charges was 2.2 for 1997. Before
restructuring costs, Indiana Gas' ratio of earnings to fixed
charges for 1997 was 4.4. (see Exhibit 12).

During July 1997, Indiana Gas issued $15 million in aggregate
principal amount of its Medium-Term Notes, Series E as follows:
$5.0 million of 6.42% Notes due July 7, 2027; $3.5 million of 6.68%
Notes due July 7, 2027; and $6.5 million of 6.54% Notes due July 9,
2007.

Provisions under which certain of Indiana Gas' Series E Medium-Term
Notes were issued entitle the holders of $30 million of these notes
to put the debt back to Indiana Gas at face value at a specified
date before maturity beginning in 2000. Long-term debt subject to
the put provisions during the three years following 1997 totals $5
million.

As of September 30, 1997, Indiana Gas had IURC authority to issue
up to $95 million in additional debt securities. In October 1997,
Indiana Gas filed a registration statement with the Securities and
Exchange Commission with respect to the issuance of up to $95
million in debt securities and in November 1997 filed a prospectus
supplement with respect to $95 million in Medium-Term Notes, Series
F. In December 1997, Indiana Gas issued under this registration
statement $35 million in aggregate principal amount of its Medium-
Term Notes, Series F as follows: $20 million of 6.34% Notes due
December 10, 2027; and $15 million of 6.36% Notes due December 6,
2004. The net proceeds from the sale of these new debt securities
and the July 1997 sale of Series E Notes will be used to refinance
certain of Indiana Gas' long-term debt issues and to refinance
short-term obligations incurred in connection with Indiana Gas'
ongoing construction program and other corporate purposes.

In December 1997, Indiana Gas also retired $35 million of 6 5/8%
Series D Notes and called $24.7 million of 8 1/2% Series B
Debentures. Indiana Gas' 8.90% Notes will mature in July 1999.

Short-term cash working capital is required primarily to finance
customer accounts receivable, unbilled utility revenues resulting
from cycle billing, gas in underground storage and capital
expenditures until permanently financed. Short-term borrowings tend
to be greatest during the heating season when accounts receivable
and unbilled utility revenues are at their highest. Indiana Gas'
commercial paper is rated P-1 by Moody's and A-1+ by Standard &
Poor's. Recently, bank lines of credit have been the primary
source of short-term financing.

Forward-Looking Information
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995.

A "safe harbor" for forward-looking statements is provided by the
Private Securities Litigation Reform Act of 1995 (Reform Act of
1995). The Reform Act of 1995 was adopted to encourage such forward-
looking statements without the threat of litigation, provided those
statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that
could cause the actual results to differ materially from those
projected in the statement. Certain matters described in
Management's Discussion and Analysis of Results of Operations and
Financial Condition, including, but not limited to, Indiana
Energy's new earnings growth strategy, are forward-looking
statements. Such statements are based on management's beliefs, as
well as assumptions made by and information currently available to
management. When used in this filing the words "aim," "anticipate,"
"endeavor," "estimate," "expect," "objective," "projection,"
"forecast," "goal," and similar expressions are intended to
identify forward-looking statements. In addition to any assumptions
and other factors referred to specifically in connection with such
forward-looking statements, factors that could cause Indiana
Energy's actual results to differ materially from those
contemplated in any forward-looking statements include, among
others, the following:

Factors affecting utility operations such as unusual weather
conditions; catastrophic weather-related damage; unusual
maintenance or repairs; unanticipated changes to gas supply
costs, or availability due to higher demand, shortages,
transportation problems or other developments; environmental
or pipeline incidents; or gas pipeline system constraints.

Increased competition in the energy environment, including
effects of industry restructuring and unbundling.

Regulatory factors such as unanticipated changes in rate-
setting policies or procedures; recovery of investments
made under traditional regulation, and the frequency and
timing of rate increases.

Financial or regulatory accounting principles or policies
imposed by the Financial Accounting Standards Board, the
Securities and Exchange Commission, the Federal Energy
Regulatory Commission, state public utility commissions,
state entities which regulate natural gas transmission,
gathering and processing, and similar entities with
regulatory oversight.

Economic conditions including inflation rates and monetary
fluctuations.

Changing market conditions and a variety of other factors
associated with physical energy and financial trading
activities, including, but not limited to, price, basis,
credit, liquidity, volatility, capacity, interest rate and
warranty risks.

Availability or cost of capital, resulting from changes in:
Indiana Energy, interest rates, and securities ratings or
market perceptions of the utility industry and energy-related
industries.

Employee workforce factors, including changes in key executives,
collective bargaining agreements with union employees or work
stoppages.

Legal and regulatory delays and other obstacles associated with
mergers, acquisitions and investments in joint ventures such as
the ProLiance complaint proceeding.

Costs and other effects of legal and administrative proceedings,
settlements, investigations, claims and other matters, including,
but not limited to, those described in the Other Operating Matters
section of Management's Discussion and Analysis of Results of
Operations and Financial Condition.

Changes in Federal, state or local legislative requirements, such
as changes in tax laws or rates, environmental laws and
regulations.

Indiana Energy and Indiana Gas undertake no obligation to publicly
update or revise any forward-looking statements, whether as a
result of changes in actual results, changes in assumptions, or
other factors affecting such statements.

Item 8. Financial Statements and Supplementary Data

Management's Responsibility for Financial Statements

The management of the company is responsible for the preparation of
the consolidated financial statements and the related financial
data contained in this report. The financial statements are
prepared in conformity with generally accepted accounting
principles and follow accounting policies and principles applicable
to regulated public utilities.

The integrity and objectivity of the data in this report, including
required estimates and judgments, are the responsibility of
management. Management maintains a system of internal controls and
utilizes an internal auditing program to provide reasonable
assurance of compliance with company policies and procedures and
the safeguard of assets.

The board of directors pursues its responsibility for these
financial statements through its audit committee, which meets
periodically with management, the internal auditors and the
independent auditors, to assure that each is carrying out its
responsibilities. Both the internal auditors and the independent
auditors meet with the Audit Committee of the company's board of
directors, with and without management representatives present, to
discuss the scope and results of their audits, their comments on
the adequacy of internal accounting controls and the quality of
financial reporting.

/s/ Niel C. Ellerbrook
Niel C. Ellerbrook
President

Report of Independent Public Accountants

To the Shareholders and Board of Directors of Indiana Gas Company,
Inc.:

We have audited the accompanying consolidated balance sheets and
schedules of long-term debt of Indiana Gas Company, Inc. (an
Indiana corporation and wholly owned subsidiary of Indiana Energy,
Inc.) and subsidiary companies as of September 30, 1997, and 1996,
and the related consolidated statements of income, common
shareholder's equity and cash flows for each of the three years in
the period ended September 30, 1997. These financial statements are
the responsibility of the company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Indiana
Gas Company, Inc. and subsidiary companies, as of September 30,
1997, and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended September 30,
1997, in conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP
Arthur Andersen LLP
Indianapolis, Indiana
October 31, 1997

<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME
(Thousands)

Year Ended September 30
1997 1996 1995
<S> <C> <C> <C>
OPERATING REVENUES $ 530,407 $ 530,594 $ 403,810
COST OF GAS (See Note 12) 322,522 320,131 218,495
MARGIN 207,885 210,463 185,315

OPERATING EXPENSES:
Other operation and maintenance 79,567 84,136 75,608
Restructuring costs (See Note 2) 39,531 - -
Depreciation and amortization 35,054 33,232 31,265
Income taxes 7,852 23,174 19,216
Taxes other than income taxes 16,870 16,368 13,038
178,874 156,910 139,127

OPERATING INCOME 29,011 53,553 46,188

OTHER INCOME - NET 832 888 1,423

INCOME BEFORE INTEREST AND OTHER 29,843 54,441 47,611

INTEREST AND OTHER CHARGES:
Interest on long-term debt 14,194 14,882 13,474
Interest on notes payable 1,597 337 971
Allowance for borrowed funds used
during construction (596) (283) (215)
Other interest 983 688 1,085
Other amortization 187 187 187
16,365 15,811 15,502

NET INCOME $ 13,478 $ 38,630 $ 32,109

The accompanying notes are an integral part of these statements.

</TABLE>

<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)

Year Ended September 30
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,478 $ 38,630 $ 32,109

Adjustments to reconcile net income to cash
provided from operating activities -
Noncash restructuring costs 32,838 - -
Depreciation and amortization 35,241 33,419 31,452
Deferred income taxes (12,618) 804 3,994
Investment tax credit (930) (930) (930)
54,531 33,293 34,516
Changes in assets and liabilities -
Receivables - net (10,524) (3,818) 3,634
Inventories 24,026 19,966 5,189
Accounts payable, customer deposits, advance
payments and other current liabilities (4,519) (13,658) 40,686
Accrued taxes and interest 4,528 (4,020) (12,375)
Recoverable/refundable gas costs (3,133) (7,593) (26,712)
Accrued postretirement benefits other than pensions 8,134 3,505 5,963
Other - net 900 2,275 7,666

Total adjustments 73,943 29,950 58,567

Net cash flows from operations 87,421 68,580 90,676

CASH FLOWS REQUIRED FOR FINANCING ACTIVITIES:
Sale of long-term debt 15,000 20,000 20,000
Reduction in long-term debt - (18,960) (3,158)
Net change in short-term borrowings (4,236) 22,011 (28,325)
Dividends on common stock (26,250) (25,250) (24,250)

Net cash flows required for financing activities (15,486) (2,199) (35,733)

CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
Capital expenditures (71,907) (66,381) (54,943)

Net cash flows required for investing activities (71,907) (66,381) (54,943)

NET INCREASE (DECREASE) IN CASH 28 - -

CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 20 20 20

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 48 $ 20 $ 20

The accompanying notes are an integral part of these statements.

</TABLE>

<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

ASSETS
(Thousands)

September 30
1997 1996
<S> <C> <C>
UTILITY PLANT:
Original cost $ 951,617 $ 931,092
Less - accumulated depreciation and amortization 361,936 344,268
589,681 586,824

NONUTILITY PLANT - NET 3 33

CURRENT ASSETS:
Cash and cash equivalents 48 20
Accounts receivable, less reserves of
$1,784 and $1,853 respectively (See Note 12) 25,186 15,468
Accrued unbilled revenues 8,964 8,158
Materials and supplies - at average cost 63 4,611
Liquefied petroleum gas - at average cost 872 507
Gas in underground storage - at last-in,
first-out cost 19,240 39,083
Recoverable gas costs 5,843 2,710
Prepayments and other 3,695 43
63,911 70,600

DEFERRED CHARGES:
Unamortized debt discount and expense 6,980 7,477
Other 5,144 7,973
12,124 15,450

$ 665,719 $ 672,907

The accompanying notes are an integral part of these statements.

</TABLE>

<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

SHAREHOLDER'S EQUITY AND LIABILITIES
(Thousands)

September 30
1997 1996
<S> <C> <C>
CAPITALIZATION:
Common stock and paid-in capital $ 142,995 $ 142,995
Retained earnings 125,767 138,539
Total common shareholder's equity 268,762 281,534
Long-term debt (see schedule) 154,733 174,733
423,495 456,267

CURRENT LIABILITIES:
Maturities and sinking fund requirements of long-term debt 35,000 -
Notes payable 20,000 24,236
Accounts payable (See Note 12) 39,456 49,402
Customer deposits and advance payments 20,405 14,256
Accrued taxes 8,659 4,206
Accrued interest 2,580 2,505
Other current liabilities 24,105 24,827
150,205 119,432

DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 55,205 66,862
Accrued postretirement benefits other than pensions 23,038 14,904
Unamortized investment tax credit 10,243 11,173
Regulatory income tax liability 1,874 2,835
Other 1,659 1,434
92,019 97,208

COMMITMENTS AND CONTINGENCIES (See Notes 9, 10 & 12) - -

$ 665,719 $ 672,907

The accompanying notes are an integral part of these statements.

</TABLE>

<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
(Thousands except shares)

COMMON STOCK AND
PAID-IN CAPITAL RETAINED
SHARES AMOUNT EARNINGS TOTAL
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 9,080,770 $ 142,995 $ 117,300 $ 260,295

Net income 32,109 32,109

Common stock dividends ($2.67 per share) (24,250) (24,250)

BALANCE AT SEPTEMBER 30, 1995 9,080,770 142,995 125,159 268,154

Net income 38,630 38,630

Common stock dividends ($2.78 per share) (25,250) (25,250)

BALANCE AT SEPTEMBER 30, 1996 9,080,770 142,995 138,539 281,534

Net income 13,478 13,478

Common stock dividends ($2.89 per share) (26,250) (26,250)

BALANCE AT SEPTEMBER 30, 1997 9,080,770 $ 142,995 $ 125,767 $ 268,762

The accompanying notes are an integral part of these statements.

</TABLE>

<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES

CONSOLIDATED SCHEDULES OF LONG-TERM DEBT
(Thousands)

September 30
1997 1996
<S> <C> <C>
LONG-TERM DEBT:
Unsecured Notes Payable
6 5/8% Series D, due December 1, 1997 $ 35,000 $ 35,000
8.90%, due July 15, 1999 10,000 10,000
6.54% Series E, due July 9, 2007 6,500 -
6.69% Series E, due June 10, 2013 5,000 5,000
7.15% Series E, due March 15, 2015 5,000 5,000
6.69% Series E, due December 21, 2015 5,000 5,000
6.69% Series E, due December 29, 2015 10,000 10,000
9 3/8%, due January 15, 2021 25,000 25,000
9 1/8% Series A, due February 15, 2021 40,000 40,000
8 1/2% Series B Debentures, due September 15, 2021 24,733 24,733
6.31% Series E, due June 10, 2025 5,000 5,000
6.53% Series E, due June 27, 2025 10,000 10,000
6.42% Series E, due July 7, 2027 5,000 -
6.68% Series E, due July 7, 2027 3,500 -
189,733 174,733

Less - Maturities and sinking fund requirements 35,000 -

$ 154,733 $ 174,733

The accompanying notes are an integral part of these statements.

</TABLE>

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Practices

A. Consolidation
Indiana Gas Company, Inc. and its subsidiaries (Indiana Gas or the
company) provide natural gas and transportation services to a
diversified base of customers in 281 communities in 48 of Indiana's
92 counties.

B. Utility Plant and Depreciation
Except as described below, utility plant is stated at the original
cost and includes allocations of payroll-related costs and
administrative and general expenses, as well as an allowance for
the cost of funds used during construction. Upon normal retirement
of a depreciable unit of property, the cost is credited to utility
plant and charged to accumulated depreciation together with the
cost of removal, less any salvage. No gain or loss is recognized
upon normal retirement.

Provisions for depreciation of utility property are determined by
applying straight-line rates to the original cost of the various
classifications of property. The average depreciation rate was
approximately 4.1 percent for all periods reported.

Cost in excess of underlying book value of acquired gas
distribution companies is reflected as a component of utility plant
and is being amortized primarily over 40 years.

C. Unamortized Debt Discount and Expense
Indiana Gas was authorized as part of an August 17, 1994 order from
the Indiana Utility Regulatory Commission (IURC) to amortize over a
15-year period the debt discount and expense related to new debt
issues and future premiums paid for debt reacquired in connection
with refinancing. Debt discount and expense for issues in place
prior to this order are being amortized over the lives of the
related issues. Premiums paid prior to this order for debt
reacquired in connection with refinancing are being amortized over
the life of the refunding issue.

D. Cash Flow Information
For the purposes of the Consolidated Statements of Cash Flows, the
company considers cash investments with an original maturity of
three months or less to be cash equivalents. Cash paid during the
periods reported for interest and income taxes were as follows:

<TABLE>

Thousands 1997 1996 1995
<S> <C> <C> <C>
Interest (net of amount capitalized)$ 15,129 $ 15,435 $ 14,218
Income taxes $ 19,142 $ 29,451 $ 26,206

</TABLE>

E. Revenues
To more closely match revenues and expenses, Indiana Gas records
revenues for all gas delivered to customers but not billed at the
end of the accounting period.

F. Gas in Underground Storage
Gas in underground storage as of September 30, 1997, was $19.2
million compared to $39.1 million at September 30, 1996. This
decrease resulted primarily from Indiana Gas' replacement of
contract storage services with city gate delivery services.

Based on the average cost of purchased gas during September 1997,
the cost of replacing the current portion of gas in underground
storage exceeded last-in, first-out cost at September 30, 1997, by
approximately $11,204,000.

G. Refundable or Recoverable Gas Cost
The cost of gas purchased and refunds from suppliers, which differ
from amounts recovered through rates, are deferred and are being
recovered or refunded in accordance with procedures approved by the
IURC.

H. Allowance For Funds Used During Construction
An allowance for funds used during construction (AFUDC), which
represents the cost of borrowed and equity funds used for
construction purposes, is charged to construction work in progress
during the period of construction and the equity portion is
included in "Other Income - Net" on the Consolidated Statements of
Income. The portion related to borrowed funds is included in
"Interest and Other Charges." An annual AFUDC rate of 7.5 percent
was used for all periods reported.

The table below reflects the total AFUDC capitalized and the
portion of which was computed on borrowed and equity funds for all
periods reported.

<TABLE>

Thousands 1997 1996 1995
<S> <C> <C> <C>
AFUDC - borrowed funds $ 596 $ 283 $ 215
AFUDC - equity funds 487 232 176
Total AFUDC capitalized $1,083 $ 515 $ 391

</TABLE>

I. Reclassifications
Certain reclassifications have been made in the company's financial
statements of prior years to conform to the current year
presentation. These reclassifications have no impact on previously
reported net income.

J. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent 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.

2. Corporate Restructuring

In April 1997, the Board of Directors of Indiana Energy, Inc.
(Indiana Energy), Indiana Gas' parent, approved a new growth
strategy designed to support Indiana Energy's transition into a
more competitive environment.

For fiscal 1997, the Indiana Gas Board of Directors authorized
management to undertake the actions necessary and appropriate to
restructure Indiana Gas' operations and recognize a resulting
restructuring charge of $39.5 million ($24.5 million after tax) as
described below. These actions by Indiana Gas were consistent with
Indiana Energy's new growth strategy.

3. Regulatory Assets and Liabilities

Indiana Gas is subject to the provisions of Statement of Financial
Accounting Standards No. 71, Accounting for the Effects of Certain
Types of Regulation (SFAS 71). Regulatory assets represent probable
future revenue to Indiana Gas associated with certain costs which
will be recovered from customers through the ratemaking process.
Regulatory liabilities represent probable future reductions in
revenues associated with amounts that are to be credited to
customers through the ratemaking process. Regulatory assets and
liabilities reflected in the Consolidated Balance Sheet as of
September 30 (in thousands) relate to the following:

<TABLE>

Regulatory Assets 1997
<S> <C>
Postretirement benefits other than pensions $ 4,486
Unamortized debt discount and expense 4,849
Gas costs due from customers, net 5,843
Deferred acquisition costs 698
$ 15,876

Regulatory Liabilities
Amounts due to customers - income taxes, net $ 1,874
$ 1,874

</TABLE>

It is Indiana Gas' policy to continually assess the recoverability
of costs recognized as regulatory assets and the ability to
continue to account for its activities in accordance with SFAS 71,
based on the criteria set forth in SFAS 71. Based on current
regulation, Indiana Gas believes that its use of regulatory
accounting is appropriate. If all or part of Indiana Gas'
operations cease to meet the criteria of SFAS 71, a write-off of
related regulatory assets and liabilities would be required. In
addition, Indiana Gas would be required to determine any impairment
to the carrying costs of deregulated plant and inventory assets.

4. Short-Term Borrowings

Indiana Gas has available committed lines of credit of $60 million
with approximately $20 million outstanding at September 30, 1997.
These lines of credit are renewable annually and may be adjusted
quarterly as borrowings fluctuate with seasonal needs and other
short-term funding requirements. Indiana Gas' board of directors
has authorized borrowings of up to $150 million under bank lines of
credit. Indiana Gas has agreed to compensate the participating
banks with arrangements that vary from no commitment fees to a
combination of fees that are mutually agreeable. Notes payable to
banks bore interest at rates negotiated with the bank at the time
of borrowing.

Bank loans outstanding during the reported periods were as follows:

<TABLE>

Thousands 1997 1996 1995
<S> <C> <C> <C>
Outstanding at year end $20,000 $24,236 $ 2,225
Weighted average interest rates at year end 5.7% 5.4% 6.1%
Weighted average interest rates during the year 5.5% 5.7% 5.7%
Weighted average total outstanding during the year $28,959 $ 5,930 $16,578
Maximum total outstanding during the year $89,725 $28,150 $50,000

</TABLE>

5. Long-Term Debt

During July 1997, Indiana Gas issued $15 million in aggregate
principal amount of its Medium-Term Notes, Series E (Notes) as
follows: $5.0 million of 6.42% Notes due July 7, 2027; $3.5 million
of 6.68% Notes due July 7, 2027; and $6.5 million of 6.54% Notes
due July 9, 2007. The net proceeds from the sale of the Notes will
be used to refinance existing debt, to finance Indiana Gas'
continuing construction program and for other corporate purposes.

Consolidated maturities and sinking fund requirements on long-term
debt subject to mandatory redemption during the five years
following 1997 are $35,000,000 in 1998, $10,000,000 in 1999, none
in 2000 and 2001, and $4,500,000 in 2002.

Provisions under which certain of Indiana Gas' Series E Medium Term
Notes were issued entitle the holders of $30 million of these notes
to put the debt back to Indiana Gas at face value at a specified
date before maturity beginning in 2000. Long-term debt subject to
the put provisions during the five years following 1997 totals
$5,000,000 in 2000 and $11,500,000 in 2002.

6. Fair Value of Financial Instruments

The estimated fair values of the company's financial instruments
were as follows:

<TABLE>

September 30, 1997 September 30, 1996
Carrying Fair Carrying Fair
Thousands Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 48 $ 48 $ 20 $ 20
Notes payable $ 20,000 $ 20,000 $ 24,236 $ 24,236
Long-term debt (includes
amounts due within
one year) $189,733 $196,750 $174,733 $178,880

</TABLE>

Certain methods and assumptions must be used to estimate the fair
value of financial instruments. Because of the short maturity of
cash and cash equivalents and notes payable, the carrying amounts
approximate fair values for these financial instruments. The fair
value of the company's long-term debt was estimated based on the
quoted market prices for the same or similar issues or on the
current rates offered to the company for debt of the same remaining
maturities.

Under current regulatory treatment, call premiums on reacquisition
of long-term debt are generally recovered in customer rates over
the life of the refunding issue or over a 15-year period (see Note
1C). Accordingly, any reacquisition would not be expected to have a
material effect on the company's financial position or results of
operations.

7. Capital Stock

Indiana Gas has 16 million shares of authorized no par value common
stock.

Indiana Gas also has 4 million shares of authorized and unissued
preferred stock.

8. Retirement Plans and Other Postretirement Benefits

Through fiscal 1997, Indiana Gas had a defined contribution
retirement savings plan which is qualified under sections 401(a)
and 401(k) of the Internal Revenue Code. Under the terms of the
retirement savings plan, eligible participants may direct a
specified percentage of their compensation to be invested in shares
of Indiana Energy's common stock or various investment funds.
Participants in the retirement savings plan have, subject to
prescribed limitations, matching company contributions made to the
plan on their behalf, plus a year-end lump sum company
contribution. During 1997, 1996 and 1995, Indiana Gas made
contributions of $2,360,000, $2,445,000 and $2,335,000,
respectively.

Through fiscal 1997, Indiana Gas also had two non-contributory
defined benefit retirement plans that cover all employees meeting
certain minimum age and service requirements. One plan is designed
for the non-bargaining employees and the other is designed for
employees covered by a collective bargaining agreement. Benefits
are determined by a formula based on the employee's base earnings,
years of participation in the plan and the employee's age at
retirement.

The Indiana Gas defined benefit retirement plan assets are under
custody of trustees and consist of actively managed stock and bond
portfolios, as well as short-term investments. It is Indiana Gas'
funding policy to maintain the pension plans on an actuarially
sound basis. Under this policy, funding was $350,000 in 1997,
$464,000 in 1996 and $143,000 in 1995.

Through fiscal 1997, Indiana Gas had an unfunded supplemental
retirement plan for certain management employees. Benefits are
determined by a formula based on 65 percent of the participant's
average monthly earnings, less benefits received under the
company's pension and savings plans and the participant's primary
Social Security benefits.

Effective October 1, 1997, sponsorship of the retirement plans
mentioned above, with the exception of the defined benefit
retirement plan for bargaining employees, was transferred to
Indiana Energy. Other than sponsorship of the plans, they remain
unchanged in all material respects.

The calculation of pension expense is as follows:

<TABLE>

Thousands 1997 1996 1995
<S> <C> <C> <C>
Pension benefits earned during the period $ 1,268 $ 1,174 $ 1,086
Interest accrued on projected pension
benefit obligation 4,847 4,730 4,554
Actual return on pension plan assets (16,013) (10,244) (9,632)
Net amortization, deferral and other 9,982 4,634 4,698
Total pension expense $ 84 $ 294 $ 706

</TABLE>

The following table reconciles the plans' funded status at
September 30 with amounts recorded in Indiana Gas' financial
statements. Certain assets and obligations of the plans have been
deferred and recognized in the financial statements in subsequent
periods.

<TABLE>

Thousands 1997 1996
<S> <C> <C>
Actuarial present value of pension benefits:
Vested benefits $ 57,337 $ 54,637
Nonvested benefits 164 159
Effect of future salary increases 8,476 8,167
Projected pension benefit obligation 65,977 62,963
Plan assets at fair value 87,801 75,748
Plan assets in excess of projected
pension benefit obligation at September 30 21,824 12,785
Unrecognized adjusted prior service costs 2,526 1,966
Unrecognized net assets at date of initial
application (1,515) (1,776)
Unrecognized net (gain) loss and other (19,378) (13,333)
Prepaid (accrued) pension cost at September 30 $ 3,457 $ (358)

</TABLE>

The weighted-average discount rate used in determining the
actuarial present value of the SFAS 87 projected benefit obligation
was 7.75 percent in 1997 and 8 percent in 1996. For 1997 and 1996,
the expected long-term rate of return on assets used was 9 percent
and the average rate of increase in future compensation levels used
ranged from 5 to 5.5 percent. The average future service of plan
participants used to compute amortization of the net assets
existing at the date of initial application of SFAS 87 is
approximately 17 years.

Through fiscal 1997, Indiana Gas also had a postretirement health
care and life insurance benefit plan provided to full-time
employees who have completed 10 years of service and retire from
the company. The plan pays stated percentages of most reasonable
and necessary medical expenses incurred by retirees, after
subtracting payments by other providers and after a stated
deductible has been met. The plan also contains cost-sharing
provisions (added in fiscal 1995) whereby employees retiring after
January 1, 1996, are required to make contributions to the plan
when increases in the company's health care costs exceed the
general rate of inflation, as measured by the Consumer Price Index
(CPI). These postretirement benefits are principally self-insured.
Currently, this postretirement plan is not funded. Effective
October 1, 1997, sponsorship of this plan was transferred to
Indiana Energy. Other than sponsorship of the plan, it remains
unchanged in all material respects.

On May 3, 1995, the IURC issued an order authorizing Indiana Gas to
recover the costs related to postretirement benefits other than
pensions under the accrual method of accounting consistent with
Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions (SFAS
106). The Office of the Utility Consumer Counselor appealed the
order, however, on January 21, 1997, the Indiana Court of Appeals
affirmed the IURC decision authorizing recovery. Amounts accrued
prior to the order were deferred as allowed by the IURC (see Note 3).

Postretirement benefit cost, excluding the curtailment loss in
1997, consisted of the following components:

<TABLE>

Thousands 1997 1996 1995
<S> <C> <C> <C>
Service cost - benefits attributed to
service during the period $ 770 $ 806 $ 1,423
Interest cost on accumulated
postretirement obligation 3,311 3,264 4,186
Amortization of transition obligation 2,280 2,280 2,772
Amortization of net(gain)loss and other 1,397 978 (4,543)
Total postretirement benefit cost $ 7,758 $ 7,328 $ 3,838

</TABLE>

The following table reconciles the plan's funded status to the
accrued postretirement benefit cost as reflected on the balance
sheet as of September 30, 1997, and 1996:

<TABLE>

Thousands 1997 1996
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees and dependents $ 24,811 $ 27,903
Other fully eligible participants 8,599 7,194
Other active participants 9,473 9,973
Total accumulated postretirement benefit obligation 42,883 45,070
Fair value of plan assets - -
Accumulated postretirement benefit obligation
in excess of plan assets (42,883) (45,070)
Unrecognized net (gain) loss (11,441) (8,599)
Unrecognized transition obligation 31,286 38,765
Accrued postretirement benefit
cost at September 30 $(23,038) $(14,904)

</TABLE>

The assumed health care cost trend rate for medical gross eligible
charges used in measuring the accumulated postretirement benefit
obligation as of September 30, 1997, was 7.5 percent for fiscal
1998. This rate is assumed to decrease gradually through fiscal
2003 to 5.5 percent and remain at that level thereafter. The
assumed CPI rate, relating to the plan's cost sharing provisions
for retirees, was 3.5 percent. A 1-percent increase in the assumed
health care cost trend rates for each future year produces
approximately a $1.0 million increase in the accumulated
postretirement benefit obligation as of September 30, 1997, and
approximately a $100,000 increase in the annual aggregate of the
service and interest cost components of postretirement benefit
cost. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.75 percent in
1997 and 8 percent in 1996.

9. Commitments

Estimated capital expenditures for 1998 are $56 million. Total
lease expense was $2,200,000 in 1997, $2,863,000 in 1996 and
$2,811,000 in 1995.

Lease commitments are $1,121,000 in 1998, $594,000 in 1999,
$425,000 in 2000, $361,000 in 2001, $329,000 in 2002 and $10,000 in
total for all later years. There are no leases that extend beyond
2036. Indiana Gas has storage and supply contracts that range from
one month to five years.

10. Environmental Costs

In the past, Indiana Gas and others, including former affiliates,
and/or previous landowners, operated facilities for the
manufacturing of gas and storage of manufactured gas. These
facilities are no longer in operation and have not been operated
for many years. In the manufacture and storage of such gas, various
byproducts were produced, some of which may still be present at the
sites where these manufactured gas plants and storage facilities
were located. Management believes, and the IURC has found that,
those operations were conducted in accordance with the then-
applicable industry standards. However, under currently applicable
environmental laws and regulations, Indiana Gas, and the others,
may now be required to take remedial action if certain byproducts
are found above a regulatory threshold at these sites.

Indiana Gas has identified the existence, location and certain
general characteristics of 26 gas manufacturing and storage sites.
Removal activities have been conducted at several sites and a
remedial investigation/feasibility study (RI/FS) is nearing
completion at one of the sites under an agreed order between
Indiana Gas and the Indiana Department of Environmental Management.
Indiana Gas and others continue to assess, on a site-by-site basis,
whether any of the remaining sites require remediation, to what
extent it is required and the estimated cost. Preliminary
assessments (PAs) have been completed on all of the sites. Site
investigations (SIs) and supplemental site investigations (SSIs)
have been conducted at a number of the sites. Based upon the site
work completed to date, Indiana Gas believes that a level of
contamination that may require some level of remedial activity may
be present at a number of the sites. Although Indiana Gas has not
begun an RI/FS at additional sites, Indiana Gas is currently
conducting groundwater monitoring at certain sites where deemed
appropriate and will continue its evaluation of the sites as
appropriate and necessary.

Based upon the work performed to date, Indiana Gas has accrued
remediation and related costs for the sites where remedial
activities have taken place. PA/SI, SSI and groundwater monitoring
costs have been accrued for the remaining sites where appropriate.
Estimated costs of certain remedial actions that may likely be
required have also been accrued. Costs associated with
environmental remedial activities are accrued when such costs are
probable and reasonably estimable. Indiana Gas does not believe it
can provide an estimate of the reasonably possible total
remediation costs for any site prior to completion of an RI/FS and
the development of some sense of the timing for implementation of
the potential remedial alternatives, to the extent such remediation
is required. Accordingly, the total costs which may be incurred in
connection with the remediation of all sites, to the extent
remediation is necessary, cannot be determined at this time.

Indiana Gas has been pursuing recovery from three separate sources
for the costs it has incurred and expects to incur relating to the
26 sites. Those sources are insurance carriers, potentially
responsible parties (PRPs) and recovery through rates from retail
gas customers.

Indiana Gas has also completed the process of identifying PRPs for
each site. With the help of outside counsel, Indiana Gas has
prepared estimates of the PRPs' share of environmental liabilities
which may exist at each of the sites based on equitable principles
derived from case law or applied by parties in achieving
settlements. PRPs include two financially viable utilities, PSI
Energy, Inc. (PSI) and Northern Indiana Public Service Company
(NIPSCO). On August 12, 1997, Indiana Gas and PSI signed an
agreement with respect to thirteen of the nineteen sites where PSI
is a PRP, which provides for an equal sharing between Indiana Gas
and PSI of past and future response costs at the thirteen sites.
Indiana Gas and PSI must jointly approve future management of the
sites and the decisions to spend additional funds. Indiana Gas
previously entered into an agreement with PSI providing for the
sharing of costs related to another site. Five other sites are
already the subject of an agreement between Indiana Gas and NIPSCO
which provides for coordination of efforts and sharing of
investigation and clean-up costs incurred and to be incurred at the
sites. Indiana Gas further expects in the near future to commence
negotiations with PSI and NIPSCO regarding these five sites for the
purpose of including PSI in the Indiana Gas-NIPSCO agreement. The
PSI and NIPSCO agreements, as well as the cost sharing estimates of
other PRPs, have been utilized by Indiana Gas to record a
receivable from PRPs for their share of the liability for work
performed by Indiana Gas to date, as well as to accrue Indiana Gas'
proportionate share of the estimated cost related to work not yet
performed.

On April 14, 1995, Indiana Gas filed suit in the United States
District Court for the Northern District of Indiana, Fort Wayne
Division (the Court) against a number of insurance carriers for
payment of claims for investigation and clean-up costs already
incurred, as well as for a determination that the carriers are
obligated to pay these costs in the future. On October 2, 1996, the
Court granted several motions filed by defendant insurance carriers
for summary judgment on a number of issues relating to the
insurers' obligations to Indiana Gas under insurance policies
issued by these carriers. For example, the Court held that because
the placement of residuals on the ground at the sites was done
intentionally, there was no "fortuitous accident" and therefore no
"occurrence" subject to coverage under the relevant policies.
Based on discussions with counsel, the management of Indiana Gas
believes that a number of the Court's rulings are contrary to
Indiana law and has appealed all adverse rulings to the United
States Court of Appeals for the Seventh Circuit. However, if these
rulings are not reversed on appeal, they would effectively
eliminate coverage under most of the policies at issue. There can
be no assurance as to whether Indiana Gas will prevail on this
appeal. As of September 30, 1997, Indiana Gas has obtained
settlements from some insurance carriers in an aggregate amount of
approximately $14.7 million.

The impact on Indiana Gas' financial position and results of
operations of complying with federal, state and local environmental
regulations related to former manufactured gas plant sites is
contingent upon several uncertainties. These include the costs of
any compliance activities which may occur and the timing of the
actions taken, as well as the outcome of the appeal of the summary
judgment rulings issued in favor of the insurers in the insurance
litigation described above. Although Indiana Gas will endeavor to
manage the manufactured gas plant remediation program so that any
amounts received will be sufficient to fund environmental costs,
there can be no assurance that in the future, environmental costs
will not exceed related recoveries.

11. Income Taxes

Indiana Energy, Inc. and subsidiary companies file a consolidated
federal income tax return. Indiana Gas' current and deferred tax
expense is computed on a separate company basis. The components of
consolidated income tax expense for Indiana Gas, including amounts
in "Other Income - Net" on the Consolidated Statements of Income,
were as follows:

<TABLE>

Thousands 1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $17,817 $19,587 $13,367
State 2,878 3,107 2,199
20,695 22,694 15,566
Deferred:
Federal (11,678) 709 3,652
State (940) 95 342
(12,618) 804 3,994
Amortization of investment
tax credits (930) (930) (930)
Consolidated income tax
expense $ 7,147 $22,568 $18,630

</TABLE>

The recording of restructuring costs of $39.5 million in 1997 had
the effect of decreasing deferred income tax expense by
approximately $15.0 million.

Effective income tax rates were 34.65 percent, 36.88 percent and
36.72 percent of pretax income for 1997, 1996 and 1995,
respectively. This compares with a combined federal and state
income tax statutory rate of 37.93 percent for all years reported.
Individual components of these rate differences are not significant
except investment tax credit which amounted to (4.5%) in 1997,
(1.5%) in 1996 and (1.8%) in 1995.

As required by the IURC, Indiana Gas uses a normalized method of
accounting for deferred income taxes. Deferred income taxes reflect
the net tax effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Deferred income taxes
are provided for taxes not currently payable due to, among other
things, the use of various accelerated depreciation methods,
shorter depreciable lives and the deduction of certain construction
costs for tax purposes. Taxes deferred in prior years are being
charged and income credited as these tax effects reverse over the
lives of the related assets.

Significant components of Indiana Gas' net deferred tax liability
as of September 30, 1997, and 1996 are as follows:

<TABLE>

Thousands 1997 1996
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation $ 51,413 $ 48,009
Property basis differences 2,101 17,690
Acquisition adjustment 6,286 6,475
Other (1,645) (7,406)
Deferred tax assets:
Deferred investment tax credit (3,884) (4,237)
Regulatory income tax liability (711) (1,075)
Less deferred income taxes related
to current assets and liabilities 1,645 7,406
Balance as of September 30 $ 55,205 $ 66,862

</TABLE>

Investment tax credits have been deferred and are being credited to
income over the life of the property giving rise to the credit. The
Tax Reform Act of 1986 eliminated investment tax credits for
property acquired after January 1, 1986.

12. Affiliate Transactions

Indiana Energy Services, Inc. (IES), an indirect wholly owned
subsidiary of Indiana Energy (Indiana Gas' parent), provided
natural gas and related services to Indiana Gas from January 1,
1996, to March 31, 1996. Indiana Gas' purchases from IES for the
three months ended March 31, 1996, totalled $102.7 million.
ProLiance Energy, LLC (ProLiance), a nonregulated marketing
affiliate of Indiana Energy, assumed the business of IES effective
April 1, 1996, and is the supplier of gas and related services to
both Indiana Gas and Citizens Gas and Coke Utility (Citizens Gas).
Indiana Gas' purchases from ProLiance for resale and for injections
into storage for 1997 and 1996 totaled $306.1 million and $117.9
million, respectively.

On April 1, 1997, IGC Energy, an indirect wholly owned subsidiary
of Indiana Energy, and Citizens By-Products Coal Company, a wholly
owned subsidiary of Citizens Gas, formed CIGMA, LLC (CIGMA), a
jointly and equally owned limited liability company. CIGMA provides
materials acquisition and related services that are used by Indiana
Gas and Citizens Gas, as well as similar services for third
parties. Indiana Gas' purchases of these services during 1997,
totaled $9.6 million.

Indiana Gas also participates in a centralized cash management
program with its parent, affiliated companies and banks which
permits funding of checks as they are presented.

Amounts due affiliated companies, as well as checks written but not
cashed are reflected in Accounts Payable on the Consolidated
Balance Sheets. Amounts owed to affiliates totaled $36.3 million
and $35.5 million at September 30, 1997 and 1996, respectively.

Amounts due from affiliates totaled $11.6 million at September 30,
1997, and are included in Accounts Receivable on the Consolidated
Balance Sheet.

13. Summarized Financial Data (Unaudited)

Summarized quarterly financial data (in thousands of dollars) for
1997 and 1996 are as follows:

<TABLE>

1997: THREE MONTHS ENDED DEC. 31 MAR. 31 JUNE 30 SEP. 30(1)
<S> <C> <C> <C> <C>
Operating revenues $172,481 $215,695 $83,733 $ 58,498
Operating income (loss) 20,260 27,153 7,799 (26,201)
Net income (loss) 16,419 23,139 4,309 (30,389)

1996: THREE MONTHS ENDED DEC. 31 MAR. 31 JUNE 30 SEP. 30
Operating revenues $154,309 $222,553 $91,211 $ 62,521
Operating income (loss) 22,654 27,280 5,863 (2,244)
Net income (loss) 18,928 23,830 2,273 (6,401)

(1) Reflects the recording of restructuring costs of $39.5 million
($24.5 million after-tax), during the fourth quarter of fiscal
1997 (see Note 2).

Note: Because of the seasonal factors that significantly affect the
companies' operations, the results of operations for interim
periods within fiscal years are not comparable.

</TABLE>

Item 9. Changes in and Disagreements with Accountants

None.

Part III

Item 10. Directors and Executive Officers of the
Registrant

Except for the list of the executive officers, which
can be found in Part I, Item 4(a) of this report,
the information required to be shown in this part
for Item 10, Directors and Executive Officers of the
Registrant is incorporated by reference here from
the definitive proxy statement of the registrant's
parent company, Indiana Energy, Inc. That statement
was prepared according to Regulations 14A and S-K
and filed electronically with the Securities and
Exchange Commission on December 4, 1997. The
information is included in the report attached as
Exhibit 99.

Item 11. Executive Compensation

The information required to be shown in this part
for Item 11, Executive Compensation, is incorporated
by reference here from the definitive proxy
statement of the registrant's parent company,
Indiana Energy, Inc. That statement was prepared
according to Regulations 14A and S-K and filed
electronically with the Securities and Exchange
Commission on December 4, 1997. The information is
included in the report attached as Exhibit 99.

Contained in the Indiana Energy proxy statement,
Summary Compensation Table, Column C and Column D,
Salary Amounts and Bonus Amounts, are some
compensation dollars which are allocated to
subsidiaries of Indiana Energy other than Indiana
Gas. The named executives received the following
compensation, including Bonus, for the years ended
September 30, 1997, 1996 and 1995, as it relates to
only Indiana Gas.

<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Lawrence A. Ferger $575,144 $512,580 $460,979
Paul T. Baker 362,671 327,217 298,770
Niel C. Ellerbrook 291,194 238,213 215,314
Anthony E. Ard 207,087 171,448 159,667
Timothy M. Hewitt 187,487 168,065 156,452

</TABLE>

Item 12. Securities Ownership of Certain Beneficial
Owners and Management

The information required to be shown in this part
for Item 12, Securities Ownership of Certain
Beneficial Owners and Management, is incorporated by
reference here from the definitive proxy statement
of the registrant's parent company, Indiana Energy,
Inc. That statement was prepared according to
Regulations 14A and S-K and filed electronically
with the Securities and Exchange Commission on
December 4, 1997. The information is included in
the report attached as Exhibit 99.

Item 13. Certain Relationships and Related Transactions

The information required to be shown in this part
for Item 13, Certain Relationships and Related
Transactions is incorporated by reference here from
the definitive proxy statement of the registrant's
parent company, Indiana Energy, Inc. That statement
was prepared according to Regulations 14A and S-K
and filed electronically with the Securities and
Exchange Commission on December 4, 1997. The
information is included in the report attached as
Exhibit 99.

Part IV

Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K

The following documents are filed as part of this
report:

(a)-1 Financial Statements

Location in 10-K

Report of Independent Public Accountants Item 8

Consolidated Statements of Income - 1997,
1996 and 1995 Item 8

Consolidated Statements of Cash Flows - 1997,
1996 and 1995 Item 8

Consolidated Balance Sheets at September 30,
1997 and 1996 Item 8

Consolidated Statements of Common Shareholder's
Equity - 1997, 1996 and 1995 Item 8

Consolidated Schedules of Long-Term Debt
as of September 30, 1997 and 1996 Item 8

Notes to Financial Statements Item 8

(a)-2 Financial Statement Schedules

Report of Independent Public Accountants on Schedules

Schedule II. Valuation and Qualifying
Accounts - 1997, 1996 and 1995

(a)-3 Exhibits

See Exhibit Index

(b) Reports on Form 8-K

On July 31, 1997, Indiana Gas filed a Current Report on Form 8-
K to provide information related to the new growth strategy of
Indiana Energy, Inc., the parent of Indiana Gas. Items repo
rted include:
Item 5. Other Events
Information related to Indiana Energy, Inc.'s
new growth strategy.

On September 15, 1997, Indiana Gas filed a Current Report on
Form 8-K with respect to a press release (dated September 15,
1997), announcing the receipt by Indiana Gas of a ruling
issued by the IURC on September 12, 1997. The ruling
addressed a proceeding initiated by a small group of Indiana
Gas' and Citizens Gas' customers who contended that the gas
service contracts between ProLiance and Indiana Gas and
Citizens Gas should be disapproved by the IURC. Items
reported include:
Item 5. Other Events
Press release dated September 15, 1997.

On October 8, 1997, Indiana Gas filed a Current Report on Form
8-K with respect to the appeal by a small group of Indiana
Gas' and Citizens Gas' customers and the Office of Utility
Consumer Counselor of the IURC's September 12, 1997, decision
in the ProLiance complaint proceeding. Items reported
include:
Item 5. Other Events
Information related to the appeal of the IURC's
decision in the ProLiance complaint proceeding.

On October 31, 1997, Indiana Gas filed a Current Report on
Form 8-K with respect to a press release (dated October 31,
1997), announcing the recording of a restructuring charge by
Indiana Gas. Items reported include:
Item 5. Other Events
Press release dated October 31, 1997.

On November 14, 1997, Indiana Gas filed a Current Report on
Form 8-K which included the September 30, 1997, audited
Consolidated Financial Statements and Notes to Consolidated
Financial Statements of Indiana Energy and Subsidiary
Companies, as well as Management's Discussion and Analysis of
Results of Operations and Financial Condition (MD&A). Items
reported include:
Item 5. Other Events
Indiana Energy, Inc. and Subsidiary Companies'
September 30, 1997, audited Consolidated
Financial Statements and Notes, and MD&A.

On December 5, 1997, Indiana Gas filed a Current Form on 8-K
to file as Exhibit 4 thereto: Officers' Certificate with
respect to the establishment of the Medium Term Notes, Series
F (including Administrative Procedures and forms of Fixed Rate
Note and Floating Rate Note).

On December 5, 1997, Indiana Gas filed a Current Form on 8-K
to file as Exhibit 1 thereto: Distribution Agreement dated
November 19, 1997, among Indiana Gas Company, Inc. and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated.

EXHIBIT INDEX

Exhibit No. Description Reference

3-A Amended and Restated Exhibit 3-A to Indiana
Articles of Gas' Quarterly Report
Incorporation. on Form 10-Q for the
quarterly period ended
March 31, 1997.

3-B Amended and Restated Exhibit 3-B to Indiana
Code of By-Laws. Gas' Quarterly Report
on Form 10-Q for the
quarterly period ended
March 31, 1997.

4-A Indenture dated Exhibit 4(a) to
February 1, 1991, Indiana Gas Company,
between Indiana Gas Inc.'s Current Report
and Continental Bank, on Form 8-K dated
National Association. February 1, 1991, and
filed February 15,
1991; First
Supplemental Indenture
thereto dated as of
February 15, 1991,
(incorporated by
reference to Exhibit
4(b) to Indiana Gas
Company, Inc.'s
Current Report on Form
8-K dated February 1,
1991, and filed
February 15, 1991);
Second Supplemental
Indenture thereto
dated as of September
15, 1991,
(incorporated by
reference to Exhibit
4(b) to Indiana Gas
Company, Inc.'s
Current Report on Form
8-K dated September
15, 1991, and filed
September 25, 1991);
Third Supplemental
Indenture thereto
dated as of September
15, 1991 (incorporated
by reference to
Exhibit 4(c) to
Indiana Gas Company,
Inc.'s Current Report
on Form 8-K dated
September 15, 1991 and
filed September 25,
1991); Fourth
Supplemental
Indenture thereto
dated as of
December 2, 1992,
(incorporated by
reference
to Exhibit 4(b) to
Indiana
Gas Company, Inc.'s
Current Report on Form
8-K dated December 1,
1992, and filed
December 8, 1992);
Officers' Certificate
pursuant to Section
301 of the Indenture
dated as of
April 5, 1995,
(incorporated by
reference to Exhibit
4(a) to Indiana Gas
Company, Inc.'s
Current Report on Form
8-K dated and filed
April 5, 1995); and
Officers' Certificate
pursuant to Section
301 of the Indenture
dated as of November
19, 1997 (incorporated
by reference to
Exhibit 4 to Indiana
Gas Company, Inc.'s
Report on Form 8-K
dated November 19,
1997 and filed
December 5, 1997).

10-A Employment Agreement Exhibit 10-A to
between Indiana Indiana Energy's 1997
Energy, Inc. and Annual Report on Form
Lawrence A. Ferger 10-K.
effective October 1,
1997.

10-B Employment Agreement Exhibit 10-B to
between Indiana Indiana Energy's 1997
Energy, Inc. and Niel Annual Report on Form
C. Ellerbrook 10-K.
effective October 1,
1997.

10-C Employment Agreement Exhibit 10-C to
between Indiana Indiana Energy's 1997
Energy, Inc. and Paul Annual Report on Form
T. Baker effective 10-K.
October 1, 1997.

10-D Employment Agreement Exhibit 10-D to
between Indiana Indiana Energy's
Energy, Inc. and 1997 Annual Report on
Anthony E. Ard Form 10-K.
effective October 1,
1997.

10-E Termination Benefits Exhibit 10-E to
Agreement between Indiana Energy, Inc.'s
Indiana Energy, Inc. 1997 Annual Report on
and Lawrence A. Form 10-K.
Ferger as amended and
restated effective
October 1, 1997.

10-F Termination Benefits Exhibit 10-F to
Agreement between Indiana Energy, Inc.'s
Indiana Energy, Inc. 1997 Annual Report on
and Paul T. Baker as Form 10-K.
amended and restated
effective October 1,
1997.

10-G Termination Benefits Exhibit 10-G to
Agreement between Indiana Energy, Inc.'s
Indiana Energy, Inc. 1997 Annual Report on
and Niel C. Form 10-K.
Ellerbrook as amended
and restated
effective October 1,
1997.

10-H Termination Benefits Exhibit 10-H to
Agreement between Indiana Energy, Inc.'s
Indiana Energy, Inc. 1997 Annual Report on
and Anthony E. Ard as Form 10-K.
amended and restated
effective October 1,
1997.

10-I Termination Benefits Exhibit 10-I to
Agreement between Indiana Energy, Inc.'s
Indiana Energy, Inc. 1997 Annual Report on
and Timothy M. Hewitt Form 10-K.
as amended and
restated effective
October 1, 1997.

10-J Indiana Energy, Inc. Exhibit 10-J to
Unfunded Supplemental Indiana Energy, Inc.'s
Retirement Plan for a 1997 Annual Report on
Select Group of Form 10-K.
Management Employees
as amended and
restated effective
October 1, 1997.

10-K Indiana Energy, Inc. Exhibit 10-K to
Executive Indiana Energy, Inc.'s
Compensation Deferral 1997 Annual Report on
Plan as amended and Form 10-K.
restated effective
October 1, 1997.

10-L Indiana Energy, Inc. Exhibit 10-A to
Directors Indiana Energy's
Compensation Deferral Quarterly Report on
Plan as amended and Form 10-Q for the
restated effective quarterly period ended
May 1, 1997. June 30, 1997.

10-M Indiana Energy, Inc. Exhibit 10-M to
Executive Restricted Indiana Energy, Inc.'s
Stock Plan as amended 1997 Annual Report on
and restated Form 10-K.
effective October 1,
1997.

10-N Indiana Energy, Inc. Exhibit 10-D to
Annual Management Indiana Energy's 1987
Incentive Plan Annual Report on Form
effective October 1, 10-K.
1987.

10-O Indiana Energy, Inc. Exhibit 10-B to
Directors' Restricted Indiana Energy's
Stock Plan, as Quarterly Report on
amended and restated Form 10-Q for the
effective May 1, quarterly period ended
1997. June 30, 1997.

10-P Formation Agreement Exhibit 10-C to
among Indiana Energy, Indiana Energy's
Inc., Indiana Gas Quarterly Report on
Company, Inc., IGC Form 10-Q for the
Energy, Inc., Indiana quarterly period ended
Energy Services, March 31, 1996.
Inc., Citizens Gas &
Coke Utility,
Citizens Energy
Services Corporation
and ProLiance Energy,
LLC, effective March
15, 1996.

10-Q Gas Sales and Exhibit 10-C to
Portfolio Indiana Gas' Quarterly
Administration Report on Form 10-Q
Agreement between for the quarterly
Indiana Gas period ended March 31,
Company, Inc. and 1996.
ProLiance Energy,
LLC, effective
March 15, 1996,
for services to
begin April 1,
1996.

10-R Amended appendices to Filed herewith.
the Gas Sales and
Portfolio
Administration
Agreement between
Indiana Gas Company,
Inc. and ProLiance
Energy, LLC referred
to above in Exhibit
10-Q, effective
November 1, 1997.

10-S Exhibit 10-S schedules material gas contracts which
are in effect between Indiana Gas Company, Inc. and
suppliers other than its affiliate, ProLiance
Energy, LLC (ProLiance). The gas contracts within
each type are substantially identical in all
material respects and at least one of each type of
contract has been or is filed as indicated. The
schedule details all material aspects in which a
contract may differ from the contract filed.
Indiana Gas has assigned or released many of these
contracts to ProLiance pursuant to the Gas Sales and
Portfolio Administration Agreement between Indiana
Gas and ProLiance referred to above in Exhibits 10-Q
and 10-R.

<TABLE>

Exh Days of Effective Expir.
No. Type of Contract Supplier Contract No. Wthdrwl. Dth/Day Date Date Reference
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/93 Form
10-Q, File 1-6494:
10-S.1 Firm Transportation Panhandle Eastern P PLT011715 38,572 5/1/93 3/31/98 Exh. 10-B
10-S.2 Firm Transportation Panhandle Eastern P PLT011716 51,431 5/1/93 3/31/99 Exh. 10-A

10-S.3 Market Area - Panhandle Eastern P PLT 011719 30,113 5/1/93 3/31/98 1993 Form 10-K
Firm Transportation Exhibit 10-I.5,
File 1-6494.
10-S.4 Firm Transportation Texas Gas T3780 50,000 11/1/93 10/31/98 1993 Form 10-K
Exhibit 10-
I.7, File 1-6494.
10-S.5 No Notice Service Texas Gas N0420 41,687 11/1/93 10/31/98 1993 Form 10-K,
Exhibit 10-I.8,
File 1-6494.
10-S.6 No Notice Service Texas Gas N0325 56,793 11/1/93 10/31/00 See Exhibit 10-P.8
10-S.7 No Notice Service Texas Gas N0325 56,794 11/1/93 10/31/98 See Exhibit 10-P.8
10-S.8 No Notice Service Texas Gas N0325 56,794 11/1/93 10/31/99 See Exhibit 10-P.8

10-S.9 Firm Storage ANR T,E & S 05787 100 50,000 4/1/92 3/31/02 1992 Form 10-K,
Exh. 10-R, File
1-6494.

10-S.10 Firm Storage-Related ANR T,E & S 05788 50,000 4/1/92 3/31/02 1992 Form 10-K,
Transportation Exh. 10-S, File
1-6494.

10-S.11 Firm Natural Gas Tenneco NGFSA 9609 20,000 11/1/95 3/31/98 1995 Form 10-K, Exh.
Supply Gas Marketing 10-P.20, File 1-6494.
10-S.12 Firm Natural Gas Tenneco NGFSA 9619 16,000 11/1/95 3/31/98 1995 Form 10-K, Exh.
Supply Gas Marketing 10-P.21, File 1-6494.
10-S.13 Firm Natural Gas Tenneco NGFSA 9620 40,000 12/1/95 2/28/98 1995 Form 10-K, Exh.
Supply Gas Marketing 10-P.22, File 1-6494.

</TABLE>

12 Computation of Ratio of Earnings
to Fixed Charges Filed herewith.

21 Subsidiaries of Indiana Gas
Company, Inc. Filed herewith.

23 Consent of Independent Public
Accountants Filed herewith.

27 Financial Data Schedule Filed herewith.

99 Indiana Energy, Inc.'s (parent company)
Definitive Proxy Statement for Annual
Meeting of Shareholders to be held on
January 28, 1998. Filed herewith.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES

To Indiana Gas Company, Inc.:

We have audited in accordance with generally accepted
auditing standards, the consolidated financial statements included
in Item 8, in this Form 10-K, and have issued our report thereon
dated October 31, 1997. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The
schedules listed in Item 14(a)-2 are the responsibility of the
company's management and are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not
part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.

/s/ Arthur Andersen LLP
Arthur Andersen LLP

Indianapolis, Indiana
October 31, 1997

<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED SEPTEMBER 30, 1997
(Thousands)

Col. A Col. B Col. C Col. D Col. E Col. F
Additions Deductions
(1) (2)
For Purposes
Balance at Charged to For Which Balance at
September 30, Costs and Reserves Other September 30,
Description 1996 Expenses Other Were Created Changes 1997
<S> <C> <C> <C> <C> <C> <C>
RESERVE DEDUCTED FROM APPLICABLE
ASSETS:
Reserve for uncollectible accounts $ 1,853 $ 2,655 $ 0 $ 2,724 $ 0 $ 1,784

</TABLE>

<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED SEPTEMBER 30, 1996
(Thousands)

<S> <C> <C> <C> <C> <C> <C>
RESERVE DEDUCTED FROM APPLICABLE
ASSETS:
Reserve for uncollectible accounts $ 1,662 $ 3,803 $ 0 $ 3,612 $ 0 $ 1,853

</TABLE>

<TABLE>
INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED SEPTEMBER 30, 1995
(Thousands)

RESERVE DEDUCTED FROM APPLICABLE
ASSETS:
Reserve for uncollectible accounts $ 1,238 $ 3,690 $ 0 $ 3,266 $ 0 $ 1,662

</TABLE>

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

INDIANA GAS COMPANY, INC.

Dated December 17, 1997 /s/ Lawrence A. Ferger
Lawrence A. Ferger,
Chairman
and Chief 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.

Signature Title Date

/s/ Lawrence A. Ferger Chairman and December 17, 1997
Lawrence A. Ferger Chief Executive Officer

/s/ Niel C. Ellerbrook President and Director December 17, 1997
Niel C. Ellerbrook

/s/ Paul T. Baker Executive Vice President, December 17, 1997
Paul T. Baker Chief Operating Officer and
Director

/s/ Jerome A. Benkert Vice President and Controller December 17, 1997
Jerome A. Benkert

/s/ Loren K. Evans Director December 17, 1997
Loren K. Evans

/s/ Otto N. Frenzel III Director December 17, 1997
Otto N. Frenzel III

/s/ John E. Worthen Director December 17, 1997
John E. Worthen

IGC-Appendix A
Gas Sales And Portfolio Administration Agreement
Revised Page No. 1
November 1, 1997

APPENDIX A - Buyer's Primary Delivery Points
North/East System
<TABLE>

Delivery Point Delivery Point
<S> <C> <C> <C>
2509 Dana 010530070 Dunkirk
2510 Danville 032150100 Muncie
2515 Elwood 037045550 ANR Storage Facilities
2516 Fairmount ANRNNS NN Service Injection Points
2530 Noblesville PEPL IND GAS-INJ
2531 North Salem CGCU Points of Interconnection
2535 Richmond with Citizens Gas &
2538 Tipton Coke Utility
2576 Huntington
2597 Crawfordsville
2605 Upland
2684 Unionport
2751 Montpelier
2754 Sheridan
2757 Bloomingdale
2772 Newport
2780 Lebanon
2795 Anderson
2796 Zionsville
2812 Carpentersville
2822 Fowlerton
2823 Richmond
5233 Anderson 121N Rural
5530 Cent. Ind. Rurals
5531 West of Zionsville
5532 North of Zionsville
5534 East of King
5864 King
010530010 East Hancock School
010530030 Hope

</TABLE>
IGC-Appendix A
Gas Sales And Portfolio Administration Agreement
Revised Page No. 2
November 1, 1997

APPENDIX A - Buyer's Primary Delivery Points
Central/Terre Haute System
<TABLE>

Delivery Point
<S> <C>
14411 Bedford
14412 Bedford
14431 Columbus
14432 Columbus
14433 Columbus
14461 Bargersville
14463 Bargersville
14481 Mitchell
14482 Mitchell
14491 Needmore
14492 Needmore
14493 Needmore
14501 Seymour
14511 Waynesville
14512 Waynesville
14521 Rural (Mitchell)
14522 Rural (Martinsville)
14523 Rural (Terre Haute)
14531 Crane
14533 Crane
18421 Sand Cut
18422 Sand Cut
18423 Sand Cut
18424 Sand Cut

</TABLE>
IGC-Appendix A
Gas Sales And Portfolio Administration Agreement
Revised Page No. 3
November 1, 1997

APPENDIX A - Buyer's Primary Delivery Points
Central/Terre Haute System (Continued)

<TABLE>

Delivery Point
<S> <C>
18451 Clinton
18452 Clinton
18461 Hercules Clinton
18462 Hercules Clinton
18491 Terre Haute-2
18492 Terre Haute-2
18511 Terre Haute-4
18521 Stuckey Rd.
18522 Stuckey Rd.
18523 Stuckey Rd.
18531 Rural Ind.
18541 Terre Haute-6
18542 Terre Haute-6
18571 Magaret (Terre Haute)
18573 Magaret (Terre Haute)
037047100 West Shelbyville
CGCU Points of Interconnection with Citizens Gas &
Coke Utility
70018 TETCO Seymour

</TABLE>
IGC-Appendix A
Gas Sales And Portfolio Administration Agreement
Revised Page No. 4
November 1, 1997

APPENDIX A - Buyer's Primary Delivery Points
South System
<TABLE>
Delivery Point
<S> <C>
17031 Locust, KY
17032 Locust, KY
17041 Moorefield, In.
17042 Moorefield, In.
17251 Crestwood, KY
17252 Crestwood, KY

</TABLE>

Greensburg System
<TABLE>

Delivery Point
<S> <C>
70017 Greensburg
70940 Westport
TETCO TETCO Storage Facilities

</TABLE>

Amendment
Seller and Buyer agree that this Appendix A may be
amended as provided in this Agreement, which amendment
ultimately will be memorialized in a revised Appendix A.

PROLIANCE ENERGY, LLC INDIANA GAS COMPANY, INC.

By: /s/ Carl L. Chapman By: /s/ Timothy M. Hewitt
Carl L. Chapman Timothy M. Hewitt
Its: President Its: Vice President

IGC-Appendix B
Gas Sales And Portfolio Administration Agreement
Revised Page No. 1
November 1, 1997

APPENDIX B - Buyer's Maximum Quantities

Maximum Daily Quantities (in Dth)

<TABLE>
Central/
Month North/East Terre Haute South Greensburg
<S> <C> <C> <C> <C>
October 251,000 112,000 37,600 5,060
November 332,000 208,000 45,300 5,570
December 482,578 277,237 69,100 8,000
January 482,578 277,237 70,600 8,310
February 472,578 261,381 62,400 7,360
March 400,000 215,000 51,000 5,980
April 252,000 120,000 31,500 3,560
May 208,000 99,000 23,000 2,640
June 152,000 74,000 15,200 2,620
July 94,000 42,000 5,200 1,570
August 120,000 56,000 9,600 1,990
September 185,000 91,000 20,600 3,250

</TABLE>

<TABLE>

Maximum Seasonal Quantities (in Dth)

Central/
Month North/East Terre Haute South Greensburg
<S> <C> <C> <C> <C>
Summer 1997 11,202,130 5,850,260 1,676,840 267,145
Winter 1997-98 38,579,050 21,473,920 5,513,670 697,710

</TABLE>

IGC-Appendix B
Gas Sales And Portfolio Administration Agreement
Revised Page No. 2
November 1, 1997

APPENDIX B - Buyer's Maximum Quantities

Amendment
Seller and Buyer agree that this Appendix B may be
amended as provided in this Agreement, which amendment
ultimately will be memorialized in a revised Appendix B.

PROLIANCE ENERGY, LLC INDIANA GAS COMPANY, INC.

By: /s/ Carl L. Chapman By: /s/ Timothy M. Hewitt
Carl L. Chapman Timothy M. Hewitt
Its: President Its: Vice President

IGC-Appendix C
Gas Sales And Portfolio Administration Agreement
Revised Page No. 1
November 1, 1997

Appendix C - Portfolio Information

I. Contracts and Contract Rates
The applicable demand costs shall be determined based
upon the rates and charges specified in each Transporter's
Tariff, including any applicable direct bills, surcharges,
or as other costs specified by the sheets identified below,
or other applicable sheets, as all of those sheets may be in
effect from time to time, and costs arising under applicable
agreements, for the applicable term of these agreements,
including the agreements identified below, as well as this
Agreement. While Seller and Buyer agree that the identified
tariff sheets and agreements are intended to be a complete
listing of the applicable tariff sheets and applicable
agreements, they further agree that the omission of the
reference of one or more sheets or agreements from that list
will not affect Buyer's obligation to Seller for rates,
charges and costs incurred thereunder. Seller shall provide
to Buyer all Transporter refunds for the applicable terms
which are received by Seller relative to Contracts or
Contract Rates referenced below or relative to any
agreements referencing the contracts below.

<TABLE>
Contract No. Contract Rate
<S> <C>
11713 Sheet No. 11
11714 Sheet No. 5
11715 Sheet No. 5
11716 Sheet No. 5
11718 Sheet No. 5
11719 Tariff Letter
11720 Tariff Letter
11721 Sheet No. 5
03950 Sheet No. 5
Sheet No. 17
Sheet No. 17A
Sheet No. 18
32300 Sheet No. 10

</TABLE>

IGC-Appendix C
Gas Sales And Portfolio Administration Agreement
Revised Page No. 2
November 1, 1997

<TABLE>
Appendix C - Portfolio Information

Contract No. Contract Rate
<S> <C>
N0325 Sheet No. 10
T3780 Sheet No. 11
N0420 Sheet No. 10
T3739 Sheet No. 11
T9998 Sheet No. 11
800171 Sheet No. 35
830034 Sheet No. 30
400109 Sheet No. 43
WSS Appendix I
PSS Appendix I
WDS1 Appendix J.1
WDS2 Appendix J.2
WDS3 Appendix J.3
ADS1 Appendix K.1
ADS2 Appendix K.2
ADS3 Appendix K.3
</TABLE>

IGC-Appendix C
Gas Sales And Portfolio Administration Agreement
Revised Page No. 3
November 1, 1997

Appendix C - Portfolio Information

II. Transportation Credit

1. Seller shall provide to Buyer, as a credit against the
Contract Rates, a Transportation Credit ("TC") for the sale
from the Buyer to Seller of projected available annual
portfolio entitlements.

2. The Transportation Credit shall be calculated from time
to time to reflect changes in projected available annual
entitlements, based on the following formula:

TC = Base TC x Projected Available Annual Entitlements
Base Available Annual Entitlements

Where: a. Base TC = $1,864,290
b. Base Available Annual Entitlements = 35,843,831 Dth
c. Projected Available Annual Entitlements =
Total Entitlements - Normal Demand
(i) Total Entitlements are the sum of the quantities
of long haul pipeline transportation
entitlements reserved by Buyer.
(ii) Normal Demand is the projected normal weather
quantity of Buyer's firm longhaul pipeline
deliveries for firm customers.

3. The TC shall be divided among months based upon the
projected available monthly entitlements.

Amendment
Seller and Buyer agree that this Appendix C may be
amended from time to time by mutual agreement of the
Parties, which ultimately will be memorialized in a revised
Appendix C.

PROLIANCE ENERGY LLC INDIANA GAS COMPANY, INC.

By: /s/ Carl L. Chapman By: /s/ Timothy M. Hewitt
Carl L. Chapman Timothy M. Hewitt
Its: President Its: Vice President

IGC-Appendix D
Gas Sales And Portfolio Administration Agreement
Second Revised Page No. 1
November 1, 1997

APPENDIX D - Supplier Reservation Costs
Supplier Reservation Costs
November 1, 1997 through October 31, 1998

I. Reserved Commodity Quantities
a. Monthly Baseload Reserved Quantity (Dth/Day)

System
<TABLE>

Central/
Month North/East Terre Greensburg South
Haute
<S> <C> <C> <C> <C>
November, 1997 30,768 40,000 1,500 0
December, 1997 70,000 50,000 1,500 0
January, 1998 80,000 50,000 2,500 0
February, 1998 80,000 50,000 2,000 0
March, 1998 30,768 45,000 1,500 0
April, 1998 65,000 28,000 1,200 5,000
May, 1998 65,000 13,000 1,200 5,000
June, 1998 65,000 13,000 1,200 5,000
July, 1998 65,000 13,000 1,200 5,000
August, 1998 65,000 13,000 1,200 5,000
September, 1998 65,000 13,000 1,200 5,000
October, 1998 65,000 13,000 1,200 5,000

</TABLE>

Buyer and Seller agree that all or some portion of the
quantities identified as Monthly Baseload Reserved
Quantities may be provided at fixed or collared prices
mutually agreed upon pursuant to pricing for Other Purchases
under Appendix E.
IGC-Appendix D
Gas Sales And Portfolio Administration Agreement
Second Revised Page No. 2
November 1, 1997

APPENDIX D - Supplier Reservation Costs
b. Daily Swing Reserved Quantity (Dth/Day)

<TABLE>
System

Central/
Month North/East Terre Greensburg South
Haute
<S> <C> <C> <C> <C>
November, 1997 192,810 67,722 5,077 46,192
December, 1997 153,578 82,722 5,077 46,192
January, 1998 143,578 82,722 4,077 46,192
February, 1998 143,578 82,722 4,577 46,192
March, 1998 192,810 74,722 5,077 46,192
April, 1998 158,578 17,327 2,628 16,066
May, 1998 158,578 32,327 2,002 15,000
June, 1998 115,000 24,000 1,460 11,000
July, 1998 75,000 24,000 1,260 9,000
August, 1998 100,000 26,000 1,260 10,000
September, 1998 158,578 32,327 2,066 14,000
October, 1998 158,578 32,327 3,945 16,066
</TABLE>

II. Applicable Reservation Rates ($/Dth/Day)

<TABLE>

System Winter Months (Nov.-Mar.) Summer Months (Apr.-Oct.)
Monthly Daily Monthly Daily
Index Index Index Index
Reserved Reserved Reserved Reserved
Quantity Quantity Quantity Quantity
<S> <C> <C> <C> <C>
North/East $0.0238 $0.0190 $0.0128 $0.0185
Central/Terre $0.0068 $0.0234 $0.0154 $0.0169
Haute
Greensburg $0.0135 $0.0159 $0.0131 $0.0158
South $0.0068 $0.0234 $0.0154 $0.0169
</TABLE>

IGC-Appendix D
Gas Sales And Portfolio Administration Agreement
Second Revised Page No. 3
November 1, 1997

APPENDIX D - Supplier Reservation Costs

Assignment/Agency Administration of Supply Agreements
Buyer and Seller agree that quantities reserved under
supply reservation contracts entered into by Buyer prior to
April 1, 1996, and for which Seller has accepted assignment
or agency administration duties, shall be included in the
Reserved Commodity Quantities with Applicable Reservation
Rates as set forth in the original supply reservation
contracts.

Amendment
Seller and Buyer agree that this Appendix D may be
amended from time to time by mutual agreement of the
Parties, which ultimately will be memorialized in a revised
Appendix D.

PROLIANCE ENERGY, LLC INDIANA GAS COMPANY, INC.

By: /s/ Carl L. Chapman By: /s/ Timothy M. Hewitt
Carl L. Chapman Timothy M. Hewitt
Its: President Its: Vice President

IGC-Appendix E
Gas Sales And Portfolio Administration Agreement
Revised Page No. 1
November 1, 1997

Appendix E- Commodity Purchases

This Appendix E addresses the gas supply and other
variable costs applicable to Nominated Daily Quantities and
Balancing Quantities as identified below.

For Monthly Baseload Purchases:
Buyer shall pay to Seller each Contract Month an amount
determined by multiplying the monthly baseload quantities of
Gas scheduled for Buyer's purchase under this Agreement
during the Contract Month, by a price per MMBtu determined
using the first monthly index from Inside FERC's GAS MARKET
REPORT, in the table "PRICES OF SPOT GAS DELIVERED TO
INTERSTATE PIPELINES" for the applicable zone, specified
below, for the applicable month, plus all other applicable
variable costs as identified below shall apply.

For Daily Swing Purchases:
Buyer shall pay to Seller each Contract Month an amount
determined by summing all applicable "Daily Amounts" for the
Contract Month. A "Daily Amount" shall be calculated for
each day during the Contract Month for which daily swing
quantities of Gas have been confirmed for purchase. The
"Daily Amounts" shall be determined by multiplying (a) the
confirmed swing quantities of gas scheduled for the
particular day of the Contract Month, by (b) a price per
MMBtu determined using the Daily Midpoint Price reported in
Gas Daily, in the table "DAILY PRICE SURVEY", for the
applicable zone, specified below, for purchases for the
applicable day. As to any day for which Gas Daily for any
reason (e.g. holidays and weekends) does not publish the
above referenced prices, the applicable prices shall be that
utilized for the last prior day such is published. In
addition all other applicable variable costs as identified
below shall apply.

For Other Purchases:
For any purchases not covered by a specified pricing
method, or for fixed price quantities, pricing shall be as
negotiated and mutually agreed to in writing by the Parties.

For Summer Storage Refill:
For summer refill of leased storage, Buyer shall pay to
Seller an amount based on averaging the seven summer monthly
indices for the applicable supply area, and based upon
presuming storage refill quantities to be equally split
between the summer months. For summer refill of company
storage, the parties will agree on the extent to which an
index average method will be used, after consideration of
the operational scheduling needs of company storage. In
addition, all other applicable variable costs as identified
below shall apply.

IGC-Appendix E
Gas Sales And Portfolio Administration Agreement
Revised Page No. 2
November 1, 1997

Appendix E- Commodity Purchases

For Storage Withdrawals:
For quantities of storage withdrawals for which Buyer
has previously paid for commodity, applicable storage
withdrawal variable costs as identified below shall apply.

For Applicable Indices:

System Applicable Monthly Indices
North/East PEPL - Texas, Oklahoma
ANR - Louisiana
Central/Terre Haute Texas Gas - Zone 1
Texas Gas - Zone SL
South Texas Gas - Zone 1
Texas Gas - Zone SL
Greensburg TETCO - East Louisiana
TETCO - West Louisiana
TETCO - East Texas
TETCO - South Texas

IGC-Appendix E
Gas Sales And Portfolio Administration Agreement
Revised Page No. 3
November 1, 1997

APPENDIX E- Commodity Purchases
(Continued)

System Applicable Daily Indices
North/East PEPL - Oklahoma
ANR - Louisiana - Onshore South
Central/Terre Haute Texas Gas SL - Louisiana - Onshore South
Texas Gas (entire Z1) - East Texas -
North La. Area
South Texas Gas SL - Louisiana - Onshore South
Texas Gas (entire Z1) - East Texas -
North La. Area
Greensburg/Westport TETCO (ELA) - Louisiana - Onshore South
TETCO (WLA) - Louisiana - Onshore South
TETCO (ETX) - East Texas - North La. Area
TETCO (STX) - South - Corpus Christi

IGC-Appendix E
Gas Sales And Portfolio Administration Agreement
Revised Page No. 4
November 1, 1997

APPENDIX E- Commodity Purchases - Other Variable Costs

The other variable costs applicable to Nominated Daily
Quantities and Balancing Quantities shall be determined
based upon the rates and charges applicable under each
transporter's tariff, including the sheets identified below,
as well as other applicable sheets, as all of those sheets
may be in effect from time to time, and costs arising under
applicable agreements, including the agreements identified
below, as well as this Agreement.

<TABLE>

North/East
PEPL
Contract No. Contract Rate
<S> <C>
11713 Sheet No. 11
11714 Sheet No. 5
11715 Sheet No. 5
11716 Sheet No. 5
11717 Sheet No. 5
11719 Tariff Letter
11720 Tariff Letter
11721 Sheet No. 5
WSS Appendix I
PSS Appendix I
ADS1 Appendix K.1
ADS2 Appendix K.2
WDS1 Appendix J.1
WDS2 Appendix J.2
</TABLE>

IGC-Appendix E
Gas Sales And Portfolio Administration Agreement
Revised Page No. 5
November 1, 1997

APPENDIX E - Commodity Purchases - Other Variable Costs

<TABLE>

North/East
ANR
Contract No. Contract Rate
<S> <C>
03950 Sheet No. 5
Sheet No. 17
Sheet No. 17A
Sheet No. 19
32300 Sheet No. 10
Sheet No. 19
WDS2 Appendix J.2
ADS1 Appendix K.1

</TABLE>

<TABLE>

Central/Terre Haute System
Texas Gas Z-3
Contract No. Contract Rate
<S> <C>
N0325 Sheet No. 10
Sheet No. 14
T3780 Sheet No. 11A
Sheet No. 14
T9998 Sheet No. 11A
Sheet No. 14
PSS Appendix I
WDS2 Appendix J.2
ADS2 Appendix K.2
ADS3 Appendix K.3
</TABLE>

IGC-Appendix E
Gas Sales And Portfolio Administration Agreement
Revised Page No. 6
November 1, 1997

APPENDIX E - Commodity Purchases - Other Variable Costs

<TABLE>
South System
Texas Gas Z-4
Contract No. Contract Rate
<S> <C>
N0420 Sheet No. 10
T3739 Sheet No. 11A
ADS3 Appendix K.3
</TABLE>

<TABLE>
Greensburg System
Texas Eastern
Contract No. Contract Rate
<S> <C>
800171 Sheet No. 36
Sheet No. 126
Sheet No. 127
Sheet No. 128
Sheet No. 129
830034 Sheet No. 31
Sheet No. 126
Sheet No. 127
Sheet No. 128
Sheet No. 129
400109 Sheet No. 43
Sheet No. 126
Sheet No. 127
Sheet No. 128
Sheet No. 129
ADS2 Appendix K.2
ADS3 Appendix K.3
</TABLE>

While Seller and Buyer agree that the identified tariff
sheets and agreements are intended to be a complete listing
of the applicable tariff sheets and applicable agreements,
they further agree that the omission of the reference of one
or more sheets or agreements from that list will not affect
Buyer's obligation to Seller for rates, charges and costs
incurred thereunder.

IGC-Appendix E
Gas Sales And Portfolio Administration Agreement
Revised Page No. 7
November 1, 1997

APPENDIX E - Commodity Purchases - Other Variable Costs

Amendment
Seller and Buyer agree that this Appendix E may be
amended from time to time by mutual agreement of the
Parties, which ultimately will be memorialized in a revised
Appendix E.

PROLIANCE ENERGY, LLC INDIANA GAS COMPANY, INC.

By: /s/ Carl L. Chapman By: /s/ Timothy M. Hewitt
Carl L. Chapman Timothy M. Hewitt
Its: President Its: Vice President

IGC-Appendix G
Gas Sales And Portfolio Administration Agreement
Revised Page No. 1
November 1, 1997

G- Notices

Invoice Information:
Buyer: Seller:
Indiana Gas Company, Inc. J. Groth
Gas Control Department ProLiance Energy, LLC
Attn.: Chris Kershner 135 North Pennsylvania Street
1630 North Meridian Street Suite 800
Indianapolis, IN 46202 Indianapolis, IN 46204-2482
(317) 321-0583 (317) 231-6808

Payments:
Buyer: Seller:
National City Bank Key Bank
For the Account of: For the Account of:
Indiana Gas Company, Inc. ProLiance Energy, LLC
ABA #041001039
ACCT #6001805116

Supply Plans/Operational/Force Majeure:
Buyer: Seller:
Supply Plans Supply Plans
Chris Kershner Stephen Miner
(317) 321-0583 (317) 231-6828

Operational Operational
Randy Gary Stephen Miner
(317) 321-0507 (317) 231-6828
Force Majeure Force Majeure
Randy Gary (317) 321-0507 Brian Azman - (317) 231-6830
Frank Lindsey (317) 321-0334 Stephen Miner - (317) 231-6828
Gas Controller on Duty (317) 321-0535 John Talley - (317)231-6806
Indiana Gas Company, Inc. ProLiance Energy, LLC
1630 North Meridian Street 135 North Pennsylvania Street
Indianapolis, IN 46202 Suite 800
(317) 321-0787 (Telecopy) Indianapolis, Indiana 46204-2482
(317) 231-6901 (Telecopy)
All Other Notices:
Buyer: Seller:
Gas Control Department ProLiance Energy , LLC
Attn.: Randy Gary Attn: John R. Talley
1630 North Meridian Street 135 North Pennsylvania Street
Indianapolis, IN 46202 Suite 800
Indianapolis, Indiana 46204-2482

IGC-Appendix G
Gas Sales And Portfolio Administration Agreement
Revised Page No. 2
November 1, 1997

APPENDIX G- Notices
(Continued)
Amendment
Seller and Buyer agree that this Appendix G may be
amended from time to time as provided in this Agreement,
which amendment ultimately will be memorialized in a revised
Appendix G.

PROLIANCE ENERGY, LLC INDIANA GAS COMPANY, INC.

By: /s/ Carl L. Chapman By: /s/ Timothy M. Hewitt
Carl L. Chapman Timothy M. Hewitt
Its: President Its: Vice President

IGC-Appendix J.1
Gas Sales And Portfolio Administration Agreement
Revised Page No. 1
Supersedes Appendix J
November 1, 1997

APPENDIX J.1 - Winter Delivery Service

Winter Delivery Service ("WDS1")

1. Seller shall provide Buyer with WDS1 with the
following delivered service entitlements:

<TABLE>
Contract Month Maximum Daily WDS1 Maximum Annual WDS1
<S> <C> <C>
October* 10,000 Dth/day

November 50,000 Dth/day 4,000,000 Dth during any

December 50,000 Dth/day winter period.

January 50,000 Dth/day

February 50,000 Dth/day

March 50,000 Dth/day

April* 10,000 Dth/day

</TABLE>

2. Buyer shall pay Seller as follows:

a. For WDS1 Commodity:
Summer purchase quantities will be determined
jointly by the parties prior to April 1 of
each year. During each summer month, Buyer
shall pay Seller one seventh of the summer
purchase quantity times the PEPL Monthly
Index price.

b. For WDS1 Variable Costs:
PEPL Variable Cost Rates and Fuels under
Contract Nos. 015333, 015335, 015332, 015334,
015347, and 015344.

c. For WDS1 Demand Costs:
PEPL Demand Costs under Contract Nos. 015333,
015335, 015332, 015334, 015347, and 015344
and other applicable pipeline costs, if any,
as billed.

* Subject to nomination and availability within Maximum
Annual WDS1.

IGC-Appendix J.1
Gas Sales And Portfolio Administration Agreement
Revised Page No. 2
Supersedes Appendix J
November 1, 1997

3. This WDS1 service expires March 31, 2000.

4. WDS1 shall be subject to the provisions of service
reflected in Contract Nos. 015332, 015333, 015334, 015335,
015344, and 015347 as well as applicable FERC tariffs.

5. Additionally, Seller will provide Buyer a 10,000
Dth/Day point balancing service.

Amendment

Seller and Buyer agree that this Appendix J.1 may be
amended from time to time by mutual agreement of the Parties
which amendment ultimately will be memorialized in a revised
Appendix J.1.

PROLIANCE ENERGY, LLC. INDIANA GAS COMPANY, INC.

By: /s/ Carl L. Chapman By: /s/ Timothy M. Hewitt
Carl L. Chapman Timothy M. Hewitt
Its: President Its: Vice President

IGC-Appendix J.2
Gas Sales And Portfolio Administration Agreement
Original Page No. 1
Supersedes Appendix J.1
November 1, 1997

APPENDIX J.2 - Winter Delivery Service 2

Winter Delivery Service ("WDS2")

1. WDS2 shall incorporate the no-notice features,
cyclability, annual storage deliverability, and other
service provisions ("Service Provisions") reflected in
Contracts Numbers 33050, 99888,99889,99890,99891, as well as
applicable FERC tariffs.

2. Seller shall provide Buyer with WDS2 with the following
delivered service entitlements:

<TABLE>
Contract Months Maximum Daily WDS2 Maximum Annual WDS2
<S> <C> <C>
November 59,000 Dth/day 4,400,000 Dth during any
winter period.
December 59,000 Dth/day

January 59,000 Dth/day

February 59,000 Dth/day

March 59,000 Dth/day

April-October* Per Service Provisions Per Service Provisions

</TABLE>

3. Buyer shall pay Seller as follows:

a. For WDS2 Commodity:
Summer purchase quantities will be determined
jointly by the parties prior to April 1 of
each year. During each summer month, Buyer
shall pay Seller one-seventh of the summer
purchase quantity times the agreed Monthly
Index price. Other purchases shall be agreed
upon by Buyer and Seller, pursuant to
Appendix E.

b. For WDS2 Variable Costs:
Variable Cost Rates and Fuels under Contract
Nos. 33050, 99888, 99889, 99890, and 99891.

IGC-Appendix J.2
Gas Sales And Portfolio Administration Agreement
Original Page No. 2
Supersedes Appendix J.1
November 1, 1997

c. For WDS2 Demand Costs:
Demand Costs under Contract Nos. 33050,
99888, 99889, 99890, and 99891 and other
applicable additional pipeline costs, if any,
as billed.

4. Buyer and Seller shall complete all assignment,
transfers, and/or other amendments necessary to
effectuate this service.

5. This WDS2 service expires March 31, 2001.

Amendment
Seller and Buyer agree that this Appendix J.2 may be
amended from time to time by mutual agreement of the Parties
which amendment ultimately will be memorialized in a revised
Appendix J.2.

PROLIANCE ENERGY, LLC. INDIANA GAS COMPANY, INC.

By: /s/ Carl L. Chapman By: /s/ Timothy M. Hewitt
Carl L. Chapman Timothy M. Hewitt
Its: President Its: Vice President

IGC-Appendix J.3
Gas Sales And Portfolio Administration Agreement
Original Page No. 1
November 1, 1997

APPENDIX J.3 - Winter Delivery Service 3

Winter Delivery Service 3 TETCO ("WDS3")

1. Seller shall provide Buyer with WDS3 with the
following delivered service entitlements:

<TABLE>
Contract Month Maximum Daily WDS3 Maximum Annual WDS3
<S> <C> <C>
November 5,856 Dth/day 5,856 Dth times the number
of days in the month.

December 5,856 Dth/day

January 5,856 Dth/day

February 5,856 Dth/day

March 5,856 Dth/day
</TABLE>

2. Buyer shall pay Seller as follows:

a. For WDS3 Commodity:
Purchase quantities will be determined
jointly by the parties and priced pursuant to
Appendix E.

b. For WDS3 Variable Costs:
TETCO Variable Cost Rates and Fuels under
Contract No. 830044.

c. For WDS3 Demand Costs:
TETCO Demand Costs under Contract No. 830044
and other applicable pipeline costs, if any
as billed.

3. This WDS3 service expires October 31, 2000.

4. WDS3 shall be subject to the provisions of service
reflected in Contract No. 830044 as well as
applicable FERC tariffs.

IGC-Appendix J.3
Gas Sales And Portfolio Administration Agreement
Original Page No. 2
November 1, 1997

Amendment

Seller and Buyer agree that this Appendix J.3 may be
amended from time to time by mutual agreement of the Parties
which amendment ultimately will be memorialized in a revised
Appendix J.3.

PROLIANCE ENERGY, LLC. INDIANA GAS COMPANY, INC.

By: /s/ Carl L. Chapman By: /s/ Timothy M. Hewitt
Carl L. Chapman Timothy M. Hewitt
Its: President Its: Vice President

Appendix K.1
Gas Sales And Portfolio Administration Agreement
Original Page No. 1
Supersedes Appendix K
November 1, 1997

APPENDIX K.1 - Annual Delivery Service

Annual Delivery Service ("ADS1")

1. Seller shall provide Buyer with ADS1 with the
following nominated delivered service entitlements:

<TABLE>
Contract Months Maximum Daily ADS1 Maximum Monthly ADS1
<S> <C> <C>
November 5,000 Dth/day 5,000 Dth times the number
of days in the month.

December 5,000 Dth/day

January 5,000 Dth/day

February 5,000 Dth/day

March 5,000 Dth/day

April 5,000 Dth/day

May 5,000 Dth/day

June 5,000 Dth/day

July 5,000 Dth/day

August 5,000 Dth/day

September 5,000 Dth/day

October 5,000 Dth/day
</TABLE>

Appendix K.1
Gas Sales And Portfolio Administration Agreement
Original Page No. 2
Supersedes Appendix K
November 1, 1997

2. Buyer shall pay Seller as follows:

a. For ADS1 Commodity:
Purchase quantities will be determined
jointly by the parties and priced pursuant to
Appendix E.

b. For ADS1 Variable Costs:
Variable Cost Rates and Fuels under Contract
No. 70300 & 99887.

c. For ADS1 Demand Costs:
Demand Costs under Contract No. 70300 & 99887
and other applicable additional pipeline
costs, if any, as billed.

3. This ADS1 service expires March 31, 2001.

4. ADS1 shall be subject to the provisions of service
reflected in Contract No. 70300 & 99887 as well as
applicable FERC tariffs.

Amendment

Seller and Buyer agree that this Appendix K.1 may be
amended from time to time by mutual agreement of the Parties
which amendment ultimately will be memorialized in a revised
Appendix K.1.

PROLIANCE ENERGY, LLC. INDIANA GAS COMPANY, INC.
By: /s/ Carl L. Chapman By: /s/ Timothy M. Hewitt
Carl L. Chapman Timothy M. Hewitt
Its: President Its: Vice President

IGC-Appendix K.2
Gas Sales And Portfolio Administration Agreement
Original Page No. 1
November 1, 1997

APPENDIX K.2 - Annual Delivery Service 2

Annual Delivery Service 2 TETCO ("ADS 2")

1. Seller shall provide Buyer with ADS2 with the
following delivered Service entitlements:

<TABLE>
Contract Months Maximum Daily ADS2 Maximum Monthly ADS2
<S> <C> <C>
November 3,000 Dth/day 3,000 Dth times the number
of days in the month.

December 3,000 Dth/day

January 3,000 Dth/day

February 3,000 Dth/day

March 3,000 Dth/day

April 3,000 Dth/day

May 3,000 Dth/day

June 3,000 Dth/day

July 3,000 Dth/day

August 3,000 Dth/day

September 3,000 Dth/day

October 3,000 Dth/day
</TABLE>

IGC-Appendix K.2
Gas Sales And Portfolio Administration Agreement
Original Page No. 2
November 1, 1997

2. Buyer shall pay Seller as follows:

a. For ADS2 Commodity:
Purchase quantities will be determined
jointly by the parties and priced pursuant to
Appendix E.

b. For ADS2 Variable Costs:
TETCO Variable Cost Rates and Fuels under
Contract No. 830043.

c. For ADS2 Demand Costs:
TETCO Demand Costs under Contract No. 830043
and other applicable pipeline costs, if any
as billed.

3. This ADS2 service expires October 31, 2000.

4. ADS2 shall be subject to the provisions of service
reflected in Contract No. 830043 as well as applicable FERC
tariffs.

Amendment

Seller and Buyer agree that this Appendix K2 may be
amended from time to time by mutual agreement of the Parties
which amendment ultimately will be memorialized in a revised
Appendix K2.

PROLIANCE ENERGY, LLC. INDIANA GAS COMPANY, INC.

By: /s/ Carl L. Chapman By: /s/ Timothy M. Hewitt
Carl L. Chapman Timothy M. Hewitt
Its: President Its: Vice President

IGC-Appendix K.3
Gas Sales And Portfolio Administration Agreement
Original Page No. 1
November 1, 1997

APPENDIX K.3 - Annual Delivery Service 3

Annual Delivery Service 3 TGT ("ADS3")

1. Seller shall provide Buyer with ADS3 with the
following delivered Service entitlements:

<TABLE>
Contract Months Maximum Daily ADS Maximum Monthly ADS
<S> <C> <C>
November 5,856 Dth/day 5,856 Dth times
the number of days in the
month.

December 5,856 Dth/day

January 5,856 Dth/day

February 5,856 Dth/day

March 5,856 Dth/day

April 5,856 Dth/day

May 5,856 Dth/day

June 5,856 Dth/day

July 5,856 Dth/day

August 5,856 Dth/day

September 5,856 Dth/day

October 5,856 Dth/day
</TABLE>

IGC-Appendix K.3
Gas Sales And Portfolio Administration Agreement
Original Page No. 2
November 1, 1997

2. Primary Receipt Point: TGT ANR Slaughters Mtr.
Secondary Receipt Point: Indiana Gas Meter #1440.

3. Primary Delivery Point is the Lebanon Lateral.
Secondary within the path is Indiana Gas Meter #1702.

4. Buyer shall pay Seller as follows:

a. For ADS3 Commodity as follows:
Purchase quantities will be determined
jointly by the parties and priced pursuant to
Appendix E.

b. For ADS3 Variable Costs:
TGT Variable Cost Rates and Fuels under
Contract No. T11825.

c. For ADS3 Demand Costs:
TGT Demand Costs under Contract No. T11825
and other applicable pipeline costs, if any
as billed.

3. This ADS3 service expires October 31, 2000.

4. ADS3 shall be subject to the provisions of service
reflected in Contract No. T11825 as well as applicable FERC
tariffs.

Amendment

Seller and Buyer agree that this Appendix K.3 may be
amended from time to time by mutual agreement of the Parties
which amendment ultimately will be memorialized in a revised
Appendix K.3.

PROLIANCE ENERGY, LLC. INDIANA GAS COMPANY, INC.

By: /s/ Carl L. Chapman By: /s/ Timothy M. Hewitt
Carl L. Chapman Timothy M. Hewitt
Its: President Its: Vice President

<TABLE>

EXHIBIT 12

INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Thousands, Except Ratios)

Fiscal Year Ended September 30
1997(1) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Earnings:
Net income $13,478 $38,630 $32,109 $34,596 $28,534
Income taxes 7,147 22,568 18,630 17,977 16,030
Fixed charges (see below) 17,728 16,844 16,395 16,986 17,556
Total adjusted earnings $38,353 $78,042 $67,134 $69,559 $62,120

Fixed charges:
Total interest expense $16,774 $15,907 $15,530 $16,037 $16,640
Interest component of rents 954 937 865 949 916
Total fixed charges $17,728 $16,844 $16,395 $16,986 $17,556

Ratio of earnings to fixed charges 2.2 4.6 4.1 4.1 3.5

(1)Reflects the recording of restructuring costs during the fourth quarter of fiscal
1997 (see Item 8, Note 2). Indiana Gas' ratio of earnings to fixed charges for
1997 before restructuring costs was 4.4.

</TABLE>

EXHIBIT 21

State of Incorporation

Subsidiaries of Indiana Gas Company, Inc. (Parent) -
Richmond Gas Corporation,
d/b/a Indiana Gas Company, Inc. Indiana
Terre Haute Gas Corporation,
d/b/a Indiana Gas Company, Inc. Indiana

EXHIBIT 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we
hereby consent to the incorporation of our
reports included in this Form 10-K into
Indiana Gas Company, Inc.'s previously filed
Registration Statement File No. 333-39085.

/s/Arthur Andersen LLP
Arthur Andersen LLP

Indianapolis, Indiana
December 17, 1997

<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from
Indiana Gas Company, Inc.'s consolidated financial statements as of
September 30, 1997, and for the fiscal year then ended and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 589,681
<OTHER-PROPERTY-AND-INVEST> 3
<TOTAL-CURRENT-ASSETS> 63,911
<TOTAL-DEFERRED-CHARGES> 12,124
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 665,719
<COMMON> 142,995
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 125,767
<TOTAL-COMMON-STOCKHOLDERS-EQ> 268,762
0
0
<LONG-TERM-DEBT-NET> 154,733
<SHORT-TERM-NOTES> 20,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 35,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 187,224
<TOT-CAPITALIZATION-AND-LIAB> 665,719
<GROSS-OPERATING-REVENUE> 530,407
<INCOME-TAX-EXPENSE> 7,852
<OTHER-OPERATING-EXPENSES> 493,544
<TOTAL-OPERATING-EXPENSES> 501,396
<OPERATING-INCOME-LOSS> 29,011
<OTHER-INCOME-NET> 1,241
<INCOME-BEFORE-INTEREST-EXPEN> 30,252
<TOTAL-INTEREST-EXPENSE> 16,774
<NET-INCOME> 13,478
0
<EARNINGS-AVAILABLE-FOR-COMM> 13,478
<COMMON-STOCK-DIVIDENDS> 26,250
<TOTAL-INTEREST-ON-BONDS> 14,194
<CASH-FLOW-OPERATIONS> 87,421
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>

December 4, 1997

Office of Applications and Report Services
Securities and Exchange Commission
Washington, D.C. 20549

Dear Sir or Madame:

We are transmitting herewith Indiana Energy, Inc.'s
1997 Preliminary Proxy Statement.

Respectfully,

/s/Ronald E. Christian
Ronald E. Christian

REC:tmw

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

(Amendment No. )

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for the Use of the Commission Only (as permitted
by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement
[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.

1) Title of each class of securities to which transaction
applies:

2) Aggregate number of securities to which transaction
applies:

3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a) (2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form of Schedule
and the date of its filing.

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:

IEI
INDIANA ENERGY, INC.
1630 North Meridian Street
Indianapolis, Indiana 46202-1496

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 28, 1998

TO THE SHAREHOLDERS OF INDIANA ENERGY, INC.

The annual meeting of shareholders of Indiana Energy, Inc.
("Company") will be held at the principal office of the Company, 1630
North Meridian Street, Indianapolis, Indiana 46202, on Wednesday,
January 28, 1998, at 10:30 a.m. (Eastern Standard Time), for the
following purposes:

1. To elect four directors of the Company to serve for a term
of three years or until their successors are duly qualified and
elected;

2. To approve a proposed amendment of the Company's Articles of
Incorporation to increase the authorized shares of Common Stock to
200,000,000; and

3. To transact such other business as may properly come before
the meeting, or any adjournment of the meeting.

As allowed by the Company's Code of By-Laws, the board of
directors has fixed the close of business on November 24, 1997, as
the record date for determining the shareholders entitled to notice
of and to vote at the meeting and at any adjournment of the meeting.

It is important that your stock be represented at this meeting
to assure a quorum. Whether or not you now expect to be present at
the meeting, please fill in, date and sign the enclosed proxy and
return it promptly to the Company in the accompanying addressed
envelope. No stamp is required if mailed in the United States. You
have the unconditional right to revoke your proxy at any time before
the authority granted by it is exercised.

By order of the board of directors.

INDIANA ENERGY, INC.

By RONALD E. CHRISTIAN
Indianapolis, Indiana Secretary and General Counsel
December 5, 1997

CONTENTS

PURPOSES OF MEETING
VOTING SECURITIES
PROPOSAL NO. 1: ELECTION OF DIRECTORS
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
1. THE AUDIT COMMITTEE
2. THE COMPENSATION COMMITTEE
3. THE NOMINATING COMMITTEE
4. THE PUBLIC AND ENVIRONMENTAL AFFAIRS COMMITTEE
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
DIRECTORS' COMPENSATION
PROPOSAL NO. 2: AMENDMENT TO THE ARTICLES OF INCORPORATION
COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION COMMITTEE REPORT
A. EXECUTIVE COMPENSATION POLICY
B. COMPONENTS OF EXECUTIVE COMPENSATION
C. CHIEF EXECUTIVE OFFICER COMPENSATION
D. COMPENSATION CONSULTANT, TERMINATION BENEFIT AGREEMENTS AND
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
COMPENSATION
SUMMARY COMPENSATION TABLE
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
CORPORATE PERFORMANCE
TOTAL RETURN TO SHAREHOLDERS
RETURN ON EQUITY
RETIREMENT SAVINGS PLAN
RETIREMENT PLANS
EMPLOYMENT AND TERMINATION BENEFIT AGREEMENTS
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY
COST AND METHOD OF SOLICITATION
ANNUAL REPORT
REVOCATION RIGHTS
SHAREHOLDERS' PROPOSALS FOR 1999 ANNUAL MEETING

INDIANA ENERGY, INC.
1630 North Meridian Street
Indianapolis, Indiana 46202-1496
(317) 926-3351

PROXY STATEMENT

The following information is furnished in connection with the
solicitation of the enclosed proxy by and on behalf of the board of
directors of the Company. The proxy will be used at the annual
meeting of shareholders to be held at the principal office of the
Company, 1630 North Meridian Street, Indianapolis, Indiana, on
Wednesday, January 28, 1998, at 10:30 A.M. (Eastern Standard Time),
and at any adjournment of the meeting for the matters to be acted
upon under its authority. The proxy and this proxy statement were
first mailed to the shareholders on or about December 5, 1997.

PURPOSES OF MEETING

As of this date, the only known business to be presented at the
1998 annual meeting of shareholders is the election of four directors
of the Company to serve for a term of three years or until their
successors are duly qualified and elected, and the amendment of the
Company's Articles of Incorporation to increase the authorized shares
of Common Stock to 200,000,000. However, the enclosed proxy
authorizes the proxy holders to vote on all other matters that may
properly come before the meeting, and it is the intention of the
proxy holders to take any such action utilizing their best judgment.

VOTING SECURITIES

The Company has one class of capital stock outstanding,
consisting as of September 30, 1997, of 22,580,543 shares of Common
Stock without par value. The holders of the outstanding shares of
Common Stock are entitled to one vote for each share held of record
on each matter presented to a vote of the shareholders at the
meeting. Only shareholders of record at the close of business on
November 24, 1997, will be entitled to vote at the meeting or at any
adjournment of the meeting.

In connection with the Company's acquisition of Richmond Gas
Corporation ("Richmond") and Terre Haute Gas Corporation ("Terre
Haute"), shares of Common Stock of the Company were issued to certain
members of the Anton Hulman, Jr. family, certain corporations
controlled by them, certain trusts established for their benefit and
certain other persons with personal or business relationships with
the family (collectively, the "Hulman Interests"). At September 30,
1997, the Hulman Interests beneficially owned an aggregate of
2,749,952 shares of the Company, which comprised 12.18 percent of
the Company's outstanding Common Stock. At September 30, 1997, the
following beneficial owners held more than 5 percent of the
outstanding Common Stock of the Company, the only class of voting
securities outstanding:

<TABLE>
Name and Number of Nature of
Title of Address of Shares Beneficial Percent
Class Beneficial Beneficially Ownership of
Owner Owned Class
<S> <C> <C> <C> <C>
Common Hulman & 1,622,435 Voting & 7.19%
Company Investment
900 Wabash
Avenue
Terre Haute,
Indiana 47807
</TABLE>

As a result of the attribution to certain persons of shares held by
Hulman & Company, the following persons are deemed to be beneficial
owners of more than 5 percent of the outstanding Common Stock of the
Company:

<TABLE>
Name of Number of
Title of Beneficial Owner Shares Percent of
Class Beneficially Class
Owned
<S> <C> <C> <C>
Common Mari H. George 2,056,102 9.11%
Common Anton H. George 1,849,202 8.19%
Common Katherine M. 1,629,100 7.21%
George
Common Laura L. George 1,849,202 8.19%
Common Nancy L. George 1,629,888 7.22%
Common M. Josephine 1,626,895 7.20%
George
</TABLE>

The number of shares held beneficially by Mari H. George, Anton H.
George, Katherine M. George, Nancy L. George and M. Josephine George
each includes 1,622,435 shares held by Hulman & Company as to which
each, as a director of Hulman & Company, may be deemed to share
voting power and investment power. The number of shares held
beneficially by Mari H. George and Anton H. George each includes
217,398 shares held by Rose-Hulman Institute of Technology ("Rose-
Hulman") as to which Anton H. George, as a member of the Investment
Management Committee of the Board of Trustees of Rose-Hulman, and as
to which Mari H. George, as a member of the Board of Trustees, may be
deemed to share voting power and investment power, and as to which
each disclaims beneficial ownership. Laura L. George is the wife of
Anton H. George, and the shares listed for her are those beneficially
owned by Mr. George. Laura L. George disclaims beneficial ownership
of all such shares. The information furnished here regarding
beneficial ownership is derived from the Schedule 13D, as amended
most recently on June 29, 1994, filed by the Hulman Interests with
the Securities and Exchange Commission, Forms 3, 4 and 5 filed
through November 15, 1997, and certain acquisitions exempted from
reporting requirements involving Ms. Mari H. George and Ms. M.
Josephine George under the Company's Automatice Dividend Reinvestment
and Stock Purchase Plan. The filing of the Schedule 13D by the Hulman
Interests did not affirm the existence of a "group" within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934
or the regulations promulgated under it.

PROPOSAL NO. 1: ELECTION OF DIRECTORS

In connection with the Company's acquisition of Richmond and
Terre Haute, the Company entered into a standstill agreement with the
Hulman Interests. Under this agreement, the Company agreed to cause
one designee of the Hulman Interests to be elected to the board of
directors of the Company and, until the termination of the standstill
agreement (which is dependent upon the occurrence of certain events
specified in the agreement), to include a designee of the Hulman
Interests in the slate of nominees recommended by the board at the
annual meeting of shareholders at which the term of the original
designee expires. At a regular meeting held on August 31, 1990, the
board of directors of the Company elected Anton H. George to the
board and he currently serves as a member of the board.

The board of directors of the Company consists of twelve
directors divided into three classes as follows: Paul T. Baker, Otto
N. Frenzel III, Don E. Marsh and Richard P. Rechter, who are nominees
for election with terms expiring in 2001; Niel C. Ellerbrook, L. K.
Evans, Jean L. Wojtowicz and one vacant director position, whose
terms expire in 2000; and Lawrence A. Ferger, Anton H. George, James
C. Shook and John E. Worthen, whose terms expire in 1999. The
Company is a holding company, and, historically, each of its
directors also served as a director of Indiana Gas Company, Inc.
("Indiana Gas"), its principal subsidiary and a regulated gas
distribution company. As part of a corporate restructuring that
occurred during the past fiscal year, effective May 1, 1997, with the
exception of Messrs. Ferger and Ellerbrook, the Company's directors
also serve either as a director of Indiana Gas or a director of IEI
Investments, Inc. ("Investments"), the Company's subsidiary that
serves as the corporate parent for non-regulated business activities.
The placement of a portion of the Company's directors on the board of
directors of Investments will ensure the participation of those
individuals in decision making with respect to non-regulated business
activities. Messrs. Ferger and Ellerbrook serve as directors of
Indiana Gas and Investments.

At each annual meeting of shareholders, directors are elected to
succeed those whose terms then expire for a term of three years or
until their successors are duly qualified and elected. Accordingly,
four directors are to be elected by a plurality of votes cast at the
annual meeting of shareholders to be held on January 28, 1998.

The board of directors intends that the enclosed proxy will be
voted by the proxy holders in favor of the election of the nominees
named below for the office of director of the Company to hold office
for a term of three years or until their respective successors are
duly qualified and elected. Each of such nominees is now serving as
a director of the Company and has signified the willingness to serve
if elected. Directors are elected by a plurality of the votes cast.
Plurality means that the individuals who receive the largest number
of votes cast are elected up to the maximum number of directors to be
chosen at the meeting. Abstentions, broker non-votes, and
instructions on the accompanying proxy card to withhold authority to
vote for one or more of the nominees might result in some nominees
receiving fewer votes. However, the number of votes otherwise
received by the nominee will not be reduced by such action. If,
however, any situation should arise under which any nominee should be
unable to serve, the authority granted in the enclosed proxy may be
exercised by the proxy holders for the purpose of voting for a
substitute nominee. Certain information concerning the nominees and
the other directors of the Company is set forth below and under the
caption "Meetings and Committees of the Board of Directors." Unless
otherwise indicated, each nominee and director has sole investment
and voting power with respect to the shares of Common Stock of the
Company shown as beneficially owned by that person.

<TABLE>

Principal Occupation During Has Been a
Name and the Past 5 Years and Other Director of
Business Age Information (1) Indiana Gas or
Location the
Company Since
<S> <C> <C> <C>
Nominees For Election Whose Terms Will Expire in 2001

PAUL T. BAKER 57 Executive Vice President and 1991
Indianapolis, Chief Operating Officer of
Indiana Indiana Gas since October
1997; prior to October 1997
and since 1991, Senior Vice
President and Chief
Operating Officer of Indiana
Gas. Mr. Baker is also an
Indiana Gas Director.

OTTO N. FRENZEL 67 Chairman, Executive 1967
III Committee, National City
Indianapolis, Bank, Indiana, since 1996.
Indiana Prior to that time, Chairman
of the Board of National
City Bank, Indiana. Mr.
Frenzel is an Indiana Gas
Director. He is also a
Director of National City
Corporation, American United
Life Insurance Company,
Baldwin & Lyons, Inc.
(insurance brokerage firm),
and Indianapolis Power and
Light Company and IPALCO
Enterprises, Inc.

DON E. MARSH 59 Chairman, President and 1986
Indianapolis, Chief Executive Officer and
Indiana Director of Marsh
Supermarkets, Inc. Mr. Marsh
is an Investments Director.
He is also a Director of
National City Bank, Indiana
and Nash Finch Company.

RICHARD P. 58 Chairman of the Board of 1984
RECHTER Rogers Group, Inc.;
Bloomington, President, Chief Executive
Indiana Officer and Director of
Rogers Management, Inc.; and
President, Chief Executive
Officer and Director of Mid-
South Stone, Inc. Mr.
Rechter is an Investments
Director. He is also a
Director of Monroe County
Bank and Monroe Bancorp.

Directors Continuing in Office Whose Terms Will Expire in 2000

NIEL C. 48 President and Chief 1991
ELLERBROOK Operating Officer of the
Indianapolis, Company since October 1997;
Indiana prior to that time and since
January 1997, Executive Vice
President, Treasurer and
Chief Financial Officer; and
prior to that time and since
1986, Vice President and
Treasurer and Chief
Financial Officer. President
of Indiana Gas since October
1997; prior to that time and
since January 1997,
Executive Vice President and
Chief Financial Officer; and
prior to that time and since
1987, Senior Vice President
and Chief Financial Officer.
Mr. Ellerbrook is a Director
of Indiana Gas and
Investments. He is also a
Director of Fifth Third Bank
of Central Indiana.

L. K. EVANS 69 Retired. Prior to 1993 and 1988
Columbus, since 1991, Vice Chairman
Indiana and Director of Arvin
Industries, Inc. (an Indiana
company serving global
markets in more than 100
countries); and President and
Chief Operating Officer from
1987. Mr. Evans is an
Indiana Gas Director. He
was also a Director of Irwin
Financial Corporation,
Columbus, Indiana until
April, 1994.

JEAN L. 40 President since 1983 and 1996
WOJTOWICZ founder of Cambridge Capital
Indianapolis, Management Corporation (a
Indiana consulting and venture
capital firm). Ms.
Wojtowicz is an Investments
Director. She is also a
Director of Seaboard North
American Holdings, Inc.

Directors Continuing in Office Whose Terms Will Expire in 1999

LAWRENCE A. 63 Chairman and Chief Executive 1984
FERGER Officer of the Company and
Indianapolis, Indiana Gas since October
Indiana 1997; prior to that time and
since January 1996,
Chairman, President and
Chief Executive Officer of
the Company and Indiana Gas;
and prior to that time and
since 1987, President and
Chief Executive Officer of
the Company and Indiana Gas.
Mr. Ferger is a Director of
Indiana Gas and Investments.
He is also a Director of
National City Bank, Indiana.

ANTON H. GEORGE 38 President since December 1990
Indianapolis, 1989 and a Director of
Indiana Indianapolis Motor Speedway
Corporation (auto racing); and
President since January,
1994, Executive Vice
President since June 1989,
and a Director of Hulman &
Company (manufacturer and
distributor of baking
powder). Mr. George is an
Investments Director. He is
also a Director of First
Financial Corporation.

JAMES C. SHOOK 66 President, The Shook Agency, 1983
Lafayette, Inc. (residential,
Indiana commercial and industrial
real estate brokerage). Mr.
Shook is an Investments
Director. He is also a
Director of NBD Bank, N.A.,
Lafayette Life Insurance
Company (a mutual company)
and Crossmann Communities,
Inc.

JOHN E. WORTHEN 64 President, Ball State 1997
Muncie, Indiana University, Muncie, Indiana.
Mr. Worthen is an Indiana
Gas Director. He is also a
Director of First Merchants
Corp.
</TABLE>

Other executive officers of the Company are Anthony E. Ard, age 56,
and Timothy M. Hewitt, age 47. In October 1997, Mr. Ard was made
Senior Vice President-Corporate Affairs for the Company. Prior to
October 1997 and since 1995, he was Senior Vice President of
Corporate Affairs for Indiana Gas. Prior to 1995 and since 1993, he
was Vice President of Corporate Affairs for Indiana Gas. Prior to
1993, and since 1988, Mr. Ard was Vice President and Secretary for
Indiana Gas and Secretary for the Company. In 1995, Mr. Hewitt was
elected Vice President of Operations and Engineering for Indiana Gas.
Prior to 1995 and since 1989, he was Vice President of Sales and
Field Operations for Indiana Gas.

(1) Includes, but is not limited to, directorships in corporations
with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934 or which are subject to the
requirements of Section 15(d) of that Act or in a company registered
as an investment company under the Investment Company Act of 1940.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

The Company has the following standing committees of the board
of directors:

1. The Audit Committee.

The members of this committee are L.K. Evans, chair, Anton
H. George, Jean L. Wojtowicz and John E. Worthen. The committee
makes recommendations to the board as to the selection and retention
of the independent accountants, reviews the scope, conduct and
results of audits performed, and makes inquiry as to the differences
of views, if any, between such independent accountants and officers
and employees of the Company and subsidiaries with respect to the
financial statements and records and accounting policies, principles,
methods and systems. It further determines that services performed
by the independent accountants in addition to the annual audit
examination do not impair such accountants' independence in
performing the audit examination. Finally, the committee reviews the
policies and guidelines of the Company and subsidiaries designed to
ensure the proper use and accounting for corporate assets, and the
activities of the Company's Internal Audit department. There were
two meetings of the committee during the past fiscal year.

2. The Compensation Committee.

The members of this committee are Otto N. Frenzel III, chair,
Don E. Marsh and Richard P. Rechter. None of the members is an
officer or employee of the Company. The committee has the
responsibility of formulating recommendations to the board as to the
compensation to be paid to the officers of the Company and its
subsidiaries. It also administers the Company's Annual Management
Incentive Plan, the Executive Restricted Stock Plan, and the
Directors Restricted Stock Plan. There were three meetings of the
committee during the past fiscal year.

3. The Nominating Committee.

The members of this committee are Lawrence A. Ferger, chair, Don
E. Marsh and James C. Shook. The duties and powers of the committee
are to search for, evaluate and make recommendations to the board of
directors as to nominees to be submitted annually to the shareholders
for election to the board as well as to fill vacancies occurring from
time to time on the board. In that connection, the committee is
authorized to act on behalf of the Company and the board in
receiving, giving consideration to and making recommendations to the
board respecting communications submitted to the Company from
shareholders relating to nominees for directors. Such communications
must be in writing and with respect to the next annual election must
be received by the Company, addressed to the secretary, no later than
August 7, 1998. There were two meetings of the committee during the
past fiscal year.

If a shareholder entitled to vote for the election of directors
at a shareholders' meeting desires to nominate a person for election
to the board of directors of the Company, pursuant to the Company's
By-Laws, any such nominations must be made pursuant to notice
delivered to, or mailed and received at, the principal office of the
Company, not less than 50 days nor more than 90 days prior to the
meeting. However, in the event that less than 60 days notice of the
meeting is given, the shareholder's notice must be received not later
than the tenth day following the date of notice of the meeting. Such
shareholder's notice must set forth, in addition to the name and
address of the shareholder submitting the nomination, as to each
person whom the shareholder proposes to nominate for election or re-
election as a director: (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of
the Company which are beneficially owned by such person, (iv) any
other information relating to such person that is required to be
disclosed in the solicitation of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including,
without limitation, such person's written consent to be named in the
proxy statement as a nominee and to serving as a director, if
elected), and (v) the qualifications of the nominee to serve as a
director of the Company.

4. The Public and Environmental Affairs Committee.

The members of this committee are Richard P. Rechter, chair, and
James C. Shook. There is presently one vacancy on this committee.
The duties and powers of the committee are to review current
policies, programs, procedures and processes of the Company and its
subsidiaries affected by public policy and affecting the environment.
It also reviews reports from Company management on public policy and
environmental matters and monitors compliance with, and trends and
emerging policy developments in, business and environmental
regulation. In addition, the committee reports to the board of
directors on public policy and environmental issues affecting the
Company and its subsidiaries. There were two meetings of the
committee during the past fiscal year.

The board of directors of the Company had six meetings during
the last fiscal year. Don E. Marsh attended fewer than 75 percent of
the aggregate of board meetings and meetings of committees of the
board of which he is a member. No other incumbent director attended
fewer than 75 percent of the aggregate of board meetings and meetings
of committees of the board of which they are members.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under the federal securities laws, the Company's directors,
certain officers, and ten percent shareholders are required to report
to the Securities and Exchange Commission, by specific due dates,
transactions and holdings in the Company's Common Stock. During the
past fiscal year, with the exceptions discussed in the following
paragraph, all persons with responsibility for such reporting
complied with the requirements of Section 16(a).

At the end of calendar year 1994, Indiana Gas and Chemical Corp.
("IGCC"), a shareholder of 168,605 shares of the Company's Common
Stock, was liquidated. Among IGCC's shareholders was the Joseph R.
Cloutier Trust ("Trust"), which is a party to the standstill agreement
with the Hulman Interests referenced in "Proposal No. 1: Election Of
Directors" on page 3, and which has a reporting obligation under
Section 16(a). In connection with the process of confirming
compliance with Section 16(a) during the past fiscal year, the
Company became aware that the Trust had received 5,321 shares of the
Company's Common Stock at the time of the liquidation of IGCC and
that acquisition of shares was not reported to the Securities
and Exchange Commission as required by Section 16(a). Upon
learning of this omission in reporting, the Company promptly
advised the Trust of its reporting obligation, and the Trust
has since complied. During this process the Company also became
aware that for each quarterly dividend period from December 1, 1991
through June 3, 1996, Ms. M. Josephine George inadvertently did not
report acquisitions totaling 449.5 shares of the Company's Common
Stock under the Automatic Dividend Reinvestment and Stock Purchase
Plan. Upon being apprised of the need to report the acquisitions,
Ms. George timely did so.

DIRECTORS' COMPENSATION

Non-employee directors of the Company and of Indiana Gas or
Investments receive combined fees totaling $21,000 per year for
service on the boards of these companies. The fees are paid under
the Directors Restricted Stock Plan approved by the shareholders at
their January 13, 1992, meeting. Under the plan, $7,000 of the
combined directors' fees paid by the Company and Indiana Gas or
Investments to non-employee directors is in the form of restricted
shares of the Company. The restricted shares are issued to each non-
employee director at the beginning of their three-year term, and the
number of restricted shares is determined by dividing $21,000 ($7,000
for each year) by the per share market price of the Company's stock
during the period specified in the plan. Directors may elect to
receive the remaining $14,000 in unrestricted shares or in cash. To
receive the restricted shares, a director must consent to the
restrictions in writing. To elect to receive unrestricted shares
instead of cash, a director must provide an irrevocable written
election to the secretary of the Company before the beginning of the
calendar year for which the election relates. Moreover, if during
the calendar year a non-employee is elected to fill a vacancy in the
board of directors, under the plan a one time election is permitted
to allow the director to receive the balance of that calendar year's
compensation in unrestricted shares.

Restricted shares may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will
or by the laws of descent and distribution until the first to occur
of: (1) the expiration of the director's term of office for which
the grant relates; (2) the grantee's death or disability; (3) the
termination of the grantee's status as a director pursuant to the
mandatory retirement policy for directors; (4) the involuntary
termination of the grantee's status as a director; (5) approval by a
majority of the other directors of the grantee's voluntary
termination of his/her status as a director because of the relocation
of his/her principal place of residence outside of Indiana; or (6) a
change in control of the Company. In no event, however, are the
restricted shares transferable and free of restrictions before the
expiration of a six-month period beginning the first day of the
director's term of office or, if later, the date of issuance of the
shares.

All restricted shares bear a legend citing the restrictions
contained in the plan. When the restrictions lapse, the grantee is
entitled to have the legend removed from any shares or certificates.
Restrictions are lifted automatically upon the expiration of the
period to which the restrictions apply. If a director voluntarily
terminates his/her status as such before the expiration of the period
of restriction, any shares still subject to restriction are
immediately forfeited.

The Company has reserved 71,172 shares for grant under the plan.
As of September 30, 1997, 47,945 shares remain in reserve. Those
shares may consist of authorized but unissued shares or shares
reacquired by the Company, including shares purchased in the open
market. If any shares subject to the grants are forfeited, the
forfeited shares become available for reissuance under the plan.

The board may amend, modify, alter or terminate the plan at any
time. Amendments, modifications or alterations which would: (1)
increase the number of shares reserved for issuance under the plan,
(2) materially modify the class of individuals to whom grants of
shares may be made, (3) materially modify the manner in which shares
are granted, or (4) materially increase the benefits accruing to
grantees under the plan, must be approved by the Company's
shareholders.

Non-employee directors also receive a fee of $500 for each
Company board meeting attended and $500 for each board meeting of
Indiana Gas or Investments attended. Each non-employee member of a
committee of the board is paid a fee of $1,000 for each meeting of
the committee attended, and each non-employee chair of a committee is
paid an additional fee of $1,000 for each meeting attended.

There is an unfunded plan under which non-employee directors may
defer all or any part of fees received in cash until the occurrence
of certain conditions specified in the plan. Under the plan, which
has been in place since fiscal year 1995, at the election of the
participant, amounts deferred are considered for accounting purposes
to either be invested in Company Common Stock (Stock Fund) or utility
bonds (Bond Fund), with a return measured pursuant to a formula
specified in the plan. Amounts deferred under the Stock Fund are
tracked as phantom units of Company Common Stock and the account
value changes when the Company pays dividends, as well as when the
Common Stock price fluctuates. Amounts deferred under the Bond Fund
earn a return equal to the mean between the high and low of the
Corporate Bond Yield averages, Average Public Utility (aa rated), for
the past twelve (12) months reported in Moody's Bond Survey in its
published issue in the November preceding the January 1, on which the
rate is to come into effect. The rate changes each January 1.

PROPOSAL NO. 2: AMENDMENT TO THE ARTICLES OF INCORPORATION

The board of directors deems it advisable, and thus proposes to
amend the Company's Articles of Incorporation (the "Articles") to
increase the authorized shares of Common Stock from 64,000,000 shares
to 200,000,000 shares. Thus, Article 4, as amended, would state:

ARTICLE 4

Number of Shares

The Corporation shall have authority to issue a total of Two
Hundred and Four Million (204,000,000) Shares.

Section 5.01 of the Articles provides for the authority to issue
4,000,000 shares of Preferred Stock and Section 5.02 of the Articles
provides that all of the remaining shares that the Corporation has
authority to issue constitute Common Stock. Accordingly, the
amendment will have the effect of increasing the authorized shares of
Common Stock of the Company from 64,000,000 to 200,000,000.

All attributes of the additional authorized but unissued shares
of Common Stock would be the same as those of the currently
outstanding shares of Common Stock. The increase in authorized
shares will not affect shareholders' equity in the Company or the
capital or surplus accounts of the Company.

On September 30, 1997, the number of outstanding shares of
Common Stock was 22,580,543; the number of shares of Common Stock
reserved for issuance under the Company Executive Restricted Stock
Plan was 541,498; the number of shares of Common Stock reserved for
issuance under the Company Directors Restricted Stock Plan was
71,172; the number of shares of Common Stock reserved for issuance
under the Company Automatic Dividend Reinvestment and Stock Purchase
Plan was 566,737; the number of shares of Common Stock reserved for
issuance under the Company Retirement Savings Plan was 1,000,000; and
the number of shares of Common Stock unissued, unreserved and available
for use was 16,724,628. There are no shares of Preferred Stock
outstanding.

The amendment increasing the number of authorized shares is
being proposed to make available additional shares of Common Stock
for general corporate purposes, including potential issuances of
shares pursuant to stock dividends, stock splits, acquisitions,
financings and the Company's shareholder rights agreement. In the
judgment of the board of directors, the additional shares authorized
by the proposed amendment will provide flexibility in corporate
decision-making in the event shares should be needed for any such
desirable corporate purposes. The authorized but unissued shares of
Common Stock can be issued without shareholder approval subject,
however, to (i) the requirements of the New York Stock Exchange with
respect to the Common Stock which, among other matters, require
shareholder approval for certain issuances of shares which would
result in an increase of 20% or more in the number or voting power of
shares outstanding prior to the issuance, and (ii) applicable
corporate law requirements.

Although the Company has no present intention to issue shares of
Common Stock in the future to make an acquisition of control of the
Company more difficult, future issuances of Common Stock could have
that effect. For example, the acquisition of shares of the Company's
Common Stock by a person to acquire control of the Company might be
discouraged through the public or private issuance of additional
shares of Common Stock, since such issuance would dilute the
percentage interest of the acquiring person in the equity of the
Company. Shares of Common Stock could also be issued to existing
stockholders as a dividend or privately placed with purchasers who
might side with the board of directors in opposing a takeover bid,
thus discouraging such a bid. The Company is not aware of any effort
to accumulate its shares of Common Stock or to acquire control of the
Company by means of a merger, tender offer solicitation in opposition
to management or otherwise.

The Company has in place certain provisions in its Articles and
By-Laws which may have an anti-takeover effect. The Articles include
provisions that require the approval by the holders of 80% of the
voting power of Common Stock entitled to vote generally in the
election of directors as a condition for mergers and certain other
business combinations of the Company with any holder of more than 10%
of that voting power ("Interested Shareholder") unless either (a) the
transaction is approved by at least a majority of the directors who
are unaffiliated with the Interested Shareholder and were directors
before the Interested Shareholder became an Interested Shareholder,
or (b) certain price and procedural requirements are met. The
Articles also provide for a classified board of directors and for
removal of directors only for cause upon the affirmative vote of
holders of at least 80% of the voting power of the Company's shares.
These provisions make it more difficult for shareholders to replace
or remove directors even when this may be desired by holders of a
majority of the Common Stock, thereby making it more difficult for an
entity desiring to acquire or merge with the Company to obtain
control of the board of directors. Also, the Articles authorize the
issuance of 4,000,000 shares of Preferred Stock, the designations and
relative preferences, limitations and rights, including voting
rights, of which may be set by the directors. The rights of the
holders of shares of different series of Preferred Stock may vary
with respect to the matters which the board of directors has the
discretion to establish. Those matters include dividend rights,
preferences with respect to liquidation or other distributions,
redemption and conversion rates and terms, and voting powers.
Because the voting powers of any series of Preferred Stock are to be
determined by the directors, the existence of that class of
securities enables the directors to vest large amounts of voting
power in persons acquiring Preferred Stock. Holders of Preferred
Stock may be given the right to vote as a class on certain matters
and to elect directors, and each share may be convertible into such
number of shares of Common Stock as may be specified by the
directors. The ability of the directors to establish voting,
redemption, conversion and other rights of holders of Preferred Stock
might be used as part of a plan to frustrate a takeover attempt of
the Company. The directors might establish and issue Preferred Stock
even though the shareholders generally approve of the terms of a
proposed takeover. Certain provisions of the By-Laws may also be
deemed to have an anti-takeover effect. These sections further
provide that shareholders may nominate directors or bring other
business before a meeting of shareholders only if certain ownership,
notification and related timing requirements are satisfied.

The proposal to be acted upon at this meeting is not the result
of a plan by the Company to adopt a series of anti-takeover
provisions and the Company has no present intention to propose anti-
takeover measures in the future. However, the Company does have a
shareholder rights agreement, amended and restated as of May 31,
1996, pursuant to which it has distributed a dividend of one common
share purchase right for each outstanding share of Common Stock. If
and when the rights become exercisable, each right will entitle the
registered holder to purchase from the Company one share of Common
Stock at $60.00 per share. The rights are not intended to prevent a
fair and equitable takeover of the Company and will not do so.
However, the rights should discourage any effort to acquire the
Company in a manner or on terms not approved by the board of
directors. The rights are designed to deal with the serious problem
of a potential acquirer using coercive or unfair tactics to deprive
the board of directors of any real opportunity to determine the
future of the Company and to realize the value of a shareholder's
investment in the Company.

If the amendment increasing the authorized shares had been
approved by the Company's shareholders on September 30, 1997, there
would have been 152,724,628 shares of Common Stock unissued,
unreserved and available for issue on that date. The Company's
authorized, unissued, and unreserved shares may be issued in such
amounts, at such times and for such purposes as the board of
directors may determine and, unless required by statute or the
Articles or the rules of the New York Stock Exchange, without further
shareholder action. There are no preemptive rights with respect to
the Company's shares of Common Stock. The issuance of any or all of
the authorized but unissued shares of Common Stock would have the
effect of reducing the percentage of the Company owned by the present
shareholders and may have a dilutive effect on earnings per share and
on the equity and voting power of existing holders of Common Stock.
At this time, the Company has no specific plans, understandings, or
arrangements for issuing any of the additional authorized shares of
Common Stock.

The Articles do not provide for cumulative voting. As a result,
in order to be ensured of representation on the board of directors, a
shareholder must control the votes of a majority of the shares
present and voting at a shareholders' meeting at which a quorum is
present. The lack of cumulative voting requires an entity seeking a
takeover to acquire a substantially greater number of shares to
ensure representation on the board of directors than would be
necessary were cumulative voting available.

The proposed amendment of the Articles will be approved if the
votes cast in favor of the amendment exceed the votes cast against.
Accordingly, abstentions, broker non-votes and instructions on the
accompanying proxy to withhold authority for the proposed amendment
will not be treated as votes against the proposal. The proposed
amendment of the Articles will be filed with the Indiana Secretary of
State and become effective upon the receipt of such shareholder
approval.

COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the number of shares of Common
Stock of the Company beneficially owned by the directors, the chief
executive officer, the four named executive officers during the past
fiscal year, and all directors and executive officers as a group, as
of September 30, 1997:

<TABLE>
Name of Individuals or Identity Shares Owned
of Group Beneficially (1)
<S> <C>
ANTHONY E. ARD 21,970 (2)
Indianapolis, Indiana

PAUL T. BAKER 35,434 (2)
Indianapolis, Indiana

NIEL C. ELLERBROOK 32,182 (2)(3)
Indianapolis, Indiana

L. K. EVANS 4,588 (4)(5)
Columbus, Indiana

LAWRENCE A. FERGER 87,660 (2)(6)
Indianapolis, Indiana

OTTO N. FRENZEL III 18,139 (5)(7)
Indianapolis, Indiana

ANTON H. GEORGE 1,849,202 (1)(5)
Indianapolis, Indiana

TIMOTHY M. HEWITT 12,818 (2)(4)
Indianapolis, Indiana

DON E. MARSH 5,763 (5)
Indianapolis, Indiana

RICHARD P. RECHTER 7,551 (4)(5)
Bloomington, Indiana

JAMES C. SHOOK 42,416 (5)(8)
Lafayette, Indiana

JEAN L. WOJTOWICZ 1,776 (5)
Indianapolis, Indiana

JOHN E. WORTHEN 426 (5)
Muncie, Indiana

All directors and executive 2,119,925 (1)
officers as a group (13 persons)

</TABLE>

(1) Except for Anton H. George, no director or executive officer
owned beneficially as of September 30, 1997, more than .39 percent of
Common Stock of the Company. Excluding Anton H. George, all
directors and executive officers owned beneficially an aggregate of
270,723 shares or 1.20 percent of Common Stock of the Company
outstanding as of that date. The beneficial ownership by Anton H.
George of 1,849,202 shares or 8.19 percent of Common Stock of the
Company is discussed above in "Voting Securities."

(2) Includes shares awarded to Messrs. Ard, Baker, Ellerbrook,
Ferger and Hewitt under the Company Executive Restricted Stock
Plan, which are subject to certain transferability restrictions and
forfeiture provisions.

(3) Includes 809 shares held by Mr. Ellerbrook's wife, and he
disclaims beneficial interest therein.

(4) Some or all of the shares owned by Messrs. Evans, Hewitt and
Rechter are owned jointly with their wives.

(5) Includes shares granted under the Company Directors Restricted
Stock Plan, some of which shares are subject to certain
transferability restrictions and forfeiture provisions.

(6) Includes 3,981 shares held by Mr. Ferger's wife, and he
disclaims beneficial interest therein.

(7) Includes 3,774 shares held in a trust, of which Mr. Frenzel is a
co-trustee, and he disclaims beneficial interest therein.

(8) Includes 1,500 shares held by Mr. Shook's wife, and he disclaims
beneficial interest therein.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On December 29, 1995, IGC Energy, Inc. ("Energy"), an indirect,
wholly owned subsidiary of the Company, entered into a subscription
agreement to purchase an interest in a limited partnership known as
the Cambridge Ventures, L.P. (Partnership) ("CVLP"). CVLP is
licensed by the United States Small Business Administration as a
small business investment company. As such, CVLP operates as a
venture fund and invests in equities, debt securities with equity
participation and secured short and long-term loans; CVLP also
participates in other funds. Energy has invested a total of $275,000
in CVLP, which represents, in the opinion of the board of directors,
a fair and reasonable investment for Energy. Energy holds ten (10)
partnership units out of the two hundred and twenty five and one half
units (225.5) that have been sold in CVLP as of December 31, 1996.
On January 26, 1996, Jean L. Wojtowicz was elected to the board of
directors of the Company and Indiana Gas. Although Ms. Wojtowicz is
no longer an Indiana Gas director, she is now an Investments
director. Ms. Wojtowicz is the President and a Director of Cambridge
Capital Management Corp., which owns 50 percent of Cambridge
Ventures, Inc., the general partner in CVLP.

EXECUTIVE COMPENSATION AND OTHER INFORMATION

COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for reviewing and
approving all elements of the total compensation program for officers
of the Company and its subsidiaries and serves as the administrator
of the Company's Annual Management Incentive Plan ("Incentive Plan")
and the Executive Restricted Stock Plan ("Stock Plan"). The
committee is also responsible for monitoring the Company's executive
compensation programs to ensure that they are aligned with the
Company's business strategies and financial goals.

A. Executive Compensation Policy.

The Company's total compensation program for officers includes
base salaries, annual incentive payments, and restricted stock
grants. The committee's primary objective is to achieve above-
average performance by providing the opportunity to earn above-
average total compensation (base salary, at-risk annual and long-term
incentives) for above-average performance. Each element of total
compensation is designed to work in concert. The total program is
designed to attract, motivate, reward and retain the broad-based
management talent required to serve customer, employee, and
shareholder interests. The Company believes that the program also
motivates the Company's officers to acquire and retain appropriate
levels of stock ownership and is competitive with programs offered by
the companies that comprise the peer group ("Peer Group") included in
the performance graph on page 24. It is the opinion of the
committee that the total compensation earned by Company officers in
fiscal year 1997 achieves these objectives and is fair and
reasonable. Each aspect of the total compensation program is
discussed in greater detail below.

B. Components of Executive Compensation.

Annual Compensation. The annual compensation program consists
of two components, base salary and an at-risk incentive payment.
Individual salaries are set within ranges based on comparisons to
actual pay for comparable positions within the Peer Group, and
industry in general. In determining actual salaries within these
ranges, the committee takes into consideration individual
performance, experience, potential, and changes in executive
responsibilities. Establishing industry-based salary ranges provides
an objective standard by which to judge the reasonableness of the
Company's salaries, maintains the Company's ability to compete for
and retain qualified executives, and ensures that internal
responsibilities are properly rewarded.

All of the Company's officers, but particularly the five highest
paid officers, have a significant portion of their total compensation
at risk. Participation in the Incentive Plan, which includes the
chief executive officer, is extended to those positions that play key
roles in achieving annual financial and operating objectives. Annual
incentive opportunities are also based on periodic reviews of
prevailing Peer Group practices for comparable positions. The
potential incentive award is determined annually by non-employee
directors and is based upon a percentage of each participant's base
salary. During the past fiscal year, incentive opportunities for
executive officers, excluding the chief executive officer, ranged
from 40 to 50 percent of salary.

Prior to the start of the fiscal year, the committee recommends
to the board of directors, and the board of directors (excluding
Company and subsidiary employees) determines, minimum, target, and
maximum corporate performance levels. The performance that is
measured is the Company's financial performance, as determined by the
Company's consolidated return on equity, relative to the average
return on equity of companies in the Peer Group. Target performance
levels are set in excess of Peer Group performance in order to ensure
the linkage between financial performance and executive rewards.
Depending upon the Company's financial performance, the size of this
component can range from zero to the maximum level established for
each participant in the Incentive Plan.

In determining the cash payment that was received by executive
officers during the past fiscal year, the Company's consolidated
return on equity exceeded the target performance level and was at the
maximum performance level as determined by the board of directors.
Incentive payouts correspondingly were at the maximum amounts.

The second and smaller performance component is based upon each
executive's achievement of individual goals, which are consistent
with the Company's overall objectives and which are established prior
to the beginning of the fiscal year. Individual performance is
monitored and evaluated subjectively throughout the fiscal year.
Overall performance is measured after the end of the fiscal year by
the chief executive officer. Among the executive officers, during
the past fiscal year, no person had more than one-fourth of their
total potential incentive under the Incentive Plan dependent upon the
attainment of individual objectives.

Amounts actually paid under the Incentive Plan during the past
fiscal year relate to the Company's financial performance during
fiscal year 1996. The amounts payable under the Incentive Plan as a
result of the Company's financial performance for the past fiscal
year will not be determined and paid until the end of calendar year
1997, and, accordingly, will be reflected in next year's proxy
statement as part of fiscal year 1998 compensation.

During the past fiscal year, Indiana Gas recognized, with the
approval of its board of directors, and the concurrence of the
independent members of the Company's board of directors, an after-tax
restructuring charge in the amount of $24.5 million. The charge
occurred as a result of a restructuring of Indiana Gas' operations,
including the implementation of several actions designed to both
reduce its operating costs and position it to remain a competitive
choice for energy consumers vis-a-vis other energy providers. The
Indiana Gas board of directors concluded that these actions were
necessary in light of the fundamental changes occurring in the
industry. The Company's consolidated return on equity for the past
fiscal year after the Indiana Gas restructuring charge was 7 percent
and before the Indiana Gas restructuring charge was 14.7 percent.

The Incentive Plan authorizes the independent members of the
Company's board of directors to exclude the effect of the
restructuring charge from the measurement of the Company's
consolidated return on equity if they conclude that the action is
appropriate in light of unforeseen or unusual circumstances. On
October 31, 1997, the Company's independent members of the board of
directors determined that the restructuring charge should be excluded
when measuring the Company's fiscal year 1997 consolidated return on
equity under the Incentive Plan. In making that determination, those
directors concluded that in light of the swift and fundamental
changes occurring in the energy industry, as well as the long-term
benefits that should inure to Indiana Gas and its customers from the
restructuring, management should be encouraged to undertake this
action, even though it will adversely affect the Company's short-term
financial results. This action will affect payments made under the
Incentive Plan during fiscal year 1998, and will be reported as
compensation in next year's proxy statement. Absent this
determination by the independent members of the board of directors,
management would experience a substantial reduction in their at-risk
compensation, even though their actions were determined by the board
of directors to be both necessary and appropriate.

Long-Term Incentive Compensation. The purpose of the Stock Plan
is to retain and motivate the Company's principal officers and to
increase their incentive to work toward the attainment of the
Company's long-term growth and profit objectives by providing them
with a means of acquiring or increasing a proprietary interest.
Under the Stock Plan, the committee recommends to the board, and the
board (excluding Company and subsidiary employees) determines, the
executive officers, as well as other principal officers, to whom
grants will be made and the percentage of each officer's base salary
to be used for determining the number of shares to be granted. Like
the potential cash payment that may be received under the Incentive
Plan, this component of total compensation is also performance driven
and totally at-risk.

The Stock Plan provides for a grant to eligible officers at the
outset of each measuring period and also provides for grants of
shares to be made to newly eligible principal officers during a
measuring period. Through the end of the past fiscal year, every
three years a grant was provided for each measuring period under the
plan, with those periods consisting of consecutively running three-
year periods. Shares were allocated under the Stock Plan effective
October 1, 1987, for the "First Measuring Period," October 1, 1990,
for the "Second Measuring Period," October 1, 1993, for the "Third
Measuring Period," and October 1, 1996, for the "Fourth Measuring
Period." As discussed below, effective October 1, 1997, the Stock
Plan was amended to provide for annual grants to participants rather
than grants every three years.

To be eligible for a grant, a principal must consent in writing
to observe the restrictions imposed on the shares. The shares may
not be sold, transferred, pledged, or assigned until such
restrictions are lifted. For the three-year grants that were
provided under the Stock Plan through the end of the past fiscal
year, the restrictions are lifted in 33 1/3 percent increments on the
fourth, fifth, and sixth anniversaries of the calendar day
immediately preceding the first calendar day of the measuring period.

The granting of additional shares, if any, and the application
of forfeiture provisions, depends upon two primary criteria: (i)
certain measurements of the total return to the Company's
shareholders in comparison to the total return of shareholders of the
companies in the Peer Group; and (ii) the continued employment of the
officer during the period of restriction.

For each three-year measuring period under the Stock Plan,
depending upon the total return provided to the Company's
shareholders relative to the total return provided by each of the
companies in the Peer Group, there are three possible outcomes.
If the Company's total return places it in the bottom quartile,
all of the shares are forfeited. If the Company's total return
places it in the second or third quartiles, the original grant is
vested, subject to continuing employment by the officers during
the remaining period of restriction. If the Company's total
return places it in the top quartile, the original grant is doubled
and vested, subject to continuing employment by the officers during
the remaining period of restriction.

For the First Measuring Period ended September 30, 1990, the
Second Measuring Period ended September 30, 1993, and the Third
Measuring Period ended September 30, 1996, the number of shares
originally granted were doubled under the Stock Plan because the
Company's total return to shareholders placed it in the top quartile
compared to the total return performance of the Peer Group companies.
Among all of the companies in the Peer Group, the Company was the
sole Peer Group member to perform in the top quartile for all three
measuring periods.

Effective October 1, 1997, the Stock Plan was amended to provide
that grants would be provided on an annual basis instead of every
three years. To reflect the change from three-year grants to annual
grants, the percentage of the participant's annual salary that is
used to determine the grant is no longer subject to a multiplier of
three. Although grants will still be subject to a three year total
return performance measuring period, as described above, all of the
restrictions will be lifted on the fourth anniversary of the calendar
day immediately preceding the first calendar day of the measuring
period applicable to that grant. It is the opinion of the committee
that this will better ensure that in each fiscal year the Company's
total return to shareholders will have a significant effect upon
participants' total compensation.

It is the opinion of the committee that the Stock Plan meets its
objective of providing executive officers, as well as other principal
officers, with the appropriate long-term interest in maximizing
shareholder value. A participant's increased level of equity in the
Company is contingent upon the additional enhancement of shareholder
value relative to the performance of companies in the Peer Group. In
addition, the vesting restrictions provide an incentive for all plan
participants to remain with the Company.

C. Chief Executive Officer Compensation.

The compensation of Lawrence A. Ferger, Chairman and Chief
Executive Officer, consists of the same components as for other
executive officers, namely base salary, an at-risk payment under the
Incentive Plan, and an at-risk grant of restricted stock under the
Stock Plan.

In establishing Mr. Ferger's total compensation for fiscal year
1997, the committee considered the total compensation of other chief
executive officers in the Peer Group, the financial and business
performance of the Company, and a subjective evaluation of the
leadership role provided by Mr. Ferger.

Mr. Ferger's payment received under the Incentive Plan during
fiscal year 1997 was based entirely upon the financial performance of
the Company as measured by its consolidated return on equity relative
to the average return on equity of companies in the Peer Group. This
method of measurement ensures the linkage of this aspect of Mr.
Ferger's compensation to Company performance. Under the Incentive
Plan, the maximum award Mr. Ferger was eligible to receive was an
amount equal to sixty percent of his base salary. As discussed above
with respect to other executive officers, during the past fiscal year
the Company's consolidated return on equity exceeded the target
performance level and was at the maximum performance level as
determined by the board. The incentive payout correspondingly was at
the maximum level.

Mr. Ferger's receipt of restricted shares under the Stock Plan
is likewise directly linked to the Company's performance. Whether
stock is received and, if so, in what amount, will depend upon the
measurement of the total return provided to the Company's
shareholders in comparison to the total return provided to the
shareholders of companies in the Peer Group. As discussed above with
respect to the other executive officers, fiscal year 1997 was the
first year of the fourth three year measuring period under the Stock
Plan. Whether and to what extent Mr. Ferger will be permitted to
retain the grant of restricted stock received during the past fiscal
year under the Stock Plan will depend upon the Company's financial
performance during the Fourth Measuring Period. Moreover, grants of
restricted stock after the past fiscal year will be in accordance
with the Stock Plan, as amended, as discussed in Section B under "Long-
Term Incentive Compensation".

For the same reasons expressed above with respect to the
conclusion regarding the appropriateness of the total compensation
provided other executive officers, it is the opinion of the committee
that Mr. Ferger's total compensation is reasonable and appropriate.

D. Compensation Consultant, Termination Benefit Agreements And
Deductibility Of Executive Compensation.

To assist the committee, the services of an independent
compensation consultant are utilized. The consultant assists by
evaluating the total compensation system relative to the compensation
systems employed by companies in the Peer Group. The consultant also
provides an additional measure of assurance that the system is a
reasonable and appropriate means to achieve the Company's objectives.

As described on page 27 under the heading "Employment and
Termination Benefit Agreements," with the exception of Timothy M.
Hewitt, the Company has entered into such agreements with each of the
executive officers. Neither form of agreement affects in any manner
the recommendations of the committee and the determinations by the
board (excluding employees of the Company and its subsidiaries) with
respect to the total compensation provided the executive officers.

In 1993, Congress enacted Section 162(m) of the Internal Revenue
Code (Code), applicable to the individual executives named in
the Summary Compensation Table, that disallows corporate deductibility
for "compensation" paid in excess of $1 million unless the compensation
is payable solely on account of achievement of an objective performance
goal. The committee does not anticipate that in the near future the
compensation paid to executive officers in the form of base salaries
and incentive compensation will be non-deductible under Section
162(m) of the Code.

Otto N. Frenzel III, Chair
Don E. Marsh
Richard P. Rechter

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Lawrence A. Ferger is a director of National City Bank, Indiana.
Otto N. Frenzel III, chair of the Company's Compensation Committee,
is Chairman of the Executive Committee of National City Bank,
Indiana. During the past fiscal year, Indiana Gas had a bank line of
credit agreement with National City Bank, Indiana for borrowing by
Indiana Gas not to exceed $25,000,000 at any one time. At September
30, 1997, there was $5,000,000 outstanding under such line. The
interest on borrowings under that line of credit has been at a rate
not to exceed the prime lending rate at the bank which, in the
opinion of the board of directors, is fair. Similar bank lines of
credit agreements have been in effect between Indiana Gas and the
bank in the normal course of business for many years. Moreover, as
of September 30, 1997, Energy Realty, Inc., an indirect subsidiary of
the Company, had two loans outstanding in an aggregate amount of
approximately $5,432,254 from National City Bank, Indiana at variable
rates of interest tied to commercially-recognized benchmarks, which
in the opinion of the board of directors are fair. During the past
fiscal year, the Company and its subsidiaries collectively paid
National City Bank, Indiana remittance processing fees, including
bank service charges, of $611,495, and interest on short-term debt in
the amount of $247,064, which payments, in the opinion of the board
of directors, were fair. Finally, on July 31, 1995, Energy Realty,
Inc. and National City Bank, Indiana each invested $806,250 in the
Lebanon Housing Partnership, L.P. As a result of these investments,
each company owns 37.125% of the partnership.

None of the Company's executive officers is a member of the
Compensation Committee.

COMPENSATION

The following tabulation shows for the fiscal years ended
September 30, 1995, 1996 and 1997, the compensation paid by the
Company and its subsidiaries to each of the five most highly
compensated executive officers of the Company (considering for this
purpose Mr. Ard, Mr. Baker and Mr. Hewitt, all of whom were executive
officers of Indiana Gas during the past fiscal year, to be executive
officers of the Company) in all capacities in which they served.

<TABLE>
Summary Compensation Table

(a) (b) (c) (d) (e) (h) (i)
<S> <C> <C> <C> <C> <C> <C>
Long-Term
Compensation All Other
Annual Compensation Payouts Compensation
Other Annual LTIP
Name and Compensation Payouts
Principal
Position in
Group (1) Year Salary Bonus(2) (3) (4) (5)

Lawrence A. 1995 $347,615 $139,439 $ 35,665 $198,336 $ 15,790
Ferger, 1996 370,922 173,808 26,817 223,592 15,980
Chairman, 1997 396,692 222,577 55,052 297,232 39,225
President and
Chief
Executive
Officer

Paul T. Baker, 1995 236,077 75,093 10,541 52,506 13,050
Sr. V.P. and 1996 249,308 89,709 8,240 59,183 13,137
Chief 1997 257,785 118,561 20,134 99,068 28,991
Operating
Officer,
Indiana Gas

Niel C. 1995 175,885 56,179 14,271 81,829 11,700
Ellerbrook, 1996 186,846 67,617 10,604 92,235 11,985
Executive V.P. 1997 217,923 89,271 21,050 114,419 21,117
and Treasurer
and Chief
Financial
Officer

Anthony E. 1995 133,962 32,755 7,905 48,202 10,926
Ard, 1996 142,019 38,104 5,727 54,332 12,067
Sr. V.P. of 1997 147,477 68,485 10,678 58,102 20,037
Corp. Affairs,
Indiana Gas

Timothy M. 1995 124,577 31,875 6,071 38,601 13,251
Hewitt, V.P. 1996 131,385 36,680 4,317 43,509 10,721
of Operations 1997 136,977 50,510 7,577 41,739 14,662
and
Engineering,
Indiana Gas
</TABLE>

(1) The principal position titles are as of September 30, 1997. As
described on pages 4-7, Messrs. Ferger, Baker, Ellerbrook and Ard each
had principal position changes effective October 1, 1997.

(2) The amounts shown in this column are payments under the Annual
Management Incentive Plan, which was discussed above in Parts B and C
of the Compensation Committee Report relating to "Annual
Compensation." Amounts paid in any fiscal year are attributable to
the Company's performance in the prior fiscal year. Payments earned
in fiscal year 1997 have not been determined and approved for
distribution by the Company's Compensation Committee. The Company's
performance over the last five years is depicted on page 25.

(3) The amounts shown in this column are dividends paid on
restricted shares issued under the Stock Plan, which was discussed
above in Parts B and C of the Compensation Committee Report relating
to "Long-Term Incentive Compensation."

(4) The amounts shown in this column represent the value of shares
issued under the Stock Plan and for which restrictions were lifted in
each of those fiscal years. For instance, the amounts shown for
fiscal year 1997 represent the value of one-third of the Third
Measuring Period shares, including the performance grant, issued
under the Stock Plan and for which restrictions were lifted as of
September 30, 1997. After the lifting of those restrictions, the
executive officers, as a group, held 79,034 restricted shares, with
an aggregate market value of those shares as of that date of
$2,351,263. Those shares continue to be subject to restrictions
imposed by the Stock Plan, and they represent two-thirds of the
initial grant and the performance grant of the Third Measuring Period
shares, and all of the initial grant of the Fourth Measuring Period.
The number and value of restricted shares held by each executive
officer on September 30, 1997, was as follows: Lawrence A. Ferger -
37,880 shares, $1,126,930; Paul T. Baker - 14,178 shares, $421,796;
Niel C. Ellerbrook - 14,458 shares, $430,126; Anthony E. Ard - 7,332
shares, $218,127; and Timothy M. Hewitt - 5,186 shares, $154,284.

(5) The amounts shown in this column are Company contributions to
the Retirement Savings Plan and the dollar value of insurance premiums
paid by, or on behalf of, the Company and its subsidiaries with
respect to split-dollar life insurance for the benefit of executive
officers.

LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR

<TABLE>
Estimated Future Payouts
Under Non-Stock Price-Based Plans

(a) (b) (c) (d) (e) (f)
<S> <C> <C> <C> <C> <C>
Number of Performance
Name and Shares, or Other Target
Principal Units or Periods Until Threshold Number Maximum
Position in Other Maturation Number of of Shares Number of
Group (1) Rights(2) or Payout(3) Shares(4) (5) Shares(6)

Lawrence A. 32,885 - 0 17,899 35,798
Ferger,
Chairman,
President and
Chief Executive
Officer

Paul T. Baker, 12,513 - 0 7,518 15,036
Sr. V.P. and
Chief Operating
Officer,
Indiana Gas

Niel C. 12,535 - 0 6,766 13,532
Ellerbrook,
Executive V.P.
and Treasurer
and Chief
Financial
Officer

Anthony E. Ard, 6,355 - 0 3,425 6,850
Sr. V.P. of
Corp. Affairs,
Indiana Gas

Timothy M. 4,485 - 0 2,381 4,762
Hewitt, V.P. of
Operations and
Engineering,
Indiana Gas

</TABLE>

(1) The principal position titles are as of September 30, 1997. As
described on pages 4-7, Messrs. Ferger, Baker, Ellerbrook and Ard each
had principal position changes effective October 1, 1997.

(2) This column shows the restricted shares awarded during fiscal
year 1997 under the Executive Restricted Stock Plan. The manner for
determining the awards under the plan, and other terms and conditions
of that plan, are discussed above in Part B of the Compensation
Committee Report relating to "Long-Term Incentive Compensation." The
market value of the shares on the dates of the grants is determined
according to a formula in the plan based on an average price over a
period of time preceding the grant. Dividends are paid directly to
the holders of the stock. Included are the performance grant
relating to the Third Measuring Period and the initial grant shares
for the Fourth Measuring Period. As explained above in footnote (4)
to the Summary Compensation Table, one-third of the Third Measuring
Period initial grant and performance grant shares became unrestricted
as of September 30, 1997, and the dollar value of those shares is
shown in the fiscal year 1997 data in column (h) of the Summary
Compensation Table.

(3) As discussed above in Part B of the Compensation Committee
Report relating to "Long-Term Incentive Compensation," for grants
provided through the end of the past fiscal year, the restrictions
are lifted in 33 1/3 percent increments on the fourth, fifth, and
sixth anniversaries of the calendar day immediately preceding the
first calendar day of the measuring period. The granting of additional
shares, if any, and the application of forfeiture provisions depends
upon certain measurements of the Company's total return to
shareholders in comparison to the total return to shareholders of a
predetermined group of comparable companies.

(4) The Fourth Measuring Period initial grant shares, which are
included in the total number of shares shown in column (b) and are
set forth separately in column (e), are subject to forfeiture. If
the Company's performance compared to the peer group during this
measuring period places it in the bottom quartile, the executive
officers will forfeit all of the shares granted for this period.

(5) The Fourth Measuring Period initial grant shares, which are
included in the total number of shares in column (b), are presented
in this column. If the Company's performance compared to the peer
group during this measuring period places it in the middle two
quartiles, these shares will vest. As indicated in footnote (2), in
addition to these shares, column (b) includes the Third Measuring
Period performance grant shares. The performance grant shares will
generally vest upon the expiration of the relevant time periods
specified in the Executive Restricted Stock Plan and are no longer
subject to risk of forfeiture.

(6) Under the Executive Restricted Stock Plan, if the Company's
performance compared to the peer group during the Fourth Measuring
Period places it in the top quartile, an additional performance grant
equal to the original Fourth Measuring Period grant will be made. In
that event, the shares shown in column (e) will be doubled.

CORPORATE PERFORMANCE

The following Total Return to Shareholders graph compares the
performance of the Company with that of the S&P 500 Composite, the
S&P Utilities Index and a group of peer gas distribution companies,
with the return weighted based on market capitalization. The Return
on Equity graph compares the performance of the Company with the same
peer group. For fiscal year 1997, companies in the peer group are as
follows: AGL Resources, Atmos Energy Corp., Bay State Gas Co.,
Cascade Natural Gas Corp., CTG Energy Resources, Inc. (formerly
Connecticut Natural Gas Corp.), Energen Corp., KeySpan Energy Corp.
(formerly Brooklyn Union), Laclede Gas Co., MCN Energy Group
(formerly MCN Corp.), National Fuel Gas Co., New Jersey Resources
Corp., NICOR, Inc., NW Natural (formerly Northwest Natural Gas Co.),
NUI Corp., Pacific Enterprises, Pennsylvania Enterprises, Inc.,
Peoples Energy Corp., Piedmont Natural Gas Co., Inc., Public Service
Co. of North Carolina, Inc., South Jersey Industries, Inc., SEMCO
Energy, Inc. (formerly Southeastern Michigan Gas Enterprises, Inc.),
Southern Union Co., Southwest Gas Corp., Southwestern Energy Co., UGI
Corp., Washington Gas Light Co. and WICOR, Inc. The companies to be
included in the peer group were determined by one of the Company's
investment bankers and approved by the Company's Compensation
Committee.

From year to year, the Company's investment bankers review the
composition of the peer group to ensure comparability among the
member companies. If in their judgment a company is determined not
to be comparable, it will be removed from the peer group and, if
possible, replaced with a comparable company. Companies can also be
removed if they are acquired or merged out of existence. Based upon
an assessment of the comparability of the existing peer group, the
Company's investment bankers changed the peer group used for fiscal
year 1996 (the "1996 Peer Group") by removing both United Cities Gas
Co. and Washington Energy Co., which were each merged out of
existence, and adding Eastern Enterprises. The 1996 Peer Group, as
revised for these changes, was used during fiscal year 1997 (the
"1997 Peer Group"). The following graphs reflect comparisons of
total return for the 1997 Peer Group, the 1996 Peer Group, the S&P
500 and the S&P Utilities.

Total Return to Shareholders (1) (2) (3)

[INSERT GRAPH A]

<TABLE>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
IEI 0.00% 24.79% 11.36% 28.07% 51.02% 93.01%
1997 PEER GROUP 0.00% 30.03% 15.90% 32.02% 66.55% 99.41%
1996 PEER GROUP 0.00% 30.50% 15.88% 31.42% 65.91% 99.75%
S&P 500 0.00% 13.00% 17.17% 52.02% 82.92% 156.91%
S&P UTILITIES 0.00% 24.43% 8.13% 37.96% 48.31% 69.64%
</TABLE>

(1) The total return on investment (change in the year-end stock
price plus reinvested dividends) for each of the periods for the
Company, the respective peer groups, the S&P 500 Composite and the
S&P Utilities Index is based on the stock price or composite index at
the end of fiscal 1992.

(2) As discussed in the "Compensation Committee Report" above, the
Stock Plan also measures the Company's total return to shareholders.
However, the Stock Plan methodology requires a determination of the
total return to shareholders of the Company and the peer group
companies by comparing a 12-month average trading price at the end of
the measuring period with a 12-month average price preceding the
measuring period. Unlike the Stock Plan methodology, the methodology
used in preparing the above performance graph requires a measurement
of the total return to shareholders of the Company and of the peer
group companies at specific points in time--activity as of September
30, 1992 compared with activity as of September 30, 1993, 1994, 1995,
1996 and 1997. Moreover, the Stock Plan also uses a three-year
measurement period versus the five-year measurement period used in
the above performance graph. Finally, the Stock Plan's measurement
of peer group companies' performance is not weighted by the
companies' relative market capitalization, while the above
performance graph does use such weighting. Because of the differences
in these two methodologies, the measurements produced by the Stock
Plan and the above performance graph will vary.

(3) Two companies had a significant impact on the total return
performance of both the 1997 Peer Group and the 1996 Peer Group when
those returns were weighted based upon market capitalization.
Excluding those two companies which have returns substantially higher
than the other companies in the Peer Groups, the total returns of
both the 1997 Peer Group and the 1996 Peer Group would have been
approximately 85 percent, compared to the Company's total return of
approximately 93 percent.

Return on Equity (1) (2) (3)

[INSERT GRAPH B]
<TABLE>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
IEI 11.46% 14.68% 13.00% 11.94% 14.63%
PEER GROUP 9.45% 10.34% 11.40% 9.15% 12.05%
</TABLE>

(1) Under the Incentive Plan, payments are awarded on the basis of
the Company's average return on equity compared to that of the peer
group in any fiscal year and are paid in the first quarter of the
succeeding fiscal year. Accordingly, payments paid to executive
officers in the first quarter of fiscal year 1997 were based on the
Company's comparative return on equity during the fiscal year 1996,
and so on, back to 1988, the first year in which payments were made.

(2) For purposes of the Incentive Plan, average return on equity for
both the Company and the peer group has been computed using the
simple average of beginning and ending common shareholders' equity as
of September 30.

(3) The peer group return on equity by fiscal year reflects the peer
group for each of those years as determined by the Company's
investment bankers and approved by the Compensation Committee. See
the discussion above under "Corporate Performance."

RETIREMENT SAVINGS PLAN

As of October 1, 1994, Indiana Gas merged its Retirement Savings
Plan for bargaining employees ("Bargaining Savings Plan") into its
Retirement Savings Plan for non-bargaining employees ("Savings
Plan"). The primary objective for this action was to reduce the
level of resources required to administer two plans. In general, the
Savings Plan permits participants to elect to have not more than 15
percent of their qualified compensation (subject to certain maximums
imposed on highly compensated employees by the Internal Revenue Code)
invested on a tax-deferred basis in shares of the Company's Common
Stock or various investment funds. Non-bargaining participants in
the Savings Plan have matching Company contributions made to the plan
on their behalf equal to 100 percent of their contributions not in
excess of 3 percent of their individual redirected compensation, and
50 percent of their contributions in excess of 3 percent, but not in
excess of 8 percent of their individual redirected compensation.
Also, a 2.5 percent lump sum Company contribution is made to the
Savings Plan for all eligible non-bargaining employees at the end of
each year. Effective October 1, 1997, sponsorship of the Savings
Plan was transferred from Indiana Gas to the Company and that plan
was renamed the Indiana Energy, Inc. Retirement Savings Plan. Other
than sponsorship of the plan, it remains unchanged in all material
respects.

The Summary Compensation Table shows the value of Indiana Gas
contributions made to the plan for executive officers in the column
marked "All Other Compensation."

RETIREMENT PLANS

During the past fiscal year, Indiana Gas had two defined benefit
pension plans covering full-time employees of the Company and certain
of its subsidiaries who meet certain age and service requirements.
One such plan covers salaried employees, including executive
officers, and provides fixed benefits at normal retirement age based
upon compensation and length of service, the costs of which are fully
paid by the employer and are computed on an actuarial basis. The
pension plan also provides for benefits upon death, disability and
early retirement under conditions specified therein. The
remuneration covered by this plan includes all compensation for
regular work periods (excluding overtime, bonuses and other forms of
additional compensation). As of July 1, 1991, the retirement plans
maintained by Terre Haute and Richmond were merged into, and became
part of, the Indiana Gas defined benefit pension plans. Effective
October 1, 1997, sponsorship of the plan that covers salaried
employees was transferred to the Company and it was renamed the
Indiana Energy, Inc. Combined Non-Bargaining Retirement Plan. Other
than sponsorship of the plan, it remains unchanged in all material
respects.

During the past fiscal year, Indiana Gas had a supplemental
pension plan covering the principal officers of the Company, its
subsidiaries, and Carl L. Chapman, president of ProLiance Energy,
LLC, a joint venture between a Company subsidiary and Citizens By-
Products Coal Company, an affiliate of Citizens Gas & Coke Utility.
The supplemental pension plan provides fixed benefits at normal
retirement age based upon compensation and is computed on an
actuarial basis. The supplemental pension plan also provides for
benefits upon death, disability and early retirement under conditions
specified therein, including service requirements. This supplemental
pension plan also provides a reduced benefit to a participant who
voluntarily terminates his employment with a participating employer
(which may consist of the Company or one or more of its subsidiaries)
before normal retirement age (65), but following a change in control
of the Company. The remuneration covered by the supplemental pension
plan includes all compensation for regular work periods (including
incentive payments and other forms of additional compensation).
Effective October 1, 1997, sponsorship of this plan was transferred
to the Company and it was renamed the Indiana Energy, Inc. Unfunded
Supplemental Retirement Plan. Other than sponsorship of the plan, it
remains unchanged in all material respects.

Upon retirement at or after age 65, any participant in the
supplemental pension plan will, in general, be entitled to an annual
pension for life which, when added to primary Social Security
benefits, benefits paid under the defined benefit pension plan
described above and benefits under the Retirement Savings Plan
attributable to contributions by participants' employers, will equal
approximately 65 percent of the participant's average annual
compensation during the 60 consecutive calendar months immediately
preceding the participant's retirement date. The amounts paid under
the supplemental pension plan are unfunded and are paid from the
general assets of the Company.

The following table illustrates the estimated normal annual
retirement benefits payable to a covered participant retiring at age
65 under the supplemental pension plan and under the defined benefit
plan based on the specified remuneration and under the Retirement
Savings Plan attributable to contributions made by the Company and,
as pertinent, one or more of its subsidiaries. The compensation
included in the Summary Compensation Table under salary and payments
under the annual Incentive Plan qualifies as remuneration for
purposes of these plans. The amounts shown do not reflect
reductions, which would result from joint and survivor elections.

Pension Table
15 or More Years of Service (1)

Remuneration Amount of Benefits
Level (2)
$125,000 $ 81,250
150,000 97,500
175,000 113,750
200,000 130,000
225,000 146,250
250,000 162,500
300,000 195,000
350,000 227,500
400,000 260,000
450,000 292,500
500,000 325,000

(1) The compensation covered by the plans includes the salary and
incentive payments shown on the Summary Compensation Table. Years of
service are not used in calculating the benefit amount under the
Unfunded Supplemental Retirement Plan. The amounts shown above are
offset by Social Security and benefits under the Retirement Savings
Plan attributable to contributions made by the Company and, as
pertinent, one or more of its subsidiaries.

(2) Although the benefit attributable to the Savings Plan will be
paid in a single lump sum payment, it has been converted to an annual
benefit for purposes of this table. The estimated aggregate annual
pension plan benefit may be greater than the amounts in the table to
the extent that the Savings Plan benefit, after conversion to an
annual benefit and when added to the annual benefit under the
applicable defined benefit plan, exceeds the amount specified in the
table. Since the Savings Plan has only been in effect for a few
years, it is unlikely in the near future that the aggregated Savings
Plan benefit and defined benefit plan benefits will exceed the amount
specified in the table.

EMPLOYMENT AND TERMINATION BENEFIT AGREEMENTS

The Company, with approval of the boards of directors, has
entered into employment agreements with four out of the five
executive officers listed in the Summary Compensation Table. Each
agreement continues unless notice of termination is given by either
party, in which event the agreement will terminate three years from
the date of the notice. The period between notice and termination is
defined as an "employment period" under each agreement. Each officer
is entitled to compensation consisting of the annual aggregate base
salary or salaries, and such additional compensation as the board
determines throughout the employment period. Each agreement is also
subject to termination in the event of disability, death, or
voluntary retirement by the individual or his termination for cause.

The Company, with approval of the board of directors, has
entered into termination benefit agreements with each of the
executive officers listed in the Summary Compensation Table. With
the exception of Timothy M. Hewitt, the agreements provide that if
there is an acquisition of control of the Company (as defined in the
agreements), the Company is obligated to pay the termination benefits
under the following conditions:

Within three years the Company terminates the employment of
the executive for any reason (other than cause, death, the
executive's attainment of age 65,or the executive's total and
permanent disability); or

Within three years the executive voluntarily terminates his
employment for good reason (i.e., certain material changes in the
terms of the executive's employment);or

The executive voluntarily terminates his employment without
reason during the 30-day period immediately following the first
anniversary of the acquisition of control.

The termination benefits payment is the executive's average annual
compensation for the most recent five calendar years multiplied by
299.99%. The initial term of the agreements expires on October 1,
2002 and shall be automatically extended for one year periods unless
the Company notifies the executive prior to October 1 of each
succeeding year that the Agreement will terminate at the end of the
five year period that begins with October 1 following the date of
such written notice. The agreement with Mr. Hewitt is comparable to
the agreements just described, except that the provisions of Mr.
Hewitt's agreement, including the termination benefits payment, are
predicated upon the use of one year rather than three years.

INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY

Arthur Andersen, L.L.P., Indianapolis, has been selected by the
board of directors as the independent public accountants of the
Company and its subsidiaries for fiscal year 1998. The selection was
made upon the recommendation of the Audit Committee of the board of
directors. See "Meetings and Committees of the Board of Directors."
Arthur Andersen, L.L.P. has served as auditors for the Company since
1986 and for Indiana Gas since its organization in 1945. A
representative of that firm will be present at the annual meeting,
will have the opportunity to make a statement and will be available
to respond to questions.

COST AND METHOD OF SOLICITATION

The cost of preparing, assembling, printing and mailing this
proxy statement, the enclosed proxy and any other material which may
be furnished to shareholders in connection with the solicitation of
proxies for the meeting will be borne by the Company. The Company
has retained Corporate Investor Communications, Inc. to assist in
soliciting proxies from shareholders, including brokers' accounts, at
an estimated fee of $5,000 plus reasonable out-of-pocket expenses.
In addition, some of the officers and regular employees of the
Company, who will receive no compensation therefor in addition to
their regular salaries, may solicit proxies by telephone, telegraph
or personal visits, and it is estimated that the cost of such
additional solicitation, if any, will not exceed $500, and will be
borne by the Company. The Company expects to reimburse banks,
brokerage houses and other custodians of stock for their reasonable
charges and expenses in forwarding proxy material to beneficial
owners.

ANNUAL REPORT

A copy of the Company's annual report, including consolidated
financial statements for the fiscal year ended September 30, 1997,
was mailed to shareholders on or about December 5, 1997.

REVOCATION RIGHTS

A shareholder executing and delivering the enclosed proxy may
revoke it by written notice delivered to the secretary of the
Company, or in person at the annual meeting, at any time before the
authority granted by it is exercised.

SHAREHOLDERS' PROPOSALS FOR 1999 ANNUAL MEETING

Under Rule 14a-8 under the Securities Exchange Act of 1934,
shareholders of the Company may present proper proposals for
inclusion in the Company's proxy statement and for consideration at
the 1999 annual meeting of its shareholders by submitting their
proposals to the Company in a timely manner. In order to be so
included for the 1999 annual meeting, shareholder proposals must be
received at the Company's principal office, 1630 North Meridian
Street, Indianapolis, Indiana 46202-1496, Attention: Corporate
Secretary, no later than August 7, 1998, and must otherwise comply
with the requirements of Rule 14a-8.

If a shareholder desires to bring business before the meeting
which is not the subject of a proposal timely submitted for inclusion
in the proxy statement, the shareholder must follow procedures
outlined in the Company's Code of By-Laws. A copy of these
procedures is available upon request from the Corporate Secretary at
the address referenced above. One of the procedural requirements in
the Company's Code of By-Laws is timely notice in writing of the
business the shareholder proposes to bring before the meeting. To be
timely a shareholder's notice must be delivered to, or mailed and
received at, the principal office of the Company not less than 50
days nor more than 90 days prior to the meeting, provided, however,
that if less than 60 days' notice of the meeting date is given,
notice by the shareholder must be so received by the Company not
later than the tenth day following the day on which the notice is
given.

By order of the board of directors.

INDIANA ENERGY, INC.

By RONALD E. CHRISTIAN
Secretary and General Counsel

Indianapolis, Indiana
December 5, 1997

Please fill in, date and sign the enclosed proxy and return it
in the accompanying addressed envelope. No further postage is
required if mailed in the United States. If you attend the annual
meeting and wish to vote your shares in person, you may do so. Your
cooperation in giving this matter your prompt attention will be
appreciated.

[SIDE 1]

INDIANA ENERGY, INC. PROXY/VOTING INSTRUCTION CARD
COMMON STOCK

This proxy is solicited on behalf of the Board of Directors for the
Annual Meeting on January 28, 1998.

ANTHONY E. ARD, CARL L. CHAPMAN and RONALD E. CHRISTIAN and each of
them, are hereby appointed proxies of the undersigned, with power of
substitution, to vote all of the shares of Common Stock of INDIANA
ENERGY, INC., owned by the undersigned, at the Annual Meeting of
Shareholders to be held on January 28, 1998, and at any adjournments
thereof, on the matters and in the manner specified on the reverse side
of this proxy.

Receipt of Notice of Annual Meeting of Shareholders, dated December
5, 1997, and Proxy Statement attached thereto is hereby acknowledged.

This proxy will be voted as directed. If no direction is given, this
proxy will be voted FOR the proposals.

1. Election of Directors (three-year term):

Nominees: Paul T. Baker, Otto N. Frenzel III, Don E. Marsh and
Richard P. Rechter.

2. Amendment to the Articles of Incorporation to increase the authorized
Common Stock from 64,000,000 to 200,000,000 shares.

You are encouraged to specify your choices by marking the appropriate
box on the reverse side.

PLEASE SIGN AND DATE ON THE REVERSE SIDE AND MAIL PROMPTLY IN THE
ENCLOSED ENVELOPE.
[SIDE 2]

x
Please mark your votes as in this example.

This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder(s). If no direction
is made, this proxy will be voted FOR the proposal.

The Board of Directors recommends a vote FOR the
Election of Directors and vote FOR the
Amendment to the Articles of Incorporation.

FOR WITHHELD authority for all Nominees

1. Election of To withhold authority to vote
Directors for any specific nominee(s), mark
the "WITHHELD" box and write the
name of each nominee for whom
you are withholding authority to
vote on the line provided below.

FOR AGAINST ABSTAIN

2. Amendment to the Articles
of Incorporation

3. In their discretion, the proxies are authorized to vote upon such
business as may properly come before the meeting.

Please sign exactly as your name(s)
appears hereon. All joint tenants
should sign. When signing as
attorney, executor, administrator,
trustee or guardian, give full title as
such. If a corporation, sign the full
corporate name by an authorized
officer. If a partnership, sign in
partnership name by authorized person.

Signature(s) Date