INDIANA ENERGY INC, 10-Q, 1999-08-12

INDIANA ENERGY INC
10-Q, 1999-08-12
NATURAL GAS DISTRIBUTION

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August 12, 1999

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

Gentlemen:

We are transmitting herewith Indiana Energy, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999, 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

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 1999

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

Commission file number 1-9091

INDIANA ENERGY, INC.
(Exact name of registrant as specified in its charter)

INDIANA 35-1654378
(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)

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

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
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
issuer's classes of common stock, as of the latest
practicable date.

Common Stock - Without par value 29,788,345 July 31, 1999
Class Number of shares Date

TABLE OF CONTENTS

Page
Numbers

Part I - Financial Information

Item 1 - Financial Statements

Consolidated Balance Sheets
at June 30, 1999, and 1998
and September 30, 1998

Consolidated Statements of Income
Three Months Ended June 30, 1999 and 1998,
Nine Months Ended June 30, 1999 and 1998,
and Twelve Months Ended June 30, 1999 and 1998

Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1999 and 1998,
and Twelve Months Ended June 30, 1999 and 19987

Notes to Consolidated Financial Statements

Item 2 - Management's Discussion and Analysis of Results
of Operations and Financial Condition

Item 3 - Quantitative and Qualitative Disclosures about
Market Risk

Part II - Other Information

Item 1 - Legal Proceedings

Item 6 - Exhibits and Reports on Form 8-K

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

<TABLE>

INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

ASSETS
(Thousands - Unaudited)

June 30 September 30
1999 1998 1998

<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 20 $ 11,715 $ 9,325
Accounts receivable, less reserves of
$1,370, $553 and $900 respectively 16,628 23,357 10,939
Accrued unbilled revenues 6,012 7,639 6,453
Liquefied petroleum gas - at average cost 808 865 883
Gas in underground storage - at last-in,
first-out cost 5,003 7,558 19,373
Prepayments 22,098 8,163 8,865
Other current assets 2,188 198 191
52,757 59,495 56,029

INVESTMENTS IN UNCONSOLIDATED AFFILIATES 42,897 30,011 32,186

UTILITY PLANT:
Original cost 972,735 923,385 937,977
Less - accumulated depreciation and
amortization 392,731 362,531 370,872
580,004 560,854 567,105

NONUTILITY PLANT:
Original cost 61,783 49,293 55,225
Less - accumulated depreciation and
amortization 16,988 11,061 12,613
44,795 38,232 42,612

DEFERRED CHARGES AND OTHER ASSETS:
Unamortized debt discount and expense 12,186 13,185 12,954
Regulatory income tax asset 1,778 - 1,778
Other 6,277 5,864 4,466
20,241 19,049 19,198

$ 740,694 $ 707,641 $ 717,130

</TABLE>

<TABLE>

INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS' EQUITY
(Thousands except shares - Unaudited)

June 30 September 30
1999 1998 1998
<C> <C> <C> <C>
CURRENT LIABILITIES:
Maturities and sinking fund requirements of
long-term debt $ 10,174 $ 272 $ 10,119
Notes payable 24,324 1,000 33,705
Accounts payable (See Note 14) 22,572 19,146 19,416
Refundable gas costs 25,642 27,155 10,730
Customer deposits and advance payments 4,915 5,484 19,229
Accrued taxes 16,379 13,065 4,728
Accrued interest 3,868 4,372 1,974
Other current liabilities 24,074 28,081 29,892
131,948 98,575 129,793

DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 60,844 56,797 60,448
Accrued postretirement benefits other
than pensions 27,677 25,156 25,388
Unamortized investment tax credit 8,617 9,547 9,313
Regulatory income tax liability - 1,874 -
Other 5,481 5,189 4,994
102,619 98,563 100,143

COMMITMENTS AND CONTINGENCIES (See Notes 8 & 13) - - -

CAPITALIZATION:
Long-term debt 183,303 194,889 183,489
Common stock (no par value) - authorized
200,000,000 shares - issued and outstanding
29,788,345, 30,119,427 and 30,063,667 shares,
respectively (1) 136,760 143,594 142,653
Retained earnings 186,064 172,020 161,052
Total common shareholders' equity 322,824 315,614 303,705
506,127 510,503 487,194

$ 740,694 $ 707,641 $ 717,130

(1) Adjusted to reflect the four-for-three stock split October 2, 1998.

</TABLE>

<TABLE>

INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share data)
(Unaudited)

Three Months Nine Months
Ended June 30 Ended June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Utility $ 72,131 $ 70,560 $ 358,562 $ 403,823
Other 339 210 988 568
72,470 70,770 359,550 404,391
OPERATING EXPENSES:
Cost of gas (See Note 14) 33,751 35,032 185,681 234,808
Other operating 18,441 17,925 56,828 55,525
Depreciation and amortization 10,319 9,605 30,073 27,907
Taxes other than income taxes 3,550 2,985 12,640 12,641
66,061 65,547 285,222 330,881

OPERATING INCOME 6,409 5,223 74,328 73,510

OTHER INCOME:
Equity in earnings of unconsolidated
affiliates (See Note 8) 2,194 1,423 7,913 7,208
Other - net (474) 845 283 1,726
1,720 2,268 8,196 8,934

INCOME BEFORE INTEREST AND
INCOME TAXES 8,129 7,491 82,524 82,444

INTEREST EXPENSE 3,945 3,581 12,473 12,780

INCOME BEFORE INCOME TAXES 4,184 3,910 70,051 69,664

INCOME TAXES 801 1,199 24,289 25,455

NET INCOME $ 3,383 $ 2,711 $ 45,762 $ 44,209

AVERAGE COMMON SHARES OUTSTANDING (1) 29,787 30,124 29,868 30,124

BASIC AND DILUTED EARNINGS PER AVERAGE
SHARE OF COMMON STOCK (1) $ 0.11 $ 0.09 $ 1.53 $ 1.47

(1) Adjusted to reflect the four-for-three stock split October 2, 1998. See Note 12.

</TABLE>

<TABLE>

INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share data)
(Unaudited)

Twelve Months
Ended June 30
1999 1998
<S> <C> <C>
OPERATING REVENUES:
Utility $ 420,383 $ 462,321
Other 1,210 615
421,593 462,936
OPERATING EXPENSES:
Cost of gas (See Note 14) 220,360 267,065
Other operating 76,891 74,824
Restructuring costs (See Note 3) - 39,531
Depreciation and amortization 39,821 36,810
Taxes other than income taxes 14,734 16,024
351,806 434,254

OPERATING INCOME 69,787 28,682

OTHER INCOME:
Equity in earnings of unconsolidated
affiliates (See Note 8) 7,931 11,990
Other - net 1,060 1,255
8,991 13,245

INCOME BEFORE INTEREST AND
INCOME TAXES 78,778 41,927

INTEREST EXPENSE 16,338 17,005

INCOME BEFORE INCOME TAXES 62,440 24,922

INCOME TAXES 20,683 8,310

NET INCOME $ 41,757 $ 16,612

AVERAGE COMMON SHARES OUTSTANDING (1) 29,924 30,120

BASIC AND DILUTED EARNINGS PER AVERAGE
SHARE OF COMMON STOCK (1) $ 1.40 $ 0.55

(1) Adjusted to reflect the four-for-three stock split October 2, 1998. See Note 12.

</TABLE>

<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands - Unaudited)

Nine Months Twelve Months
Ended June 30 Ended June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 45,762 $ 44,209 $ 41,757 $ 16,612
Adjustments to reconcile net income to cash
provided from operating activities -
Noncash restructuring costs - - - 32,838
Depreciation and amortization 30,147 28,047 39,942 36,997
Deferred income taxes 396 1,592 395 (12,697)
Investment tax credit (697) (697) (930) (930)
Loss (gain) on sale of assets 730 (2,102) 730 (2,102)
Undistributed earnings of unconsolidated
affiliates (7,913) (7,208) (7,931) (11,990)
22,663 19,632 32,206 42,116
Changes in assets and liabilities -
Receivables - net (5,248) 286 8,356 (2,345)
Inventories 14,398 11,554 2,572 2,572
Accounts payable, customer deposits,
advance payments and other current
liabilities (16,976) (28,394) (1,150) (4,844)
Accrued taxes and interest 13,545 6,149 2,810 661
Recoverable/refundable gas costs 14,912 32,998 (1,513) 28,122
Prepayments and other current assets (15,183) (1,100) (15,885) (7,739)
Accrued postretirement benefits other
than pensions 2,289 2,118 2,521 7,724
Other - net 1,059 (1,207) (1,697) 4,109
Total adjustments 31,459 42,036 28,220 70,376
Net cash flows from operations 77,221 86,245 69,977 86,988

CASH FLOWS REQUIRED FOR FINANCING ACTIVITIES:
Repurchase of common stock (5,975) - (7,164) -
Sale of long-term debt - 95,044 - 110,059
Reduction in long-term debt (131) (92,946) (1,684) (93,069)
Net change in short-term borrowings (9,381) (22,800) 23,324 (11,550)
Dividends on common stock (20,717) (19,877) (27,680) (26,493)
Net cash flows required for financing
activities (36,204) (40,579) (13,204) (21,053)

CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
Capital expenditures (48,017) (46,477) (67,570) (65,968)
Nonutility investments in unconsolidated
affiliates - net (6,194) (3,209) (9,447) (3,959)
Cash distributions from unconsolidated
affiliates 3,889 6,483 4,436 6,483
Proceeds from sale of assets - 9,204 4,113 9,204
Net cash flows required for investing
activities (50,322) (33,999) (68,468) (54,240)

NET INCREASE (DECREASE) IN CASH (9,305) 11,667 (11,695) 11,695

CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 9,325 48 11,715 20

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20 $ 11,715 $ 20 $ 11,715

</TABLE>

Indiana Energy, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements

1. Financial Statements.
The consolidated financial statements include the
accounts of Indiana Energy, Inc. (Indiana Energy or the
company) and its wholly and majority-owned subsidiaries,
after elimination of intercompany transactions. The
company's consolidated financial statements include the
operations of its regulated gas distribution subsidiary,
Indiana Gas Company, Inc., (Indiana Gas), its
nonregulated administrative services provider, IEI
Services, LLC, its financing subsidiary, IEI Capital
Corp. (Capital Corp.) and its nonutility subsidiaries
and investments grouped under its nonregulated
subsidiary, IEI Investments, Inc (IEI Investments).

The nonutility operations of IEI Investments include IGC
Energy, Inc. (IGC Energy), Energy Realty, Inc. (Energy
Realty), Energy Financial Group, Inc. and IEI Financial
Services, LLC, all indirect wholly owned subsidiaries of
Indiana Energy, and interests in ProLiance Energy, LLC,
CIGMA, LLC, Energy Systems Group, LLC, Pace Carbon
Synfuels Investors, L.P., Reliant Services, LLC and
Haddington Energy Partners, L.P.

The interim condensed consolidated financial statements
included in this report have been prepared by Indiana
Energy, without audit, as provided in the rules and
regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
omitted as provided in such rules and regulations.
Indiana Energy believes that the information in this
report reflects all adjustments necessary to fairly
state the results of the interim periods reported, that
all such adjustments are of a normally recurring nature,
and the disclosures are adequate to make the information
presented not misleading. These interim financial
statements should be read in conjunction with the
financial statements and the notes thereto included in
Indiana Energy's latest annual report on Form 10-K.

Because of the seasonal nature of Indiana Energy's gas
distribution operations, the results shown on a
quarterly basis are not necessarily indicative of annual
results.

2. Agreement to Merge with SIGCORP, Inc.
On June 14, 1999, Indiana Energy and SIGCORP, Inc.
(SIGCORP) jointly announced the signing of a definitive
agreement to combine into a new holding company named
Vectren Corporation (Vectren). SIGCORP is an investor-
owned energy and telecommunications company that through
its subsidiaries provides electric and gas service to
southwest Indiana and energy and telecommunication
products and services throughout the Midwest and
elsewhere.

Under the agreement, SIGCORP shareholders will receive
1.333 shares of Vectren common stock for each share of
SIGCORP they currently hold. Indiana Energy
shareholders will receive one share of Vectren common
stock for each share of Indiana Energy they currently
hold. The transaction, which has been approved by the
boards of directors of both companies, is intended to be
accounted for as a pooling of interests. The
transaction is also intended to be a tax-free exchange
of shares.

Indiana Energy's and SIGCORP's utility companies will
remain separate subsidiaries of Vectren and will
continue to operate under the names of Indiana Gas
Company, Inc. and Southern Indiana Gas and Electric
Company, respectively.

The merger is conditioned, among other things, upon the
approvals of the shareholders of each company and
customary regulatory approvals. The companies
anticipate that the regulatory processes can be
completed by the first quarter of calendar 2000.

3. Corporate Restructuring.
In April 1997, the Board of Directors of Indiana Energy
approved a new growth strategy designed to support the
company's transition into a more competitive
environment.

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) in the fourth quarter
of fiscal 1997 as described below.

In July 1997, the company 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
the fourth quarter of fiscal 1997 related to the
involuntary terminations planned under the company's
specific near-term employee reduction plan, which was
scheduled for completion by the end of fiscal 1999.
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 of initial work force
reductions during September 1997 and primarily attrition
thereafter, most of the reductions contemplated during
the 2 year period and accrued for originally have been
achieved. During the second quarter of fiscal 1999, the
company reviewed its remaining accruals for costs
associated with the work force reductions. Taking into
consideration an unexpectedly high level of voluntary
terminations and the staffing implications related to
significant process change associated with the company's
recently implemented new customer information system,
the company determined that no additional significant
work force reductions were likely to occur during the
remainder of fiscal 1999, and accordingly, that an
adjustment to reverse the remaining severance accrual
was necessary. As a result, the severance accrual and
other operating expenses were reduced by $1.3 million
during the second quarter of fiscal 1999.

Indiana Gas' management also 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 the fourth quarter of fiscal 1997 to
adjust the carrying value of those assets to estimated
fair value. These assets have been sold or are no longer
in use.

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 $32.2 million of fixed assets at net
book value from Indiana Gas, which subsequently
dividended its membership interest to Indiana Energy.
These assets, which relate to the provision of
administrative services, are classified in Non-utility
Plant on the Consolidated Balance Sheets. IEI Services
provides information technology, financial, human
resources, building and fleet services. These services
had been provided by Indiana Gas in the past.

4. Cash Flow Information.
For the purposes of the Consolidated Statements of Cash
Flows, Indiana Energy 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>

Nine Months Ended Twelve Months Ended
June 30 June 30
Thousands 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest (net of
amount
capitalized) $ 8,654 $ 9,886 $14,366 $15,469
Income taxes $12,076 $18,080 $18,726 $22,230

</TABLE>

5. Utility Revenues.
To more closely match revenues and expenses, revenues
are recorded for all gas delivered to customers but not
billed at the end of the accounting period.

6. Gas in Underground Storage.
Based on the average cost of purchased gas during June
1999, the cost of replacing the current portion of gas
in underground storage was less than last-in, first-out
cost at June 30, 1999, by approximately $412,000.

7. Refundable or Recoverable Gas Costs.
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 Indiana
Utility Regulatory Commission (IURC).

8. ProLiance Energy, LLC.
ProLiance Energy, LLC (ProLiance) is owned jointly and
equally by IGC Energy and Citizens By-Products Coal
Company, a wholly owned subsidiary of Citizens Gas and
Coke Utility (Citizens Gas). ProLiance is the supplier
of gas and related services to both Indiana Gas and
Citizens Gas, as well as a provider of similar services
to other utilities and customers in Indiana and
surrounding states. ProLiance added power marketing in
late fiscal 1997 to the services it offers. Power
marketing involves buying electricity on the wholesale
market and then reselling it to marketers, utilities and
other customers. To effectively manage the risks
associated with power marketing, ProLiance utilizes a
disciplined approach to credit analysis, obtains letters
of credit or corporate guarantees when appropriate, and
does not "sleeve" or assume the credit risk between the
buyer and seller. IGC Energy's investment in ProLiance
is accounted for using the equity method.

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 review 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, the Citizens Action Coalition of Indiana and
a small group of large-volume customers. 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 was that because
the gas supply agreements provide for index based
pricing of gas commodity sold by ProLiance to the
utilities, the gas supply agreements should have been
the subject of an application for approval of an
alternative regulatory plan under Indiana statutory law.

Management believes the Court of Appeals incorrectly
applied the alternative regulation statute. On April 22,
1999, the Indiana Supreme Court granted a petition for
transfer of the case and will now consider the appeal of
the IURC's decision and issue its own decision on the
merits of the appeal at a later date. By granting
transfer, the Supreme Court has vacated the Court of
Appeals' decision.

If the Supreme Court reverses the IURC's decision , the
case will be remanded to the IURC for further
proceedings regarding the public interest in the gas
supply agreements. If the Supreme Court affirms the IURC's
decision, the reasonableness of certain of the gas costs
incurred by Indiana Gas under the gas supply agreements
will be further reviewed by the IURC in the consolidated
GCA proceeding. The existence of significant benefits to
the utilities and their customers resulting from
ProLiance's services has not been challenged on appeal.
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.

Indiana Gas continues to record gas costs in accordance
with the terms of the ProLiance contract and Indiana
Energy continues to record its proportional share of
ProLiance's earnings. Pretax earnings recognized from
ProLiance totaled $2.3 million and $1.3 million for the
three-month periods ended June 30, 1999 and 1998,
respectively. Pretax earnings recognized from ProLiance
totaled $8.6 million and $7.1 million for the nine-month
periods ended June 30, 1999 and 1998, respectively.
Pretax earnings recognized from ProLiance totaled $9.0
million and $12.0 million for the twelve-month periods
ended June 30, 1999 and 1998, respectively. Earnings
recognized from ProLiance are included in Equity in
Earnings of Unconsolidated Affiliates on the
Consolidated Statements of Income. Earnings recognized
for the twelve months ended June 30, 1998, include $4.9
million of ProLiance's earnings from prior periods which
had previously been reserved.

At June 30, 1999, Indiana Energy has reserved
approximately $1.7 million of ProLiance earnings after
tax. Total after-tax ProLiance earnings recognized to
date approximate $15.5 million. This amount includes
earnings from all of ProLiance's business activities,
and therefore is believed to be a conservative estimate
of the upper risk limit. Resolution of the above
proceedings may also impact future operations and
earnings contributions from ProLiance. Based on the
IURC's findings described above, management believes the
ProLiance issues may be resolved near the levels that
are already being reserved, and therefore, while these
proceedings are pending, does not anticipate changing
the level at which it reserves ProLiance earnings.
However, no assurance of this outcome can be provided.

9. Pace Carbon Synfuels Investors, L.P.
On February 5, 1998, IEI Synfuels, Inc. (IEI Synfuels),
a wholly-owned, indirect subsidiary of IEI Investments,
purchased one limited partnership unit in Pace Carbon
Synfuels Investors, L.P. (Pace Carbon), a Delaware
limited partnership formed to develop, own and operate
four projects to produce and sell coal-based synthetic
fuel. Pace Carbon converts coal fines (small coal
particles) into coal pellets that are sold to major coal
users such as utilities and steel companies. This
process is eligible for federal tax credits under
Section 29 of the Internal Revenue Code (Code) and the
Internal Revenue Service has issued a private letter
ruling with respect to the four projects.

IEI Synfuels has committed an initial investment of $7.5
million in Pace Carbon (of which $6.5 million was paid
through June 30, 1999) for an 8.3 percent ownership
interest in the partnership. In addition to its initial
investment, IEI Synfuels has a continuing obligation to
invest in Pace Carbon up to approximately $43 million,
with any such additional investments to be funded solely
from a portion of the federal tax credits that are
earned from the production and sale of coal pellets by
the projects.

The realization of the tax credits from this investment
is dependent upon a number of factors including among
others (1) the production facilities must have been in
operation by June 30, 1998, (2) adequate coal fines must
be available to produce the coal pellets, and (3) the
coal pellets must be produced and sold. All four of Pace
Carbon's coal-based synthetic fuel production facilities
were placed into service by June 30, 1998, and are
currently producing and selling pellets in an extended
ramp up mode. Further enhancements to the production
process are expected to continue through the remainder
of fiscal 1999.

Generally, all pellets produced through June 30, 1999
have been sold. However, due to a deterioration in the
United States coal export market, domestic companies'
coal supplies and capacities are up, which in turn has
reduced the demand and created some price pressure for
Pace Carbon's coal-based synthetic product. Management
does not believe that the extended time required to make
necessary production process enhancements nor the
current coal market conditions will significantly affect
the long-term success of the projects. Accordingly,
management continues to believe that significant project
benefits, primarily in the form of tax savings and tax
credits realized, will be achieved in the future,
however, no assurance can be given.

10. Haddington Energy Partners, L.P.
On October 9, 1998, IEI Investments committed to invest
$10 million in Haddington Energy Partners, L.P.
(Haddington). Haddington, a Delaware limited
partnership, has raised $77 million to invest in six to
eight projects that represent a portfolio of development
opportunities, including natural gas gathering and
storage and electric power generation. Haddington's
investment opportunities will focus on acquiring and
building on projects in progress rather than start-up
ventures. Currently, Haddington's investments include
the development of projects related to high-
deliverability gas storage and compressed air energy
storage. Through June 30, 1999, IEI Investments had paid
approximately $1.4 million of its commitment in
Haddington, with additional amounts to be paid as
Haddington's portfolio grows.

11. Reliant Services, LLC
On June 30, 1998, IGC Energy and Cinergy Supply Network,
Inc., a subsidiary of Cinergy Corp.(Cinergy), formed
Reliant Services, LLC (Reliant), an equally owned
limited liability company, to perform underground
facilities locating and construction services. In May
1999, Reliant purchased the assets of two Indianapolis-
based companies that will enable it to enter that
market. The asset purchase was completed after Cinergy
received all necessary regulatory approvals. In August
1999, Reliant entered themeter reading business as well.
Reliant is based in the Indianapolis area and will focus
initially on serving electric, gas, telephone, cable and
water companies in Indiana, Ohio and Kentucky. Through
June 30, 1999, IGC Energy had invested approximately
$3.1 million in Reliant.

12. Common Stock.
On July 31, 1998, the Board of Directors of Indiana
Energy authorized a four-for-three stock split of the
issued and outstanding shares of its common stock to
shareholders of record on September 18, 1998. The shares
were issued on October 2, 1998. All share and per share
amounts have been restated for all periods reported to
reflect the stock split.

On July 28, 1995, Indiana Energy's Board of Directors
authorized Indiana Energy to repurchase up to 700,000
shares of its outstanding common stock. During the three
months ended June 30, 1999, the company repurchased
6,200 shares with an associated cost of $118,000. For
the nine-month period ended June 30, 1999, 270,300
shares were repurchased with an associated cost of
$5,975,000. Of the 700,000 shares authorized, 295,200
shares remain available for repurchase at June 30, 1999.
The last repurchase occurred on April 1, 1999, and as a
result of the signing of the agreement to merge (see
Note 2), the company is not planning any future
repurchases.

13. Environmental Costs.
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.

Indiana Gas has filed a complaint in Indiana state court
to continue its pursuit of insurance coverage from four
insurance carriers, with the trial scheduled for early
2000. As of June 30, 1999, Indiana Gas has obtained
settlements from other 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 approximate
insurance settlements received. 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.

14. Affiliate Transactions.
The obligations of Capital Corp., which handles
financing for the company and its non-utility
subsidiaries, are subject to a support agreement between
the company and Capital Corp., under which the company
has committed to make payments of interest and principal
on Capital Corp.'s securities in the event of default.
Under the terms of the support agreement in addition to
the cash flow of cash dividends paid to the company by
any of its consolidated subsidiaries, the non-utility
assets of the company are available as recourse to
holders of Capital Corp.'s securities. The carrying
value of such non-utility assets reflected in the
consolidated financial statements of the company is
approximately $90.8 million at June 30, 1999.

ProLiance 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 the three-, nine- and twelve-
month periods ended June 30, 1999, totaled $44.2
million, $183.3 million and $228.7 million,
respectively. Indiana Gas' purchases from ProLiance for
the three-, nine- and twelve-month periods ended June
30, 1998, totaled $41.5 million, $223.8 million and
$275.7 million, respectively.

ProLiance has a standby letter of credit facility with a
bank for letters up to $30 million. This facility is
secured in part by a support agreement from Indiana
Energy. Letters of credit outstanding at June 30, 1999,
totaled $4.8 million.

CIGMA, LLC provides materials acquisition and related
services that are used by the company. The company's
purchases of these services during the three-, nine- and
twelve-month periods ended June 30, 1999, totaled $4.4
million, $14.5 million and $18.5 million, respectively.
The company's purchases of these services during the
three-, nine- and twelve-month periods ended June 30,
1998, totaled $4.2 million, $17.3 million and $22.3
million, respectively.

Indiana Energy is a one-third guarantor of certain
surety bond obligations of Energy Systems Group, LLC.
Indiana Energy's share totaled $8.2 million at June 30,
1999.

Amounts owed to affiliates totaled $17.0 million and
$16.4 million at June 30, 1999 and 1998, respectively,
and are included in Accounts Payable on the Consolidated
Balance Sheets.

15. Reclassifications.
Certain reclassifications have been made to the prior
periods' financial statements to conform to the current
year presentation. These reclassifications have no
impact on net income previously reported.

Indiana Energy, Inc. and Subsidiary Companies
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition

Results of Operations

Indiana Energy, Inc.'s (Indiana Energy or the company)
consolidated earnings are from the operations of its gas
distribution subsidiary, Indiana Gas Company, Inc.
(Indiana Gas), its nonregulated administrative services
provider, IEI Services, LLC (IEI Services), and its
nonutility subsidiaries and investments grouped under its
nonregulated subsidiary, IEI Investments, Inc. (IEI
Investments).

The nonutility operations of IEI Investments include
IGC Energy, Inc. (IGC Energy), Energy Realty, Inc. (Energy
Realty), Energy Financial Group, Inc. and IEI Financial
Services, LLC, all indirect wholly owned subsidiaries of
Indiana Energy, and interests in ProLiance Energy, LLC,
CIGMA, LLC, Energy Systems Group, LLC, Pace Carbon
Synfuels Investors, L.P., Reliant Services, LLC and
Haddington Energy Partners, L.P.

The company's growth strategy provides for growing the
earnings contribution from non-utility operations to over
25 percent of its total annual earnings by 2003, and
aggressively managing costs within its utility operations
(see Growth Strategy and Corporate Restructuring).

Stock Split
On July 31, 1998, the board of directors of Indiana
Energy authorized a four-for-three stock split of the
issued and outstanding shares of its common stock to
shareholders of record on September 18, 1998. The shares
were issued on October 2, 1998. All share and per share
amounts have been restated for all periods reported to
reflect the stock split.

Earnings
Income and earnings per average share of common stock
for the three-, nine- and twelve-month periods ended June
30, 1999, when compared to the same periods one year ago,
were as follows:

<TABLE>

(Millions except Three Months Ended Six Months Ended Twelve Months Ended
per share amounts) June 30 June 30 June 30
1999 1998 1999 1998 1999 1998(1)(3)
<S> <C> <C> <C> <C> <C> <C>
Indiana Gas &
IEI Services $ 1.7 $ 1.4 $40.2 $38.3 $35.8 $ 7.8
IEI Investments 1.7 1.3 5.6 5.9 6.0 8.8
Net Income $ 3.4 $ 2.7 $45.8 $44.2 $41.8 $16.6

Earnings per
share (2):
Indiana Gas &
IEI Services $ .05 $ .05 $1.34 $1.27 $1.20 $ .26
IEI Investments .06 .04 .19 .20 .20 .29
Total $ .11 $ .09 $1.53 $1.47 $1.40 $ .55

(1) Reflects restructuring costs of $24.5 million after-tax or $.81 per
common share at Indiana Gas (see Growth Strategy and Corporate
Restructuring).
(2) Adjusted to reflect the four-for-three stock split October 2, 1998.
(3) IEI Investments' results for the twelve months ended June 30, 1998,
include $3.0 million after-tax or $.10 per common share related to
the recognition of ProLiance's earnings from prior periods which had
previously been reserved (see Other Income).

</TABLE>

Utility Margin (Utility Operating Revenues Less Utility
Cost of Gas)
Utility margin for the quarter ended June 30, 1999,
was $38.4 million compared to $35.5 million for the same
period last year. The addition of new residential and
commercial customers and the lower cost of unaccounted for
gas helped offset the effects of weather 11 percent warmer
than the same period last year and 30 percent warmer than
normal.

Utility margin for the nine-month period ended June
30, 1999, was $172.9 million compared to $167.5 million
for the same period last year. The increase reflects the
addition of new residential and commercial customers, the
lower cost of unaccounted for gas and a one-time sale of
native gas. Weather for the current nine-month period was
approximately the same compared to the same period last
year and 13 percent warmer than normal.

Utility margin for the twelve-month period ended June
30, 1999, was $200.0 million compared to $193.7 million
for the same period last year. The increase reflects the
addition of new residential and commercial customers, the
lower cost of unaccounted for gas and a one-time sale of
native gas. Weather for the current twelve-month period
was 1 percent warmer than the same period last year and 14
percent warmer than normal.

Total system throughput (combined sales and
transportation) increased 5 percent (.9 MMDth) for the
third quarter of fiscal 1999, 2 percent (2.0 MMDth) for
the nine-month period and 2 percent (2.3 MMDth) for the
twelve-month period ended June 30, 1999, compared to the
same periods one year ago. 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 unit of gas purchased decreased
to $2.11 for the three-month period ended June 30, 1999,
compared to $2.54 for the same period one year ago. For
the nine-month period, cost of gas per unit decreased to
$2.98 in the current period compared to $3.60 for the same
period last year. For the twelve-month period, cost of
gas per unit decreased to $3.14 in the current period
compared to $3.55 for the same period last year.

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 Indiana Utility Regulatory Commission
(IURC). The GCA passes through increases and decreases in
the cost of gas to Indiana Gas' customers dollar for
dollar.

Operating Expenses (excluding Cost of Gas)
Other operating expenses increased $.5 million for the
three-month period ended June 30, 1999, when compared to
the same period one year ago due in part to rental expense
related to buildings previously owned.

Other operating expenses increased $1.3 million and
$2.1 million for the nine- and twelve-month periods,
respectively when compared to the same periods last year
due in part to rental expense related to buildings
previously owned and costs related to the implementation
of the company's new customer information system. These
increases were offset by an adjustment to the company's
severance accrual associated with its 1997 restructuring
plan (see Growth Strategy and Corporate Restructuring).

Restructuring costs of $39.5 million (pre-tax) were
recorded in the fourth quarter of fiscal 1997 related to
the company's implementation of a new growth strategy
during that year (see Growth Strategy and Corporate
Restructuring).

Depreciation and amortization expense increased for
the three-, nine- and twelve-month periods ended June 30,
1999, when compared to the same periods one year ago due
primarily to additions to plant to serve new customers and
to maintain dependable service to existing customers.

Taxes other than income taxes increased for the three-
month period ended June 30, 1999, when compared to the
same period one year ago due to higher property tax
expense. Taxes other than income taxes remained
approximately the same for the nine-month period as higher
property tax expense was offset by lower gross receipts
tax expense. Taxes other than income taxes decreased for
the twelve-month period due to lower gross receipts tax
expense and lower property tax expense.

Other Income
Equity in earnings of unconsolidated affiliates
increased for the three- and nine-month periods ended June
30, 1999, while decreasing for the twelve-month period
when compared to the same periods one year ago. Equity in
earnings consist primarily of earnings recognized from the
company's energy marketing affiliate, ProLiance Energy,
LLC (ProLiance). Pretax earnings recognized from
ProLiance totaled $2.3 million for the third quarter of
fiscal 1999, compared to $1.3 million for the same period
one year ago. Pretax earnings recognized from ProLiance
for the nine months ended June 30, 1999, totaled $8.6
million compared to $7.1 million for the same period last
year. Pretax earnings recognized from ProLiance for the
twelve months ended June 30, 1999, totaled $9.0 million
compared to $12.0 million for the same period last year.
Earnings recognized for the twelve months ended June 30,
1998, include $4.9 million of ProLiance's earnings from
prior periods which had previously been reserved (see
ProLiance Energy, LLC). All current period amounts were
offset somewhat by operating losses from Pace Carbon
Synfuels Investors, L.P. (Pace Carbon). The tax credits
recognized from Pace Carbon are reflected in Income Taxes
on the Consolidated Statements of Income (see Pace Carbon
Synfuels Investors, L.P.).

Other-net decreased for the three-, nine- and twelve-
month periods ended June 30, 1999, when compared to the
same periods one year ago due in part to the loss on the
disposal of certain assets by IEI Services reflected in
the current periods.

Interest Expense
Interest expense increased for the three-month period
ended June 30, 1999, due in part to an increase in average
debt outstanding. Interest expense decreased for the nine-
and twelve-month periods due primarily to decreases in
interest rates, offset somewhat by increases in average
debt outstanding.

Income Taxes
Federal and state income taxes decreased for the three-
and nine-month periods ended June 30, 1999, when compared
to the same periods one year ago due primarily to the
company realizing more tax credits from its investments in
Pace Carbon, affordable housing and historic
rehabilitation projects. Federal and state income taxes
increased for the twelve-month period due to higher
taxable income, offset somewhat by additional tax credits
realized.

Other Operating Matters

Agreement to Merge with SIGCORP, Inc.
On June 14, 1999, Indiana Energy, and SIGCORP, Inc.
(SIGCORP) jointly announced the signing of a definitive
agreement to combine into a new holding company named
Vectren Corporation (Vectren). SIGCORP is an investor-
owned energy and telecommunications company that through
its subsidiaries provides electric and gas service to
southwest Indiana and energy and telecommunication
products and services throughout the Midwest and
elsewhere.

Under the agreement, SIGCORP shareholders will receive
1.333 shares of Vectren common stock for each share of
SIGCORP they currently hold. Indiana Energy shareholders
will receive one share of Vectren common stock for each
share of Indiana Energy they currently hold. The
transaction, which has been approved by the boards of
directors of both companies, is intended to be accounted
for as a pooling of interests. The transaction is also
intended to be a tax-free exchange of shares.

Indiana Energy's and SIGCORP's utility companies will
remain separate subsidiaries of Vectren and will continue
to operate under the names of Indiana Gas Company, Inc.
and Southern Indiana Gas and Electric Company,
respectively.

The merger is conditioned, among other things, upon
the approvals of the shareholders of each company and
customary regulatory approvals. The companies anticipate
that the regulatory processes can be completed by the
first quarter of calendar 2000.

Growth Strategy and Corporate Restructuring
In April 1997, the Board of Directors of Indiana
Energy approved a new growth strategy designed to
support the company'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) in
the fourth quarter of fiscal 1997 as described below.

In July 1997, the company 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
the fourth quarter of fiscal 1997 related to the
involuntary terminations planned under the company's
specific near-term employee reduction plan, which was
scheduled for completion by the end of fiscal 1999.
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 of initial work force
reductions during September 1997 and primarily
attrition thereafter, most of the reductions
contemplated during the 2 year period and accrued for
originally have been achieved. During the second
quarter of fiscal 1999, the company reviewed its
remaining accruals for costs associated with the work
force reductions. Taking into consideration an
unexpectedly high level of voluntary terminations and
the staffing implications related to significant
process change associated with the company's recently
implemented new customer information system, the
company determined that no additional significant work
force reductions were likely to occur during the
remainder of fiscal 1999, and accordingly, that an
adjustment to reverse the remaining severance accrual
was necessary. As a result, the severance accrual and
other operating expenses were reduced by $1.3 million
during the second quarter of fiscal 1999.

Indiana Gas' management also 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 the fourth quarter of fiscal 1997
to adjust the carrying value of those assets to
estimated fair value. These assets have been sold or
are no longer in use.

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 $32.2 million of fixed
assets at net book value from Indiana Gas, which
subsequently dividended its membership interest to
Indiana Energy. These assets, which relate to the
provision of administrative services, are classified in
Non-utility Plant on the Consolidated Balance Sheets.
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, the company has
realized reductions in operating costs which should
help the company to be more successful in an
increasingly competitive energy marketplace.

ProLiance Energy, LLC
ProLiance Energy, LLC (ProLiance) is owned jointly
and equally by IGC Energy and Citizens By-Products Coal
Company, a wholly owned subsidiary of Citizens Gas and
Coke Utility (Citizens Gas). ProLiance is the supplier of
gas and related services to both Indiana Gas and Citizens
Gas, as well as a provider of similar services to other
utilities and customers in Indiana and surrounding states.
ProLiance added power marketing in late fiscal 1997 to the
services it offers. Power marketing involves buying
electricity on the wholesale market and then reselling it
to marketers, utilities and other customers. To
effectively manage the risks associated with power
marketing, ProLiance utilizes a disciplined approach to
credit analysis, obtains letters of credit or corporate
guarantees when appropriate, and does not "sleeve" or
assume the credit risk between the buyer and seller. IGC
Energy's investment in ProLiance is accounted for using
the equity method.

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 review
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, the Citizens Action Coalition of Indiana and a
small group of large-volume customers. 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 was that because
the gas supply agreements provide for index based pricing
of gas commodity sold by ProLiance to the utilities, the
gas supply agreements should have been the subject of an
application for approval of an alternative regulatory plan
under Indiana statutory law.

If the Supreme Court reverses the IURC's decision ,
the case will be remanded to the IURC for further
proceedings regarding the public interest in the gas
supply agreements. If the Supreme Court affirms the IURC's
decision, the reasonableness of certain of the gas costs
incurred by Indiana Gas under the gas supply agreements
will be further reviewed by the IURC in the consolidated
GCA proceeding. The existence of significant benefits to
the utilities and their customers resulting from
ProLiance's services has not been challenged on appeal.
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.

Indiana Gas continues to record gas costs in
accordance with the terms of the ProLiance contract and
Indiana Energy continues to record its proportional share
of ProLiance's earnings. Pretax earnings recognized from
ProLiance totaled $2.3 million and $1.3 million for the
three-month periods ended June 30, 1999 and 1998,
respectively. Pretax earnings recognized from ProLiance
totaled $8.6 million and $7.1 million for the nine-month
periods ended June 30, 1999 and 1998, respectively.
Pretax earnings recognized from ProLiance totaled $9.0
million and $12.0 million for the twelve-month periods
ended June 30, 1999 and 1998, respectively. Earnings
recognized from ProLiance are included in Equity in
Earnings of Unconsolidated Affiliates on the Consolidated
Statements of Income. Earnings recognized for the twelve
months ended June 30, 1998, include $4.9 million of
ProLiance's earnings from prior periods which had
previously been reserved.

At June 30, 1999, Indiana Energy has reserved
approximately $1.7 million of ProLiance earnings after
tax. Total after-tax ProLiance earnings recognized to date
approximate $15.5 million, which includes earnings from
all of ProLiance's business activities, and therefore is
believed to be a conservative estimate of the upper risk
limit. Resolution of the above proceedings may also impact
future operations and earnings contributions from
ProLiance. Based on the IURC's findings described above,
management believes the ProLiance issues may be resolved
near the levels that are already being reserved, and
therefore, while these proceedings are pending, does not
anticipate changing the level at which it reserves
ProLiance earnings. However, no assurance of this outcome
can be provided.

Pace Carbon Synfuels Investors, L.P.
On February 5, 1998, IEI Synfuels, Inc. (IEI
Synfuels), a wholly-owned, indirect subsidiary of IEI
Investments, purchased one limited partnership unit in
Pace Carbon Synfuels Investors, L.P. (Pace Carbon), a
Delaware limited partnership formed to develop, own and
operate four projects to produce and sell coal-based
synthetic fuel. Pace Carbon converts coal fines (small
coal particles) into coal pellets that are sold to
major coal users such as utilities and steel companies.
This process is eligible for federal tax credits under
Section 29 of the Internal Revenue Code (Code) and the
Internal Revenue Service has issued a private letter
ruling with respect to the four projects.

IEI Synfuels has committed an initial investment
of $7.5 million in Pace Carbon (of which $6.5 million
was paid through June 30, 1999) for an 8.3 percent
ownership interest in the partnership. In addition to
its initial investment, IEI Synfuels has a continuing
obligation to invest in Pace Carbon up to approximately
$43 million, with any such additional investments to be
funded solely from a portion of the federal tax credits
that are earned from the production and sale of coal
pellets by the projects.

The realization of the tax credits from this
investment is dependent upon a number of factors
including among others (1) the production facilities
must have been in operation by June 30, 1998, (2)
adequate coal fines must be available to produce the
coal pellets, and (3) the coal pellets must be produced
and sold. All four of Pace Carbon's coal-based
synthetic fuel production facilities were placed into
service by June 30, 1998, and are currently producing
and selling pellets in an extended ramp up mode.
Further enhancements to the production process are
expected to continue through the remainder of fiscal
1999.

Generally, all pellets produced through June 30,
1999 have been sold. However, due to a deterioration
in the United States coal export market, domestic
companies' coal supplies and capacities are up, which
in turn has reduced the demand and created some price
pressure for Pace Carbon's coal-based synthetic
product. Management does not believe that the extended
time required to make necessary production process
enhancements nor the current coal market conditions
will significantly affect the long-term success of the
projects. Accordingly, management continues to believe
that significant project benefits, primarily in the
form of tax savings and tax credits realized, will be
achieved in the future, however, no assurance can be
given.

Haddington Energy Partners, L.P.
On October 9, 1998, IEI Investments committed to
invest $10 million in Haddington Energy Partners, L.P.
(Haddington). Haddington, a Delaware limited
partnership, has raised $77 million to invest in six to
eight projects that represent a portfolio of
development opportunities, including natural gas
gathering and storage and electric power generation.
Haddington's investment opportunities will focus on
acquiring and building on projects in progress rather
than start-up ventures. Currently, Haddington's
investments include the development of projects related
to high-deliverability gas storage and compressed air
energy storage. Through June 30, 1999, IEI Investments
had paid approximately $1.4 million of its commitment
in Haddington, with additional amounts to be paid as
Haddington's portfolio grows.

Reliant Services, LLC
On June 30, 1998, IGC Energy and Cinergy Supply
Network, Inc., a subsidiary of Cinergy Corp.(Cinergy),
formed Reliant Services, LLC (Reliant), an equally
owned limited liability company, to perform underground
facilities locating and construction services. In May
1999, Reliant purchased the assets of two Indianapolis-
based companies that will enable it to enter that
market. The asset purchase was completed after Cinergy
received all necessary regulatory approvals. In August
1999, Reliant entered the meter reading business as
well. Reliant is based in the Indianapolis area and
will focus initially on serving electric, gas,
telephone, cable and water companies in Indiana, Ohio
and Kentucky. Through June 30, 1999, IGC Energy had
invested approximately $3.1 million in Reliant.

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, were placed into service in
January 1999. These new systems, driven by the need for
additional functionality and business flexibility, were
also designed to be Year 2000 compliant and have been
tested. Other maintenance and project activities
conducted in 1998 and 1999 and activities scheduled for
the remainder of 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 - completed in
1998, (b) Strategy - completed in 1998 and (c) Design,
Implementation, Testing and Validation - in process and
substantially complete at July 31, 1999, and to be
fully completed by October 31, 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 have been evaluated 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 been completed, and few compliance issues
were found. Software upgrades for equipment in the gas
control system were completed in July 1999.

The company has contacted its major vendors,
suppliers and customers to gather information regarding
the status of their Year 2000 compliance. Although
compliance issues identified from these inquiries 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 has made significant progress in
developing its 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 considers, among other things,
alternate recovery locations, backup power generation,
adequate material supplies and personnel requirements. A
draft of the company's contingency plan was filed with
the IURC on June 30, 1999. 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.

Indiana Gas has filed a complaint in Indiana state
court to continue its pursuit of insurance coverage from
four insurance carriers, with the trial scheduled for
early 2000. As of June 30, 1999, Indiana Gas has
obtained settlements from other 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
approximate insurance settlements received. 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.

Liquidity and Capital Resources

Consolidated capitalization objectives for Indiana
Energy are 55-65 percent common equity and preferred stock
and 35-45 percent long-term debt, but may vary from time
to time, depending on particular business opportunities.
Indiana Energy's common equity component was 63 percent of
total capitalization at June 30, 1999. Although Indiana
Energy currently has no long-term debt outstanding, it is
currently rated A+ by Standard & Poor's Corporation.

Because of its current capital structure, the company
has the ability to issue additional long-term debt, if
necessary, to fund nonutility investments or for other
corporate purposes and still meet its capitalization
objectives. This is particularly important as it relates
to its growth strategy which provides for, among other
things, expansion of its nonutility operations.

On July 31, 1998, the Board of Directors of Indiana
Energy authorized a four-for-three stock split of the
issued and outstanding shares of its common stock to
shareholders of record on September 18, 1998. The shares
were issued on October 2, 1998.

On July 28, 1995, Indiana Energy's Board of Directors
authorized Indiana Energy to repurchase up to 700,000
shares of its outstanding common stock. During the three
months ended June 30, 1999, the company repurchased 6,200
shares with an associated cost of $118,000. For the nine-
month period ended June 30, 1999, 270,300 shares were
repurchased with an associated cost of $5,975,000. Of the
700,000 shares authorized, 295,200 shares remain available
for repurchase at June 30, 1999. The last repurchase
occurred on April 1, 1999, and as a result of the signing
of the agreement to merge (see Agreement to Merge with
SIGCORP, Inc.), the company is not planning any future
repurchases.

Indiana Gas' capitalization objectives, which are 55-
65 percent common equity and preferred stock and 35-45
percent long-term debt, remain unchanged from prior years.
Indiana Gas' common equity component was 57 percent of its
total capitalization at June 30, 1999.

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. Capital
expenditures for fiscal 1999 are estimated at $67.3
million of which $48.0 million have been expended during
the nine-month period ended June 30, 1999. For the twelve
months ended June 30, 1999, capital expenditures totaled
$67.6 million.

Nonutility investments and commitments, excluding the
continuing obligation to invest in Pace Carbon as
previously discussed, totaled approximately $12.8 million
and $13.3 million for the nine- and twelve-month periods
ended June 30, 1999, respectively.

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. For the twelve months
ended June 30, 1999, 65 percent of Indiana Gas' capital
expenditures was funded internally (i.e. from utility
income less dividends plus charges to utility income not
requiring funds). This percentage is lower than the 75
percent goal due primarily to the impact of warmer than
normal weather on earnings.

In July 1999, Indiana Gas filed a registration
statement with the Securities and Exchange Commission
which has become effective with respect to $100 million in
debt securities. Indiana Gas expects to issue this debt
pursuant to a medium-term note program. The net proceeds
from the sale of these new debt securities will be used
for general corporate purposes, including repayment of
long-term debt and financing of Indiana Gas' continuing
construction program.

Additionally, in July 1999, Indiana Gas retired $10
million of 8.90% Notes.

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. Recently, bank
lines of credit have been the primary source of short-term
financing. Effective in March 1999, Indiana Gas
implemented a $100 million commercial paper program.
Indiana Gas' commercial paper is rated P-1 by Moody's and
A-1+ by Standard & Poor's.

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's
actual results to differ materially from those
contemplated in any forward-looking statements include,
among others, the following:

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

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

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

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

Economic conditions including inflation rates and
monetary fluctuations.

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

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

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

Legal and regulatory delays and other obstacles
associated with mergers, acquisitions and investments
in joint ventures such as the ProLiance 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 the company and its vendors,
suppliers and customers to achieve Year 2000 readiness.
Indiana Energy undertakes 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 3. Quantitative and Qualitative Disclosures
about Market Risk

Indiana Energy's (the company's) debt portfolio
contains a substantial amount of fixed-rate long-term
debt and, therefore, does not expose the company to the
risk of material earnings or cash flow loss due to
changes in market interest rates.

ProLiance engages in energy hedging activities
to manage pricing decisions, minimize the risk of price
volatility, and minimize price risk exposure in the
energy markets. ProLiance's market exposure arises
from storage inventory, imbalances and fixed-price
purchase and sale commitments which are entered into to
support ProLiance's operating activities. Currently
ProLiance buys and sells physical commodities and
utilizes financial instruments to hedge its market
exposure. However, net open positions in terms of
price, volume and specified delivery point do occur.
ProLiance manages open positions with policies which
limit its exposure to market risk and require reporting
potential financial exposure to its management and its
members. As a result of ProLiance's risk management
policies, Indiana Energy does not believe that
ProLiance's exposure to market risk will result in
material earnings or cash flow loss to the company.

At June 30, 1999, the company was not engaged in
other contracts which would cause exposure to the risk
of material earnings or cash flow loss due to changes
in market commodity prices, foreign currency exchange
rates, or interest rates.

Item 1. Legal Proceedings

See Note 8 of the Notes to Consolidated Financial
Statements for discussion of litigation matters
relating to the gas supply and portfolio administration
agreements between ProLiance and Indiana Gas and
ProLiance and Citizens Gas.

See Note 13 of the Notes to Consolidated Financial
Statements for litigation matters involving insurance
carriers pertaining to Indiana Gas' former manufactured
gas plants and storage facilities.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

2 Agreement and Plan of Merger dated as
of June 11, 1999, among Indiana
Energy, Inc., SIGCORP, Inc. and
Vectren Corporation (incorporated by
reference to Exhibit 2 to Indiana
Energy's Current Report on Form 8-K
dated June 14, 1999, and filed on June
15, 1999).

4.1 Indiana Energy, Inc.
Stock Option Agreement dated as of
June 11, 1999 (incorporated by
reference to Exhibit 4.1 to Indiana
Energy's Current Report on Form 8-K
dated June 14, 1999, and filed on June
15, 1999).

4.2 SIGCORP, Inc. Stock
Option Agreement dated as of June 11,
1999 (incorporated by reference to
Exhibit 4.2 to Indiana Energy's
Current Report on Form 8-K dated June
14, 1999, and filed on June 15, 1999).

27 Financial Data Schedule, filed herewith.

(b) Reports on Form 8-K

On April 22, 1999, Indiana Energy and
Indiana Gas filed a Current Report on Form 8-
K with respect to a press release (dated
April 22, 1999), announcing the decision by
the Supreme Court of Indiana to grant
transfer of and reconsider the ProLiance
appeal. Items reported include:

Item 5. Other Events
Press release dated April 22, 1999

On April 30, 1999, Indiana Energy and
Indiana Gas filed a Current Report on Form 8-
K with respect to the release of summary
financial information to the investment
community regarding Indiana Energy's
consolidated results of operations,
financial position and cash flows for the
three-, six- and twelve-month periods ended
March 31, 1999. Items reported include:

Item 5. Other Events

Item 7. Exhibits

99 Financial Analyst Report - Second Quarter 1999

On June 15, 1999, Indiana Energy filed a
Current Report on Form 8-K with respect to
the June 14, 1999, joint announcement by
Indiana Energy and SIGCORP, Inc. of the
signing of an Agreement and Plan of Merger.
Items reported include:

Item 5. Other Events

Item 7. Exhibits

2 Agreement and Plan of Merger dated as of June 11,
1999, among Indiana Energy, Inc., SIGCORP, Inc. and
Vectren Corporation.

4.1 Indiana Energy, Inc. Stock Option Agreement dated
as of June 11, 1999.

4.2 SIGCORP, Inc. Stock Option Agreement dated as of
June 11, 1999.

99.1 Press release dated June 14, 1999, announcing Merger
Agreement among Indiana Energy, Inc., Vectren
Corporation and SIGCORP, Inc.

On June 17, 1999, Indiana Energy filed a
Current Report on Form 8-K with respect to
the Analyst Call Script for the telephone
conference related to the June 14, 1999,
announcement by Indiana Energy and SIGCORP,
Inc. of the signing of an Agreement and Plan
of Merger. Items reported include:

Item 5. Other Events

Item 7. Exhibits

99.1 Analyst Call Script for telephone
conference held June 14, 1999,
at 9:30 a.m. (EST).

On July 30, 1999, Indiana Energy and Indiana
Gas filed a Current Report on Form 8-K with
respect to the release of 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, 1999.
Items reported include:

Item 5. Other Events

Item 7. Exhibits

99 Financial Analyst Report - Third Quarter 1999

SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.

INDIANA ENERGY, INC.
Registrant

Dated August 12, 1999 /s/Carl L. Chapman
Carl L. Chapman
Senior Vice President
and Chief Financial Officer

Dated August 12, 1999 /s/Jerome A. Benkert
Jerome A. Benkert
Vice President and Controller

<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from Indiana
Energy, Inc.'s consolidated financial statements as of June 30, 1999, and
for the nine months then ended and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 580,004
<OTHER-PROPERTY-AND-INVEST> 87,692
<TOTAL-CURRENT-ASSETS> 52,757
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<LONG-TERM-DEBT-NET> 183,303
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0
<EARNINGS-AVAILABLE-FOR-COMM> 45,762
<COMMON-STOCK-DIVIDENDS> 20,717
<TOTAL-INTEREST-ON-BONDS> 10,167
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</TABLE>