INDIANA GAS CO INC, 10-K405, 1998-12-18

INDIANA GAS CO INC
10-K405, 1998-12-18
NATURAL GAS DISTRIBUTION

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December 18, 1998

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, 1998, 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, 1998

[ ] 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
Title of each class on 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, 1998
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

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 1998, Indiana Gas supplied gas
to about 489,000 residential, small commercial
and contract (large 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,
1998, residential customers provided 65 percent
of revenues, small commercial 23 percent and
contract 12 percent. Approximately 99 percent of
Indiana Gas' customers used gas for space
heating, and revenues from these customers for
the fiscal year were approximately 87 percent of
total operating revenues. Sales of gas are
seasonal and strongly affected by variations in
weather conditions. Less than half of total
margin, however, is space heating related.
During the fiscal year ended September 30, 1998,
Indiana Gas added approximately 11,500
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
1998 represented 40 percent (45,598 MDth) of throughput
compared to 34 percent (41,874 MDth) in 1997 and 27
percent (34,165 MDth) in 1996. 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 also holds several contracts with
pipelines for storage of natural gas to meet a
portion of its peaking requirements.

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).

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

Indiana Gas had 754 full-time employees and 34
part-time employees as of September 30, 1998.

During 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, 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,
1998, such properties included 10,716 miles of
distribution mains; 496,281 meters; five
reservoirs currently being used for the
underground storage of purchased gas with
approximately 71,484 acres of land held under
storage easements; 8,509,841 Dth of gas in
company-owned underground storage with a daily
deliverability of 134,160 Dth; 5,184,527 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, 1998, amounted to
$57.3 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 11 for discussion of
litigation matters relating to the gas supply and
portfolio administration agreements between
ProLiance and Indiana Gas and ProLiance and
Citizens Gas.

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,
1998, 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 64 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 49 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 58 None Executive Vice
President and Chief
Operating Officer Oct. 1, 1997
Senior Vice President
and Chief Operating
Officer Aug. 1, 1991

Anthony E. Ard 57 None Secretary Jul. 31, 1998
Senior Vice President of
Corporate Affairs Jan. 9, 1995
(through
Sep. 30, 1997)
Vice President -
Corporate Affairs Jan. 11, 1993

Timothy M. Hewitt 48 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 1998, the company paid dividends
of $6.8 million, $6.8 million, $6.8 million and $7.0
million in the first, second, third and fourth
quarters, respectively.

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.

Item 6. Selected Financial Data

<TABLE>

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

Year Ended September 30 1998 1997(2) 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Operating revenues $465,644 $530,407 $530,594 $403,810 $475,297
Margin 194,640 207,885 210,463 185,315 194,309
Operating expenses 148,389 178,874 156,910 139,127 146,466
Operating income 46,251 29,011 53,553 46,188 47,843
Other income - net 866 1,241 984 1,451 2,790
Interest expense 16,234 16,774 15,907 15,530 16,037
Net income $ 30,883 $ 13,478 $ 38,630 $ 32,109 $ 34,596

Ratio of earnings to
fixed charges 3.9 2.2 4.6 4.1 4.1

Common shareholder's
equity $240,349 $268,762 $281,534 $268,154 $260,295
Long-term debt (1) 181,975 154,733 174,733 173,693 156,851
$422,324 $423,495 $456,267 $441,847 $417,146

Total Assets at Year-End $633,154 $665,719 $672,907 $655,933 $649,982

Total throughput 114,795 122,846 126,742 109,508 116,285

Annual heating degree days
as a percent of normal 86% 100% 108% 87% 102%

Utility customers served -
average 488,771 477,235 465,166 454,817 443,498

(1) Includes current maturities; excludes sinking fund requirements.
(2) Reflects the recording of pre-tax restructuring costs of $39.5
million in 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 for Indiana Gas Company, Inc. and subsidiaries (Indiana
Gas or the company) for the last three fiscal years were as
follows:

<TABLE>

(Millions) 1998 1997(1) 1996
<S> <C> <C> <C>
Net Income $30.9 $13.5 $38.6

(1)Reflects restructuring costs of $24.5 million after-tax (see
Growth Strategy and Corporate Restructuring).

</TABLE>

Margin (Operating Revenues Less Cost of Gas)
In 1998, margin decreased 6 percent ($13.2 million) when compared
to 1997. The decrease is primarily attributable to weather 14
percent warmer than last year and 14 percent warmer than normal,
offset somewhat by the addition of new residential and commercial
customers.

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

In 1998, total system throughput (combined sales and
transportation) decreased 7 percent (8.1 MMDth) when compared to
last year. In 1997, throughput decreased 3 percent (3.9 MMDth) when
compared to 1996. 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 $3.65 in 1998, $3.64 in 1997 and $3.14 in
1996. The price changes are due primarily to changing commodity
costs in the marketplace.

Operating Expenses
Operation and maintenance expenses increased approximately $4.6
million in 1998 when compared to 1997. The increase is due
primarily to service fees paid to Indiana Gas' affiliate, IEI
Services, LLC (IEI Services) related to assets now owned by IEI
Services. IEI Services began providing support services to Indiana
Gas effective October 1, 1997 (see resulting lower depreciation and
amortization below). The increase was offset somewhat by lower
labor costs and related benefits resulting from work force
reductions.

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.

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

Depreciation and amortization decreased in 1998 due primarily to
the transfer of assets to IEI Services, and assets held for
disposal which were written down to estimated fair value in 1997.
The decrease was offset somewhat by additions to plant to serve new
customers and to maintain dependable service to existing customers.
Depreciation and amortization expense increased in 1997 as the
result of additions to plant to serve new customers and to maintain
dependable service to existing customers.

Federal and state income taxes increased in 1998, while decreasing
in 1997, due primarily to the recording of restructuring costs in
1997.

Taxes other than income taxes decreased in 1998 due to lower
property tax expense and lower gross receipts tax expense. Taxes
other than income taxes remained approximately the same for 1997
when compared to 1996.

Interest Expense
Interest expense decreased in 1998 due to a decrease in interest
rates, offset somewhat by an increase in average debt outstanding.
Interest expense increased in 1997 due to an increase in average
debt outstanding, slightly offset by a decrease in interest rates.

Other Operating Matters

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 the current 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 through 2003. To achieve such earnings growth, Indiana
Energy's aim is to grow the earnings contribution from non-utility
operations to over 25 percent of its total annual earnings by 2003,
and to aggressively manage costs within its utility operations.

During 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) for
fiscal 1997 as described below.

In July 1997, Indiana Energy 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 by 2002. The reductions
are being implemented through involuntary separation and attrition.
Indiana Gas recorded restructuring costs of $5.4 million during
fiscal 1997 related to the 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. As a result primarily of
initial work force reductions during September 1997 and attrition,
Indiana Energy employees totaled approximately 890 as of September
30, 1998.

Further, Indiana Gas' management 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 during fiscal 1997 to adjust
the carrying value of those assets to estimated fair value. Net
assets held for disposal totaled $8.0 million at September 30,
1997, and were disposed of during fiscal 1998.

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. The formation of IEI Services
was established by a contribution of $32 million of fixed assets at
net book value from Indiana Gas, which subsequently dividended its
membership interest to Indiana Energy. The contributed assets
relate to the provision of administrative services. IEI Services
provides information technology, financial, human resources,
building and fleet services. These services had been provided by
Indiana Gas in the past.

As a result of the restructuring, Indiana Energy has already
realized, and expects further, reductions in future operating
costs, which should help the company 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.

The sale of gas and provision of other services to Indiana Gas by
ProLiance is 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 a decision finding the gas supply and portfolio
administration agreements between ProLiance and Indiana Gas and
ProLiance and Citizens Gas (the gas supply agreements) to be
consistent with the public interest. The IURC's decision reflected
the significant gas cost savings to customers obtained by
ProLiance's services and suggested that all material provisions of
the agreements between ProLiance and the utilities are reasonable.
Nevertheless, with respect to the pricing of gas commodity
purchased from ProLiance and two other pricing terms, 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.

The IURC's September 12, 1997, decision was appealed to the Indiana
Court of Appeals by certain Petitioners including the Indiana
Office of Utility Consumer Counselor and the Citizens Action
Coalition of Indiana. On October 8, 1998, the Indiana Court of
Appeals issued a decision which reversed and remanded the case to
the IURC with instructions that the gas supply agreements be
disapproved. The basis for the decision is that because the gas
supply agreements provide for index based pricing of gas commodity
sold by ProLiance to the utilities, they should have been the
subject of an application for approval of an alternative regulatory
plan under Indiana statutory law. The court held that absent this
type of application, the IURC exceeded its authority in
implementing what the court saw to be alternative regulatory
treatment.

Management believes the decision incorrectly applies the statute
and has decided to petition for transfer of the case to the Indiana
Supreme Court. If the Supreme Court does not overturn the Court of
Appeals' decision, the matter will be remanded to the IURC for
further proceedings. Whether or not the Supreme Court reverses the
Court of Appeals' decision, the reasonableness of the gas costs
incurred by Indiana Gas under the gas supply agreements will be
further reviewed in the consolidated GCA proceeding. Management
takes note of the fact that the Court of Appeals has not challenged
the IURC findings that the agreements provide significant economic
value to customers and are in the public interest. Indiana Gas is
continuing to utilize ProLiance for its gas supply.

On or about August 11, 1998, Indiana Gas, Citizens Gas and
ProLiance each received a Civil Investigative Demand ("CID") from
the United States Department of Justice requesting information
relating to Indiana Gas' and Citizens Gas' relationship with and
the activities of ProLiance. The Department of Justice issued the
CID to gather information regarding ProLiance's formation and
operations, and to determine if trade or commerce has been
restrained. Indiana Gas is providing the Department of Justice with
information regarding the formation of ProLiance in connection with
the CID.

While the results of the ProLiance issues mentioned above cannot be
predicted, management does not expect these matters to have a
material impact on Indiana Gas' financial position or results of
operations. However, no assurance can be provided.

The Year 2000 Issue
Many existing computer programs use only two digits to identify a
year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the
century. If not corrected, many computer applications could fail or
create erroneous results by or at the year 2000. This issue relates
not only to information technology (IT) but also to non-IT related
equipment and plant that may contain embedded date-sensitive
microcontrollers or microchips.

The company has identified what it believes are its most
significant worst case Year 2000 scenarios for the purpose of
helping it to focus its Year 2000 efforts. These scenarios are the
interference with the company's ability to (1) receive and deliver
gas to customers, (2) monitor gas pressure throughout the company's
gas distribution system, (3) bill and receive payments from
customers, and (4) maintain continuous operation of its computer
systems. As discussed below, the company is taking the steps
necessary to ensure that these worst case scenarios are addressed.

The company has evaluated the Year 2000 readiness of all IT
hardware and software including the mainframe, network, servers,
personal computers, system and application software and
telecommunications. Almost all hardware was found to be in
compliance as a result of projects conducted in 1997 and 1998.
Replacements of major customer information and billing systems,
which had already begun in 1997, are scheduled to be completed by
the first quarter of 1999. These new systems, driven by the need
for additional functionality and business flexibility, were also
designed to be Year 2000 compliant. Other maintenance and project
activities conducted in 1998 and scheduled for 1999 have been
initiated to bring the remaining software environment into
compliance. The projects include replacements, upgrades and
rewrites. The company's plan for IT items includes the following
phases and timeline: (a) Assessment - will be completed in 1998,
(b) Strategy - will be completed in 1998 and (c) Design,
Implementation, Testing and Validation - in process and to be
substantially completed by June 30, 1999. The company has not found
it necessary to postpone work on any other critical IT projects
because of efforts to achieve Year 2000 compliance.

Non-IT systems with embedded microcontrollers or microchips are
being evaluated and tested to determine if they are Year 2000
compliant. These systems include buildings, transportation,
monitoring equipment, process controls, engineering and
construction. The internal assessment process has generally been
completed, and few compliance issues have been found to date. These
consist primarily of needed software upgrades for equipment in the
gas control system. It is anticipated these upgrades will be
completed and tested by December 31, 1998.

The company is currently in the process of contacting its major
vendors, suppliers and customers to gather information regarding
the status of their Year 2000 compliance. While compliance issues
may be identified from these inquiries and any issues raised will
be addressed, this process may not fully ensure these parties' Year
2000 compliance. Disruptions in the operations of these parties
could have an adverse financial and operational effect on the
company.

The company is also formulating a contingency plan related to Year
2000 issues. This plan will include modifying the company's already
existing plans for business resumption, information technology
disaster recovery and gas supply contingencies, and would allow
for, among other things, alternate recovery locations, backup power
generation, adequate material supplies and personnel requirements.
This plan is expected to be in place, tested and refined as needed
by December 31, 1999.

Total costs expected to be incurred by the company to remedy its
Year 2000 issues are estimated at $1.5 million, which include costs
estimated to replace certain existing systems sooner than otherwise
planned.

Management expects that Year 2000 issues will be addressed on a
schedule and in a manner that will prevent such issues from having
a material impact on the company's financial position or results of
operations. However, while the company has and will continue to
manage its Year 2000 compliance plan, there can be no assurance
that the company will be successful in identifying and addressing
all material Year 2000 issues including those related to the
company's vendors, suppliers and customers.

Environmental Matters
Indiana Gas is currently conducting environmental investigations
and work at 26 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 and other
potentially responsible parties (PRPs). The IURC has determined
that these costs are not recoverable from utility customers.

Indiana Gas has completed the process of identifying PRPs and now
has PRP agreements in place covering 19 of the 26 sites. The
agreements provide for coordination of efforts and sharing of
investigation and clean-up costs incurred and to be incurred at the
sites. PSI Energy, Inc. is a PRP on all 19 sites. Northern
Indiana Public Service Company is a PRP on 5 of the 19 sites.
These agreements limit Indiana Gas' share of past and future
response costs at these 19 sites to between 20 and 50 percent.
Based on the agreements, Indiana Gas has recorded a receivable from
PRPs for their unpaid share of the liability for work performed by
Indiana Gas to date, as well as accrued 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 District 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 District 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. Indiana Gas appealed
all adverse rulings to the United States Court of Appeals for the
Seventh Circuit. On April 6, 1998, the appeals court issued a
decision vacating the summary judgment and dismissing the District
Court action for lack of diversity jurisdiction. The insurers asked
the United States Supreme Court to review the Seventh Circuit's
decision, however their petition was denied. Because the District
Court's adverse rulings have been vacated, Indiana Gas has filed a
complaint in Indiana state court to continue its pursuit of
insurance coverage. As of September 30, 1998, Indiana Gas has
obtained settlements from some insurance carriers in an aggregate
amount of approximately $14.7 million.

These environmental matters have had no material impact on earnings
since costs recorded to date total approximately $15.0 million.
While Indiana Gas has recorded all costs which it presently expects
to incur in connection with remediation activities, it is possible
that future events may require some level of additional remedial
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.

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).

New Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related
Information. This statement establishes standards for the way that
public companies report information about operating segments in
annual financial statements and requires that those companies
report selected information about operating segments in annual and
interim financial reports issued to shareholders. This statement
becomes effective for the company's 1999 annual financial
statements.

In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits. This statement standardizes the disclosure
requirements for pensions and other postretirement benefits. It
does not change measurement or recognition of amounts related to
those plans. The company has adopted the new disclosure
requirements of this statement for 1998 (see Note 7 of the Notes to
Consolidated Financial Statements).

In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use.
This statement provides guidance primarily on whether costs
incurred related to internal use computer software should be
capitalized or expensed. This statement is effective for the
company in fiscal 2000. The company does not expect this statement
to have a material impact on its financial position or results of
operations.

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 56 percent of its total
capitalization at September 30, 1998.

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 1997 and 1998, along with
estimated amounts for 1999 through 2001, is as follows:

<TABLE>

Thousands 1997 1998 1999 2000 2001
<S> <C> <C> <C> <C> <C>
Capital expenditures $72,000 $ 57,000 $61,000 $60,000 $58,000
Refinancing requirements - 93,000 10,000 - -
$72,000 $150,000 $71,000 $60,000 $58,000

</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 Aa2 by Moody's Investors Service and
AA- by Standard & Poor's Corporation. In 1998, 64 percent of
Indiana Gas' capital expenditures was funded internally (i.e., from
net income less dividends plus charges to net income not requiring
funds). In 1997, 58 percent of capital expenditures was provided by
funds generated internally. External funds required for the 1998
construction program were obtained primarily through a combination
of short-term and long-term debt. Indiana Gas' ratio of earnings
to fixed charges for 1998 was 3.9 (see Exhibit 12).

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. Issues under this registration statement were as
follows:

<TABLE>

Interest Maturity
Issue Date Principal Rate Date
<S> <C> <C> <C>
12-05-97 $15 million 6.36% 12-06-04
12-09-97 $20 million 6.34% 12-10-27
01-14-98 $15 million 5.75% 01-15-03
04-15-98 $15 million 6.75% 03-15-28
05-04-98 $10 million 6.36% 05-01-28
06-30-98 $20 million 6.55% 06-30-28

</TABLE>

The net proceeds from the sale of these new debt securities were
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 retired $35 million of 6 5/8% Series
D Notes and, called and redeemed $24.7 million of 8 1/2% Series B
Debentures. In March 1998, Indiana Gas redeemed $33 million of its
9 1/8% Series A Notes. The premiums paid in connection with the
redemptions, which totaled $5.5 million, have been deferred and are
being amortized over 15 years.

Provisions under which certain of Indiana Gas' Series E and Series
F Medium-Term Notes were issued entitle the holders of $60 million
of these notes to put the debt back to Indiana Gas at face value at
certain specified dates before maturity beginning in 2000. Long-
term debt subject to the put provisions during the three years
following 1998 totals $5 million.

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

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 earnings growth strategy, ProLiance and Year 2000 issues,
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, Inc. and
subsidiary companies' 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, Inc. and its subsidiaries, 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 judicial and administrative proceedings.

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.

The inability of Indiana Energy, Inc. and its subsidiaries
and their vendors, suppliers and customers to achieve Year
2000 readiness.

Indiana Energy, Inc. and its subsidiaries 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, 1998, and 1997,
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, 1998. 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,
1998, and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended September 30,
1998, in conformity with generally accepted accounting principles.

/s/ Arthur Andersen LLP
Arthur Andersen LLP
Indianapolis, Indiana
October 30, 1998

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

CONSOLIDATED STATEMENTS OF INCOME
(Thousands)

Year Ended September 30
1998 1997 1996
<S> <C> <C> <C>
OPERATING REVENUES $ 465,644 $ 530,407 $ 530,594
COST OF GAS (See Note 11) 271,004 322,522 320,131
MARGIN 194,640 207,885 210,463

OPERATING EXPENSES:
Operation and maintenance 84,168 79,567 84,136
Restructuring costs (See Note 2) - 39,531 -
Depreciation and amortization 32,353 35,054 33,232
Income taxes 17,449 7,852 23,174
Taxes other than income taxes 14,419 16,870 16,368
148,389 178,874 156,910

OPERATING INCOME 46,251 29,011 53,553

OTHER INCOME - NET 866 1,241 984

INCOME BEFORE INTEREST EXPENSE 47,117 30,252 54,537

INTEREST EXPENSE 16,234 16,774 15,907

NET INCOME $ 30,883 $ 13,478 $ 38,630

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
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,883 $ 13,478 $ 38,630

Adjustments to reconcile net income to cash
provided from operating activities -
Noncash restructuring costs - 32,838 -
Depreciation and amortization 32,540 35,241 33,419
Deferred income taxes 1,591 (12,618) 804
Investment tax credit (930) (930) (930)
Gain on sale of assets (1,219) - -
31,982 54,531 33,293
Changes in assets and liabilities -
Receivables - net 11,552 (10,524) (3,818)
Inventories (272) 24,026 19,966
Accounts payable, customer deposits, advance
payments and other current liabilities (30,439) (4,519) (13,658)
Accrued taxes and interest (5,042) 4,528 (4,020)
Recoverable/refundable gas costs 16,573 (3,133) (7,593)
Accrued postretirement benefits other than pensions 2,131 8,134 3,505
Other - net 2,760 900 2,275

Total adjustments 29,245 73,943 29,950

Net cash flows from operations 60,128 87,421 68,580

CASH FLOWS REQUIRED FOR FINANCING ACTIVITIES:
Sale of long-term debt 95,000 15,000 20,000
Reduction in long-term debt (92,758) - (18,960)
Net change in short-term borrowings 13,705 (4,236) 22,011
Dividends on common stock (27,250) (26,250) (25,250)

Net cash flows required for financing activities (11,303) (15,486) (2,199)

CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
Capital expenditures (57,335) (71,907) (66,381)
Proceeds from sale of assets 9,204 - -

Net cash flows required for investing activities (48,131) (71,907) (66,381)

NET INCREASE (DECREASE) IN CASH 694 28 -

CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 48 20 20

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 742 $ 48 $ 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
1998 1997
<S> <C> <C>
UTILITY PLANT:
Original cost $ 937,977 $ 951,617
Less - accumulated depreciation and amortization 370,872 361,936
567,105 589,681

CURRENT ASSETS:
Cash and cash equivalents 742 48
Accounts receivable, less reserves of
$900 and $1,784 respectively (See Note 11) 16,145 25,186
Accrued unbilled revenues 6,453 8,964
Liquefied petroleum gas - at average cost 883 872
Gas in underground storage - at last-in,
first-out cost 19,373 19,240
Recoverable gas costs - 5,843
Prepayments and other 4,760 3,758
48,356 63,911

DEFERRED CHARGES AND OTHER ASSETS:
Unamortized debt discount and expense 12,874 6,980
Regulatory income tax asset 1,778 -
Other 3,041 5,147
17,693 12,127

$ 633,154 $ 665,719

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
1998 1997
<S> <C> <C>
CAPITALIZATION:
Common stock and paid-in capital $ 142,995 $ 142,995
Retained earnings 97,354 125,767
Total common shareholder's equity 240,349 268,762
Long-term debt 181,975 154,733
422,324 423,495

CURRENT LIABILITIES:
Maturities and sinking fund requirements of long-term debt 10,000 35,000
Notes payable 33,705 20,000
Accounts payable (See Note 11) 17,847 39,456
Refundable gas costs 10,730 -
Customer deposits and advance payments 19,229 20,405
Accrued taxes 4,469 8,659
Accrued interest 1,728 2,580
Other current liabilities 16,451 24,105
114,159 150,205

DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 60,448 55,205
Accrued postretirement benefits other than pensions 25,169 23,038
Unamortized investment tax credit 9,313 10,243
Regulatory income tax liability - 1,874
Other 1,741 1,659
96,671 92,019

COMMITMENTS AND CONTINGENCIES (See Notes 8, 10 & 11) - -

$ 633,154 $ 665,719

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, 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

Net income 30,883 30,883

Common stock dividends ($3.00 per share) (27,250) (27,250)

Noncash dividend (32,046) (32,046)

BALANCE AT SEPTEMBER 30, 1998 9,080,770 $ 142,995 $ 97,354 $ 240,349

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
1998 1997
<S> <C> <C>
LONG-TERM DEBT:
Unsecured Notes Payable
6 5/8% Series D, due December 1, 1997 $ - $ 35,000
8.90%, due July 15, 1999 10,000 10,000
5.75% Series F, due January 15, 2003 15,000 -
6.36% Series F, due December 6, 2004 15,000 -
6.54% Series E, due July 9, 2007 6,500 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 ($33 million redeemed March 31, 1998) 7,000 40,000
8 1/2% Series B Debentures, called and redeemed December 15, 1997 - 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 5,000
6.68% Series E, due July 7, 2027 3,500 3,500
6.34% Series F, due December 10, 2027 20,000 -
6.75% Series F, due March 15, 2028 14,975 -
6.36% Series F, due May 1, 2028 10,000 -
6.55% Series F, due June 30, 2028 20,000 -
191,975 189,733

Less - Maturities and sinking fund requirements 10,000 35,000

$ 181,975 $ 154,733

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
3.9 percent for 1998, and 4.1 percent for 1997 and 1996.

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 1998 1997 1996
<S> <C> <C> <C>
Interest (net of amount capitalized) $ 15,341 $ 15,129 $ 15,435
Income taxes $ 20,391 $ 19,142 $ 29,451

</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
Based on the average cost of purchased gas during September 1998,
the cost of replacing the current portion of gas in underground
storage exceeded last-in, first-out cost at September 30, 1998, by
approximately $10,627,000.

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 included in "Other Income -
net" on the Consolidated Statements of Income. An annual AFUDC rate
of 6.0 percent was used for 1998, while an annual rate of 7.5
percent was used for 1997 and 1996.

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 1998 1997 1996
<S> <C> <C> <C>
AFUDC - borrowed funds $ 448 $ 596 $ 283
AFUDC - equity funds 371 487 232
Total AFUDC capitalized $ 819 $1,083 $ 515

</TABLE>

I. 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.

J. 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 1998
<S> <C>
Postretirement benefits other than pensions $ 2,688
Unamortized debt discount and expense 11,388
Amounts due from customers - income taxes, net 1,778
Deferred acquisition costs 677
$16,531

Regulatory Liabilities
Gas costs due to customers, net $10,730
$10,730

</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.

K. 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.

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.

3. Short-Term Borrowings
Indiana Gas has available committed lines of credit of $65 million
with approximately $33.7 million outstanding at September 30, 1998.
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 1998 1997 1996
<S> <C> <C> <C>
Outstanding at year end $ 33,705 $ 20,000 $ 24,236
Weighted average interest rates at year end 5.6% 5.7% 5.4%
Weighted average interest rates during the year 5.7% 5.5% 5.7%
Weighted average total outstanding during the year $ 32,293 $ 28,959 $ 5,930
Maximum total outstanding during the year $ 90,900 $ 89,725 $ 28,150

</TABLE>

4. Long-Term Debt
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. Issues under this registration statement were as
follows:

<TABLE>

</TABLE>

Consolidated maturities and sinking fund requirements on long-term
debt subject to mandatory redemption during the five years
following 1998 are $10,000,000 in 1999, none in 2000 and 2001,
$3,250,000 in 2002 and $18,250,000 in 2003.

Provisions under which certain of Indiana Gas' Series E and Series
F Medium Term Notes were issued entitle the holders of $60 million
of these notes to put the debt back to Indiana Gas at face value at
certain specified dates before maturity beginning in 2000. Long-
term debt subject to the put provisions during the five years
following 1998 totals $5,000,000 in 2000 and $11,500,000 in 2002.

5. Fair Value of Financial Instruments
The estimated fair values of the company's financial instruments
were as follows:

<TABLE>

September 30, 1998 September 30, 1997
Carrying Fair Carrying Fair
Thousands Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 742 $ 742 $ 48 $ 48
Notes payable $ 33,705 $ 33,705 $ 20,000 $ 20,000
Long-term debt (includes
amounts due within
one year) $191,975 $208,870 $189,733 $196,750

</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.

6. 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.

7. Retirement Plans and Other Postretirement Benefits
The following reflects the new disclosure requirements set forth by
Statement of Financial Accounting Standards No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits.

Indiana Energy, Inc. and subsidiaries have multiple defined benefit
pension and other postretirement benefit plans. The nonpension
plans include plans for health care and life insurance. All of the
plans are non-contributory with the exception of the health care
plan which contains cost-sharing provisions whereby employees
retiring after January 1, 1996, are required to make contributions
to the plan when increases in the companies' health care costs
exceed the general rate of inflation, as measured by the Consumer
Price Index (CPI). Indiana Gas is a participating company in those
plans and all amounts disclosed below relate solely to Indiana Gas.

The IURC has authorized 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. Amounts accrued prior
to that authorization were deferred as allowed by the IURC and are
currently being amortized.

Net periodic benefit cost, excluding the 1997 curtailment loss
related to the postretirement health care and life insurance plans,
consisted of the following components:

<TABLE>

Pension Benefits Other Benefits
Thousands 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1,133 $1,268 $ 1,174 $ 608 $ 770 $ 806
Interest cost 4,504 4,847 4,730 3,075 3,311 3,264
Expected return
on plan assets (6,393) (6,606) (6,058) - - -
Amortization of
transition
obligation (asset) (316) (309) (309) 1,955 2,280 2,280
Amortization of
loss (gain)
and other (19) 884 757 1,354 1,397 978
Net periodic
benefit cost $(1,091) $ 84 $ 294 $6,992 $7,758 $7,328

</TABLE>

A reconciliation of the plans' benefit obligations, fair value of
plan assets, funded status and amounts recognized in the company's
statement of financial position follows:

<TABLE>

Pension Benefits Other Benefits
Thousands 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Benefit obligation at
beginning of year $65,977 $62,963 $ 42,883 $ 45,070
Service cost 1,133 1,268 608 770
Interest cost 4,504 4,847 3,075 3,311
Actuarial loss
(gain) and other 9,553 1,301 3,998 (3,425)
Benefits paid (4,460) (4,402) (3,064) (2,843)
Benefit obligation at
the end of the year 76,707 65,977 47,500 42,883

Fair value of plan assets
at beginning of year 87,801 75,748 - -
Actual return on plan assets 14,194 16,013 - -
Employer contributions 93 442 3,064 2,843
Benefits paid (4,460) (4,402) (3,064) (2,843)
Fair value of plan assets
at end of year 97,628 87,801 - -

Funded status 20,921 21,824 (47,500) (42,883)
Unrecognized prior service cost 3,602 2,527 - -
Unrecognized net obligation
(assets) from transition (1,198) (1,514) 29,330 31,286
Unrecognized net (gain)
loss and other (19,371) (19,380) (6,999) (11,441)
Prepaid (accrued) benefit cost
at end of year $ 3,954 $ 3,457 $(25,169) $(23,038)

</TABLE>

The aggregate benefit obligation and aggregate fair value of plan
assets for pension plans with benefit obligations in excess of plan
assets were, in thousands, $5,503 and $0, respectively as of
September 30, 1998, and $4,485 and $0, respectively as of September
30, 1997.

Weighted-average assumptions used in the accounting for these plans
were as follows:

<TABLE>
Pension Benefits Other Benefits
Thousands 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Discount rate 6.75% 7.75% 6.75% 7.75%
Expected return
on plan assets 9.00% 9.00% n/a n/a
Rate of compensation
increase 5% to 5.5% 5% to 5.5% n/a n/a
CPI rate n/a n/a 3.5% 3.5%

</TABLE>

The assumed health care cost trend rate for medical gross eligible
charges used in measuring the postretirement benefit obligation for
the health care plan as of September 30, 1998, was 7.1 percent for
fiscal 1999. This rate is assumed to decrease gradually through
fiscal 2004 to 5.0 percent and remain at that level thereafter.

A 1 percent change in the assumed health care cost trend rates for
the company's postretirement health care plan would have the
following effects:

<TABLE>

Thousands 1% Increase 1% Decrease
<S> <C> <C>
Effect on the aggregate of the service
and interest cost components $ 78 $ (70)

Effect on the postretirement
benefit obligation $1,037 $ (932)

</TABLE>

The company also participates in Indiana Energy's defined
contribution retirement savings plan which is qualified under
sections 401(a) and 401(k) of the Internal Revenue Code. During
1998, 1997 and 1996, the company made contributions to this plan of
$1,827,000, $2,360,000 and $2,445,000, respectively.

8. Commitments
Estimated capital expenditures for 1999 are $61 million. Lease
commitments, including the lease of the company's corporate
headquarters, are $1,638,000 in 1999, $1,446,129 in 2000,
$1,352,259 in 2001, $1,352,259 in 2002, $1,305,415 in 2003 and
$4,605,000 in total for all later years. There are no leases that
extend beyond 2036. Indiana Gas has storage and supply contracts
that extend up to six years. Total lease expense was $992,000 in
1998, $2,200,000 in 1997 and $2,863,000 in 1996.

9. 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 1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $14,585 $17,817 $19,587
State 2,265 2,878 3,107
16,850 20,695 22,694
Deferred:
Federal 1,435 (11,678) 709
State 156 (940) 95
1,591 (12,618) 804
Amortization of investment
tax credits (930) (930) (930)
Consolidated income tax
expense $17,511 $ 7,147 $22,568

</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 36.18 percent, 34.65 percent and
36.88 percent of pretax income for 1998, 1997 and 1996,
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 were not
significant except investment tax credit which amounted to (1.9%)
in 1998, (4.5%) in 1997 and (1.5%) in 1996.

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, 1998, and 1997, are as follows:

<TABLE>

Thousands 1998 1997
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation $ 50,775 $ 51,413
Property basis differences 6,435 2,101
Acquisition adjustment 6,097 6,286
Other (6,792) (1,645)
Deferred tax assets:
Deferred investment tax credit (3,533) (3,884)
Regulatory income tax asset
(liability) 674 (711)
Less deferred income taxes related
to current assets and liabilities 6,792 1,645
Balance as of September 30 $ 60,448 $ 55,205

</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.

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. 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.
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. 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. Although Indiana
Gas has not begun an RI/FS at additional sites, Indiana Gas is
currently conducting some level of remedial activities including
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
investigation, remediation, groundwater monitoring and related
costs for the sites. 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 seeking to recover the costs it has incurred
and expects to incur relating to the 26 sites from insurance
carriers and other potentially responsible parties (PRPs). The IURC
has determined that these costs are not recoverable from utility
customers.

On April 14, 1995, Indiana Gas filed suit in the United States
District Court for the Northern District of Indiana, Fort Wayne
Division (the District 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 District 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. Indiana Gas appealed
all adverse rulings to the United States Court of Appeals for the
Seventh Circuit. On April 6, 1998, the appeals court issued a
decision vacating the summary judgment and dismissing the District
Court action for lack of diversity jurisdiction. The insurers asked
the United States Supreme Court to review the Seventh Circuit's
decision, however, their petition was denied. Because the District
Court's adverse rulings have been vacated, Indiana Gas has filed a
complaint in Indiana state court to continue its pursuit of
insurance coverage. As of September 30, 1998, Indiana Gas has
obtained settlements from some insurance carriers in an aggregate
amount of approximately $14.7 million.

11. Affiliate Transactions
ProLiance Energy, LLC (ProLiance), a non-regulated marketing
affiliate of Indiana Energy, began providing natural gas supply and
related services to Indiana Gas effective April 1, 1996. Indiana
Gas' purchases from ProLiance for resale and for injections into
storage for 1998, 1997 and 1996 totaled $269.2 million, $306.1
million and $117.9 million, respectively. ProLiance assumed the
business of Indiana Energy Services, Inc. (IES), an indirect wholly
owned subsidiary of Indiana Energy who 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, totaled $102.7 million.

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.

CIGMA, LLC, owned jointly and equally by IGC Energy, Inc., an
indirect wholly owned subsidiary of Indiana Energy, and Citizens By-
Products Coal Company, a wholly owned subsidiary of Citizens Gas,
provides materials acquisition and related services that are used
by Indiana Gas. Indiana Gas' purchases of these services during
1998 and 1997 totaled $15.6 million and $9.6 million, respectively.

IEI Services, a wholly owned subsidiary of Indiana Energy, began
providing support services to Indiana Gas effective October 1,
1997. Services provided include information technology, financial,
human resources, building and fleet services. Amounts billed by
IEI Services to Indiana Gas for 1998 totaled $26.7 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 owed to affiliates totaled $15.0 million and $36.3 million
at September 30, 1998 and 1997, respectively, and are included in
Accounts Payable on the Consolidated Balance Sheets.

Amounts due from affiliates totaled $5.4 million and $11.6 million
at September 30, 1998 and 1997, respectively, and are included in
Accounts Receivable on the Consolidated Balance Sheets.

12. New Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related
Information. This statement establishes standards for the way that
public companies report information about operating segments in
annual financial statements and requires that those companies
report selected information about operating segments in annual and
interim financial reports issued to shareholders. This statement
becomes effective for the company's 1999 annual financial
statements.

13. Summarized Financial Data (Unaudited)
Summarized quarterly financial data (in thousands of dollars) for
1998 and 1997 are as follows:

<TABLE>

1998: THREE MONTHS ENDED DEC. 31 MAR. 31 JUNE 30 SEP. 30
<C> <C> <C> <C> <C>
Operating revenues $170,132 $163,131 $70,560 $61,821
Operating income (loss) 20,828 23,427 3,929 (1,933)
Net income (loss) 16,589 19,258 321 (5,285)

1997: THREE MONTHS ENDED DEC. 31 MAR. 31 JUNE 30 SEP. 30(1)
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)

(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 3, 1998. 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 3, 1998. 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, 1998, 1997 and 1996, as it relates to
only Indiana Gas.

<TABLE>
1998 1997 1996
<S> <C> <C> <C>
Lawrence A. Ferger $588,101 $575,144 $512,580
Paul T. Baker 383,881 362,671 327,217
Niel C. Ellerbrook 277,569 291,194 238,213
Anthony E. Ard 196,858 207,087 171,448
Timothy M. Hewitt 196,947 187,487 168,065

</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 3, 1998. 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 3, 1998. 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 - 1998, 1997 and 1996 Item 8

Consolidated Statements of Cash Flows - 1998, 1997 and 1996 Item 8

Consolidated Balance Sheets at September 30, 1998 and 1997 Item 8

Consolidated Statements of Common Shareholder's Equity -
1998, 1997 and 1996 Item 8

Consolidated Schedules of Long-Term Debt as of
September 30, 1998 and 1997 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 - 1998, 1997 and 1996

(a)-3 Exhibits

See Exhibit Index

(b) Reports on Form 8-K

On July 31, 1998, Indiana Gas filed a Current Report on Form 8-
K with respect to the release by Indiana Energy, Inc. (Indiana
Energy) of unaudited summary financial information to the
investment community regarding Indiana Energy's consolidated
results of operations, financial position and cash flows for
the three-, nine- and twelve-month periods ended June 30,
1998. Items reported include:

Item 5. Other Events

Item 7. Exhibits

99 Financial Analyst Report - Third Quarter 1998

On October 9, 1998, Indiana Gas filed a Current Report on Form
8-K with respect to a press release (dated October 9, 1998),
announcing the decision by Indiana Gas, Citizens Gas and
ProLiance to appeal the October 8, 1998, Indiana Court of
Appeals decision regarding ProLiance. Items reported include:

Item 5. Other Events
Press release dated October 9, 1998

On October 30, 1998, Indiana Gas filed a Current Report on
Form 8-K with respect to the release by Indiana Energy, Inc.
(Indiana Energy) of summary financial information to the
investment community regarding Indiana Energy's consolidated
results of operations, financial position and cash flows for
the three- and twelve-month periods ended September 30, 1998.
Items reported include:

Item 5. Other Events

Item 7. Exhibits

99 Financial Analyst Report - Fourth Quarter 1998

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 1997Annual 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-O to
Executive Restricted Indiana Energy, Inc.'s
Stock Plan as amended 1998 Annual Report on
and restated Form 10-K.
effective October 1,
1998.

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 First Amendment to Exhibit 10-Q to
the Indiana Energy, Indiana Energy's 1998
Inc. Annual Annual Report on Form
Management Incentive 10-K.
Plan (set forth in 10-
N above) effective
October 1, 1997.

10-P 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-Q 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-R 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-S Amended appendices to Exhibit 10-R to
the Gas Sales and Indiana Gas' 1997
Portfolio Annual Report on Form
Administration 10-K.
Agreement between
Indiana Gas Company,
Inc. and ProLiance
Energy, LLC referred
to above in Exhibit
10-R, effective
November 1, 1997.

10-T Exhibit 10-T schedules material gas contracts
which are in effect between Indiana Gas
Company, Inc. and suppliers other than its
affiliate, ProLiance Energy, LLC.

<TABLE>

Exh. Days of Effect. Expir.
No. Type of Contract Supplier Contract No. Wthdrwl. Dth/Day Date Date Reference
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10-T.1 Firm Transportation Panhandle Eastern P PLT 011716 51,431 5/1/93 3/31/99 6/30/93
Form 10-Q,
Exh. 10-A,
File 1-6494.

10-T.2 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-T.3 Firm Storage-
Related
Transportation ANR T,E & S 05788 50,000 4/1/92 3/31/02 1992 Form
10-K,
Exh. 10-S,
File 1-6494.
</TABLE>

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

21 Subsidiaries of Indiana Gas
Company, Inc. 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 27, 1999. 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 30, 1998. 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 30, 1998

<TABLE>

INDIANA GAS COMPANY, INC.
AND SUBSIDIARY COMPANIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED SEPTEMBER 30, 1998
(Thousands)

RESERVE DEDUCTED FROM APPLICABLE
ASSETS:
Reserve for uncollectible accounts $ 1,784 $ 3,470 $ 0 $ 4,354 $ 0 $ 900

</TABLE>

<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>

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 18, 1998 /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 18, 1998
Lawrence A. Ferger Chief Executive Officer

/s/ Niel C. Ellerbrook President and Director December 18, 1998
Niel C. Ellerbrook

/s/ Paul T. Baker Executive Vice President, December 18, 1998
Paul T. Baker Chief Operating Officer
and Director

/s/ Jerome A. Benkert Vice President and December 18, 1998
Jerome A. Benkert Controller

/s/ Loren K. Evans Director December 18, 1998
Loren K. Evans

/s/ Otto N. Frenzel III Director December 18, 1998
Otto N. Frenzel III

/s/ William G. Mays Director December 18, 1998
William G. Mays

/s/ John E. Worthen Director December 18, 1998
John E. Worthen

<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
1998 1997(1) 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Earnings:
Net income $30,883 $13,478 $38,630 $32,109 $34,596
Income taxes 17,510 7,147 22,568 18,630 17,977
Fixed charges (see below) 16,967 17,728 16,844 16,395 16,986
Total adjusted earnings $65,360 $38,353 $78,042 $67,134 $69,559

Fixed charges:
Total interest expense $16,234 $16,774 $15,907 $15,530 $16,037
Interest component of rents 733 954 937 865 949
Total fixed charges $16,967 $17,728 $16,844 $16,395 $16,986

Ratio of earnings to fixed
charges 3.9 2.2 4.6 4.1 4.1

(1)Reflects the recording of restructuring costs in 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

<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from
Indiana Gas Company, Inc.'s consolidated financial statements as of
September 30, 1998, 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-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 567,105
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 48,356
<TOTAL-DEFERRED-CHARGES> 17,693
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 633,154
<COMMON> 142,995
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 97,354
<TOTAL-COMMON-STOCKHOLDERS-EQ> 240,349
0
0
<LONG-TERM-DEBT-NET> 181,975
<SHORT-TERM-NOTES> 33,705
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 10,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 167,125
<TOT-CAPITALIZATION-AND-LIAB> 633,154
<GROSS-OPERATING-REVENUE> 465,644
<INCOME-TAX-EXPENSE> 17,449
<OTHER-OPERATING-EXPENSES> 401,944
<TOTAL-OPERATING-EXPENSES> 419,393
<OPERATING-INCOME-LOSS> 46,251
<OTHER-INCOME-NET> 866
<INCOME-BEFORE-INTEREST-EXPEN> 47,117
<TOTAL-INTEREST-EXPENSE> 16,234
<NET-INCOME> 30,883
0
<EARNINGS-AVAILABLE-FOR-COMM> 30,883
<COMMON-STOCK-DIVIDENDS> 27,250
<TOTAL-INTEREST-ON-BONDS> 13,335
<CASH-FLOW-OPERATIONS> 60,128
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>

December 3, 1998

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
1998 Proxy Statement.

Respectfully,

/s/Debby Baker
Debby Baker

DB: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 27, 1999

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 27, 1999, 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; and

2. 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 23, 1998, 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.

/s/ Anthony E. Ard
By ANTHONY E. ARD
Secretary and Senior Vice
President - Corporate Affairs
Indianapolis, Indiana
December 4, 1998

CONTENTS

PURPOSES OF MEETING
VOTING SECURITIES
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
DIRECTORS' COMPENSATION
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 BENEFITS 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 BENEFITS AGREEMENTS
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY
COST AND METHOD OF SOLICITATION
ANNUAL REPORT
REVOCATION RIGHTS
NOMINATION OF DIRECTORS BY SHAREHOLDERS
SHAREHOLDERS' PROPOSALS FOR 2000 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 27, 1999, 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 4, 1998.

PURPOSES OF MEETING

As of this date, the only known business to be presented at the
1999 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. 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 November 23, 1998, of 29,919,672 shares of Common
Stock without par value. The number of shares contained in this
proxy statement reflects adjustments for the four-for-three stock
split, which was approved by the board of directors on July 31,
1998, and became effective on October 2, 1998. 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 23, 1998, 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"). The Company had
30,063,667 shares of Common Stock without par value outstanding as of
September 30, 1998, its fiscal year end. At September 30, 1998, the
Hulman Interests beneficially owned an aggregate of 3,666,603 shares
of the Company, which comprised 12.20 percent of the Company's
outstanding Common Stock. At September 30, 1998, 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>

Title of Name and Number of
Class Address of Shares Nature of Percent
Beneficial Beneficially Beneficial of
Owner Owned Ownership Class
<S> <C> <C> <C> <C>
Common Hulman & 2,163,247 Voting & 7.20%
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>

Title of Name of Number of Percent of
Class Beneficial Owner Shares Class
Beneficially
Owned
<S> <C> <C> <C>
Common Mari H. George 2,741,469 9.12%
Common Anton H. George 2,465,603 8.20%
Common Katherine M. 2,172,133 7.23%
George
Common Laura L. George 2,465,603 8.20%
Common Nancy L. George 2,173,184 7.23%
Common M. Josephine 2,169,193 7.22%
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 2,163,247 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
289,864 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, and Forms 3, 4 and 5 filed
through September 30, 1998. 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.

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: L. A. Ferger, Anton
H. George, James C. Shook and John E. Worthen, who are nominees for
election with terms expiring in 2002; Paul T. Baker, Otto N. Frenzel
III, Don E. Marsh and Richard P. Rechter, whose terms expire in 2001;
and Niel C. Ellerbrook, L. K. Evans, William G. Mays and Jean L.
Wojtowicz, whose terms expire in 2000. 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 fiscal year 1997,
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 27, 1999.

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".

<TABLE>
Has Been a
Name and Principal Occupation During Director of
Business the Past 5 Years and Other Indiana Gas or
Location Age Information (1) the Company Since

Nominees For Election Whose Terms Will Expire in 2002:
<S> <C> <C> <C>

L. A. FERGER 64 Chairman and Chief Executive 1984
Indianapolis, Officer of the Company and
Indiana Indiana Gas since October
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 39 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 67 President, The Shook Agency, 1983
Lafayette, Inc. (residential,
Indiana commercial and industrial
real estate brokerage and
development). Mr. Shook is
an Investments Director. He
is also a Director of
Lafayette Life Insurance
Company (a mutual company)
and Crossmann Communities,
Inc.

JOHN E. WORTHEN 65 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.

Directors Continuing in Office Whose Terms Will Expire in 2001

PAUL T. BAKER 58 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 68 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),
Indianapolis Power and Light
Company and IPALCO
Enterprises, Inc.

DON E. MARSH 60 Chairman, President, Chief 1986
Indianapolis, 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.

RICHARD P. 59 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. 49 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,
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, Indiana.

L. K. EVANS 70 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.

WILLIAM G. MAYS 52 President, Mays Chemical 1998
Indianapolis, Company. Mr. Mays is an
Indiana Indiana Gas Director. He is
also a Director of Anthem,
Inc.
1996
JEAN L. 41 President since 1983 and
WOJTOWICZ founder of Cambridge Capital
Indianapolis, Management Corp. (a
Indiana consulting and venture
capital firm). Ms.
Wojtowicz is an Investments
Director. She is also a
Director of Seaboard North
American Holdings, Inc.

</TABLE>

Other executive officers of the Company are Anthony E. Ard, age 57,
Carl L. Chapman, age 43, and Timothy M. Hewitt, age 48. In July
1998, Mr. Ard was elected as Secretary of the Company. 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-Corporate Affairs for Indiana Gas. Prior to 1995 and
since 1993, he was Vice President-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. Effective
October 1, 1997, Mr. Chapman was elected as President of
Investments. As of May 1, 1998, when he assumed this position full-
time, he was again considered to be a named executive officer of the
Company. Mr. Chapman served as President of ProLiance Energy, LLC
("ProLiance"), a gas supply and energy marketing joint venture
partially owned by IGC Energy, Inc. ("Energy"), an indirect, wholly
owned subsidiary of the Company, from March 15, 1996, until April
30, 1998. From 1995 until March 15, 1996, he was Senior Vice
President of Corporate Development for Indiana Gas. Prior to 1995
and since 1987, he was Vice President of Planning for Indiana Gas.
Mr. Chapman has held the position of Assistant Treasurer of the
Company since 1986. Mr. Hewitt is the Vice President - Operations
and Engineering for Indiana Gas, a position he has held since 1995.
Prior to 1995 and since 1989, he was Vice President of Sales and
Field Operations for Indiana Gas. Effective May 1, 1998, Mr. Hewitt
ceased being considered a named executive officer of the Company.

(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, as amended, 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, as amended.

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, William G. Mays, 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 inquiries 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, Richard P. Rechter and Jean L. Wojtowicz. 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 two meetings of the
committee during the past fiscal year.

3. The Nominating Committee.

The members of this committee are L. 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 6, 1999. There were two meetings of the committee during the
past fiscal year.

4. The Public and Environmental Affairs Committee.

The members of this committee are Richard P. Rechter, chair,
Otto N. Frenzel III and James C. Shook. 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 five meetings during
the last fiscal year. Messrs. Evans, George, Mays and Worthen
attended fewer than 75 percent of the aggregate of board meetings and
meetings of the respective committees of the board of which they are
members. Mr. Mays was elected to the board of directors effective
July 1, 1998. He was unable to attend one of the two board meetings
held after that date due to a commitment made prior to his election.

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. To receive the restricted
shares, a director must consent to the restrictions in writing.
Directors may elect to receive the remaining $14,000 in unrestricted
shares or in cash. 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 85,919 shares for grant under the plan.
As of September 30, 1998, 58,987 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.

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 five additional named executive officers, and
all directors and executive officers as a group, as of September 30,
1998. Except as otherwise indicated, each individual has sole voting
and investment power with respect to the shares listed below.

<TABLE>

Name of Individuals or Identity of Group Shares Owned Beneficially(1)

<S> <C>

ANTHONY E. ARD 29,146 (2)(3)
Indianapolis, Indiana
PAUL T. BAKER 50,324 (2)
Indianapolis, Indiana
CARL L. CHAPMAN 20,646 (2)(4)
Indianapolis, Indiana
NIEL C. ELLERBROOK 45,283 (2)(5)
Indianapolis, Indiana
L. K. EVANS 6,117 (3)(6)
Columbus, Indiana
L. A. FERGER 132,076 (2)(7)
Indianapolis, Indiana
OTTO N. FRENZEL III 25,147 (6)(8)
Indianapolis, Indiana
ANTON H. GEORGE 2,465,603 (1)(6)
Indianapolis, Indiana
TIMOTHY M. HEWITT 17,967 (2)(3)(4)
Indianapolis, Indiana
DON E. MARSH 9,287 (6)
Indianapolis, Indiana
WILLIAM G. MAYS 773 (6)
Indianapolis, Indiana
RICHARD P. RECHTER 11,428 (3)(6)
Bloomington, Indiana
JAMES C. SHOOK 56,555 (6)(9)
Lafayette, Indiana
JEAN L. WOJTOWICZ 2,417 (6)
Indianapolis, Indiana
JOHN E. WORTHEN 1,209 (6)
Muncie, Indiana
All directors and executive 2,873,978 (1)
officers as a group (15
persons)

</TABLE>

(1) Except for Anton H. George, no director or executive officer
owned beneficially as of September 30, 1998, more than .44 percent
of Common Stock of the Company. Excluding Anton H. George, all
directors and executive officers owned beneficially an aggregate
of 408,375 shares or 1.36 percent of Common Stock of the Company
outstanding as of that date. The beneficial ownership by Anton H.
George of 2,465,603 shares or 8.20 percent of Common Stock of the
Company is discussed above in "Voting Securities".

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

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

(4) As of May 1, 1998, when he returned to Investments on a full-
time basis, Mr. Chapman resumed his status as a named executive
officer of Company. After May 1, 1998, Mr. Hewitt ceased being
considered a named executive officer of Company.

(5) Includes 1,122 shares held by Mr. Ellerbrook's wife, and he
disclaims beneficial interest therein.

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

(7) Includes 77,571 shares held in a family limited partnership, in
which Mr. Ferger is a general partner and owns limited partnership
interests. Mr. Ferger shares voting and investment power over
these shares with his wife.

(8) Includes 5,032 shares held in a trust, of which Mr. Frenzel is a
co-trustee, and he disclaims beneficial interest therein.

(9) Includes 2,000 shares held by Mr. Shook's wife, and he disclaims
beneficial interest therein.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The disclosures contained in the first two paragraphs of this
Section are not required pursuant to Item 404 of Regulation S-K. On
December 29, 1995, 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) out of the two hundred and
nineteen (219) partnership units that have been sold in CVLP as of
December 31, 1997. On January 26, 1996, Jean L. Wojtowicz was
elected to the board of directors of the Company. Ms. Wojtowicz is
also an Investments Director. Ms. Wojtowicz owns six (6) units in
CVLP.

On November 25, 1997, Energy entered into a subscription
agreement to purchase an interest in an Indiana limited liability
company known as Monument Capital Partners 1, LLC ("MCP1" or the
"Fund"). MCP1 is a mezzanine fund which uses its capital for
recapitalizations, management buyouts, and growth or acquisition of
small- to middle-market companies in the Midwest. As of December 31,
1997, Energy holds four (4) out of fifty-six (56) units of the Fund.
Energy's total commitment is $1,000,000. The managing director of
MCP1 is Otto N. Frenzel, IV, son of Otto N. Frenzel, III, who is a
Director of the Company and Indiana Gas. Mr. Shook, who is a
Director of the Company and Investments, is on the board of MCP1.

On June 5, 1998, Indiana Gas closed on the sale of its service
building in Lafayette, Indiana. The Shook Agency, Inc. served as the
real estate broker for this transaction and received a three percent
(3%) commission from Indiana Gas of $75,000. Mr. Shook, who is a
Director of the Company and Investments, is the President of The
Shook Agency, Inc.

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 21. It is the opinion of the committee
that the total compensation earned by Company officers in fiscal year
1998 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 six 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 60 percent of salary.

Prior to the start of the fiscal year, the committee recommends
to the board of directors, and the non-employee directors determine,
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 30 percent of their
total potential incentive under the Incentive Plan dependent upon the
attainment of individual objectives. The Incentive Plan was amended
effective October 1, 1997, to provide that, in addition to that of
the chief executive officer, the incentive bonus of the president of
the Company would be based only on corporate performance.

Amounts actually paid under the Incentive Plan during the past
fiscal year relate to the Company's financial performance during
fiscal year 1997. 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
1998, and, accordingly, will be reflected in next year's proxy
statement as part of fiscal year 1999 compensation.

During fiscal year 1997, 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 would adversely affect the Company's short-
term financial results. This action affected payments made under the
Incentive Plan during fiscal year 1998, and is reported as
compensation in this proxy statement. Absent this determination by
the non-employee members of the board of directors, management would
have experienced 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 their proprietary interests.
Under the Stock Plan, the committee recommends to the board of
directors, and the non-employee directors determine, 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," October 1, 1996, for the "Fourth Measuring
Period," and October 1, 1997, for the "Fifth 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 fiscal year 1997,
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
only 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 L. 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
1998, 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 1998 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 70 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 1998 was the
second 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 Fifth Measuring Period. Moreover, grants of
restricted stock after the past fiscal year will be in accordance
with the Stock Plan, as amended, which is discussed in Part B of this
Section, 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 Benefits 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 25 under the heading "Employment And
Termination Benefits Agreements," the Company has entered into
termination benefits agreements, and with the exception of Mr.
Timothy M. Hewitt, employment 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 non-
employee members of the board 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
Jean L. Wojtowicz

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The following are not required disclosures pursuant to Item 404
of Regulation S-K. L. 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 $15,000,000 at any one time.
While funds were borrowed during the fiscal year, at September 30,
1998, there were no loans outstanding under the line of credit. 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. During the
past fiscal year, the Company and its subsidiaries collectively paid
National City Bank, Indiana remittance processing fees, including
bank service charges, of $591,432, and interest on short-term debt in
the amount of $95,285, which payments, in the opinion of the board of
directors, were fair. On July 31, 1995, Energy Realty, Inc.
("Realty") 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. On
November 21, 1995, Realty and National City Community Development
Corp. (d/b/a National City Bank, Indiana Community Development
Assoc.) each invested $1,005,000 in Pedcor Investments XXV, L.P., a
housing project in Seymour, Indiana. As a result of these
investments, each company owns 49.50% of the limited partnership.

Niel C. Ellerbrook is a director of Fifth Third Bank, Indiana.
During the past fiscal year, the Company also had a bank line of
credit with Fifth Third Bank, Indiana for borrowing not to exceed
$15,000,000 at any one time. The interest rate on borrowings under
this line of credit was at a rate not to exceed the prime lending
rate at the bank, which rate has been deemed fair by the board of
directors. The Company paid $56,506 in interest on short-term
borrowings during the last fiscal year. As of September 30, 1998, the
Company had no loans outstanding under this line of credit.

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, 1996, 1997 and 1998, the compensation paid by the
Company and its subsidiaries to each of the six most highly
compensated executive officers of the Company (considering for this
purpose Mr. Baker and Mr. Hewitt, who 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)
Long-Term
Compensation All Other
Annual Compensation Payouts Compensation
Other Annual LTIP
Compensation Payouts
Name and Year Salary Bonus (1) (2) (3) (4)
Principal
Position in
Group
<S> <C> <C> <C> <C> <C> <C>

L. A. Ferger, 1996 $370,922 $173,808 $26,817 $223,592 $15,980
Chairman and 1997 $396,692 $222,577 $55,052 $297,232 $39,225
Chief 1998 $408,481 $238,015 $48,850 $313,468 $35,195
Executive
Officer

Niel C. 1996 $186,846 $ 67,617 $10,604 $ 92,235 $11,985
Ellerbrook, 1997 $217,923 $ 89,271 $21,050 $114,419 $21,117
President and 1998 $284,054 $107,508 $19,658 $ 0 $21,053
Chief
Officer

Paul T. Baker, 1996 $249,308 $ 89,709 $ 8,240 $ 59,183 $13,137
Executive V.P. 1997 $257,785 $118,561 $20,134 $ 99,068 $28,991
and Chief 1998 $260,000 $123,881 $18,668 $ 0 $26,791
Operating
Officer,
Indiana Gas

Anthony E. 1996 $142,019 $ 38,104 $ 5,727 $ 54,332 $12,067
Ard, 1997 $147,477 $ 68,485 $10,678 $ 58,102 $20,037
Sr. V.P. - 1998 $149,304 $ 71,526 $ 9,421 $ 0 $19,068
Corporate
Affairs and
Secretary

Timothy M. 1996 $131,385 $ 36,680 $ 4,317 $ 43,509 $10,721
Hewitt, 1997 $136,977 $ 50,510 $ 7,577 $ 41,739 $14,662
V.P. - 1998 $143,175 $ 53,772 $ 6,810 $ 0 $15,243
Operations and
Engineering,
Indiana Gas

Carl L. 1996 $125,596 $ 36,139 $ 6,580 $ 44,143 $ 9,857
Chapman, 1997 $ 0 $ 62,519 $12,557 $ 81,664 $ 0
Assistant 1998 $ 87,115 $ 0 $ 9,768 $ 0 $ 7,406
Treasurer and
President,
Investments
(5)

</TABLE>

(1) The amounts shown in this column are payments under the Annual
Management Incentive Plan, which was discussed above in Parts B,
relating to "Annual Compensation," and C of the Compensation
Committee Report. Amounts paid in any fiscal year are attributable
to the Company's performance in the prior fiscal year. Payments
earned in fiscal year 1998 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 22.

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

(3) 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. For fiscal year 1998, in contemplation of
additional changes to the Stock Plan, the board of directors approved
an amendment to the Stock Plan to postpone the lapsing of the
restrictions on shares from September 30, 1998 until February 1,
1999. With the exception of L. A. Ferger, the executive officers
consented to the postponement of the lapsing of restrictions on their
respective shares; consequently, this column only reflects a value
for the issuance of shares to Mr. Ferger under the Stock Plan. The
Company's 1999 fiscal year proxy statement will reflect the postponed
lapsing of restrictions on affected shares for the respective
executive officers. After the lifting of those restrictions, the
executive officers, as a group, held 112,956 restricted shares, with
an aggregate market value of those shares as of that date of
$2,657,996. Those shares continue to be subject to restrictions
imposed by the Stock Plan, and they represent one-third of the
initial grant of the Third Measuring Period shares, and all of the
initial grants of the Fourth and Fifth Measuring Periods. The number
and value of restricted shares held by each executive officer on
September 30, 1998 (which, consistent with all other share numbers in
this proxy statement, are adjusted for the four-for-three stock
split), follows: L. A. Ferger - 41,184 shares, $969,111; Niel C.
Ellerbrook - 21,933 shares, $516,111; Paul T. Baker - 20,829 shares,
$490,132; Anthony E. Ard - 10,512 shares, $247,361; Timothy M. Hewitt
- - 7,599 shares, $178,814; and Carl L. Chapman - 10,899 shares,
$256,467.

(4) 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.

(5) As explained on page 7, Mr. Chapman was not considered to be a
named executive officer of the Company from September 1996 until May
1998. Consequently, the Company did not pay Mr. Chapman a salary or
other compensation during fiscal year 1997. The amount contained in
column (d) consists of compensation earned prior to, but paid in
fiscal year 1997; the figures in columns (e) and (h) respectively
represent dividends received on restricted stock and the lifting of
restrictions on stock previously granted. Mr. Chapman's compensation
reflected in the table for fiscal year 1998, began on May 1, 1998,
when he ceased his employment with ProLiance and commenced full-time
employment as President of Investments.

<TABLE>

LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR

Estimated Future Payouts
Under Non-Stock Price-Based Plans
(a) (b) (c) (d) (e) (f)

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

L. A. Ferger, 3,999 - 0 3,999 7,998
Chairman and
Chief Executive
Officer

Niel C. 2,656 - 0 2,656 5,312
Ellerbrook,
President and
Chief Operating
Officer

Paul T. Baker, 1,925 - 0 1,925 3,850
Executive V.P.
and Chief
Operating
Officer, Indiana
Gas

Anthony E. Ard, 736 - 0 736 1,472
Sr. V.P. -
Corporate
Affairs and
Secretary

Timothy M. 684 - 0 684 1,368
Hewitt,
V. P. -
Operations and
Engineering,
Indiana Gas

Carl L. Chapman, 0 - 0 0 0
Assistant
Treasurer and
President,
Investments (6)

</TABLE>

(1) This column shows the restricted shares awarded during fiscal
year 1998 under the Stock Plan. The manner for determining the
awards, and other terms and conditions of the Stock 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 Stock 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 is the initial grant of shares for the Fifth
Measuring Period. Please see the explanation above in footnote (3)
to the Summary Compensation Table regarding the approval of the
postponement of the lapsing of restrictions this fiscal year by the
board of directors. Accordingly, the dollar values of the respective
shares are shown in the fiscal year 1998 data in column (h) of the
Summary Compensation Table.

(2) As discussed above in Part B of the Compensation Committee
Report relating to "Long-Term Incentive Compensation," for grants
provided on or after October 1, 1997, the restrictions are lifted in
whole as of the fourth (4th) anniversary 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.

(3) The Fifth Measuring Period initial grant shares, which are
included in the total number of shares shown in column (b) and are
also set forth 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.

(4) The Fifth Measuring Period initial grant shares, which are the
same as 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.

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

(6) As explained above in footnote (5) to the Summary Compensation
Table, because Mr. Chapman was not employed by the Company on a full-
time basis on October 1, 1997, he was not issued any shares under the
Stock Plan.

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 1998, companies in the peer group are as
follows: AGL Resources Inc., Atmos Energy Corp., Bay State Gas Co.,
Cascade Natural Gas Corp., CTG Resources, Inc., Eastern Enterprises,
Energen Corp., Laclede Gas Co., MCN Energy Group, Inc. (formerly MCN
Corp.), National Fuel Gas Co., New Jersey Resources Corp., NICOR,
Inc., NW Natural, NUI Corp., 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., 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 1997 (the "1997 Peer Group") by removing both Pacific
Enterprises and the former KeySpan Energy Corp., which were each
merged out of existence. The following graph reflects comparisons of
total return for the Peer Group, the S&P 500 and the S&P Utilities.

Total Return to Shareholders (1) (2)

[INSERT GRAPH A]

<TABLE>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
IEI 0 (10.76%) 2.63% 21.02% 54.67% 69.86%
Peers 0 (11.50%) .26% 27.00% 51.75% 55.29%
S&P 500 0 3.69% 34.53% 61.88% 127.36% 147.92%
S&P Utilities 0 (13.10%) 10.88% 19.19% 36.33% 77.27%

</TABLE>

(1) The total returns on investment (change in the year-end stock
price plus reinvested dividends) for each of the periods for the
Company, the Peer Group, the S&P 500 Composite and the S&P Utilities
Index are based on the stock price or composite index at the end of
fiscal year 1993.

(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, 1993, compared with activity as of September 30, 1994, 1995,
1996, 1997 and 1998. 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.

Return on Equity (1) (2) (3) (4)

[INSERT GRAPH B]

<TABLE>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
IEI 14.68% 13.00% 11.94% 14.63% 14.69%
Peers 10.34% 11.40% 9.15% 12.05% 11.51%

</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 1998 were based on the
Company's comparative return on equity during the fiscal year 1997,
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."

(4) This return on equity graph reflects a 14.7 percent return on
equity figure for the Company for fiscal year 1997. As explained in
Part B of the Compensation Committee Report relating to "Annual
Compensation", Indiana Gas recognized an after-tax restructuring
charge of $24.5 million. The board of directors, with the
concurrence of its independent members, approved the restructuring
charge as a result of the restructuring of Indiana Gas' operations
for fiscal year 1997. As permitted under the Incentive Plan, on
October 31, 1997, the 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. Accordingly, the return on equity
prior to the restructuring charge is included in this graph. After
the restructuring charge, the Company's consolidated return on equity
for fiscal year 1997 was 7.0 percent. This figure is included in the
return on equity graph contained in the Company's annual report.

RETIREMENT SAVINGS PLAN

During the past fiscal year, the Company sponsored the
Retirement Savings Plan which covers both bargaining and non-
bargaining employees. 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.

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

RETIREMENT PLANS

During the past fiscal year, the Company and Indiana Gas each
sponsored a defined benefit pension plan covering full-time employees
of the Company and certain of its subsidiaries, and of Indiana Gas,
respectively, who meet certain age and service requirements. The
Company's 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 plan.

During the past fiscal year, the Company had a supplemental
pension plan covering the principal officers of the Company and its
subsidiaries. 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).

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, defined benefit pension plan benefits, 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 may 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 BENEFITS AGREEMENTS

The Company, with approval of the board of directors, has
entered into employment agreements with five out of the six 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 benefits 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 described above, 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 1999. 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, 1998,
was mailed to shareholders on or about December 4, 1998.

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.

NOMINATION OF DIRECTORS BY SHAREHOLDERS

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 serve as a director, if elected),
and (v) the qualifications of the nominee to serve as a director of
the Company.

SHAREHOLDERS' PROPOSALS FOR 2000 ANNUAL MEETING

Under Rule 14a-8 of 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 2000 annual meeting of its shareholders by submitting their
proposals to the Company in a timely manner. In order to be so
included for the 2000 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 6, 1999, 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. In addition, if the Company does not receive the
shareholder's notice within the time period described above, the
proxies designated by the board of directors for that meeting may
vote in their discretion on any such proposal any shares for which
they have been appointed proxies without mention of such matter in
the Company's proxy statement or on the proxy card for such meeting.

By order of the board of directors.

INDIANA ENERGY, INC.

/s/ Anthony E. Ard
By ANTHONY E. ARD

Secretary and Senior Vice President-Corporate Affairs
Indianapolis, Indiana
December 4, 1998

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.