NIPSCO INDUSTRIES INC, 10-K405, 1998-03-26

NIPSCO INDUSTRIES INC
10-K405, 1998-03-26
ELECTRIC & OTHER SERVICES COMBINED

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] 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 1-9776
NIPSCO INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INDIANA 35-1719974
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
46410
801 EAST 86TH AVENUE (ZIP CODE)
MERRILLVILLE, INDIANA
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 219-853-5200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
COMMON SHARES NEW YORK, CHICAGO AND PACIFIC
PREFERRED SHARE PURCHASE RIGHTS NEW YORK, CHICAGO AND PACIFIC
OBLIGATIONS PURSUANT TO SUPPORT NEW YORK
AGREEMENTS WITH NIPSCO CAPITAL
MARKETS, INC.
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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, AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF 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]
AS OF FEBRUARY 26, 1998, 123,584,768 COMMON SHARES (NOT INCLUDING 24,199,450
SHARES HELD IN TREASURY), WERE OUTSTANDING. THE AGGREGATE MARKET VALUE OF THE
COMMON SHARES (BASED UPON THE FEBRUARY 26, 1998 CLOSING PRICE OF $25 3/4 ON
THE NEW YORK STOCK EXCHANGE) HELD BY NONAFFILIATES WAS APPROXIMATELY
$3,160,850,000. THIS INFORMATION REFLECTS THE TWO-FOR-ONE STOCK SPLIT WHICH
WAS PAID FEBRUARY 20, 1998, TO SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS
ON JANUARY 30, 1998.

DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE 1997 NIPSCO INDUSTRIES, INC. ANNUAL REPORT TO SHAREHOLDERS
ARE INCORPORATED BY REFERENCE INTO PARTS I, II AND IV OF THIS REPORT.
PORTIONS OF THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT DATED MARCH 9,
1998 FOR THE ANNUAL MEETING TO BE HELD APRIL 8, 1998 ARE INCORPORATED BY
REFERENCE INTO PART III OF THIS REPORT.

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PART 1

ITEM 1. BUSINESS

OVERVIEW OF CONSOLIDATED BUSINESS

NIPSCO Industries, Inc. (Industries) is an energy/utility-based holding
company providing electric energy, natural gas and water to the public through
its six wholly-owned regulated subsidiaries (Utilities): Northern Indiana
Public Service Company (Northern Indiana); Kokomo Gas and Fuel Company (Kokomo
Gas); Northern Indiana Fuel and Light Company, Inc. (NIFL); Crossroads
Pipeline Company (Crossroads); Indianapolis Water Company (IWC); and Harbour
Water Corporation (Harbour). Industries' regulated gas and electric
subsidiaries (Northern Indiana, Kokomo Gas, NIFL and Crossroads) are referred
to as "Energy Utilities" and its regulated water subsidiaries (IWC and
Harbour) are referred to as "Water Utilities."

Industries also provides non-regulated energy/utility-related products and
services including energy marketing and trading; power generation; gas
transmission, supply and storage; installation, repair and maintenance of
underground pipelines; utility line locating and marking; and related products
targeted at customer segments principally through the following wholly-owned
subsidiaries: NIPSCO Development Company, Inc. (Development); NI Energy
Services, Inc. (Services) (formerly known as NIPSCO Energy Services, Inc.);
Primary Energy, Inc. (Primary); Miller Pipeline Corporation (Miller); and SM&P
Utility Resources, Inc. (SM&P). NIPSCO Capital Markets, Inc. (Capital Markets)
handles financing for Industries and its subsidiaries, other than Northern
Indiana. These subsidiaries are referred to collectively as "Products and
Services." On March 25, 1997, Industries acquired IWC Resources Corporation
(IWCR), the holding company for the Water Utilities and five non-utility
companies including Miller and SM&P.

On December 18, 1997, Industries and Bay State Gas Company (Bay State)
signed a definitive merger agreement under which Industries will acquire all
of the common stock of Bay State in a stock-for-stock transaction valued at
$40 per Bay State share. The transaction is valued at approximately $540
million. Bay State shareholders will have the option of taking up to 50
percent of the total purchase price in cash. Consummation of the merger is
subject to certain closing conditions, including the approval by the
shareholders of Bay State as well as the Securities and Exchange Commission,
the Federal Energy Regulatory Commission (FERC) and state regulatory agencies
in Massachusetts, New Hampshire and Maine. The transaction is expected to be
completed in late 1998.

Bay State, one of the largest natural gas utilities in New England, provides
natural gas distribution service to more than 300,000 customers in
Massachusetts, New Hampshire and Maine. The combined gas utilities will be one
of the 10 largest natural gas distribution systems in the nation, servicing
more than 1 million gas customers. In addition, Industries and Bay State
anticipate entering into a joint marketing agreement early in 1998 that will
expand the operations of Bay State's non-regulated energy service companies.

See "Segments of Business" in the Notes to Consolidated Financial Statements
and "Selected Supplemental Information" in Item 8 regarding financial
information about industry segments and classes of customers served, which
note and information are incorporated by reference.

ELECTRIC, GAS AND WATER OPERATIONS

ELECTRIC OPERATIONS. Northern Indiana, Industries' largest and dominant
subsidiary, is a public utility operating company incorporated in Indiana on
August 2, 1912, engaged in supplying natural gas and electric energy to the
public. It operates in 30 counties in the northern part of Indiana, serving an
area of about 12,000 square miles with a population of approximately
2,200,000. At December 31, 1997, Northern Indiana served approximately 416,300
customers with electricity.

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Northern Indiana owns and operates four coal fired electric generating
stations with net capabilities of 3,179,000 kilowatts (kw), two hydroelectric
generating plants with net capabilities of 10,000 kw, and four gas fired
combustion turbine generating units with net capabilities of 203,000 kw, for a
total system net capability of 3,392,000 kw. During the year ended December
31, 1997, Northern Indiana generated 91.8% and purchased 8.2% of its electric
requirements.

Northern Indiana's 1997 electric control area peak load (the highest level
of electrical utility usage in the control area) of 3,020,920 kw, which
includes Northern Indiana, Wabash Valley Power Association, Inc. (WVPA) and
Indiana Municipal Power Agency (IMPA) for which Northern Indiana controls
interchange operations, was set on July 14, 1997. Northern Indiana's all-time
electric control area peak load of 3,161,200 kw was set on July 14, 1995.
Northern Indiana's 1997 internal peak load, which excludes WVPA and IMPA, was
2,758,920 kw set on July 14, 1997. Northern Indiana's all-time internal peak
load of 2,888,450 kw was set on August 6, 1996.

Northern Indiana's electric system is interconnected with that of American
Electric Power, ComEd, Cinergy Services, Inc., Consumers Energy and Central
Illinois Public Service Company. Electric energy is purchased from, sold to,
or exchanged with various other utilities and power marketers under Northern
Indiana's power sales and open access transmission tariffs.

Northern Indiana provides WVPA with transmission and distribution service,
operating reserve requirements and capacity deficiency service, and provides
IMPA with transmission service, operating reserve requirements and capacity
deficiency service, in Northern Indiana's control area. Northern Indiana also
engages in sales and services under interconnection agreements with WVPA and
IMPA.

WVPA provides service to 12 Rural Electric Membership Corporations (REMC's)
located in Northern Indiana's control area. IMPA provides service to the
municipal electric system of the city of Rensselaer located in Northern
Indiana's control area.

Northern Indiana and WVPA have executed a supplemental agreement for unit
peaking capacity and energy. Unit peaking capacity is the capacity used to
serve peak demand from a specific peaking generation unit. Pursuant to this
agreement, which runs through December 2001, WVPA purchases 90,000 kw of
capacity per month.

Northern Indiana has the Town of Argos as a full requirement customer and
provides network integration service to seven other municipal wholesale
customers. Prior to January 31, 1998, Northern Indiana had full requirement
contracts with eight municipal wholesale customers.

Northern Indiana is a member of the East Central Area Reliability
Coordination Agreement (ECAR). ECAR is one of nine regional electric
reliability councils established to coordinate planning and operations of
member companies regionally and nationally.

Fuel Supply. The generating units of Northern Indiana are located at Bailly,
Mitchell, Michigan City and Schahfer Generating Stations. Northern Indiana's
13 steam generating units have a net capability of 3,179,000 kw. Coal is the
primary source of fuel for all units, except for three, which utilize natural
gas. In addition, Northern Indiana's four combustion turbine generating units
with a net capability of 203,000 kw are fired by gas. Fuel requirements for
Northern Indiana's generation for 1997 were supplied as follows:

<TABLE>
<S> <C>
Coal................................................................ 98.7%
Natural Gas......................................................... 1.3%
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In 1997, Northern Indiana used approximately 8.4 million tons of coal at its
generating stations. Northern Indiana has established a normal level of coal
stock which should provide adequate fuel supply during the year under all
conditions.

Annual coal requirements for Northern Indiana's electric generating units
through 2002 are estimated to range from 8.5 million tons to 9.3 million tons,
depending from year to year upon anticipated sales levels, scheduled
maintenance and other variables. These requirements are being or will be met
in part under long-term contracts as follows:

<TABLE>
<CAPTION>
MILLIONS SULFUR
TONS/YEAR CONTENT EXPIRATION
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<S> <C> <C>
1.3 (a) Low 2001
1.8 (b) Low 1999
1.0 (c) Low 2001
0.3 Low 2001
0.3 (d) Low 2000
0.75(e) High 2003
1.0 (f) High 2002
0.75 High 1999
</TABLE>
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(a) 1.8 million tons in 1998.
(b) 1.225 million tons in 1999. Plus or minus 10% per contract year.
(c) Plus or minus 20% per contract year.
(d) 2000-option year, can terminate December 31, 1999.
(e) Tentative new contract 0.25 million in 1998. Plus or minus 10% per
contract year.
(f) Tentative new contract 1.5 million in 1998. Plus 20% per contract year.
Option years in 2001 and 2002 can terminate December 31, 2000.

The average cost of coal consumed in 1997 was $27.42 per ton or 15.43 mills
per kilowatt-hour (kwh) generated as compared to $27.50 per ton or 15.79 mills
per kwh generated in 1996. Northern Indiana's forecasts indicate that its coal
costs will be slightly lower over the next two years.

Coal Reserves. Included in the previous table of coal contracts is a coal
mining contract with Cyprus Shoshone Coal Corporation (Cyprus) under which
Cyprus is mining Northern Indiana's coal reserves in the Cyprus mine through
the year 2001. The costs of the reserves are being recovered through the rate-
making process as such coal reserves are used to produce electricity.

Fuel Adjustment Clause. Northern Indiana adjusts metered electric rates
through a fuel adjustment clause to reflect changes in fuel costs. See
"Summary of Significant Accounting Policies--Fuel Adjustment Clause" in the
Notes to Consolidated Financial Statements in Item 8, which note is
incorporated by reference.

GAS OPERATIONS.

Northern Indiana. At December 31, 1997, Northern Indiana served
approximately 662,500 customers with gas. Northern Indiana supplies natural
gas of about 1,000 British thermal units (Btu) per cubic foot. In a 24-hour
period ended January 17, 1997, Northern Indiana's 1997 maximum day send-out
(the maximum amount of gas delivered through Northern Indiana's distribution
system to its end use customers ) was 1.6 million dekatherms (dth). Northern
Indiana's total gas send-out for 1997 was 292.6 million dth, compared to 286.1
million dth in 1996.

Agreements have been negotiated with natural gas suppliers to replace former
pipeline supplier contracts pursuant to the requirements of FERC Order No. 636
(See "FERC Order No. 636" in the Notes to Consolidated Financial Statements in
Item 8, which note is incorporated by reference). Northern Indiana also has
producer agreements which allow for the purchase of gas either from gas
marketers or producers.

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Northern Indiana has firm transportation agreements with pipelines, which
allow Northern Indiana to move its gas through the pipelines' transmission
systems. In 1997, all of the gas supplied by Northern Indiana was transported
by ANR Pipeline Company (ANR), Crossroads Pipeline Company (Crossroads),
Midwestern Gas Transmission Company (Midwestern), Natural Gas Pipeline Company
of America (Natural), Panhandle Eastern Pipe Line Company (Panhandle),
Tennessee Gas Pipeline Company (Tennessee) and Trunkline Gas Company
(Trunkline). The transportation rates of Crossroads, and the transportation
and storage rates of ANR, Midwestern, Natural, Panhandle, Tennessee and
Trunkline to Northern Indiana, are subject to change in accordance with rate
proceedings filed with the FERC.

Approximately 69% of Northern Indiana's 1997 gas supply was purchased on the
spot market, generally on less than 30-day agreements. The average price per
dth (including FERC Order No. 636 transition charges) in 1997 was $3.18
compared to $3.12 in 1996, and the average cost of purchased gas, after
adjustment for transition charges billed to transport customers, was $3.08 per
dth as compared to $3.02 per dth in 1996.

Northern Indiana has a curtailment plan (a plan which outlines service to be
curtailed in the event of limited gas supply) approved by the Indiana Utility
Regulatory Commission (Commission). Effective on August 11, 1981, the plan
allows unrestricted gas sales by Northern Indiana. There were no firm sales
curtailments in 1997 and none are expected during 1998.

Northern Indiana operates an underground gas storage field at Royal Center,
Indiana, which currently has a storage capacity of 6.75 million dth.
Withdrawals have been made in the 1997-1998 winter of up to 109,036 dth per
day. In addition, Northern Indiana has several gas storage service agreements
which make possible the withdrawal of substantial quantities of gas from other
storage facilities. All of the storage agreements have limitations on the
volume and timing of daily withdrawals. These contracts provide in the
aggregate for approximately 26.9 million dth of annual stored volume and allow
for approximately 540,000 dth of maximum daily withdrawal.

Northern Indiana has a liquefied natural gas plant in LaPorte County which
is designed for peak shaving (the process of supplementing gas supply during
periods of high demand) and has the following capacities: maximum storage of 4
million dth; maximum liquefaction rate (gas to liquid) of 20,000 dth per day;
maximum vaporization rate (output to distribution system) of 300,000 dth per
day.

Kokomo Gas. Kokomo Gas is a public utility operating company incorporated in
Indiana in 1917, engaged in supplying natural gas to the public. It operates
in the city of Kokomo, Indiana and the surrounding area in six counties having
a population of approximately 100,000, and served approximately 33,500
customers at December 31, 1997. The Kokomo Gas service territory is contiguous
to Northern Indiana's gas service territory.

Kokomo Gas has a liquified natural gas plant in Howard County with the
following capacities: maximum storage of 400,000 mcf; maximum liquefaction
rate (gas to liquid) of 2,850 mcf per day; maximum vaporization rate (output
to distribution system) of 30,000 mcf per day. Kokomo Gas also has a gas
holder with a storage capacity of 12,000 mcf.

Kokomo Gas' total gas send-out for 1997 was 8.7 million dth, compared to 8.9
million dth for 1996. Total transportation volumes for industrial customers in
1997 were 3.6 million dth, compared to 3.4 million dth in 1996. Kokomo Gas
purchased gas under term agreements from NI-TEX and NESI Energy Marketing
L.L.C., (NEM), both subsidiaries of Services, to satisfy all of its system
requirements in 1997.

NIFL. NIFL is a public utility operating company incorporated in Indiana in
1906, engaged in supplying natural gas to the public. Headquartered in Auburn,
Indiana, it operates in five counties in the northeast corner of the state
having a population of approximately 66,700, and served approximately 33,400
customers at December 31, 1997. The NIFL service territory is contiguous to
Northern Indiana's gas service territory.

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NIFL's total gas send-out for 1997 was 10.8 million dth, compared to 10.9
million dth for 1996. Total transportation volumes for industrial customers in
1997 were 5.6 million dth, compared to 4.9 million dth in 1996. NIFL purchased
gas on the spot market from a number of suppliers and also under term
agreements from NI-TEX and NEM to satisfy all of its system requirements in
1997.

Crossroads. Crossroads is a natural gas pipeline company which was approved
by FERC to operate as an interstate pipeline in May 1995. Crossroads owns and
operates a 201-mile, 20-inch pipeline that extends from Schererville, Indiana,
in the northwestern corner of the state, where it takes delivery from the
interstate pipeline facilities of Natural Gas Pipeline Company of America, to
Cygnet, Ohio, located in northwestern Ohio, where it interconnects with
facilities owned by Columbia Gas Transmission Corporation. In December 1997,
Crossroads announced plans to construct a 20-mile extension of its pipeline
facility in Ohio to a point of interconnection with a unit of Consolidated
Natural Gas Company.

Gas Cost Adjustment Clause. Metered gas rates are adjusted to reflect the
cost of purchased gas, contracted gas storage and storage transportation
charges. See "Summary of Significant Accounting Policies--Gas Cost Adjustment
Clause" in the Notes to Consolidated Financial Statements in Item 8, which
note is incorporated by reference.

WATER OPERATIONS. The Water Utilities supply water for residential, commercial
and industrial uses and for fire protection service in Indianapolis, Indiana
and surrounding areas. The territory served by the Water Utilities covers an
area of approximately 309 square miles in six counties of central Indiana and
the Water Utilities served approximately 246,600 customers at December 31,
1997.

The combined maximum daily capacity of the Water Utilities' treatment
plants, together with the maximum daily capacity of the three primary well
fields, is 235 million gallons per day (MGD). During 1997, the average daily
consumption was 127 MGD and the maximum daily consumption was 201 MGD.

The principal sources of IWC's present water supply are the White River,
which flows through Indianapolis from north to south and is supplemented by
Morse Reservoir on a tributary, Cicero Creek; Fall Creek, which flows through
Indianapolis from the northeast and is supplemented by Geist Reservoir; the
city of Indianapolis' Eagle Creek Reservoir, located on Eagle Creek in
northwest Marion County, from which water is purchased under a long-term
contract; Geist Well Field, a ground water supply located downstream of Geist
Reservoir; and South Well Field located in southern Marion and northern
Johnson Counties.

The three large surface reservoirs are essential to providing an adequate
supply during dry periods. Two are used to supplement low stream flows in the
White River and Fall Creek, respectively, and water is drawn directly from the
third. The reservoirs are designed to maintain an adequate water supply in the
event of a repetition of the worst two-year drought ever recorded in the
Indianapolis area.

The theoretical dependable supply from the three combined reservoirs
represents approximately 65% of the total dependable supply available to IWC
with the balance coming from natural stream flow and wells. Wells constitute
the source of supply for Harbour.

The Water Utilities have aquifer protection plans for the Geist and South
Well Fields. Once fully developed, the Geist Well Field will produce 12 to 15
MGD while the South Well Field will produce 40 to 50 MGD. The protection plans
will guide the Water Utilities' development of these newest major sources of
supply, and result in land use plans to protect the aquifer systems from
potential contamination sources.

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PRODUCTS AND SERVICES OF OTHER SUBSIDIARIES

CAPITAL MARKETS. Capital Markets serves as the funding agent for ventures of
Industries and its subsidiaries other than Northern Indiana. As of December
31, 1997, Capital Markets had $17.0 million in commercial paper outstanding,
having a weighted average interest rate of 7.00%. Capital Markets has a $150
million revolving credit agreement, which provides short-term financing
flexibility to Industries and also serves as the back up instrument for the
commercial paper program. As of December 31, 1997, there were no borrowings
outstanding under this agreement. Capital Markets also has $130 million of
money market lines of credit. As of December 31, 1997, $20.1 million of
borrowings were outstanding under these lines of credit.

The obligations of Capital Markets are subject to a Support Agreement
between Industries and Capital Markets, under which Industries has committed
to make payments of interest and principal on Capital Markets' obligations in
the event of a failure to pay by Capital Markets. Restrictions in the Support
Agreement prohibit recourse on the part of Capital Markets' creditors against
the stock and assets of Northern Indiana. Under the terms of the Support
Agreement, in addition to the cash flow of cash dividends paid to Industries
by any of its consolidated subsidiaries, the assets of Industries, other than
the stock and assets of Northern Indiana, are available as recourse for the
benefit of Capital Markets creditors. The carrying value of the assets of
Industries, other than the assets of Northern Indiana, reflected in the
consolidated financial statements of Industries, was approximately $1.3
billion at December 31, 1997.

IWCR. IWCR is a holding company for the Water Utilities and five other wholly-
owned subsidiaries. The five wholly-owned subsidiaries are SM&P, Miller,
Waterway Holdings, Inc. (WWH), Utility Data Corporation (UDC) and IWC
Services, Inc. (IWCS). Additionally, IWCR is a majority partner in the White
River Environmental Partnership (WREP) through IWCS.

SM&P performs underground utility locating and marking services in Indiana
and 10 other states. SM&P performed approximately 4.2 million locates and had
operating income of $2.6 million for the period of April 1997 through December
1997, the period following the acquisition of IWCR. Miller installs, repairs
and maintains underground pipelines used in gas, water and sewer transmission
and distribution systems. Operating income for Miller for April 1997 through
December 1997 was $6.2 million.

DEVELOPMENT. Development makes various investments, including real estate and
venture capital investments. Development is an 85% shareholder in Elm Energy
and Recycling (UK) Ltd. (Elm Energy), which owns and operates a tire-fueled
electric generating plant in Wolverhampton, England. See "Resolution of Elm
Energy and Recycling (UK) Ltd. Litigation" in the Notes to Consolidated
Financial Statements in Item 8, which note is incorporated by reference.

In 1997, Development invested in multiple-family residential housing
developments in South Bend. Development has additional projects within the
Utilities' service territories and is considering additional projects within
those territories. At December 31, 1997, Development has $30.1 million of
investments, at equity, relating to affordable housing projects. These
projects are part of the continued commitment by Industries to provide high
quality, energy efficient, affordable housing to the residents of a variety of
geographic and economic regions served by the Utilities.

SERVICES. Services coordinates the energy-related diversification efforts of
Industries. Services has nine active wholly-owned subsidiaries, interests in
three limited liability companies and a limited partnership.

NESI Energy Marketing L.L.C. (NEM). NEM, a limited liability company,
provides natural gas sales and management services to industrial and
commercial customers and is also actively

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engaged in energy trading activities. During 1997, NEM had sales of
approximately 135.8 million dth.

NESI Power Marketing, Inc. (NPMI). NPMI, a wholly-owned subsidiary of
Services, is involved in wholesale power trading activities. During 1997, NPMI
had sales of approximately 7.5 million megawatt hours (mwh).

NESI Integrated Energy Resources, Inc. (NIERI). NIERI, a wholly-owned
subsidiary of Services, participates in residential and small commercial gas
unbundling pilot programs. During 1997, NIERI participated in pilot programs
in Grand Rapids, Michigan, East Ohio and South Bend, Indiana.

NIPSCO Energy Services Canada Limited (NESCL). NESCL, a wholly-owned
subsidiary of Services, is a Canadian subsidiary formed to hold NESI Canadian
investments and companies. In January 1998, NESCL sold its 50% interest in
FuelMaker Corporation, a manufacturer of vehicle fueling equipment. NESCL owns
Southlake Energy, Inc., (SLAKE) a Canadian oil and gas exploration and
production company. As of December 31, 1997, SLAKE had invested $26.7 million
in Canadian exploration and development projects with estimated proved
reserves of 1.3 million barrels of oil and 26.9 Bcf of natural gas.

NIPSCO Fuel Company, Inc. (Fuel). Fuel, a wholly-owned subsidiary of
Services, primarily invests in oil and gas exploration and production
properties with activities concentrated in the mid-continent region of the
United States. In January 1997, Fuel sold its partnership interest in certain
offshore properties to SOCO Offshore, Inc. Effective January 1, 1997, Fuel and
four other investors formed Bristol. Fuel contributed properties with a
carrying amount of $21.7 million and holds a 64 percent interest in Bristol.

NI-TEX, Inc. (NI-TEX) NI-TEX, a wholly-owned subsidiary of Services, is an
intrastate natural gas transmission and supply company in Texas providing gas
sales, transportation and storage services. NI-TEX provides gas supply to
Northern Indiana, Kokomo Gas and NIFL under spot and/or term contracts. NI-
TEX, through joint ventures with industry partners, also owns natural gas
transmission and storage facilities located in Texas. Its Laredo-Nueces
pipeline affiliate transported 15.2 Bcf of natural gas in 1997. Its Mid-Tex
Gas Storage Company affiliate operates a salt dome gas storage facility with
an operating capacity of 5.7 Bcf.

NESI Energy Services Company (NESCO). NESCO, a wholly-owned subsidiary of
Services, provides energy solutions which enhance competitiveness through cost
reductions, modernizing infrastructure and improving cost accountabilities.

Parkway Engineering and Distributing Company, Inc. (PEDCO). PEDCO, a wholly-
owned subsidiary of Services, markets energy efficient lighting and lighting
solutions.

Green Fuels, Inc. (Greenfuels). Greenfuels, a wholly-owned subsidiary of
Services, sells compressed natural gas (CNG) and liquefied natural gas (LNG)
for vehicular fuel. Greenfuels provides conversion kits and assists in or
performs the conversion of gasoline driven vehicles to CNG in order to expand
the market base.

Triumph Natural Gas, Inc. (Triumph). Triumph, a majority-owned subsidiary of
Services, is in the final stages of liquidation. Services, as well as certain
affiliates and officers, were defendants in a lawsuit brought by certain
shareholders and former members of the Board of Directors of Triumph. An out
of court settlement was reached in the fourth quarter of 1997.

PRIMARY. Primary arranges energy-related projects for large energy-intensive
facilities and has entered into certain commitments in connection with these
projects. Primary offers expertise to large energy customers in managing the
engineering, construction, operation and maintenance of these energy-related
projects. Primary is the parent of the following subsidiaries: Harbor Coal

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Company (Harbor Coal); North Lake Energy Corporation (North Lake); Lakeside
Energy Corporation (LEC); Portside Energy Corporation (Portside); and
Cokenergy, Inc. (CE).

Harbor Coal has invested in a partnership to finance, construct, own and
operate a $65 million pulverized coal injection facility which began
commercial operation in August 1993. The facility receives raw coal,
pulverizes it and delivers it to Inland Steel Company (Inland Steel) for use
in the operation of its blast furnaces. Harbor Coal is a 50% partner in the
project with an Inland Steel affiliate. Industries has guaranteed the payment
and performance of the partnership's obligations under a sale and leaseback of
a 50% undivided interest in the facility.

North Lake has entered into a lease for the use of a 75-megawatt energy
facility located at Inland Steel. The facility uses steam generated by Inland
Steel to produce electricity which is delivered to Inland Steel. The facility
began commercial operation in May 1996. Industries has guaranteed North Lake's
obligations relative to the lease and certain obligations to Inland Steel
relative to the project.

LEC has entered into a lease for the use of a 161-megawatt energy facility
located at USS Gary Works. The facility processes high-pressure steam into
electricity and low-pressure steam for delivery to USX Corporation-US Steel
Group. A fifteen-year tolling agreement with US Steel commenced on April 16,
1997 when the facility was placed in commercial operation. Capital Markets
guarantees LEC's security deposit obligations relative to the lease and
certain limited LEC obligations to the lessor.

Portside has entered into an agreement with National Steel Corporation
(National) to construct and operate a new 63-megawatt energy facility at
National's Midwest Division to process natural gas into electricity, process
steam and heated water to be provided to National for a fifteen-year period.
Portside has entered into a lease for use of the facility. Industries has
guaranteed certain Portside obligations to the lessor. Construction of the
project began in June 1996 and the facility began commercial operation on
September 26, 1997.

CE has entered into a fifteen-year service agreement and a related fifteen-
year fuel supply agreement with Inland Steel and the Indiana Harbor Coke
Company, LP (Harbor Coke). These agreements provide that CE will construct and
operate a new energy facility at Inland Steel's Indiana Harbor Works to scrub
flue gases and recover waste heat from the coke facility being constructed by
Harbor Coke and produce process steam and electricity from the recovered heat
which will be delivered to Inland Steel. CE intends to lease these facilities,
once constructed, from a third party. Additionally, CE has entered into an
interim agreement, which expires when the lease is established with the third
party lessor, under which CE is acting as agent to design, construct and start
up the facilities. Capital Markets anticipates guaranteeing certain CE
obligations relative to the anticipated lease. Construction of the project
began in January 1997. The facility is scheduled to be operational in June
1998.

Primary has advanced approximately $107 million and $42 million, at December
31, 1997 and December 31, 1996, respectively, to the lessors of the energy
related projects discussed above.

Primary is evaluating other potential projects with Northern Indiana
customers as well as with potential customers outside of Northern Indiana's
service territory. Projects under consideration include those which use
industrial by-product fuels and natural gas to produce electricity.

REGULATION

HOLDING COMPANY ACT. Industries is exempt from registration with the
Securities and Exchange Commission (SEC) as a "registered holding company"
under the Public Utility Holding Company Act of 1935, as amended (Holding
Company Act). However, prior approval of the SEC is required

8
<PAGE>

under the Holding Company Act if Industries proposes to acquire, directly or
indirectly, any securities of other electric or gas public utility companies.
There may also be limits on the extent to which Industries and its non-utility
subsidiaries can enter into businesses which are not "functionally related" to
the electric and gas businesses without raising questions about Industries'
exempt status under the Holding Company Act. SEC guidelines established in
prior decisions of the SEC require Industries to remain engaged primarily and
predominately in the electric and gas businesses and to limit the size of its
activities outside of such businesses relative to Industries as a whole.

Industries has no present intention of becoming a registered holding company
subject to regulation by the SEC under the Holding Company Act. Industries
will file an application with the SEC to retain its exempt status under the
Holding Company Act upon the consummation of the merger with Bay State,
assuming the acquisition of Bay State is approved by the shareholders of Bay
State, the SEC, the FERC and state regulatory agencies in Massachusetts, New
Hampshire and Maine.

INDIANA UTILITY REGULATORY COMMISSION. Industries is not subject to regulation
by the Commission as long as it is not a public utility. Industries and its
non-utility subsidiaries are subject to certain reporting and information
access requirements under Indiana law. Furthermore, certain contracts between
Industries or its non-utility subsidiaries and the Energy Utilties must be
filed with the Commission.

The Utilities are subject to regulation by the Commission as to rates,
service, accounts, issuance of securities and in other respects. The Utilities
are also subject to limited regulation by local public authorities.

FEDERAL ENERGY REGULATORY COMMISSION. Industries is not regulated by the FERC,
but any subsidiary, including the Energy Utilities, that engages in FERC
jurisdictional sales or activities is subject to such regulation.

Northern Indiana's restructuring under Industries was approved by a February
29, 1988 order of the FERC. The order is conditioned upon the FERC's
continuing authority to examine the books and records of Industries and its
subsidiaries, upon further order of the FERC, and to make such supplemental
orders, for good cause, as it may find necessary or appropriate regarding the
restructuring.

In 1997, about 4% of Northern Indiana's electric revenues were derived from
electric service it furnished at wholesale in interstate commerce to other
utility companies, municipalities and WVPA (see "Item 1. Business-Electric
Operations" regarding WVPA). Northern Indiana's wholesale rates and operations
are subject to the jurisdiction of the FERC. FERC jurisdiction does not extend
to the issuance of securities by Northern Indiana, which are regulated by the
Commission. The FERC declared Northern Indiana, Kokomo Gas and NIFL exempt
from the provisions of the Natural Gas Act.

RATE MATTERS

For information regarding the Energy Utilities' gas rates and gas transition
costs, see "FERC Order No. 636" in the Notes to Consolidated Financial
Statements in Item 8, which note is incorporated by reference.

9
<PAGE>

ARP, Northern Indiana proposed to implement new rates and services that would
include, among other things, further unbundling of services for additional
customer classes, increased customer choice for sources of natural gas supply,
negotiated services and prices, an incentive gas cost mechanism and a price
protection program. On October 8, 1997, the Commission issued an order
approving, in all respects, the modified ARP which became effective November
1, 1997. The first pilot program was launched in January 1998 and the first
gas volumes will flow under this program by April 1, 1998. Significantly, the
Commission order allows NIERI, a subsidiary of Services and the natural gas
marketing affiliate of Northern Indiana, to participate as a supplier in this
pilot and in future expansions of supplier choice to other customers on the
Northern Indiana system. ERI Services, Inc. and Enron Capital and Trade
Resources Corp. filed Petitions for Rehearing of the Commission Order, and
during the first quarter of 1998, the Commission denied such Petitions.

On November 14, 1997, IWC petitioned the Commission for approval of new
water rates and charges. IWC seeks to increase revenues by approximately $11.9
million, representing a 15.3% increase over test year revenues. Currently, IWC
is attempting to negotiate a settlement with the Office of Utility Consumer
Counselor resulting in a three step phased-in rate increase. If a settlement
cannot be reached, a final hearing on the case is scheduled for June 25, 1998.

COMPETITION

ELECTRIC. The electric energy generation, transmission and distribution
business is in a period of fundamental change in the manner in which customers
obtain, and energy suppliers provide, energy services. These changes are
attributable to changes in technology, the relaxation of regulatory barriers
to utilities' respective service territories and efforts to change the manner
in which electric utilities are regulated. Federal law and regulations have
been amended to provide for open transmission system access, and various
states are considering, or have adopted, new regulatory structures to allow
access by some or all customers to electric suppliers in addition to their
local electric utility.

Currently, electric service territories within the State of Indiana are
assigned to the existing suppliers, and boundaries of new territories outside
existing municipalities are assigned to the utility having the nearest
existing electric distribution lines. Only existing municipal electric
utilities may expand their service areas and then only into areas that have
been annexed by the municipality, subject to the approval of the Commission
and certain other conditions. In municipalities where Northern Indiana renders
electric service to the general public as a public utility, no other utility
renders electric or gas service, except in Angola, DeMotte, Rome City, Wanatah
and Waterloo. In certain municipalities where electric service is supplied by
Northern Indiana, NIFL provides competing gas utility service. In localities
where Northern Indiana renders gas service only, it competes with electric
utilities, municipal or private, for the business for which they render
alternative electric service.

Kokomo Gas and NIFL compete with other electric utilities serving customers
in their respective service territories.

In both January 1997 and January 1998, legislation was introduced in the
Indiana General Assembly addressing electric utility competition and
deregulation. The proposed legislation was not adopted but similar legislation
may be reintroduced in the future. It is not possible to predict the ultimate
effect which competition, subsequent to the passage of such legislation, would
have on Industries' future earnings. See "Competition" in the Management's
Discussion and Analysis of Financial Condition and Results of Operations,
which is incorporated by reference (see Exhibit 13).

10
<PAGE>

GAS. As a result of FERC Order No. 636, Northern Indiana is also subject to
competition for gas sales to industrial customers through the ability of these
customers, under Northern Indiana's rate provisions, to purchase gas directly
from suppliers other than Northern Indiana and have Northern Indiana transport
the gas to them. During 1997, gas transportation represented 55% of Northern
Indiana's total gas send-out.

Indiana law requires Commission approval before a gas customer of a utility
may bypass the utility and make other arrangements for gas service. Any entity
which transports gas from outside Indiana for direct sale or delivery to
itself or other end-users within the state will be considered a public utility
and must obtain a necessity certificate from the Commission in order to engage
in such activities.

WATER. The Water Utilities conduct operations, subject to regulation by the
Commission, under permit and franchise rights. Under such rights, the Water
Utilities may lay, maintain and operate mains and conduits in public streets
and ways throughout the area served. The rights granted to the Water Utilities
are not exclusive. Competitors include various municipal water utilities, as
well as privately owned water utilities, some of which purchase water from the
Water Utilities. As the Indianapolis metropolitan area has expanded to include
surrounding communities or previously rural areas, the Water Utilities have
faced competition for new customers from town or rural water utilities.

EMPLOYEES

Industries had 5,984 employees at December 31, 1997. Of these employees,
2,940 are represented by various local unions. The March 1997 acquisition of
IWCR increased employees by 2,074, including 1,110 employees at SM&P, 540
employees at Miller and 355 at the Water Utilities.

ENVIRONMENTAL MATTERS

The Utilities have an ongoing program to remain aware of laws and
regulations involved with hazardous waste and other environmental matters. The
Utilities intend to continue to evaluate their facilities and properties with
respect to these rules and identify any sites that would require corrective
action. The Utilities have recorded a reserve of approximately $20 million to
cover probable corrective actions as of December 31, 1997; however,
environmental regulations and remediation techniques are subject to future
change. The ultimate cost could be significant, depending on the extent of
corrective actions required. Based upon investigations and management's
understanding of current laws and regulations, the Utilities believe that any
corrective actions required, after consideration of insurance coverages and
contributions from other potentially responsible parties, will not have a
significant impact on the results of operations or financial position of
Industries. It is not possible for Industries to predict the scope,
enforceability or financial impact of other environmental regulations or
standards which may be established in the future.

The Utilities are subject to regulation with regard to environmental matters
by various federal, state and local authorities. The Utilities cannot forecast
the effect of all such regulation upon their generation, transmission or other
facilities, or their operations. The Utilities intend to comply with all
applicable governmental requirements and have adopted an environmental policy
that fosters the pursuit of proactive environmental programs and management.

The application of federal and state restrictions to protect the
environment, including but not limited to those described below, involves or
may involve review, certification or issuance of permits by various federal,
state and local authorities. Such restrictions, particularly in regard to
emissions into the air and water, and disposal of solid wastes, may impact the
operation of the Utilities' facilities, and may also require substantial
investment.

11
<PAGE>

Industries' total capital expenditures from January 1, 1993, through December
31, 1997 for pollution control facilities were approximately $149 million and
were financed in part by the sale of Northern Indiana's Pollution Control Notes
and Bonds-Jasper County. Industries anticipates expenditures of approximately
$15 million for pollution control equipment in the 1998-2002 period which
includes anticipated expenditures of approximately $6 million in 1998 and $9
million in 1999. See "Environmental Matters" in the Notes to Consolidated
Financial Statements in Item 8, which note is incorporated by reference.

YEAR 2000 COSTS

Industries estimates that costs to become year 2000 compliant will be
approximately $10-$15 million, including acquisition costs of new systems which
will be capitalized consistent with Industries' accounting policies. Costs
related to maintenance or modification of Industries' systems have been and
will be expensed as incurred. Industries does not anticipate that the related
costs will have a material impact on its results of operations, nor does
Industries currently anticipate any disruption of its ability to deliver
service as a result of the year 2000 issue.

FORWARD LOOKING STATEMENTS

This report contains forward looking statements within the meaning of the
securities laws. Industries cautions that, while it believes such statements to
be based on reasonable assumptions and makes such statements in good faith,
there can be no assurance that the actual results will not differ materially
from such assumptions or that the expectations set forth in the forward looking
statements derived from such assumptions will be realized. Investors should be
aware of important factors that could have a material impact on future results.
These factors include, but are not limited to, weather, the federal and state
regulatory environment, the economic climate, regional, commercial, industrial
and residential growth in the service territories served by Industries'
subsidiaries, customers' usage patterns and preferences, the speed and degree
to which competition enters the utility industries, the timing and extent of
changes in commodity prices, changing conditions in the capital and equity
markets and other uncertainties, all of which are difficult to predict, and
many of which are beyond the control of Industries.

ITEM 2. PROPERTIES.

OVERVIEW. The physical properties of the Utilities are located in the State
of Indiana, except for Crossroads which owns a 202-mile interstate natural gas
pipeline running from northwest Indiana to Cygnet, Ohio.

12
<PAGE>

The significant properties owned by other subsidiaries of Industries are: the
Southlake Complex, a 325,000 square foot office building located in
Merrillville, Indiana, owned by Development; a 36-mile intrastate natural gas
pipeline, located in southern Texas, half-owned by NI-TEX; interests in oil and
gas exploration and production properties, owned by Fuel; a golf course and
surrounding residential development in Chesterton, Indiana, owned by Lake Erie
Land Company (a wholly-owned subsidiary of Development); a waste-to-energy
generating plant in Wolverhampton, England, owned by Elm Energy; commercial
real estate joint ventures, half-owned by KOGAF Enterprises (a wholly-owned
subsidiary of Development) located in Kokomo, Indiana; interests in oil and gas
producing properties in Canada owned by SLAKE; and parcels of land for
development owned by WWH.

ELECTRIC. Northern Indiana owns and operates four coal fired electric
generating stations with net capabilities of 3,179,000 kw, two hydroelectric
generating plants with net capabilities of 10,000 kw and four gas fired
combustion turbine generating units with net capabilities of 203,000 kw, for a
total system net capability of 3,392,000 kw.

Northern Indiana has 292 substations with an aggregate transformer capacity
of 23,030,500 kva. Its transmission system with voltages from 34,500 to 345,000
consists of 3,052 circuit miles of line. The electric distribution system
extends into 21 counties and consists of 7,835 circuit miles of overhead and
1,423 cable miles of underground primary distribution lines operating at
various voltages from 2,400 to 12,500 volts. Northern Indiana has distribution
transformers having an aggregate capacity of 11,422,999 kva and 438,590
electric watt-hour meters.

GAS. Northern Indiana has an underground storage field at Royal Center and a
liquefied natural gas plant in LaPorte County and Kokomo Gas has a liquefied
natural gas plant in Howard County, all of which are described under "Item 1.
Business-Gas Operations." Northern Indiana has 13,368 miles of gas mains,
Kokomo Gas has 752 miles of gas mains and NIFL has 809 miles of gas mains.

WATER. The Water Utilities' properties consist of land, easements, rights
(including water rights), buildings, reservoirs, canal, wells, supply lines,
purification plants, pumping stations, transmission and distribution pipes,
mains and conduits, meters and other facilities used for the collection,
purification and storage of water, and the distribution of water to its
customers. The water systems extend from well fields and raw water reservoirs
on Cicero Creek and Fall Creek, north and northeast of Indianapolis, and from
the intake structure in Indianapolis' Eagle Creek Reservoir, northwest of
Indianapolis, to the service connections of the ultimate consumers. The Water
Utilities have 27,469 fire hydrants and 3,148 miles of water mains.

CHARACTER OF OWNERSHIP. Substantially all of the properties of Northern
Indiana and IWC are subject to the lien of their respective First Mortgage
Indentures. The principal offices and properties of Industries and its
subsidiaries are held in fee and are free from other encumbrances, subject to
minor exceptions, none of which is of such a nature as to impair substantially
the usefulness of such properties. Many of the offices in various communities
served are occupied by subsidiaries of Industries under leases. All properties
are subject to liens for taxes, assessments and undetermined charges (if any)
incidental to construction, which it is Industries' practice regularly to pay,
as and when due, unless contested in good faith. In general, the electric, gas
and water lines and mains are located on land not owned in fee but are covered
by necessary consents of various governmental authorities or by appropriate
rights obtained from owners of private property. Industries does not, however,
generally have specific easements from the owners of the property adjacent to
public highways over, upon or under which its electric, gas and water lines and
mains are located. At the time each of the principal properties was purchased a
title search was made. In general, no examination of titles as to rights-of-way
for electric, gas and water lines and mains was made, other than examination,
in certain cases, to verify the grantors' ownership and the lien status
thereof.

13
<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

Industries and its subsidiaries are parties to various pending proceedings,
including suits and claims against them for personal injury, death and property
damage. Such proceedings and suits, and the amounts involved are routine
litigation and proceedings for the kinds of businesses conducted by Industries
and its subsidiaries, except as described under the captions "NESI Energy
Marketing Canada Ltd. Litigation," and "Environmental Matters" in the Notes to
Consolidated Financial Statements in Item 8, which notes are incorporated by
reference. No other material legal proceedings against Industries or its
subsidiaries are pending or, to the knowledge of Industries, contemplated by
governmental authorities or other parties.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None

SUPPLEMENTAL ITEM--EXECUTIVE OFFICERS OF THE REGISTRANT.

<TABLE>
<CAPTION>
YEARS WITH
NAME AGE INDUSTRIES OFFICE(S) HELD IN PAST 5 YEARS
---- --- ---------- ------------------------------
<S> <C> <C> <C>
Gary L. 58 8 Chairman, President and Chief Executive Officer
Neale**...... since March 1993.
Stephen P. 54 10 Executive Vice President, Chief Financial Officer
Adik......... and Treasurer since April 1994. Senior Vice
President, Chief Financial Officer and Treasurer
prior thereto.
Patrick J. 56 36 Executive Vice President and Chief Operating
Mulchay...... Officer at Northern Indiana* since July 1996.
Executive Vice President and Chief Operating
Officer of Electric Operations at Northern
Indiana* from January 1994 to June 1996. Vice
President and General Manager of Gas Operations
at Northern Indiana* prior thereto.
Jeffrey W. 52 10 Executive Vice President and Chief Operating
Yundt........ Officer of Energy Services since July 1996.
Executive Vice President and Chief Operating
Officer of Gas Services from January 1994 to June
1996. Vice President prior thereto.
Joseph L. 61 10 Senior Vice President of Major Accounts since
Turner, Jr... July 1996. Group Vice President at Northern
Indiana* from January 1996 to June 1996. Group
Vice President of Industrial Marketing and
Economic Development of Northern Indiana* from
April 1994 to December 1995. Vice President, and
Vice President and General Manager of Corporate
Marketing at Northern Indiana* prior thereto.
David A. Kel- 59 6 Vice President of Income Tax Management, and
ly........... Executive Vice President and Chief Financial
Officer at IWCR* since April 1997. Vice President
of Administrative Services at NIPSCO Industries
Management Services Company* (NIMSC) from January
1997 to March 1997. Vice President of Real Estate
and Taxes at Northern Indiana* prior thereto.
</TABLE>

14
<PAGE>

<TABLE>
<CAPTION>
YEARS WITH
NAME AGE INDUSTRIES OFFICE(S) HELD IN PAST 5 YEARS
---- --- ---------- ------------------------------
<S> <C> <C> <C>
James K. 44 3 Senior Vice President of Commercial Operations of
Abcouwer..... Northern Indiana* since February 1998. Vice
President and General Manager of Customer Service
and Distribution from July 1996 to January 1998
at Northern Indiana*. Vice President of Gas
Supply at Northern Indiana from June 1994 to June
1996. Vice President of Natural Gas at GSC Energy
from August 1993 to June 1994. Director of
Natural Gas at Tenneco Gas prior thereto.
James T. Mor- 54 1 (a) Chairman of the Board, President and Chief
ris**........ Executive Officer of IWC Resources Corporation*.
Owen C. John- 51 8 Vice President of Human Resources at NIMSC* since
son, Jr...... July 1996. Prior thereto, Vice President of Human
Resources.
Mark T. 43 20 Vice President of Marketing and Sales at NIMSC*
Maassel...... since July 1996. Vice President of Electric
Service and Sales at Northern Indiana* from April
1994 to March 1997. Director of Northern Central
Region at Northern Indiana* prior thereto.
Arthur A. Pa- 50 28 Controller of NIMSC* since July 1996. Prior
quin......... thereto, Controller of Northern Indiana*.
Francis P. 53 17 Treasurer of Northern Indiana* and Treasurer of
Girot, Jr.... NIMSC* since July 1996.
</TABLE>
- --------
*Subsidiary of Industries.
**Also a Director.
(a) Industries acquired IWCR in March 1997.

The terms of office of executive officers of Industries are established by
Industries' Board of Directors (Board) each year, and each officer serves until
the next annual meeting of the Board and/or until his/her successor is duly
elected. Throughout the past five years, each of the executive officers of
Industries has been continuously in the business of Industries or its
subsidiaries, except for Mr. Abcouwer .

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Industries' common shares are listed and traded on the New York, Chicago and
Pacific exchanges. The table below indicates the high and low sales price of
Industries' common shares, on the composite tape, during the periods indicated.
On December 16, 1997, the Board of Directors authorized a two-for-one split of
Industries' common stock. Shareholders received one additional common share for
each common share held. The stock split was paid February 20, 1998, to
shareholders of record at the close of business on January 30, 1998. The common
share cash dividend paid February 20, 1998 was payable on pre-split common
shares. The sales prices and common dividends reported have been restated to
reflect the two-for-one stock split.

<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
First Quarter......................... 20 1/8 19 19 9/16 17 15/16
Second Quarter........................ 21 1/8 19 7/16 20 1/8 17 5/8
Third Quarter......................... 21 9/32 20 11/32 20 1/8 17 7/8
Fourth Quarter........................ 24 15/16 21 1/16 19 15/16 17 15/16
</TABLE>

As of February 26, 1998, Industries had 37,441 common shareholders of record.

15
<PAGE>

The policy of the Board has been to declare dividends on a quarterly basis
payable on or about the 20th day of February, May, August and November,
Industries paid quarterly common dividends of $0.21 per share during 1996 and
quarterly common dividends of $0.225 per share during 1997. At its December 16,
1997 meeting, the Board increased the quarterly common dividend to $0.24 per
share, payable February 20, 1998.

Holders of Industries' common shares are entitled to receive dividends when,
as and if declared by the Board out of funds legally available therefor.
Although the Board currently intends to consider the payment of regular
quarterly cash dividends on common shares, the timing and amount of future
dividends will depend on the earnings of Northern Indiana and other
subsidiaries, their financial condition, cash requirements, any restrictions in
financing agreements and other factors deemed relevant by the Board. During the
next few years, it is expected that the great majority of earnings available
for distribution of dividends will depend upon dividends paid to Industries by
Northern Indiana.

The following limitations on payment of dividends and issuance of preferred
stock apply to Northern Indiana:

When any bonds are outstanding under its First Mortgage Indenture, Northern
Indiana may not pay cash dividends on its stock (other than preferred or
preference stock) or purchase or retire common shares, except out of earned
surplus or net profits computed as required under the provisions of the
maintenance and renewal fund. At December 31, 1997, Northern Indiana has
approximately $146.3 million of retained earnings (earned surplus) available
for the payment of dividends. Future common share dividends by Northern Indiana
will depend upon adequate retained earnings, adequate future earnings and the
absence of adverse developments.

So long as any shares of Northern Indiana's cumulative preferred stock are
outstanding, no cash dividends shall be paid on its common shares in excess of
75% of the net income available therefore for the preceding calendar year
unless the aggregate of the capital applicable to stocks subordinate as to
assets and dividends, would equal or exceed 25% of the sum of all obligations
evidenced by bonds, notes, debentures or other securities, plus the total
capital and surplus. At December 31, 1997, the sum of the capital applicable to
stocks subordinate to the cumulative preferred stock plus the surplus was equal
to 42% of the total capitalization including surplus.

In connection with the foregoing discussion, see "Common Share Dividend" in
the Notes to Consolidated Financial Statements in Item 8, which note is
incorporated by reference.

ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating revenues
(000's)................ $2,586,541 $1,987,948 $1,769,308 $1,768,029 $1,737,259
Net income (000's)...... $ 190,849 $ 176,734 $ 175,465 $ 163,987 $ 156,140
Earnings per average
common share--basic.... $1.54 $1.44 $1.36 $1.24 $1.15
Earnings per average
common share--diluted.. $1.53 $1.43 $1.35 $1.23 $1.15
Total assets (000's).... $4,937,033 $4,288,883 $3,999,520 $3,947,138 $3,912,324
Long-term obligations
and redeemable
preferred stock
(000's)................ $1,726,766 $1,188,352 $1,274,379 $1,281,395 $1,295,962
Cash dividends declared
per common share....... $0.915 $0.855 $0.795 $0.735 $0.675
</TABLE>

16
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

Information regarding results of operations, liquidity and capital
resources, environmental matters and competition is reported in the 1997
Annual Report to Shareholders under "Management's Discussion and Analysis of
Financial Condition and Results of Operations", which information is
incorporated by reference (see Exhibit 13).

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information regarding market risk is reported in the 1997 Annual Report to
Shareholders under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Market Risk Sensitive Instruments and
Positions", which information is incorporated by reference (see Exhibit 13).

17
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

NIPSCO INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Operating Revenues:
Gas....................... $ 807,239 $ 799,395 $ 691,402
Electric.................. 1,017,083 1,022,231 1,030,923
Water..................... 60,743 -- --
Products and Services..... 701,476 166,322 46,983
---------------- ---------------- ----------------
2,586,541 1,987,948 1,769,308
---------------- ---------------- ----------------
Cost of Sales:
Gas costs................. 495,287 483,777 399,113
Fuel for electric
generation............... 238,548 233,215 242,337
Power purchased........... 37,274 53,751 43,681
Products and Services..... 604,505 101,240 9,357
---------------- ---------------- ----------------
1,375,614 871,983 694,488
---------------- ---------------- ----------------
Operating Margin............ 1,210,927 1,115,965 1,074,820
---------------- ---------------- ----------------
Operating Expenses and Taxes
(except income):
Operation................. 390,253 346,059 332,938
Maintenance............... 76,552 74,101 78,828
Depreciation and
amortization............. 249,804 233,993 206,959
Taxes (except income)..... 83,765 75,504 74,218
---------------- ---------------- ----------------
800,374 729,657 692,943
---------------- ---------------- ----------------
Operating Income............ 410,553 386,308 381,877
---------------- ---------------- ----------------
Other Income (Deductions)... 14,619 11,986 1,471
---------------- ---------------- ----------------
Interest and Other Charges:
Interest on long-term
debt..................... 105,498 85,382 82,655
Other interest............ 10,391 15,736 9,883
Amortization of premium,
reacquisition premium,
discount and expense on
debt, net................ 4,718 4,605 4,402
Dividend requirements on
preferred stocks of
subsidiaries............. 8,691 8,712 9,046
---------------- ---------------- ----------------
129,298 114,435 105,986
---------------- ---------------- ----------------
Income Taxes................ 105,025 107,125 101,897
---------------- ---------------- ----------------
Net Income.................. 190,849 176,734 175,465
---------------- ---------------- ----------------
Dividend requirements on
preferred shares........... -- 119 3,063
---------------- ---------------- ----------------
Balance available for common
shareholders............... $ 190,849 $ 176,615 $ 172,402
================ ================ ================
Average common shares
outstanding--basic*........ 123,849,126 122,381,500 126,562,354
Basic earnings per average
common share*.............. $ 1.54 $ 1.44 $ 1.36
================ ================ ================
Diluted earnings per average
common share*.............. $ 1.53 $ 1.43 $ 1.35
================ ================ ================
Dividends declared per
common share*.............. $ 0.915 $ 0.855 $ 0.795
================ ================ ================
</TABLE>
- --------
* Amounts have been restated to reflect two-for-one stock split.

The accompanying notes to consolidated financial statements are an integral
part of this statement.

18
<PAGE>

NIPSCO INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Property, Plant and Equipment:
Utility Plant, at original cost (including construction
work in progress of $188,710 and $166,812,
respectively):
Electric............................................. $4,066,568 $4,050,084
Gas.................................................. 1,395,140 1,344,230
Water................................................ 603,013 --
Common............................................... 351,350 346,636
---------- ----------
6,416,071 5,740,950
Less--Accumulated provision for depreciation and
amortization........................................ 2,759,945 2,546,162
---------- ----------
Total utility plant................................ 3,656,126 3,194,788
---------- ----------
Other property, at cost, less accumulated provision for
depreciation........................................... 96,028 147,370
---------- ----------
Total Property, Plant and Equipment................ 3,752,154 3,342,158
---------- ----------
Investments:
Investments, at equity................................. 82,855 52,260
Investments, at cost................................... 31,771 30,424
Other investments...................................... 24,499 20,090
---------- ----------
Total Investments.................................. 139,125 102,774
---------- ----------
Current Assets:
Cash and cash equivalents.............................. 30,780 26,333
Accounts receivable, less reserve of $5,887 and
$5,569, respectively.................................. 231,580 165,441
Other receivables...................................... 107,231 42,184
Fuel adjustment clause................................. 2,679 9,149
Gas cost adjustment clause............................. 89,991 100,214
Materials and supplies, at average cost................ 60,085 59,859
Electric production fuel, at average cost.............. 18,837 26,483
Natural gas in storage................................. 61,436 65,093
Prepayments and other.................................. 28,089 28,491
---------- ----------
Total current assets............................... 630,708 523,247
---------- ----------
Other Assets:
Regulatory assets...................................... 211,513 236,205
Intangible assets, less accumulated provision for
amortization.......................................... 68,175 --
Prepayments and other.................................. 135,358 84,499
---------- ----------
Total other assets................................. 415,046 320,704
---------- ----------
$4,937,033 $4,288,883
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization (see page 20):
Common shareholders' equity (see page 23).............. $1,264,788 $1,100,501
Preferred stocks--
Northern Indiana Public Service Company:
Series without mandatory redemption provisions..... 81,123 81,126
Series with mandatory redemption provisions........ 58,841 61,246
Indianapolis Water Company:
Series without mandatory redemption provisions..... 4,497 --
Long-term debt, excluding amounts due within one year.. 1,667,925 1,127,106
---------- ----------
Total capitalization............................... 3,077,174 2,369,979
---------- ----------
Current Liabilities:
Current portion of long-term debt...................... 54,621 146,052
Short-term borrowings.................................. 212,639 425,985
Accounts payable....................................... 226,751 251,730
Dividends declared on common and preferred stocks...... 30,784 28,308
Customer deposits...................................... 22,091 17,580
Taxes accrued.......................................... 77,573 78,723
Interest accrued....................................... 19,124 7,557
Accrued employment costs............................... 58,799 44,186
Other accruals......................................... 47,930 31,882
---------- ----------
Total current liabilities.......................... 750,312 1,032,003
---------- ----------
Other:
Deferred income taxes.................................. 651,815 602,745
Deferred investment tax credits, being amortized over
life of related property.............................. 105,538 108,258
Deferred credits....................................... 73,715 37,338
Customer advances and contributions in aid of
construction.......................................... 110,145 15,830
Accrued liability for postretirement benefits.......... 132,919 109,429
Other noncurrent liabilities........................... 35,415 13,301
---------- ----------
Total other........................................ 1,109,547 886,901
---------- ----------
Commitments and Contingencies (see notes)...............
$4,937,033 $4,288,883
========== ==========
</TABLE>

The accompanying notes to consolidated financial
statements are an integral part of this statement.

19
<PAGE>

NIPSCO INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF CAPITALIZATION

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996
---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Common shareholders' equity (see page 23).. $1,264,788 41.1% $1,100,501 46.4%
---------- ----------
Preferred Stocks, which are redeemable
solely at option of issuer:
Northern Indiana Public Service Company--
Cumulative preferred stock--
$100 par value--
4 1/4% series--209,118 and 209,145
shares outstanding, respectively.... 20,912 20,915
4 1/2% series--79,996 shares
outstanding......................... 8,000 8,000
4.22% series--106,198 shares
outstanding......................... 10,620 10,620
4.88% series--100,000 shares
outstanding......................... 10,000 10,000
7.44% series--41,890 shares
outstanding......................... 4,189 4,189
7.50% series--34,842 shares
outstanding......................... 3,484 3,484
Premium on preferred stock........... 254 254
Cumulative preferred stock--no par
value--
Adjustable Rate (6.00% at December
31, 1997)--Series A (stated value--
$50 per share), 473,285 shares
outstanding......................... 23,664 23,664
---------- ----------
81,123 2.6% 81,126 3.4%
---------- ----------
Redeemable Preferred Stocks, subject to
mandatory redemption requirements or whose
redemption is outside the control of
issuer:
Northern Indiana Public Service Company--
Cumulative preferred stock--
$100 par value--
8.85% series--62,500 and 75,000
shares outstanding, respectively.... 6,250 7,500
7 3/4% series--38,906 and 44,460
shares outstanding, respectively.... 3,891 4,446
8.35% series--57,000 and 63,000
shares outstanding, respectively.... 5,700 6,300
Cumulative preferred stock--no par
value--
6.50% series--430,000 shares
outstanding......................... 43,000 43,000
---------- ----------
58,841 1.9% 61,246 2.6%
---------- ----------
Indianapolis Water Company--
Cumulative preferred stock--
$100 par value--
Rates ranging from 4.00% to 5.00%
44,966 shares outstanding............ 4,497 0.2% -- --
---------- ----------
Long-term debt (see page 21)............... 1,667,925 54.2% 1,127,106 47.6%
---------- ----- ---------- -----
Total capitalization................. $3,077,174 100.0% $2,369,979 100.0%
========== ===== ========== =====
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of this statement.

20
<PAGE>

NIPSCO INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF LONG-TERM DEBT

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Northern Indiana Public Service Company:
First mortgage bonds--
Series P, 6 7/8%--due October 1, 1998.............. $ -- $ 14,509
Series T, 7 1/2%--due April 1, 2002................ 39,500 40,000
Series NN, 7.10%--due July 1, 2017................. 55,000 55,000
---------- ----------
Total............................................ 94,500 109,509
---------- ----------
Pollution control notes and bonds--
Series A note--City of Michigan City--
5.70% due October 1, 2003......................... 18,000 19,000
Series 1988 Bonds--Jasper County--Series A, B and C
3.81% weighted average at December 31, 1997, due
November 1, 2016.................................. 130,000 130,000
Series 1988 Bonds--Jasper County--Series D
3.78% weighted average at December 31, 1997, due
November 1, 2007.................................. 24,000 24,000
Series 1994 Bonds--Jasper County--Series A
4.25% at December 31, 1997, due August 1, 2010.... 10,000 10,000
Series 1994 Bonds--Jasper County--Series B
4.25% at December 31, 1997, due June 1, 2013...... 18,000 18,000
Series 1994 Bonds--Jasper County--Series C
4.25% at December 31, 1997, due April 1, 2019..... 41,000 41,000
---------- ----------
Total............................................ 241,000 242,000
---------- ----------
Medium-term notes--
Issued at interest rates between 6.10% and 7.69%,
with a weighted average interest rate of 7.00% and
various maturities between April 5, 2000 and
August 4, 2027.................................... 748,025 644,025
---------- ----------
Unamortized premium and discount on long-term debt,
net................................................. (4,029) (3,526)
---------- ----------
Total long-term debt of Northern Indiana Public
Service Company................................. 1,079,496 992,008
---------- ----------
Indianapolis Water Company:
First mortgage bonds--
Series 5.20%--due May 1, 2001...................... 11,600 --
Series 8.00%--due December 15, 2001................ 3,000 --
Series 7 7/8%--due March 1, 2019................... 40,000 --
Series 9.83%--due June 15, 2019.................... 5,000 --
Series 6.10%--due December 1, 2022................. 5,000 --
Series 8.19%--due December 1, 2022................. 10,000 --
Series 5.85%--due September 1, 2025................ 18,000 --
---------- ----------
Total long-term debt of Indianapolis Water
Company......................................... 92,600 --
---------- ----------
IWC Resources Corporation:
Senior Note Payable--6.31% due March 15, 2001........ 14,000 --
Variable Bank Loan--6.50% due August, 2003........... 5,600 --
---------- ----------
Total long-term debt of IWC Resources
Corporation..................................... 19,600 --
---------- ----------
NIPSCO Capital Markets, Inc.:
Subordinated Debentures--Series A, 7 3/4%, due March
31, 2026............................................ 75,000 75,000
Senior Notes Payable--6.78%, due December 1, 2027.... 75,000 --
Medium-term notes--Issued at interest rates between
7.38% and 7.99%, with a weighted average interest
rate of 7.66% and various maturities between April
1, 2004 and May 5, 2027............................. 300,000 --
---------- ----------
Total long-term debt of NIPSCO Capital Markets,
Inc............................................. 450,000 75,000
NIPSCO Development Company, Inc.:
Lake Erie Land Company--Notes Payable--9.00%--due
July 7, 2004........................................ 2,637 100
Elm Energy and Recycling (UK), Ltd. Term Loan
Facility............................................ -- 40,576
NDC Douglas Properties, Inc.--Notes Payable--
Interest rates between 6.72% and 8.15% with a
weighted average interest rate of 7.75% and
maturities through April 1, 2006.................. 23,592 19,422
---------- ----------
Total long-term debt of NIPSCO Development
Company, Inc.................................... 26,229 60,098
---------- ----------
Total long-term debt, excluding amounts due
within one year................................. $1,667,925 $1,127,106
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.

21
<PAGE>

NIPSCO INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 190,849 $ 176,734 $ 175,465
Adjustments to reconcile net income to
net cash:
Depreciation and amortization......... 249,804 233,993 206,959
Deferred federal and state operating
income taxes, net.................... (1,467) 21,126 (1,480)
Deferred investment tax credits, net.. (7,376) (7,408) (7,515)
Advance contract payment.............. 1,900 (17,100) --
Change in certain assets and
liabilities--*
Accounts receivable, net............ (37,369) (45,037) (22,609)
Other receivables................... (65,047) (30,778) (11,406)
Electric production fuel............ 7,646 (12,225) 4,089
Natural gas in storage.............. 3,657 (4,209) 16,910
Accounts payable.................... (18,567) 81,013 (8,481)
Taxes accrued....................... 3,389 17,002 (9,202)
Fuel adjustment clause.............. 6,470 1,152 (8,687)
Gas cost adjustment clause.......... 10,223 (98,791) 24,549
Accrued employment costs............ 12,135 (2,509) 2,884
Other accruals...................... 11,994 (13,503) 22,723
Other, net............................ 60,216 2,525 5,833
----------- ----------- -----------
Net cash provided by operating
activities....................... 428,457 301,985 390,032
----------- ----------- -----------
Cash flows provided by (used in)
investing activities:
Utility construction expenditures..... (218,931) (207,881) (192,966)
Acquisition of IWC Resources, net of
cash acquired........................ (288,932) -- --
Proceeds from disposition of assets... 35,993 11,049 3,995
Proceeds from settlement of
litigation........................... 41,069 -- --
Other, net............................ (60,461) (19,243) (54,284)
----------- ----------- -----------
Net cash used in investing
activities....................... (491,262) (216,075) (243,255)
----------- ----------- -----------
Cash flows provided by (used in)
financing activities:
Issuance of long-term debt............ 658,232 78,366 179,555
Issuance of short-term debt........... 1,029,508 1,582,210 1,290,973
Net change in commercial paper........ (224,645) 191,705 (84,600)
Retirement of long-term debt.......... (324,604) (89,792) (122,105)
Retirement of short-term debt......... (1,042,224) (1,609,734) (1,252,250)
Retirement of preferred shares........ (2,408) (37,604) (7,095)
Issuance of common shares............. 218,566 5,716 7,389
Acquisition of treasury shares........ (133,077) (105,498) (69,183)
Cash dividends paid on common shares.. (111,593) (103,190) (99,043)
Cash dividends paid on preferred
shares............................... -- (766) (3,063)
Other, net............................ (503) 514 700
----------- ----------- -----------
Net cash provided by (used in)
financing activities............. 67,252 (88,073) (158,722)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 4,447 (2,163) (11,945)
Cash and cash equivalents at beginning
of period.............................. 26,333 28,496 40,441
----------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ 30,780 $ 26,333 $ 28,496
=========== =========== ===========
</TABLE>
- --------
* Net of effect from purchase of IWC Resources Corporation.

The accompanying notes to consolidated financial statements are an integral
part of this statement.

22
<PAGE>

NIPSCO INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS SHARES
------------------------------------------------------------------------- -----------------------
ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED TREASURY TRANSLATION COMMON TREASURY
TOTAL SHARES CAPITAL EARNINGS SHARES ADJUSTMENT OTHER SHARES* SHARES*
---------- -------- ---------- --------- --------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1995............... $1,107,848 $870,930 $29,657 $ 446,928 $(237,193) $(1,504) $ (970) 147,784,218 (19,973,440)
Net income.......... 175,465 175,465
Dividends:
Preferred shares... (3,063) (3,063)
Common shares...... (100,232) (100,232)
Treasury shares
acquired........... (69,183) (69,183) (4,115,330)
Issued:
Employee stock
purchase plan..... 604 301 303 38,044
Long-term incentive
plan.............. 6,785 1,656 12,850 (7,721) 1,025,700
Unrealized gain on
available for sale
securities......... 1,669 1,669
Amortization of
unearned
compensation....... 2,413 2,413
Other............... (91) 596 (261) (426)
---------- -------- ------- --------- --------- ------- ------- ----------- -----------
Balance, December
31, 1995........... $1,122,215 $870,930 $32,210 $ 518,837 $(293,223) $(1,930) $(4,609) 147,784,218 (23,025,026)
---------- -------- ------- --------- --------- ------- ------- ----------- -----------
Net income.......... 176,734 176,734
Dividends:
Preferred shares... (119) (119)
Common shares...... (103,981) (103,981)
Treasury shares
acquired........... (105,498) (105,498) (5,587,208)
Issued:
Employee stock
purchase plan..... 783 454 329 41,338
Long-term incentive
plan.............. 5,011 186 5,397 (572) 398,000
Unrealized gain on
available for sale
securities......... 1,079 1,079
Amortization of
unearned
compensation....... 2,570 2,570
Other............... 1,707 18 (101) 1,790
---------- -------- ------- --------- --------- ------- ------- ----------- -----------
Balance, December
31, 1996........... $1,100,501 $870,930 $32,868 $ 591,370 $(392,995) $ (140) $(1,532) 147,784,218 (28,172,896)
---------- -------- ------- --------- --------- ------- ------- ----------- -----------
Net income.......... 190,849 190,849
Dividends:
Common shares...... (114,303) (114,303)
Treasury shares
acquired........... (133,077) (133,077) (6,536,928)
Issued:
IWC Resources
Corporation
acquisition....... 207,417 55,008 152,409 10,580,764
Acquisition of
minority interest. 5,469 1,351 4,118 270,064
Employee stock
purchase plan..... 697 424 273 34,376
Long-term incentive
plan.............. 5,004 118 5,329 (443) 353,066
Unrealized gain on
available for sale
securities......... 1,689 1,689
Amortization of
unearned
compensation....... 2,099 2,099
Other............... (1,557) (1) (126) (1,430)
---------- -------- ------- --------- --------- ------- ------- ----------- -----------
Balance, December
31, 1997........... $1,264,788 $870,930 $89,768 $ 667,790 $(363,943) $(1,570) $ 1,813 147,784,218 (23,471,554)
========== ======== ======= ========= ========= ======= ======= =========== ===========
</TABLE>
- -------
* Amounts restated to reflect two-for-one stock split.

23
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

HOLDING COMPANY STRUCTURE

NIPSCO Industries, Inc. (Industries) is an energy/utility-based holding
company providing electric energy, natural gas and water to the public through
its six wholly-owned regulated subsidiaries (Utilities): Northern Indiana
Public Service Company (Northern Indiana); Kokomo Gas and Fuel Company (Kokomo
Gas); Northern Indiana Fuel and Light Company, Inc. (NIFL); Crossroads
Pipeline Company (Crossroads); Indianapolis Water Company (IWC); and Harbour
Water Corporation (Harbour). Industries' regulated gas and electric
subsidiaries (Northern Indiana, Kokomo Gas, NIFL and Crossroads) are referred
to as "Energy Utilities"; and regulated water subsidiaries (IWC and Harbour)
are referred to as "Water Utilities."

On March 25, 1997, Industries acquired IWC Resources Corporation (IWCR).
IWCR's subsidiaries include two regulated water utilities (IWC and Harbour)
and five non-utility companies providing utility-related services including
installation, repair and maintenance of underground pipelines and utility line
locating and marking. The two primary non-utility subsidiaries are Miller
Pipeline Corporation (Miller) and SM&P Utility Resources, Inc. (SM&P).

Industries also provides non-regulated energy/utility-related services
including energy marketing and trading; power generation; gas transmission,
supply and storage; installation, repair and maintenance of underground
pipelines; utility line locating and marking; and related products targeted at
customer segments principally through the following wholly-owned subsidiaries:
NIPSCO Development Company, Inc. (Development); NIPSCO Energy Services, Inc.
(Services); Primary Energy, Inc. (Primary); Miller; and SM&P. NIPSCO Capital
Markets, Inc. (Capital Markets) handles financing for Industries and its
subsidiaries, other than Northern Indiana. These subsidiaries are referred to
collectively as "Products and Services."

On December 18, 1997, Industries and Bay State Gas Company signed a
definitive merger agreement under which Industries will acquire all of the
common stock of Bay State Gas Company in a stock-for-stock transaction. Refer
to Purchase of Bay State Gas Company in Notes to Consolidated Financial
Statements for a more detailed discussion of the proposed acquisition.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of majority-owned
subsidiaries of Industries after the elimination of significant intercompany
accounts and transactions. Investments for which Industries has at least a 20%
interest and certain joint ventures are accounted for under the equity method.
Investments with less than a 20% interest are accounted for under the cost
method. Certain reclassifications were made to conform the prior years'
financial statements to the current presentation.

The prior period operating results related to "Products and Services" were
previously reported under the caption "Other Income (Deductions)" in the
Consolidated Statement of Income. Accordingly, these results have been
reclassified to conform to the current presentation.

The accompanying consolidated financial statements of Industries include
nine months of operating results for IWCR for the period ended December 31,
1997.

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 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.

24
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Operating Revenues

Utility revenues are recorded based on estimated service rendered, but are
billed to customers monthly on a cycle basis. Energy marketing revenues are
recognized as the related commodity is delivered to customers. Construction
revenues are recognized on the percentage of completion method whereby
revenues are recognized in proportion to costs incurred over the life of each
project. Industries records provisions for losses on construction contracts,
if any, in the period in which such losses become probable.

Depreciation and Maintenance

The Energy Utilities provide depreciation on a straight-line method over the
remaining service lives of the electric, gas and common properties. The
weighted average provisions, as a percentage of the cost of original
depreciable utility plant, were approximately 4.3% for 1997, 4.2% for 1996 and
4.1% for 1995.

The Water Utilities provide depreciation on the original cost of utility
plant in service using a composite annual rate of 1.9% for 1997.

The Utilities follow the practice of charging maintenance and repairs,
including the cost of renewals of minor items of property, to maintenance
expense accounts, except for repairs of transportation and service equipment
which are charged to clearing accounts and redistributed to operating expense
and other accounts. When property which represents a retirement unit is
replaced or removed, the cost of such property is credited to utility plant,
and such cost, together with the cost of removal less salvage, is charged to
the accumulated provision for depreciation.

Amortization of Software Costs

Industries has capitalized software relating to various technology
functions. At the date of installation, Industries estimates that the specific
software will have a useful life between five and ten years. The FERC
prescribes certain amortization periods, and Industries' management has
determined that, on average, these are reasonable useful life estimates for
the portfolio of capitalized software. The Energy Utilities include these
amortization estimates, based on useful life, in their quarterly filings with
the Indiana state regulatory commission.

Plant Acquisition Adjustments

Utility plant includes amounts representing the excess of purchase price
over underlying book values associated with the acquisitions of Kokomo Gas,
NIFL, IWC and Harbour. These amounts are $197.7 million (see Purchase of IWC
Resources Note) and $40.6 million at December 31, 1997 and December 31, 1996,
respectively, and are being amortized over a forty-year period from the
respective dates of acquisition.

Intangible Assets

The excess of cost over the fair value of the net assets of non-utility
subsidiaries acquired is stated as goodwill and is being amortized on a
straight-line basis over a weighted average period of 34 years. Other
intangible assets approximating $7.7 million are being amortized over a period
of eight years. Industries assesses the recoverability of its intangible
assets on a periodic basis to

25
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

confirm that expected future cash flows will be sufficient to support the
recorded intangible assets. Accumulated amortization of intangibles at
December 31, 1997, was approximately $1.1 million.

Coal Reserves

Northern Indiana has a long-term mining contract to mine its coal reserves
through the year 2001. The costs of these reserves are being recovered through
the rate-making process as such coal reserves are used to produce electricity.

Power Purchased

Power purchases and net interchange power with other electric utilities
under interconnection agreements are included in Cost of Sales under the
caption "Power purchased."

Accounts Receivable

At December 31, 1997, Northern Indiana had sold $100 million of its accounts
receivable under a sales agreement which expires May 31, 2002.

Customer Advances and Contributions in Aid of Construction

IWC allows developers to install and provide for the installation of water
main extensions, which are to be transferred to IWC upon completion. The cost
of the main extensions and the amount of any funds advanced for the cost of
water mains installed are included in customer advances for construction and
are generally refundable to the customer over a period of ten years. Advances
not refunded within ten years are permanently transferred to contributions in
aid of construction.

Statement of Cash Flows

For purposes of the Consolidated Statement of Cash Flows, Industries
considers temporary cash investments with an original maturity of three months
or less to be cash equivalents.

Cash paid during the periods reported for income taxes and interest was as
follows:

<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes................................... $116,849 $75,795 $117,940
Interest, net of amounts capitalized........... 102,361 87,281 89,321
</TABLE>

Fuel Adjustment Clause

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

26
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Gas Cost Adjustment Clause

All metered gas rates contain an adjustment factor which reflects the cost
of purchased gas, contracted gas storage and storage transportation charges.
The Energy Utilities record any under-recovery or over-recovery as a current
asset or current liability until such time as it is billed or refunded to
their customers. The gas cost adjustment factor for Northern Indiana is
subject to a quarterly hearing by the Commission and remains in effect for a
three-month period. The gas cost adjustment factors for Kokomo Gas and NIFL
are subject to semi-annual hearings by the Commission and remain in effect for
a six-month period. If the statutory requirement relating to the level of
return is satisfied, any under-recovery or over-recovery caused by variances
between estimated and actual cost in a given three- or six-month period will
be included in a future filing. See "FERC Order No. 636" for a discussion of
gas transition cost charges.

Natural Gas in Storage

Northern Indiana's natural gas in storage is valued using the last-in,
first-out (LIFO) inventory methodology. Based on the average cost of gas
purchased in December 1997 and 1996 the estimated replacement cost of gas in
storage (current and non-current) at December 31, 1997 and 1996 exceeded the
stated LIFO cost by approximately $42 million and $96 million, respectively.
Certain other subsidiaries of Industries have natural gas in storage valued at
average cost.

Hedging Activities

Industries utilizes a variety of commodity-based derivative financial
instruments to reduce the price risk inherent in its natural gas and electric
power marketing activities. The gains and losses on these derivative financial
instruments are deferred (Other Current Assets or Other Current Liabilities)
pursuant to an identified risk reduction strategy. Such deferrals are
recognized in income concurrent with the disposition of the underlying
physical commodity. In certain circumstances, a derivative financial
instrument will serve to hedge the acquisition cost of gas injected into
storage. In this situation, the gain or loss on the derivative financial
instrument is deferred as part of the cost basis of gas in storage and
recognized upon the ultimate disposition of the natural gas. If a derivative
financial instrument contract is terminated early because it is probable that
a transaction or anticipated transaction will not occur, any gain or loss as
of such date is immediately recognized in earnings. If a derivative financial
instrument contract is terminated early for other economic reasons, any gain
or loss as of the termination date is deferred and recorded when the
associated transaction or anticipated transaction affects earnings.

Industries' gas subsidiaries use commodity futures contracts, options and
swaps to hedge the impact of natural gas price fluctuations related to its
business activities, including price risk related to the physical location of
the natural gas (basis risk). As of December 31, 1997, Industries had open
derivative financial instruments representing hedges of natural gas sales of
8.9 billion cubic feet (Bcf), natural gas purchases and inventories of 13.4
Bcf and net basis differentials of 33.4 Bcf. The net deferred loss on these
derivative financial instruments as of December 31, 1997 was not material.

Industries purchases options to hedge price risk associated with a portion
of its fixed price purchase and sale commitments related to electricity. The
deferred premiums paid on these options as of December 31, 1997 were not
material.

Refer to "Market Risk Sensitive Instruments and Positions" in Management's
Discussion and Analysis of Financial Condition and Results of Operations. See
Industries Form 8-K, pages 8-9.

27
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Impact of Accounting Standards

In July 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of the statement is to report a measure of
all changes in equity of an enterprise that result from transactions or other
economic events during the period other than transactions with shareholders.
Industries will be required to display items of other comprehensive income
including, but not limited to, changes in its unrealized holding gains or
losses on its available-for-sale securities and foreign currency translation
adjustments. Industries will adopt this statement effective January 1, 1998.

Regulatory Assets

The Utilities' operations are subject to the regulation of the Commission
and, in the case of the Energy Utilities, the Federal Energy Regulatory
Commission (FERC). Accordingly, the Utilities' accounting policies are subject
to the provisions of SFAS No. 71, "Accounting for the Effects of Certain Types
of Regulation." The Utilities monitor changes in market and regulatory
conditions and the resulting impact of such changes in order to continue to
apply the provisions of SFAS No. 71 to some or all of their operations. As of
December 31, 1997 and December 31, 1996, the regulatory assets identified
below represent probable future revenue to the Utilities associated with
certain incurred costs as these costs are recovered through the rate-making
process. Regulatory assets were comprised of the following items:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Unamortized reacquisition premium on debt (See
Long-Term Debt note).......................... $ 46,748 $ 50,262
Unamortized R. M. Schahfer Unit 17 and Unit 18
carrying charges and deferred depreciation
(See below)................................... 66,546 70,763
Bailly scrubber carrying charges and deferred
depreciation (See below)...................... 9,880 10,816
Deferral of SFAS No. 106 expense not recovered
(See Postretirement Benefits note)............ 87,653 87,557
FERC Order No. 636 transition costs (See FERC
Order No. 636 note)........................... 28,744 47,399
Regulatory income tax asset, net............... 6,941 4,736
Other.......................................... 4,261 --
-------- --------
250,773 271,533
-------- --------
Less: Current portion of regulatory assets..... 39,260 35,328
-------- --------
$211,513 $236,205
======== ========
</TABLE>

If a portion of the Utilities' operations becomes no longer subject to the
provisions of SFAS No. 71, a write-off of certain regulatory assets might be
required, unless some form of transition cost recovery is established by the
appropriate regulatory body which would meet the requirements under generally
accepted accounting principles for continued accounting as regulatory assets
during such recovery period.

Carrying Charges and Deferred Depreciation

Upon completion of R. M. Schahfer Units 17 and 18, Northern Indiana
capitalized the carrying charges and deferred depreciation in accordance with
orders of the Commission until the

28
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

cost of each unit was allowed in rates. Such carrying charges and deferred
depreciation are being amortized over the remaining life of each unit.

Northern Indiana has capitalized carrying charges and deferred depreciation
and certain operating expenses relating to its scrubber service agreement for
its Bailly Generating Station in accordance with an order of the Commission.
Pursuant to such order, capitalization of carrying charges and deferral of
depreciation and certain operating expenses ceased on December 31, 1995. The
accumulated balance of the deferred costs and related carrying charges is
being amortized over the remaining life of the scrubber service agreement.

Allowance for Funds Used During Construction

Allowance for funds used during construction (AFUDC) is charged to
construction work in progress during the period of construction and represents
the net cost of borrowed funds used for construction purposes and a reasonable
rate upon other (equity) funds. Under established regulatory rate practices,
after the construction project is placed in service, Northern Indiana is
permitted to include in the rates charged for utility services (a) a fair
return on and (b) depreciation of such AFUDC included in plant in service.

At January 1, 1995, a pretax rate of 6.0% for all construction was being
used; effective January 1, 1996, the rate decreased to 5.5% and effective
January 1, 1997, the rate remained at 5.5%.

Foreign Currency Translation

Translation gains or losses are based upon the end-of-period exchange rate
and are recorded as a separate component of common shareholders' equity.

Investments In Real Estate

Development invests in a series of affordable housing projects within the
Utilities' service territory. These investments include certain tax benefits,
including low-income housing tax credits and tax deductions for operating
losses of the housing projects. Development accounts for these investments
using the equity method. Investments, at equity, include $30.1 million and
$24.1 million relating to affordable housing projects at December 31, 1997 and
December 31, 1996, respectively.

Income Taxes

Deferred income taxes are recognized as costs in the rate-making process by
the commissions having jurisdiction over the rates charged by the Utilities.
Deferred income taxes are provided as a result of provisions in the income tax
law that either require or permit certain items to be reported on the income
tax return in a different period than they are reported in the financial
statements. These taxes are reversed by a debit or credit to deferred income
tax expense as the temporary differences reverse. Investment tax credits have
been deferred and are being amortized to income over the life of the related
property.

RESOLUTION OF TAX MATTER

In 1991, the Internal Revenue Service (IRS) issued a notice of deficiency
for Northern Indiana's taxes for the years 1982 through 1985 ($3,785,250 per
year plus interest) relating to interest payments on $70 million of 17 1/4%
Notes issued in 1981 by Northern Indiana's former foreign subsidiary, Northern
Indiana Public Service Finance N.V. (Finance). The IRS maintained that
interest paid on the Notes should have been subject to United States tax
withholding. Northern Indiana challenged the assessment in the United States
Tax Court (Tax Court) and the

29
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Tax Court ruled in favor of Northern Indiana, finding that the interest paid
on the Notes was not subject to United States tax withholding. The IRS
appealed the Tax Court's decision to the U. S. Court of Appeals for the
Seventh Circuit (Court of Appeals) and Northern Indiana filed a cross appeal.
On June 6, 1997, the Court of Appeals issued an order affirming in full the
favorable Tax Court order. The IRS did not appeal the decision of the Court of
Appeals.

RESOLUTION OF ELM ENERGY AND RECYCLING (UK) LTD. LITIGATION

Development is an 85% shareholder in Elm Energy and Recycling (UK) Ltd.
(Elm), which owns and operates a tire-fueled electric generating plant in
Wolverhampton, England (Project). In 1995, the Project failed certain
performance and reliability tests which had been established under a contract
between Elm and TBV Power Limited (TBV), a company jointly owned by
subsidiaries of the Tarmac PLC Group and Black & Veatch. Elm "rejected" the
Project in accordance with the contract, and the independent Project engineer
then certified that 29.6 million British Pounds Sterling (approximately $48.9
million at December 31, 1997) were to be reimbursed by TBV to Elm. TBV filed
suit in the English courts to enjoin enforcement of the decision and to allege
certain breaches of the underlying construction contract. Elm counterclaimed,
and Elm and Development also sought additional remedies at law, in both the
United States and the United Kingdom, for damages and/or sanctions against
TBV, Tarmac PLC Group, Black & Veatch and its chairman. Black & Veatch
counterclaimed against Elm and Development.

In September 1997, a settlement was reached on mutually agreed terms which
resulted in the dismissal, with prejudice, of all litigation in the United
States and the United Kingdom relating to the Project (Elm Litigation
Settlement). Concurrently, Elm reached a settlement with its banks pursuant to
which the banks were paid a portion of the proceeds received by Elm in the Elm
Litigation Settlement in exchange for the banks agreeing to forgive Elm's
remaining bank debt and to release all security interests they had in the
Project. The Elm Litigation Settlement was not material to the results of
operations or financial position of Industries. Elm is continuing to operate
the Project and Development provides financing to support its operations.

NESI ENERGY MARKETING CANADA LTD. LITIGATION

On October 31, 1996, Services' wholly-owned subsidiary NIPSCO Energy
Services Canada Ltd. (NESI Canada) acquired 70% of the outstanding shares of
Chandler Energy Inc., a gas marketing and trading company located in Calgary,
Alberta, and subsequently renamed it NESI Energy Marketing Canada Ltd. (NEMC).
Between November 1 and November 27, 1996, gas prices in the Calgary market
increased dramatically. As a result, NEMC was selling gas, pursuant to
contracts entered into prior to the acquisition date, at prices substantially
below its costs to acquire such gas. On November 27, 1996, NEMC ceased doing
business and sought protection from its creditors under the Companies'
Creditors Arrangement Act, a Canadian corporate reorganization statute. NEMC
was declared bankrupt as of December 12, 1996.

Certain creditors of NEMC have filed claims against Industries, Services,
Capital Markets and NESI Canada, alleging certain misrepresentations relating
to NEMC's financial condition and claiming damages. Industries and its
affiliates intend to vigorously defend against such claims and any other
claims seeking to assert that any party other than NEMC is responsible for
NEMC's liabilities. Industries has fully reserved its investment in NEMC.
Management believes that any additional loss relating to NEMC would not be
material to the results of operations or financial position of Industries.

30
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

FERC ORDER NO. 636

The Energy Utilities have recorded approximately $138 million of interstate
pipeline transition costs since December 1993 to reflect the impact of FERC
Order No. 636, a majority of which costs have been paid to the pipeline
suppliers. The Energy Utilities expect that additional transition costs will
not be significant. The Commission has approved the recovery of these FERC-
allowed transition costs on a volumetric basis from sales and transportation
customers. Regulatory assets, in amounts corresponding to the costs recorded
but not yet collected, have been recorded to reflect the ultimate recovery of
these costs.

ENVIRONMENTAL MATTERS

Because of major investments made in modern environmental control facilities
and the use of low-sulfur coal, all of Northern Indiana's electric production
facilities now comply with the specific sulfur dioxide limitations contained
in the acid deposition provisions of the Clean Air Act Amendments of 1990
(CAAA). Reflecting this compliance, on December 31, 1997, Indiana Department
of Environmental Management (IDEM) issued the Phase II Acid Rain permits for
all four of Northern Indiana's electric generating stations. As discussed
below, however, other provisions of the CAAA impose additional requirements on
Northern Indiana.

On December 19, 1996, the Environmental Protection Agency (EPA) promulgated
rules for Phase II of the Acid Rain nitrogen oxides (NOx) reduction program.
For Phase I, during the summer of 1997, the EPA formally approved the Acid
Rain Early Election permits for the pulverized coal units at D. H. Mitchell
and R. M. Schahfer stations. The permits establish the Phase I limits for the
NOx emissions on these units until 2007. On December 23, 1997, Northern
Indiana submitted an Acid Rain Phase II NOx Compliance Plan to IDEM which
included additional controls for two cyclone fired boilers and a plan for
emission averaging to achieve the NOx limits for the system by 2000. Northern
Indiana plans a project to demonstrate a cost effective combustion control
technique on the Unit 12 cyclone fired boiler at Michigan City during 1998.
The CAAA also contain other provisions that could lead to limitations on
emissions of hazardous air pollutants which may require significant capital
expenditures for control of these emissions. Northern Indiana cannot predict
what these requirements will be or the costs of complying with these potential
requirements.

On October 10, 1997, the EPA proposed a rule under the nonattainment
provisions of the CAAA to reduce emissions transported across state boundaries
that allegedly are contributing to nonattainment of the one hour ozone
standard in downwind states. Because NOx is considered a precursor or cause of
ozone formation, the EPA proposed significant NOx reductions for 22 states,
including Indiana, to address the ozone transport issue. These proposals, and
any resulting NOx emission limitations, arise under different provisions of
the CAAA than the Acid Rain NOx program and could result in additional, more
restrictive emission limitations than are imposed

31
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

under the Acid Rain Program. The EPA has encouraged states to achieve the
reductions by requiring controls on electric utilities and large boilers.
Northern Indiana is evaluating the EPA's proposal and evaluating potential
requirements that could result from any final rule.

The EPA issued final rules on July 18, 1997, revising the National Ambient
Air Quality Standards for ozone and particulate matter. The revised standards
begin a regulatory process that may lead to reductions in particulate, NOx
emissions and possibly sulfur dioxide emissions, from coal-fired boilers
(including Northern Indiana's generating stations) beyond reductions required
in the Acid Rain and nonattainment provisions of the CAAA. Northern Indiana
cannot predict the costs of complying with future control requirements to meet
these new standards. Northern Indiana will continue to closely monitor
developments in this area and anticipates that the exact nature of the impact
of the new standards on its operations will not be known for some time.

The EPA has notified Northern Indiana that it is a "potentially responsible
party" (PRP) under the Comprehensive Environmental Response Compensation and
Liability Act (CERCLA) and may be required to share in the cost of cleanup of
several waste disposal sites identified by the EPA. The sites are in various
stages of investigation, analysis and remediation. At each of the sites,
Northern Indiana is one of several PRPs, and it is expected that remedial
costs, as provided under CERCLA, will be shared among them. At some sites
Northern Indiana and/or the other named PRPs are presently working with the
EPA to clean up the sites and avoid the imposition of fines or added costs.

In December 1997, at the Summit on Climate Change in Kyoto, Japan, 159
nations formally agreed to targets reducing worldwide levels of greenhouse
gases. If the U.S. Senate ratifies the agreement, the Kyoto Protocol would
impose an obligation on the United States to reduce its emissions of
greenhouse gas to a level seven percent below 1990 levels during the period
2008 to 2012. The impact of this agreement on Northern Indiana is uncertain.
Northern Indiana, as a charter member of the Department of Energy's Climate
Challenge Program, the electric industries' voluntary reduction effort, has
already implemented over 21 projects to voluntarily reduce greenhouse gases
emissions. Northern Indiana continues to investigate methods to address
reduction in carbon dioxide emissions and will monitor the development of U.S.
climate change policy.

The Energy Utilities have instituted a program to investigate former
manufactured-gas plants where one of them is the current or former owner. The
Energy Utilities have identified twenty-eight of these sites and made visual
inspections of these sites. Initial samplings have been conducted at eighteen
sites. Follow-up investigations have been conducted at seven sites and
remedial measures have been selected at four sites. The Energy Utilities will
continue their program to assess and cleanup sites.

During the course of various investigations, the Energy Utilities have
identified impacts to soil, groundwater, sediment and surface water from
former manufactured-gas plants. At three sites where residues were noted
seeping into rivers, Northern Indiana notified the IDEM and the EPA and
immediately took steps to contain the material. The Energy Utilities have
worked with IDEM or the EPA on investigation or remedial activities at several
sites. Three of the sites have been enrolled in the IDEM Voluntary Remediation
Program (VRP). The goal of placing these sites in the VRP is to obtain IDEM
approval of the selection and implementation of whatever remedial measures, if
any, may be required. The Energy Utilities anticipate placing additional sites
in the VRP after remedial measures have been selected.

32
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Northern Indiana and Indiana Gas Company, Inc. (Indiana Gas) have entered
into an agreement covering cost sharing and management of investigation and
remediation programs at five former manufactured-gas plant sites at which both
companies or their predecessors were former operators or owners. One of these
sites is the Lafayette site which Indiana Gas had previously notified Northern
Indiana is being investigated and remediated pursuant to an administrative
order with IDEM. Northern Indiana also notified Cinergy Services, Inc.
(Cinergy) (formerly PSI Energy, Inc.) that it was a former owner or operator
of seven former manufactured-gas plants at which Northern Indiana had
conducted or was planning investigation or remediation activities. In December
1996, Northern Indiana sent a written demand to Cinergy related to one of
these sites, Goshen. Northern Indiana demanded that Cinergy pay Northern
Indiana for costs Northern Indiana has already incurred and to be incurred to
implement the needed remedy at the Goshen site. In August 1997, Northern
Indiana filed suit in federal court against Cinergy seeking recovery of those
costs.

In 1994, the Energy Utilities approached various companies that provided
insurance coverage which the Energy Utilities believe covers costs related to
actions taken at former manufactured-gas plants. There has been litigation
between Northern Indiana and various insurance companies over covered costs.
Northern Indiana has filed claims in state court against various insurance
companies, seeking coverage for costs associated with several former
manufactured-gas plants and damages for alleged misconduct by some of the
insurance companies. The state court action is now proceeding. Northern
Indiana has received cash settlements from several of the insurance companies.

The possibility that exposure to electric and magnetic fields (EMF)
emanating from power lines, household appliances and other electric sources
may result in adverse health effects has been the subject of public,
governmental and media attention. Recently, researchers from the National
Cancer Institute and the Childhood Cancer Group reported they found no
evidence magnetic fields in homes increase the risk of childhood leukemia.
This study follows an EMF report released late last year by the U.S. National
Research Council of the National Academy of Sciences, which concluded, after
examining more than 500 EMF studies spanning 17 years, that, among other
things, there was insufficient evidence to consider EMF a threat to human
health. Despite the reports' findings, future research appropriations are
continuing to be dedicated to explore this issue.

The Water Utilities are subject to pollution control and water quality
control regulations, including those issued by the EPA, IDEM, the Indiana
Water Pollution Control Board and the Indiana Department of Natural Resources.
Under the Federal Clean Water Act and Indiana's regulations, IWC must obtain
National Pollutant Discharge Elimination System (NPDES) permits for discharges
from its water treatment stations. Applications for renewal of any expiring
permits have been filed and are the subject of ongoing discussions with, but
have not been finalized by, IDEM. These permits continue in effect pending
review of the current applications.

Under the Federal Safe Drinking Water Act (SDWA), the Water Utilities are
subject to regulation by the EPA for the quality of water sold and treatment
techniques used to make the water potable. The EPA promulgates nationally
applicable maximum contaminant levels (MCLs) for contaminants found in
drinking water. Management believes its water utilities are currently in
compliance with all MCLs promulgated to date. The EPA has continuing
authority, however, to issue additional regulations under the SDWA. In August
1996, Congress amended the SDWA to allow the EPA more authority to weigh the
costs and benefits of regulations being considered in some, but not all,
cases. The 1996 amendments do not, however, reduce the number of new standards
previously required. Such standards promulgated could be costly and require
substantial changes in the Water Utilities' operations. The Water Utilities
would expect to recover

33
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

the costs of such changes through their water rates; however, such recovery
may not necessarily be timely.

Under a 1991 law enacted by the Indiana Legislature, a water utility may
petition the Commission for prior approval of its plans and estimated
expenditures required to comply with provisions of, and regulations under, the
Federal Clean Water Act and SDWA. Upon obtaining such approval, a water
utility may include, to the extent of its estimated costs as approved by the
Commission, such costs in its rate base for rate-making purposes and recover
its costs of developing and implementing the approved plans if statutory
standards are met. The capital costs for such new systems, equipment or
facilities or modifications of existing facilities may be included in a water
utility's rate base upon completion of construction of the project or any part
thereof. While use of this statute is voluntary on the part of a water
utility, if utilized, it should allow water utilities a greater degree of
confidence in recovering major costs incurred to comply with environmentally
related laws on a timely basis.

INCOME TAXES

Industries uses the liability method of accounting for income taxes under
which deferred income taxes are recognized, at currently enacted income tax
rates, to reflect the tax effect of temporary differences between the
financial statement and tax bases of assets and liabilities.

To the extent certain deferred income taxes of the Utilities are recoverable
or payable through future rates, regulatory assets and liabilities have been
established. Regulatory assets are primarily attributable to undepreciated
AFUDC-equity and the cumulative net amount of other income tax timing
differences for which deferred taxes had not been provided in the past, when
regulators did not recognize such taxes as costs in the rate-making process.
Regulatory liabilities are primarily attributable to the Utilities' obligation
to credit to ratepayers deferred income taxes provided at rates higher than
the current federal tax rate currently being credited to ratepayers using the
average rate assumption method and unamortized deferred investment tax
credits.

The components of the net deferred income tax liability at December 31, 1997
and 1996, are as follows:

<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities--
Accelerated depreciation and other property
differences....................................... $779,223 $727,528
AFUDC-equity....................................... 35,282 37,713
Adjustment clauses................................. 35,253 41,181
Take-or-pay gas costs.............................. 496 877
Other regulatory assets............................ 31,862 39,458
Reacquisition premium on debt...................... 18,345 19,041
Deferred tax assets--
Deferred investment tax credits.................... (40,025) (41,046)
Removal costs...................................... (144,111) (131,718)
FERC Order No. 636 transition costs................ -- (8,144)
Other post retirement/postemployment benefits...... (45,613) (43,446)
Other, net......................................... (3,252) (11,987)
-------- --------
667,460 629,457
-------- --------
Less: Deferred income taxes related to current assets
and liabilities.................................. 15,645 26,712
-------- --------
Deferred income taxes--noncurrent.................... $651,815 $602,745
======== ========
</TABLE>

34
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Federal and state income taxes as set forth in the Consolidated Statement of
Income are comprised of the following:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current income taxes--
Federal.................................. $ 97,011 $ 80,626 $ 95,677
State.................................... 16,857 12,781 15,215
-------- -------- --------
113,868 93,407 110,892
-------- -------- --------
Deferred income taxes, net--
Federal.................................. (1,603) 19,282 (1,536)
State.................................... 136 1,844 56
-------- -------- --------
(1,467) 21,126 (1,480)
-------- -------- --------
Deferred investment tax credits, net....... (7,376) (7,408) (7,515)
-------- -------- --------
Income taxes........................... 105,025 107,125 101,897
-------- -------- --------
Income tax applicable to non-operating
activities and equity investments......... 987 (207) (2,698)
-------- -------- --------
Total income taxes..................... $106,012 $106,918 $ 99,199
======== ======== ========

A reconciliation of total tax expense to an amount computed by applying the
statutory federal income tax rate to pretax income is as follows:
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income................................. $190,849 $176,734 $175,465
Add--Income taxes.......................... 106,012 106,918 99,199
Dividend requirements on preferred stocks
of subsidiaries........................... 8,691 8,712 9,046
-------- -------- --------
Income before preferred dividend
requirements of subsidiaries and income
taxes..................................... $305,552 $292,364 $283,710
======== ======== ========
Amount derived by multiplying pretax income
by statutory rate......................... $106,943 $102,327 $ 99,299
Reconciling items multiplied by the
statutory rate:
Book depreciation over related tax
depreciation............................ 4,072 4,621 4,018
Amortization of deferred investment tax
credits................................. (7,376) (7,408) (7,515)
State income taxes, net of federal income
tax benefit............................. 11,864 10,540 9,479
Reversal of deferred taxes provided at
rates in excess of the current federal
income tax rate......................... (4,063) (6,644) (5,665)
Low-income housing credits............... (3,056) (2,303) (1,300)
Nondeductible amounts related to
amortization of intangible assets and
plant acquisition adjustments........... 1,640 385 385
Other, net............................... (4,012) 5,400 498
-------- -------- --------
Total income taxes..................... $106,012 $106,918 $ 99,199
======== ======== ========
</TABLE>

35
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

PENSION PLANS

Industries and its subsidiaries have four noncontributory, defined benefit
retirement plans covering the majority of their employees. Benefits under the
plans reflect the employees' compensation, years of service and age at
retirement.

The plans' funded status as of December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Vested benefit obligation.......................... $(662,235) $(541,611)
Nonvested benefit.................................. (117,642) (104,338)
--------- ---------
Accumulated benefit obligation..................... $(779,877) $(645,949)
========= =========
Projected benefit obligation for service rendered
to date........................................... $(875,756) $(743,634)
Plan assets at fair market value................... 924,856 790,978
--------- ---------
Plan assets in excess of projected benefit
obligation........................................ 49,100 47,344
Unrecognized transition obligation at December 31,
being recognized over seventeen years............. 32,107 38,062
Unrecognized prior service cost.................... 47,114 25,172
Unrecognized gains................................. (47,284) (66,976)
--------- ---------
Prepaid pension costs.............................. $ 81,037 $ 43,602
========= =========
</TABLE>

The accumulated benefit obligation is the present value of future pension
benefit payments and is based on the plan benefit formula without considering
expected future salary increases. The projected benefit obligation considers
estimated future salary increases. Discount rates of 7.00% and 7.75% and rates
of increase in compensation levels of 4.5% and 5.5% were used to determine the
accumulated benefit obligation and projected benefit obligation at December
31, 1997 and 1996, respectively. The increase in the accumulated benefit
obligation at December 31, 1997 is mainly caused by the decrease in the
discount rate from 7.75% to 7.00%.

The following items are the components of provisions for pensions for the
years ended December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs............................. $ 14,423 $ 16,300 $ 12,231
Interest costs............................ 57,568 53,477 52,511
Actual return on plan assets.............. (126,211) (87,407) (135,243)
Amortization of transition obligation..... 6,218 5,422 5,422
Other net amortization and deferral....... 56,659 26,460 86,165
--------- -------- ---------
$ 8,657 $ 14,252 $ 21,086
========= ======== =========
</TABLE>

Assumptions used in the valuation and determination of 1997, 1996 and 1995
pension expense were as follows:

<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Discount rate........................................... 7.75% 7.25% 8.75%
Rate of increase in compensation levels................. 5.50% 5.50% 5.50%
Expected long-term rate of return on assets............. 9.00% 9.00% 9.00%
</TABLE>

36
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The plans' assets are invested primarily in common stocks, bonds and notes.

IWCR participates in several industry-wide, multi-employer pension plans for
certain of its union employees at Miller. These plans provide for monthly
benefits based on length of service. Specified amounts per compensated hour
for each employee are contributed to the trustees of these plans.
Contributions of $1.7 million were made to these plans for the nine-month
period ended December 31, 1997. The relative position of each employer
participating in these plans with respect to the actuarial present value of
accumulated plan benefits and net assets available for benefits is not
available.

POSTRETIREMENT BENEFITS

Industries provides certain health care and life insurance benefits for
retired employees. The majority of Industries' employees may become eligible
for those benefits if they reach retirement age while working for Industries.
The expected cost of such benefits is accrued during the employees' years of
service.

Northern Indiana's rate-making had historically included the cost of
providing these benefits based on the related insurance premiums. On December
30, 1992, the Commission authorized the accrual method of accounting for
postretirement benefits for rate-making purposes consistent with SFAS No. 106
"Employers' Accounting for Postretirement Benefits Other than Pensions," and
authorized the deferral of the differences between the net periodic
postretirement benefits costs and the insurance premiums paid for such
benefits as a regulatory asset until such time as the accrual cost method
could be reflected in the rate-making process.

On June 11, 1997, the Commission issued an order approving the inclusion of
accrual-based postretirement benefit costs in the rate-making process to be
effective February 1, 1997 for electric rates and March 1, 1997 for gas rates.
These costs include an amortization of the existing regulatory asset
consistent with the remaining amortization period for the transition
obligation. Northern Indiana discontinued its cost deferral and began
amortizing its regulatory asset concurrent with these dates.

IWC's current rates include postretirement benefit costs on an accrual
basis, including amortization of the regulatory asset that arose prior to
inclusion of these costs in rates. IWC currently remits to a grantor trust
amounts collected in rates.

The following table sets forth the plans accumulated postretirement benefit
obligation as of December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Postretirement benefit obligations for:
Retirees......................................... $ (96,603) $ (76,710)
Fully eligible active plan participants.......... (38,572) (19,448)
Other active plan participants................... (88,733) (104,632)
--------- ---------
Accumulated postretirement benefit obligation...... (223,908) (200,790)
Plan assets at fair value.......................... 2,400 --
--------- ---------
Funded status...................................... (221,508) (200,790)
Unrecognized transition obligation at December 31,
being recognized over twenty years................ 176,464 175,012
Amortization of prior service cost................. 4,195 --
Unrecognized actuarial gain........................ (99,117) (89,547)
--------- ---------
Accrued liability for postretirement benefits...... $(139,966) $(115,325)
========= =========
</TABLE>

37
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A discount rate of 7% and a pre-Medicare medical trend rate of 8% declining
to a long-term rate of 5% and a discount rate of 7.75% and a pre-Medicare
medical trend rate of 9% declining to a long-term rate of 6% were used to
determine the accumulated postretirement benefit obligation at December 31,
1997 and 1996, respectively.

The increase in the accumulated postretirement benefit obligation (APBO) was
primarily attributable to the inclusion of IWCR's APBO and the decrease in the
discount rate from 7.75% to 7.00%.

Net periodic postretirement benefit costs, before consideration of the rate-
making discussed above, for the years ended December 31, 1997, 1996 and 1995
include the following components:

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs................................. $ 4,904 $ 7,352 $ 6,076
Interest costs................................ 15,878 18,311 19,031
Amortization of transition obligation over
twenty years................................. 11,558 11,593 11,593
Amortization of prior service cost............ 279 -- --
Amortization of unrecognized actuarial gain... (5,844) (554) (2,179)
------- ------- -------
$26,775 $36,702 $34,521
======= ======= =======
</TABLE>

The following assumptions were used to determine net periodic postretirement
benefit costs:

<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Discount rate........................................... 7.75% 7.25% 8.75%
Rate of compensation increase........................... 5.5% 5.0% 5.0%
</TABLE>

The pre-Medicare medical trend rates used for 1997, 1996 and 1995 were 8%
declining to a long-term rate of 6%, 9% declining to a long-term rate of 6%,
and 11% declining to a long-term rate of 7%, respectively. The effect of a 1%
increase in the assumed health care cost trend rates for each future year
would increase the accumulated postretirement benefit obligation at December
31, 1997, by approximately $27.1 million and increase the aggregate of the
service and interest cost components of plan costs by approximately $2.9
million for the year ended December 31, 1997. Amounts disclosed above could be
changed significantly in the future by changes in health care costs, work
force demographics, interest rates, or plan changes.

PREFERRED AND PREFERENCE STOCKS

Industries is authorized to issue 20,000,000 shares of Preferred Stock,
without par value. Effective March 2, 1990, 2,000,000 shares of the
Industries' Series A Junior Participating Preferred Shares were reserved for
issuance pursuant to the Share Purchase Rights Plan described in Common
Shares. In November 1990, Industries issued and sold 350,000 shares of 8.75%
Series Cumulative Preferred Shares through a private placement for $35
million. Pursuant to mandatory redemption provisions, all the shares were
redeemed by Industries on January 12, 1996, for $100 per share plus accrued
dividends.

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

38
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3,000,000 shares (none issued). The authorized class of cumulative preferred
stock of IWC is $100 par value--300,000 shares.

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

The redemption prices at December 31, 1997, for the cumulative preferred
stock, which is redeemable solely at the option of Northern Indiana and IWC,
in whole or in part, at any time upon thirty days' notice, are as follows:

<TABLE>
<CAPTION>
REDEMPTION PRICE
SERIES PER SHARE
------ ----------------
<S> <C> <C>
Northern Indiana Public Service Company:
Cumulative preferred stock--$100 par value-- 4 1/4% $ 101.20
4 1/2% $ 100.00
4.22% $ 101.60
4.88% $ 102.00
7.44% $ 101.00
7.50% $ 101.00
Cumulative preferred stock--no par value--
adjustable rate (6.00% at December 31, 1997),
Series A (stated value $50 per share)......... $ 50.00
Indianapolis Water Company:
Cumulative preferred stock--$100 par value--
rates ranging from 4% to 5%................... $100-$105
</TABLE>

The redemption prices at December 31, 1997, as well as sinking fund
provisions, for the cumulative preferred stock subject to mandatory redemption
requirements, or whose redemption is outside the control of Northern Indiana,
are as follows:

<TABLE>
<CAPTION>
SINKING FUND OR
SERIES REDEMPTION PRICE PER SHARE MANDATORY REDEMPTION
------ -------------------------- --------------------
<C> <C> <S>
Cumulative preferred stock--
$100 par value--
8.85%............ $101.11, reduced periodically 12,500 shares on or
before April 1.
8.35%............ $103.69, reduced periodically 3,000 shares on or
before July 1;
increasing to 6,000
shares beginning in
2004; noncumulative
option to double amount
each year.
7 3/4%........... $104.23, reduced periodically 2,777 shares on or
before December 1;
noncumulative option to
double amount each year.
Cumulative preferred stock--no par value--
6.50%............ $100.00 on October 14, 2002 430,000 shares on
October 14, 2002.
</TABLE>

39
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Sinking fund requirements with respect to redeemable preferred stocks
outstanding at December 31, 1997 for each of the four years subsequent to
December 31, 1998 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1999......................................................... $1,827,700
2000......................................................... $1,827,700
2001......................................................... $1,827,700
2002......................................................... $1,827,700
</TABLE>

STOCK SPLIT

On December 16, 1997, the Board of Directors authorized a two-for-one split
of Industries' common stock. Shareholders received one additional common share
for each common share held. The stock split was paid February 20, 1998, to
shareholders of record at the close of business on January 30, 1998. All
references to number of common shares reported for the period including per
share amounts, stock option data and market prices of Industries' common stock
have been restated to reflect the two-for-one stock split as if it had
occurred at the beginning of the earliest period. The common share cash
dividend paid February 20, 1998, was paid on pre-split common shares.

COMMON SHARE DIVIDEND

During the next few years, Industries expects that the great majority of
earnings available for distribution of dividends will depend upon dividends
paid to Industries by Northern Indiana. Northern Indiana's Indenture provides
that it will not declare or pay any dividends on any class of capital stock
(other than preferred or preference stock) except out of earned surplus or net
profits of Northern Indiana. At December 31, 1997, Northern Indiana had
approximately $146.3 million of retained earnings (earned surplus) available
for the payment of dividends. Future dividends will depend upon adequate
retained earnings, adequate future earnings and the absence of adverse
developments.

EARNINGS PER SHARE

At December 31, 1997, Industries adopted SFAS No. 128 "Earnings per Share."
The adoption of this statement required Industries to present basic earnings
per share and diluted earnings per share in place of primary earnings per
share.

Basic earnings per share was computed by dividing net income, reduced for
preferred dividends, by the average number of common shares outstanding during
the period. The diluted earnings per share calculation assumes conversion of
nonqualified stock options into common shares. As a result of adopting the
statement, previously reported earnings per share information was restated.
The effect of this accounting change on previously reported earnings per share
data was insignificant.

40
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The net income, preferred dividends and shares used to compute basic and
diluted earnings per share is presented in the following table:

<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
BASIC
Weighted Average Number of Shares:
Average Common Shares Outstanding.... 123,849,126 122,381,500 126,562,354
============ ============ ============
Net Income to be Used to Compute Basic
Earnings per Share:
Net Income........................... $ 190,849 $ 176,734 $ 175,465
Dividend requirements on Preferred
Shares.............................. -- 119 3,063
------------ ------------ ------------
Balance Available for Common
Shareholders........................ $ 190,849 $ 176,615 $ 172,402
============ ============ ============
Basic Earnings per Common Share........ $ 1.54 $ 1.44 $ 1.36
============ ============ ============
DILUTED
Weighted Average Number of Shares:
Average Common Shares Outstanding.... 123,849,126 122,381,500 126,562,354
Dilutive effect for Nonqualified
Stock Options....................... 374,344 323,367 238,286
------------ ------------ ------------
Weighted Average Shares............ 124,223,470 122,704,867 126,800,640
============ ============ ============
Net Income to be Used to Compute
Diluted Earnings per Share:
Net Income........................... $ 190,849 $ 176,734 $ 175,465
Dividend requirements on Preferred
Shares.............................. -- 119 3,063
------------ ------------ ------------
Balance Available for Common
Shareholders........................ $ 190,849 $ 176,615 $ 172,402
============ ============ ============
Diluted Earnings per Common Share...... $ 1.53 $ 1.43 $ 1.35
============ ============ ============
</TABLE>

COMMON SHARES

Industries has 200,000,000 common shares authorized without par value. The
number of common shares authorized was not affected by the two-for-one stock
split.

Share Purchase Rights Plan

On February 27, 1990, the Board of Directors of Industries (Board) declared
a dividend distribution of one Right for each outstanding common share of
Industries to shareholders of record on March 12, 1990. The Rights are not
currently exercisable. Each Right, when exercisable, would initially entitle
the holder to purchase from Industries one two-hundredth of a share of Series
A Junior Participating Preferred Share, without par value, of Industries at a
price of $30 per one two-hundredth of a share. In certain circumstances, if an
acquirer obtained 25% of Industries' outstanding shares, or merged into
Industries or Industries into the acquirer, the Rights would entitle the
holders to purchase Industries' or the acquirer's common shares for one-half
of the market price. The Rights will not dilute Industries' common shares nor
affect earnings per share unless they become exercisable for common shares.
The Plan was not adopted in response to any specific attempt to acquire
control of Industries.

COMMON SHARE REPURCHASES

The Board has authorized the repurchase of Industries' common shares. At
December 31, 1997, Industries had purchased approximately 44.0 million shares
since 1989 at an average price of $14.18 per share. Approximately 8.0 million
additional common shares may be repurchased under the Board's authorization.
The number of shares purchased, additional shares that may be repurchased and
average price of shares repurchased have been restated to reflect the two-for-
one stock split.

41
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

LONG-TERM INCENTIVE PLAN

Industries has two long-term incentive plans for key management employees
that were approved by shareholders on April 13, 1988 (1988 Plan) and April 13,
1994 (1994 Plan), each of which provides for the issuance of up to 5.0 million
of Industries' common shares to key employees through 1998 and 2004,
respectively. At December 31, 1997, there were 9,156 shares and 3,879,500
shares reserved for future awards under the 1988 Plan and 1994 Plan,
respectively. The 1988 Plan and 1994 Plan permit the following types of
grants, separately or in combination: nonqualified stock options, incentive
stock options, restricted stock awards, stock appreciation rights and
performance units. No incentive stock options or performance units were
outstanding at December 31, 1997. Under both Plans, the exercise price of each
option equals the market price of Industries' common shares on the date of
grant. Each option's maximum term is ten years and vests one year from the
date of grant.

The stock appreciation rights (SARs) may be exercised only in tandem with
stock options on a one-for-one basis and are payable in cash, Industries'
common shares, or a combination thereof. Restricted stock awards are
restricted as to transfer and are subject to forfeiture for specific periods
from the date of grant. Restrictions on shares awarded in 1995 lapse five
years from date of grant and vesting is variable from 0% to 200% of the number
awarded, subject to specific earnings per share and stock appreciation goals.
Restrictions on shares awarded in 1997 and 1996 lapse two years from date of
grant and vesting is variable from 0% to 100% of the number awarded, subject
to specific performance goals. If a participant's employment is terminated
prior to vesting other than by reason of death, disability or retirement,
restricted shares are forfeited. There were 542,666, 524,000 and 661,000
restricted shares outstanding at December 31, 1997, 1996 and 1995,
respectively.

The Industries' Nonemployee Director Stock Incentive Plan, which was
approved by shareholders, provides for the issuance of up to 200,000 of
Industries' common shares to nonemployee directors of Industries. The Plan
provides for awards of common shares which vest in 20% per year increments,
with full vesting after five years. The Plan also allows the award of
nonqualified stock options in the future. If a director's service on the Board
is terminated for any reason other than death or disability, any common shares
not vested as of the date of termination are forfeited. As of December 31,
1997, 65,500 shares were issued under the Plan.

Industries accounts for these plans under Accounting Principles Board
Opinion No. 25, under which no compensation cost has been recognized for
nonqualified stock options. The compensation cost that has been charged
against net income for restricted stock awards was $1.8 million and $2.1
million for the year ending December 31, 1997 and 1996, respectively. Had
compensation cost for stock options been determined consistent with SFAS No.
123 "Accounting for Stock--Based Compensation," Industries' net income and
earnings per average common share would have been reduced to the following pro
forma amounts:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net Income:
As reported.......................................... $190,849 $176,734
Pro forma............................................ 189,999 176,087
Earnings Per Average Common Share:
Basic:
As reported........................................ $ 1.54 $ 1.44
Pro forma.......................................... 1.53 1.43
Diluted:
As reported........................................ $ 1.53 $ 1.43
Pro forma.......................................... 1.52 1.43
</TABLE>

42
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The fair value of each option granted used to determine pro forma net income
is estimated as of the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants in the
years ended December 31, 1997 and 1996, respectively: risk-free interest rate
of 6.29% and 6.39%, expected dividend yield of $0.87 and $0.84 per share,
expected option term of five and one-quarter years and five years and expected
volatility of 12.7% and 13.2%.

Changes in outstanding shares under option and SARs for 1995, 1996 and 1997,
are as follows:

<TABLE>
<CAPTION>
NONQUALIFIED NONQUALIFED STOCK
STOCK OPTIONS OPTIONS WITH SARS
---------------------------- --------------------
YEAR ENDED DECEMBER 31, WEIGHTED AVERAGE OPTION
1995 OPTIONS OPTION PRICE OPTIONS PRICE
----------------------- ---------- ---------------- --------- --------
<S> <C> <C> <C> <C>
Balance at beginning of
year................... 2,181,700 $13.33 19,800 $ 5.47
Granted............... 564,900 $16.20 --
Exercised............. (519,700) $12.34 (8,600) $ 5.47
Cancelled............. (24,800) $12.21 --
---------- ---------
Balance at end of year.. 2,202,100 $14.31 11,200 $ 5.47
========== =========
Shares exercisable...... 1,647,200 $13.68 11,200 $ 5.47
========== =========
Weighted average fair
value of options
granted................ $ 1.95
==========
<CAPTION>
YEAR ENDED DECEMBER 31, WEIGHTED AVERAGE OPTION
1996 OPTIONS OPTION PRICE OPTIONS PRICE
----------------------- ---------- ---------------- --------- --------
<S> <C> <C> <C> <C>
Balance at beginning of
year................... 2,202,100 $14.31 11,200 $ 5.47
Granted............... 556,600 $18.91 --
Exercised............. (368,000) $14.51 --
Cancelled............. (29,800) $16.88 --
---------- ---------
Balance at end of year.. 2,360,900 $15.33 11,200 $ 5.47
========== =========
Shares exercisable...... 1,812,300 $14.25 11,200 $ 5.47
========== =========
Weighted average fair
value of options
granted................ $ 2.50
==========
<CAPTION>
YEAR ENDED DECEMBER 31, WEIGHTED AVERAGE OPTION
1997 OPTIONS OPTION PRICE OPTIONS PRICE
----------------------- ---------- ---------------- --------- --------
<S> <C> <C> <C> <C>
Balance at beginning of
year................... 2,360,900 $15.33 11,200 $ 5.47
Granted............... 533,600 $20.64 --
Exercised............. (330,400) $15.29 --
Cancelled............. (28,700) $19.21 --
---------- ---------
Balance at end of year.. 2,535,400 $16.41 11,200 $ 5.47
========== =========
Shares exercisable...... 2,006,800 $15.30 11,200 $ 5.47
========== =========
Weighted average fair
value of options
granted................ $ 2.66
==========
</TABLE>

43
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table summarizes information about non-qualified stock options
at December 31, 1997:

OPTIONS OUTSTANDING

<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
RANGE OF OUTSTANDING AT REMAINING WEIGHTED AVERAGE
OPTION PRICE DECEMBER 31, 1997 CONTRACTUAL LIFE OPTION PRICE
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
$ 5.47 to $ 8.53 160,600 2.08 years $ 8.34
$11.47 to $15.16 684,000 5.35 years $13.30
$16.59 to $20.64 1,690,800 8.18 years $18.44
---------------- --------- ---------- ------
$ 5.47 to $20.64 2,535,400 7.03 years $16.41
=========
</TABLE>

OPTIONS EXERCISABLE

<TABLE>
<CAPTION>
NUMBER
RANGE OF EXERCISABLE AT WEIGHTED AVERAGE
OPTION PRICE DECEMBER 31, 1997 OPTION PRICE
------------ ----------------- ----------------
<S> <C> <C>
$ 5.47 to $ 8.53 160,600 $ 8.34
$11.47 to $15.16 684,000 $13.30
$16.59 to $18.91 1,162,200 $17.44
---------------- --------- ------
$ 5.47 to $18.91 2,006,800 $15.30
=========
</TABLE>

LONG-TERM DEBT

The sinking fund requirements of long-term debt outstanding at December 31,
1997 (including the maturity of Northern Indiana's first mortgage bonds:
Series T, 7.50%, due April 1, 2002; Northern Indiana's medium-term notes due
from March 20, 2000 to June 12, 2002; and NDC Douglas Properties, Inc.'s notes
payable due December 22, 1999 and August 15, 2002; IWC's first mortgage bonds:
Series 5.20%, due May 1, 2001 and Series 8.00%, due December 15, 2001; and
IWCR's senior notes payable, due March 15, 2001), for each of the four years
subsequent to December 31, 1998 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-----------------------------------------
<S> <C>
1999........................ $ 7,744,133
2000........................ $163,164,203
2001........................ $ 52,697,115
2002........................ $ 63,997,185
</TABLE>

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

Northern Indiana's Indenture dated August 1, 1939, as amended and
supplemented, securing the first mortgage bonds issued by Northern Indiana,
constitutes a direct first mortgage lien upon substantially all property and
franchises, other than expressly excepted property, owned by Northern Indiana.

44
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On May 28, 1997, Northern Indiana was authorized to issue and sell up to
$217,692,000 of its Medium-Term Notes, Series E, with various maturities, for
purposes of refinancing certain first mortgage bonds and medium-term notes. As
of December 31, 1997, $139.0 million of the medium-term notes had been issued
with various interest rates and maturities. The proceeds from these issuances
were used to pay short-term debt incurred to redeem its First Mortgage Bonds,
Series N, and to pay at maturity various issues of Medium-Term Notes, Series
D.

IWC's first mortgage bonds are secured by its utility plant. Provisions of
trust indentures related to the 8% Series Bonds require annual sinking or
improvement payments amounting to 1/2% of the maximum aggregate amount
outstanding. As permitted, this requirement has been satisfied by substituting
a portion of permanent additions to utility plant.

On February 13, 1996, Capital Markets issued $75 million of 7 3/4% Junior
Subordinated Deferrable Interest Debentures, Series A, due March 31, 2026
(Debentures) pursuant to an underwritten public offering. Proceeds from the
sale of the Debentures were used to pay short-term debt incurred to redeem on
January 12, 1996 Industries' $35 million of 8.75% Preferred Shares, pursuant
to mandatory redemption, and to pay other short-term debt of Capital Markets.

Between March 27, 1997 and May 7, 1997, Capital Markets issued and sold $300
million of medium-term notes with various interest rates and maturities. The
proceeds from these issuances were used for the purchase of IWCR and to pay
outstanding short-term obligations of Capital Markets.

On December 1, 1997, Capital Markets issued $75 million of 6.78% Senior
Notes due December 1, 2027. Proceeds from the sale of these notes were
primarily used to pay Capital Markets' Zero Coupon Notes which matured
December 1, 1997. The remaining balance of the proceeds will be used for
Industries' general corporate purposes.

The obligations of Capital Markets are subject to a Support Agreement
between Industries and Capital Markets, under which Industries has committed
to make payments of interest and principal on Capital Markets' obligations in
the event of a failure to pay by Capital Markets. Restrictions in the Support
Agreement prohibit recourse on the part of Capital Markets' creditors against
the stock and assets of Northern Indiana. Under the terms of the Support
Agreement, in addition to the cash flow of cash dividends paid to Industries
by any of its consolidated subsidiaries, the assets of Industries, other than
the stock and assets of Northern Indiana, are available as recourse for the
benefit of Capital Markets' creditors. The carrying value of the assets of
Industries, other than the assets of Northern Indiana, reflected in the
consolidated financial statements of Industries, is approximately $1.3 billion
at December 31, 1997.

45
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CURRENT PORTION OF LONG-TERM DEBT

At December 31, 1997 and 1996, Industries' current portion of long-term debt
due within one year was as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
First mortgage bonds........................... $14,509 $ 25,747
Medium-term notes--
Interest rates between 5.83% and 5.95% with a
weighted average interest rate of 5.86% and
maturities between April 6, 1998 and April
13, 1998.................................... 35,000 40,000
Zero Coupon Notes.............................. -- 67,731
Notes payable--
Interest rates between 6.72% and 9.00% with a
weighted average interest rate of 7.76% and
maturities between January 1, 1998 and
December 22, 1998........................... 3,612 5,033
Term loan facility............................. -- 6,041
Sinking funds due within one year.............. 1,500 1,500
------- --------
Total current portion of long-term debt.... $54,621 $146,052
======= ========
</TABLE>

SHORT-TERM BORROWINGS

Northern Indiana and Capital Markets make use of commercial paper to fund
short-term working capital requirements.

Northern Indiana has a $250 million revolving Credit Agreement with several
banks which terminates August 19, 1999. As of December 31, 1997, there were no
borrowings outstanding under this agreement. In addition, Northern Indiana has
$14.2 million in lines of credit which run to May 31, 1998. The credit pricing
of each of the lines varies from either the lending banks' commercial prime or
market rates. Northern Indiana has agreed to compensate the participating
banks with arrangements that vary from no commitment fees to a combination of
fees which are mutually satisfactory to both parties. As of December 31, 1997,
there were no borrowings under these lines of credit. The Credit Agreement and
lines of credit are also available to support the issuance of commercial
paper.

Northern Indiana also has $273.5 million of money market lines of credit. As
of December 31, 1997 and 1996, $47.5 million and $79.0 million of borrowings
were outstanding under these lines of credit.

Northern Indiana has a $50 million uncommitted finance facility. At December
31, 1997, there were no borrowings outstanding under this facility.

Capital Markets has a $150 million revolving Credit Agreement which will
terminate August 19, 1999. This facility provides short-term financing
flexibility to Industries and also serves as the back-up instrument for a
commercial paper program. As of December 31, 1997, there were no borrowings
outstanding under this agreement.

46
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Capital Markets also has $130 million of money market lines of credit. As of
December 31, 1997 and 1996, $20.1 million and $27.0 million, respectively, of
borrowings were outstanding under these lines of credit.

IWCR and its subsidiaries have lines of credit with banks aggregating $73.7
million. At December 31, 1997, $48.9 million of borrowings were outstanding
under these lines of credit.

At December 31, 1997 and 1996, Industries' short-term borrowings were as
follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial paper--
Weighted average interest rate of 6.32% at
December 31, 1997........................... $ 88,500 $313,205
Notes payable--
Issued at interest rates between 6.03% and
8.50% with a weighted average interest rate
of 6.22% and various maturities between
January 5, 1998 and January 23, 1998........ 116,469 106,000
Standby loan facility.......................... -- 4,949
Revolving loan facility........................ 7,670 1,831
-------- --------
Total short-term borrowings................ $212,639 $425,985
======== ========
</TABLE>

OPERATING LEASES

On April 1, 1990, Northern Indiana entered into a twenty-year agreement for
the rental of office facilities from Development at a current annual rental
payment of approximately $3.4 million.

The following is a schedule, by years, of future minimum rental payments,
excluding those to associated companies, required under operating leases that
have initial or remaining noncancelable lease terms in excess of one year as
of December 31, 1997:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
------------------------ --------------
<S> <C>
1998....................................................... $ 15,245
1999....................................................... 13,968
2000....................................................... 13,499
2001....................................................... 13,287
2002....................................................... 50,106
Later years................................................ 82,647
--------
Total minimum payments required............................ $188,752
========
</TABLE>

The consolidated financial statements include rental expense for all
operating leases as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
------------------------ --------------
<S> <C>
1997..................................................... $8,839
1996..................................................... 8,121
1995..................................................... 8,450
</TABLE>

47
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

COMMITMENTS

Industries estimates that approximately $1.019 billion will be expended for
construction purposes for the period from January 1, 1998 to December 31,
2002. Substantial commitments have been made by the Utilities in connection
with their programs.

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

Northern Indiana has entered into an agreement with IBM to perform all data
center, application development and maintenance and desktop management of
Northern Indiana.

PRIMARY ENERGY

Primary arranges energy-related projects for large energy-intensive
facilities and has entered into certain commitments with these projects.
Primary offers large energy customers, nationwide, expertise in managing the
engineering, construction, operation and maintenance of these energy-related
projects. Primary is the parent of the following subsidiaries: Harbor Coal
Company (Harbor Coal); North Lake Energy Corporation (North Lake); Lakeside
Energy Corporation (LEC); Portside Energy Corporation (Portside); and
Cokenergy, Inc. (CE).

LEC has entered into a lease for the use of a 161-megawatt energy facility
located at USS Gary Works. The facility processes high-pressure steam into
electricity and low-pressure steam for delivery to USX Corporation-US Steel
Group. The fifteen-year tolling agreement with US Steel commenced on April 16,
1997 when the facility was placed in commercial operation. Capital Markets
guarantees LEC's security deposit obligations relative to the lease and
certain limited LEC obligations to the lessor.

Portside has entered into an agreement with National Steel Corporation
(National) to utilize a new 63-megawatt energy facility at National's Midwest
Division to process natural gas into electricity, process steam and heated
water for a fifteen-year period. Portside has entered into a lease with a
third-party lessor for use of the facility. Industries has guaranteed certain
Portside obligations to the lessor. Construction of the project began in June
1996 and the facility began commercial operation on September 26, 1997.

48
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CE has entered into a fifteen-year service agreement with Inland Steel and
the Indiana Harbor Coke Company, LP (Harbor Coke), a subsidiary of Sun
Company, Inc. This agreement provides that CE will utilize a new energy
facility at Inland Steel's Indiana Harbor Works to scrub flue gases and
recover waste heat from the coke facility being constructed by Harbor Coke and
produce process steam and electricity from the recovered heat which will be
delivered to Inland Steel. CE intends to lease these facilities, once
constructed, from a third party. Additionally, CE has entered into an interim
agreement, which expires when the lease is established with the third party
lessor, under which CE is acting as agent to design, construct and start up
the facilities. Capital Markets anticipates guaranteeing certain CE
obligations relative to the anticipated lease. Construction of the project
began in January 1997. The facility is scheduled to be operational in June
1998.

Primary has advanced approximately $107 million and $42 million, at December
31, 1997 and December 31, 1996, respectively, to the lessors of the energy
related projects discussed above. These net advances are included in "Other
Receivables" in the Consolidated Balance Sheet and as a component of operating
activities in the Consolidated Statement of Cash Flows.

PURCHASE OF IWC RESOURCES CORPORATION

On March 25, 1997, Industries acquired all the outstanding common stock of
IWCR for $290.5 million. Industries financed this transaction with debt of
approximately $83.0 million and issuance of approximately 10.6 million
Industries' common shares. Industries accounted for the acquisition as a
purchase. The purchase price was allocated to the assets and liabilities
acquired based on their fair values.

Following is a summary of the assets acquired and liabilities assumed in the
acquisition of IWCR:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Assets acquired:
Utility plant (net of accumulated depreciation)......... $474,845
Other property and investments.......................... 26,526
Other current assets.................................... 34,826
Intangible assets....................................... 63,761
Other noncurrent assets................................. 19,587
--------
619,545
Less Liabilities assumed:
Long-term debt.......................................... 112,185
Preferred stock......................................... 4,497
Short-term borrowings................................... 28,329
Other current liabilities............................... 23,315
Customer advances and contributions in aid of
construction........................................... 86,175
Other noncurrent liabilities............................ 74,507
--------
329,008
--------
Net assets acquired....................................... $290,537
========
</TABLE>

49
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

IWCR's largest subsidiary, IWC, provides water service to approximately
246,600 customers in Indianapolis and adjacent counties. In addition, IWCR
owns an underground utility locating and marking service business and one of
the nation's major gas pipeline construction companies.

PURCHASE OF BAY STATE GAS COMPANY

On December 18, 1997, Industries and Bay State Gas Company (Bay State)
signed a definitive merger agreement under which Industries will acquire all
of the common stock of Bay State in a stock-for-stock transaction valued at
$40 per Bay State share. The transaction is valued at approximately $540
million. Bay State shareholders will have the option of taking up to 50
percent of the total purchase price in cash. Consummation of the merger is
subject to certain closing conditions, including the approval by the
shareholders of Bay State as well as the Securities and Exchange Commission,
FERC and state regulatory agencies in Massachusetts, New Hampshire and Maine.
The transaction is expected to be completed in late 1998.

Bay State, one of the largest natural gas utilities in New England, provides
natural gas distribution service to more than 300,000 customers in
Massachusetts, New Hampshire and Maine. The combined company will be one of
the 10 largest natural gas distribution systems in the nation, servicing more
than 1 million gas customers. In addition, Industries and Bay State anticipate
entering into a joint marketing agreement early in 1998 that will expand the
operations of Bay State's non-regulated energy service companies.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

Cash and cash equivalents: The carrying amount approximates fair value
because of the short maturity of those instruments.

Investments: The fair value of some investments is estimated based on market
prices for those or similar investments.

Long-term debt/Preferred stock: The fair value of long-term debt and
preferred stock is estimated based on the quoted market prices for the same or
similar issues or on the rates offered to Industries for securities of the
same remaining maturities. Certain premium costs associated with the early
settlement of long-term debt are not taken into consideration in determining
fair value.

The carrying values and estimated fair values of Industries' financial
instruments are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents........ $ 30,780 $ 30,780 $ 26,333 $ 26,333
Investments...................... 32,625 32,886 30,003 33,019
Long-term debt (including current
portion)........................ 1,722,546 1,718,897 1,273,158 1,220,492
Preferred stock.................. 146,289 139,814 144,200 126,379
</TABLE>

The majority of the long-term debt relates to utility operations. The
Utilities are subject to regulation and gains or losses may be included in
rates over a prescribed amortization period, if in fact settled at amounts
approximating those above.

50
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

CUSTOMER CONCENTRATIONS

Industries' utility subsidiaries supply natural gas, electric energy and
water. Natural gas and electric energy are supplied to the northern third of
Indiana. The Water Utilities serve central Indiana. Although the Energy
Utilities have a diversified base of residential and commercial customers, a
substantial portion of their electric and gas industrial deliveries are
dependent upon the basic steel industry. The following table shows the basic
steel industry percentage of gas revenue (including transportation services)
and electric revenue for 1997, 1996 and 1995:

<TABLE>
<CAPTION>
BASIC STEEL INDUSTRY 1997 1996 1995
-------------------- ---- ---- ----
<S> <C> <C> <C>
Gas revenue percent........................................ 4% 1% 5%
Electric revenue percent................................... 20% 22% 22%
</TABLE>

51
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

QUARTERLY FINANCIAL DATA
The following data summarize certain operating results for each of the
quarters of 1997 and 1996:
<TABLE>
<CAPTION>
1997 QUARTERS ENDED
------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating revenues.................. $659,950 $523,186 $596,315 $807,090
Operating expenses.................. 531,364 449,238 509,905 685,481
-------- -------- -------- --------
Operating income.................... 128,586 73,948 86,410 121,609
Other income (deductions)........... 6,367 4,518 3,326 408
Interest and other charges.......... 28,071 33,607 34,084 33,536
Income taxes........................ 36,044 16,623 19,783 32,575
-------- -------- -------- --------
Net income.......................... 70,838 28,236 35,869 55,906
Dividend requirements on preferred
shares............................. -- -- -- --
-------- -------- -------- --------
Balance available for common
shareholders....................... $ 70,838 $ 28,236 $ 35,869 $ 55,906
======== ======== ======== ========
Basic earnings per average common
share(a)(b)........................ $ 0.59 $ 0.22 $ 0.28 $ 0.44
======== ======== ======== ========
Diluted earnings per average common
share(a)(b)........................ $ 0.59 $ 0.22 $ 0.28 $ 0.44
======== ======== ======== ========
Market price for the quarter:(a)
High................................ $ 20.125 $ 21.125 $ 21.282 $ 24.938
Low................................. $ 19.000 $ 19.438 $ 20.344 $ 21.063
<CAPTION>
1996 QUARTERS ENDED
------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating revenues.................. $615,421 $398,742 $393,712 $580,074
Operating expenses.................. 479,359 333,390 317,088 471,804
-------- -------- -------- --------
Operating income.................... 136,062 65,352 76,624 108,270
Other income (deductions)........... (43) 2,228 5,338 4,464
Interest and other charges.......... 28,076 28,587 28,645 29,128
Income taxes........................ 40,457 15,564 18,907 32,197
-------- -------- -------- --------
Net income.......................... 67,486 23,429 34,410 51,409
-------- -------- -------- --------
Dividend requirements on preferred
shares............................. 119 -- -- --
-------- -------- -------- --------
Balance available for common
shareholders....................... $ 67,367 $ 23,429 $ 34,410 $ 51,409
======== ======== ======== ========
Basic earnings per average common
share(a)(b)........................ $ 0.54 $ 0.19 $ 0.28 $ 0.42
======== ======== ======== ========
Diluted earnings per average common
share(a)(b)........................ $ 0.54 $ 0.19 $ 0.28 $ 0.42
======== ======== ======== ========
Market price for the quarter:(a)
High................................ $ 19.563 $ 20.125 $ 20.125 $ 19.938
Low................................. $ 17.938 $ 17.625 $ 17.875 $ 17.938
</TABLE>
- --------
(a) Amounts restated to reflect two-for-one stock split.
(b) Because of the combined mathematical effect of common shares repurchased
and issued and the cyclical nature of net income during the year, the sum
of earnings per share for any four quarterly periods may vary slightly
from the earnings per share for the equivalent twelve-month period.

52
<PAGE>

NIPSCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

SEGMENTS OF BUSINESS

Industries' primary businesses provide natural gas, electric energy, water
and energy/utility-related products and services. The reportable items for
these segments for the years 1997, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating information--
Gas operations:
Operating revenues..................... $ 807,239 $ 799,395 $ 691,402
Operating expenses..................... 719,453 702,735 605,805
---------- ---------- ----------
Operating income....................... 87,786 96,660 85,597
---------- ---------- ----------
Electric operations:
Operating revenues..................... 1,017,083 1,022,231 1,030,923
Operating expenses..................... 705,296 721,603 723,159
---------- ---------- ----------
Operating income....................... 311,787 300,628 307,764
---------- ---------- ----------
Water operations:
Operating revenues..................... 60,743 -- --
Operating expenses..................... 42,845 -- --
---------- ---------- ----------
Operating income 17,898 -- --
---------- ---------- ----------
Products and Services operations:
Energy marketing:
Operating revenues................... 533,810 91,869 7,892
Operating expenses................... 533,728 95,499 16,298
---------- ---------- ----------
Operating income..................... 82 (3,630) (8,406)
---------- ---------- ----------
Other:
Operating revenues................... 167,666 74,453 39,091
Operating expenses................... 174,666 81,803 42,169
---------- ---------- ----------
Operating income..................... (7,000) (7,350) (3,078)
---------- ---------- ----------
Total............................... 410,553 386,308 381,877
Other income, net........................ 14,619 11,986 1,471
Less--interest and other charges......... 129,298 114,435 105,986
Less--income taxes....................... 105,025 107,125 101,897
---------- ---------- ----------
Net income per Consolidated Statement of
Income................................... 190,849 176,734 175,465
Dividend requirements on preferred shares. -- 119 3,063
---------- ---------- ----------
Balance available for common shareholders. $ 190,849 $ 176,615 $ 172,402
========== ========== ==========
Other information--
Depreciation and amortization expense:
Electric............................... $ 153,843 $ 146,444 $ 139,432
Gas.................................... 73,017 68,584 61,705
Water.................................. 5,311 -- --
Products and Services.................. 17,633 18,965 5,822
---------- ---------- ----------
Total............................... $ 249,804 $ 233,993 $ 206,959
========== ========== ==========
Construction expenditures:
Electric............................... $ 115,012 $ 146,659 $ 132,273
Gas.................................... 64,009 61,222 60,693
Water.................................. 39,910 -- --
---------- ---------- ----------
Total............................... $ 218,931 $ 207,881 $ 192,966
========== ========== ==========
Investment information--
Identifiable assets(a):
Electric............................... $2,507,905 $2,575,995 $2,586,122
Gas.................................... 965,473 1,006,270 890,192
Water.................................. 510,177 -- --
---------- ---------- ----------
Total............................... 3,983,555 3,582,265 3,476,314
Other corporate assets................... 953,478 706,618 523,206
---------- ---------- ----------
Total assets........................ $4,937,033 $4,288,883 $3,999,520
========== ========== ==========
</TABLE>
- --------
(a) Utility plant less accumulated provision for depreciation and
amortization, materials and supplies, electric production fuel, natural
gas in storage, fuel and gas cost adjustment clauses, unamortized R. M.
Schahfer Units 17 and 18 carrying charges and deferred depreciation,
Bailly scrubber carrying charges and deferred depreciation, and FERC Order
No. 636 transition costs.

53
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of NIPSCO Industries, Inc.:

We have audited the accompanying consolidated balance sheet and consolidated
statements of capitalization and long-term debt of NIPSCO Industries, Inc. (an
Indiana corporation) and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, common shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These consolidated financial statements and the schedules referred to below
are the responsibility of Industries' management. Our responsibility is to
express an opinion on these consolidated financial statements and schedules
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NIPSCO
Industries, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules appearing in Item
14(a)(2) listed on page 61 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 audits 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.

Arthur Andersen LLP

Chicago, Illinois
January 30, 1998

54
<PAGE>

SELECTED SUPPLEMENTAL INFORMATION

<TABLE>
<CAPTION>
GAS STATISTICS
- --------------
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues ($000's):
Residential (including home heating)....... $ 479,461 $ 422,646 $ 407,233
Commercial................................. 164,359 141,193 132,647
Industrial................................. 78,531 70,062 63,355
Gas transported for others................. 43,226 33,536 64,255
Other*..................................... 41,662 131,958 23,912
----------- ----------- -----------
Total.................................... $ 807,239 $ 799,395 $ 691,402
=========== =========== ===========
Deliveries in dth (000's):
Residential (including home heating)....... 79,816 84,146 77,536
Commercial................................. 31,640 32,164 29,268
Industrial................................. 16,989 17,732 16,260
Gas transported for others................. 203,728 194,397 191,571
Other...................................... 14,201 8,263 1,301
----------- ----------- -----------
Total.................................... 346,374 336,702 315,936
=========== =========== ===========
Customers Served--End of Year:
Residential (including home heating)....... 669,833 659,742 648,207
Commercial................................. 55,124 54,300 53,254
Industrial................................. 4,408 4,234 4,185
Other...................................... 84 80 75
----------- ----------- -----------
Total.................................... 729,449 718,356 705,721
=========== =========== ===========
- --------
*Includes deferred gas cost revenue of $(11,075), $95,843 and $11,351,
respectively.

<CAPTION>
ELECTRIC STATISTICS
- -------------------
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues ($000's):
Residential................................ $ 272,619 $ 269,906 $ 276,575
Commercial................................. 253,299 247,808 244,776
Industrial................................. 416,741 428,273 430,579
Street lighting............................ 8,697 8,549 8,428
Sales for resale........................... 44,958 43,272 40,425
Other**.................................... 20,769 24,423 30,140
----------- ----------- -----------
Total.................................... $ 1,017,083 $ 1,022,231 $ 1,030,923
=========== =========== ===========
Sales in kilowatt-hours (000's):
Residential................................ 2,723,990 2,700,234 2,797,247
Commercial................................. 2,974,703 2,886,940 2,863,879
Industrial................................. 8,971,926 9,318,353 9,552,777
Street lighting............................ 57,764 56,413 55,515
Sales for resale........................... 1,178,847 1,678,346 1,574,041
Other...................................... 84,935 100,265 80,894
----------- ----------- -----------
Total.................................... 15,992,165 16,740,551 16,924,353
=========== =========== ===========
Customers Served--End of Year:
Residential................................ 368,907 365,011 360,425
Commercial................................. 43,802 42,911 42,228
Industrial................................. 2,764 2,725 2,697
Other...................................... 861 874 873
----------- ----------- -----------
Total.................................... 416,334 411,521 406,223
=========== =========== ===========
</TABLE>
- --------
**Includes deferred fuel cost revenue of $(5,223), $1,980 and $8,688,
respectively.

55
<PAGE>

<TABLE>
<CAPTION>
WATER STATISTICS
- ----------------
YEAR ENDED
DECEMBER 31,
-----------------
1997 1996 1995
------- ---- ----
<S> <C> <C> <C>
Operating Revenues ($000's):***
Residential................................................. $39,570 $-- $--
Commercial.................................................. 14,763 -- --
Industrial.................................................. 3,015 -- --
Other....................................................... 3,395 -- --
------- ---- ----
Total..................................................... $60,743 $-- $--
======= ==== ====
Sales in millions of gallons (000's):***
Residential................................................. 18,095 -- --
Commercial.................................................. 10,345 -- --
Industrial.................................................. 3,310 -- --
Other....................................................... 3,816 -- --
------- ---- ----
Total..................................................... 35,566 -- --
======= ==== ====
Customers Served--End of Year:
Residential................................................. 225,627 -- --
Commercial.................................................. 17,083 -- --
Industrial.................................................. 347 -- --
Other....................................................... 3,586 -- --
------- ---- ----
Total..................................................... 246,643 -- --
======= ==== ====
</TABLE>
- --------
***Amounts are for the period April 1997 through December 1997.

56
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating Revenues
Gas ($000's)....................... $ 807,239 $ 799,395 $ 691,402
Electric ($000's).................. 1,017,083 1,022,231 1,030,923
Water ($000's)..................... 60,743 -- --
Products and Services ($000's)..... 701,476 166,322 46,983
------------ ------------ ------------
Total Operating Revenues
($000's)........................ $ 2,586,541 $ 1,987,948 $ 1,769,308
Operating Margin ($000's)............ $ 1,210,927 $ 1,115,965 $ 1,074,820
Operating Income ($000's)............ $ 410,553 $ 386,308 $ 381,877
Net Income ($000's).................. $ 190,849 $ 176,734 $ 175,465
Shares outstanding at year end(a).... 124,312,664 119,611,322 124,759,192
Number of common shareholders........ 37,373 35,339 37,299
Basic earnings per average common
share(a)............................ $ 1.54 $ 1.44 $ 1.36
Diluted earnings per average common
share(a)............................ $ 1.53 $ 1.43 $ 1.35
Return on average common equity...... 16.1% 15.9% 15.5%
Times interest earned (pre-tax)...... 3.43 3.55 3.75
Dividends paid per share(a).......... $ 0.90 $ 0.84 $ 0.78
Dividend payout ratio................ 58.4% 58.3% 57.4%
Market values during the year:(a)
High............................... $ 24.938 $ 20.125 $ 19.250
Low................................ $ 19.000 $ 17.625 $ 14.625
Close.............................. $ 24.719 $ 19.813 $ 19.125
Book value of common shares(a)....... $ 10.17 $ 9.20 $ 9.00
Market-to-book ratio at year end(a).. 243.1% 215.4% 212.5%
Total Assets ($000's)................ $ 4,937,033 $ 4,288,883 $ 3,999,520
Utility construction expenditures
($000's)(b)......................... $ 218,931 $ 207,881 $ 192,966
Capitalization:
Common shareholders' equity
($000's).......................... $ 1,264,788 $ 1,100,501 $ 1,122,215
Preferred and preference stock-
Northern Indiana Public Service
Company:
Series without mandatory
redemption provision ($000's). $ 81,123 $ 81,126 $ 81,325
Series with mandatory
redemption provisions
($000's)...................... $ 58,841 $ 61,246 $ 63,651
NIPSCO Industries, Inc.:
Series with mandatory
redemption provision ($000's). $ -- $ -- $ 35,000
Indianapolis Water Company:
Series without mandatory
redemption provision ($000's). $ 4,497 $ -- $ --
Long-Term debt ($000's).............. $ 1,667,925 $ 1,127,106 $ 1,175,728
------------ ------------ ------------
Total Capitalization ($000's).... $ 3,077,174 $ 2,369,979 $ 2,477,919
Number of employees.................. 5,984 4,168 4,356
</TABLE>
- --------
Notes: (a) Amounts restated to reflect two-for-one stock split.
(b) Including AFUDC.

57
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1994 1993 1992 1991
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenues
Gas ($000's)......... $ 681,909 $ 714,229 $ 666,221 $ 601,920
Electric ($000's).... 994,492 963,643 916,135 933,241
Water ($000's)....... -- -- -- --
Products and Services
($000's)............ 91,628 59,387 -- --
------------ ------------ ------------ ------------
Total Operating
Revenues ($000's). $ 1,768,029 $ 1,737,259 $ 1,582,356 $ 1,535,161
Operating Margin
($000's)............... $ 1,014,566 $ 1,001,542 $ 927,089 $ 919,951
Operating Income
($000's)............... $ 353,452 $ 355,918 $ 246,217 $ 254,354
Net Income ($000's).... $ 163,987 $ 156,140 $ 136,648 $ 133,388
Shares outstanding at
year end(a)............ 127,810,778 131,657,676 131,516,700 133,343,230
Number of common
shareholders........... 39,172 41,038 38,097 39,346
Basic earnings per
average common
share(a)............... $ 1.24 $ 1.15 $ 1.00 $ 0.97
Diluted earnings per
average common
share(a).............. $ 1.23 $ 1.15 $ 0.99 $ 0.96
Return on average
common equity.......... 14.6% 14.4% 13.1% 12.9%
Times interest earned
(pre-tax).............. 3.56 3.47 3.17 2.93
Dividends paid per
share(a)............... $ 0.72 $ 0.66 $ 0.62 $ 0.58
Dividend payout ratio.. 58.1% 57.4% 62.0% 59.8%
Market values during
the year:(a)
High................. $ 16.500 $ 17.438 $ 13.313 $ 13.500
Low.................. $ 13.063 $ 13.063 $ 11.250 $ 9.250
Close................ $ 14.875 $ 16.438 $ 13.250 $ 12.875
Book value of common
shares(a).............. $ 8.67 $ 8.31 $ 7.87 $ 7.59
Market-to-book ratio at
year end(a)............ 171.6% 197.8% 168.4% 169.6%
Total Assets ($000's).. $ 3,947,138 $ 3,912,324 $ 3,807,941 $ 3,647,557
Utility construction
expenditures
($000's)(b)............ $ 202,245 $ 180,852 $ 172,329 $ 168,958
Capitalization:
Common shareholders'
equity ($000's)..... $ 1,107,848 $ 1,094,672 $ 1,034,530 $ 1,011,666
Preferred and
preference stock-
Northern Indiana
Public Service
Company:
Series without
mandatory
redemption
provision
($000's)........ $ 86,389 $ 97,753 $ 97,917 $ 98,710
Series with
mandatory
redemption
provisions
($000's)........ $ 66,057 $ 68,462 $ 70,668 $ 53,978
NIPSCO Industries,
Inc.:
Series with
mandatory
redemption
provision
($000's)........ $ 35,000 $ 35,000 $ 35,000 $ 35,000
Indianapolis Water
Company:
Series without
mandatory
redemption
provision
($000's)........ $ -- $ -- $ -- $ --
Long-Term debt
($000's)............... $ 1,180,338 $ 1,192,500 $ 1,054,454 $ 1,068,708
------------ ------------ ------------ ------------
Total
Capitalization
($000's).......... $ 2,475,632 $ 2,488,387 $ 2,292,569 $ 2,268,062
Number of employees.... 4,441 4,602 4,648 4,600
</TABLE>
- -------
Notes: (a) Amounts restated to reflect two-for-one stock split.
(b) Including AFUDC.

58
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1990 1989 1988 1987
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenues
Gas ($000's)......... $ 625,159 $ 677,262 $ 620,723 $ 581,130
Electric ($000's).... 895,836 882,303 903,461 870,499
Water ($000's)....... -- -- -- --
Products and Services
($000's)............ -- -- -- --
------------ ------------ ------------ ------------
Total Operating
Revenues ($000's). $ 1,520,995 $ 1,559,565 $ 1,524,184 $ 1,451,629
Operating Margin
($000's).............. $ 885,262 $ 900,035 $ 863,213 $ 777,573
Operating Income
($000's).............. $ 247,777 $ 252,807 $ 257,923 $ 192,415
Net Income ($000's).... $ 125,361 $ 72,112(c) $ 103,449 $ 38,876
Shares outstanding at
year end(a)........... 137,748,458 138,738,984 146,620,420 146,486,200
Number of common
shareholders.......... 41,285 43,763 47,324 50,074
Basic earnings per
average common
share(a).............. $ 0.90 $ 0.50(c) $ 0.70 $ 0.26
Diluted earnings per
average common
share(a).............. $ 0.89 $ 0.49(c) $ 0.70 $ 0.26
Return on average
common equity......... 12.7% 7.2%(c) 10.4% 4.1%
Times interest earned
(pre-tax)............. 2.81 2.02(c) 2.38 1.65
Dividends paid per
share(a).............. $ 0.52 $ 0.42 $ 0.30 $ 0.08
Dividend payout ratio.. 57.8% 84.0%(c) 42.9% 30.8%
Market values during
the year:(a)
High................. $ 9.625 $ 9.813 $ 7.063 $ 6.500
Low.................. $ 7.875 $ 6.563 $ 4.313 $ 4.000
Close................ $ 9.438 $ 9.688 $ 6.938 $ 4.250
Book value of common
shares(a)............. $ 7.30 $ 6.96 $ 7.02 $ 6.56
Market-to-book ratio at
year end(a)........... 129.3% 139.2% 98.9% 64.8%
Total Assets ($000's).. $ 3,625,181 $ 3,657,718 $ 3,684,721 $ 3,821,690
Utility construction
expenditures
($000's)(b)........... $ 152,280 $ 150,786 $ 116,874 $ 156,750
Capitalization:
Common shareholders'
equity ($000's)..... $ 1,005,982 $ 965,437 $ 1,028,554 $ 961,562
Preferred and
preference stock-
Northern Indiana
Public Service
Company:
Series without
mandatory
redemption
provision
($000's)........ $ 99,374 $ 99,874 $ 99,937 $ 191,392
Series with
mandatory
redemption
provisions
($000's)........ $ 59,358 $ 66,309 $ 75,189 $ 105,395
NIPSCO Industries,
Inc.:
Series with
mandatory
redemption
provision
($000's)........ $ 35,000 $ -- $ -- $ --
Indianapolis Water
Company:
Series without
mandatory
redemption
provision
($000's)........ $ -- $ -- $ -- $ --
Long-Term debt
($000's).............. $ 1,165,682 $ 1,261,760 $ 1,308,303 $ 1,401,326
------------ ------------ ------------ ------------
Total
Capitalization
($000's).......... $ 2,365,396 $ 2,393,380 $ 2,511,983 $ 2,659,675
Number of employees.... 4,547 4,825 4,946 5,172
</TABLE>
- -------
Notes: (a) Amounts restated to reflect two-for-one stock split.
(b) Including AFUDC.
(c) Earnings per share were reduced by $0.36 due to the $82.0 million refund,
less associated tax benefits of $30.3 million, related to the Bailly N1
generating unit.

59
<PAGE>

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information regarding executive officers is included as a supplemental item
at the end of Item 4 of Part I of this Form 10-K.

Information regarding directors is included at pages 2-7 in the Notice of
Annual Meeting and Proxy Statement dated March 9, 1998, for Annual Meeting to
be held April 8, 1998, which information is incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION.

Information regarding executive compensation is included at pages 9-12 and
14-20 in the Notice of Annual Meeting and Proxy Statement dated March 9, 1998,
for Annual Meeting to be held April 8, 1998, which information is incorporated
by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information regarding security ownership of certain beneficial owners and
management is included at pages 8-9 in the Notice of Annual Meeting and Proxy
Statement dated March 9, 1998, for Annual Meeting to be held April 8, 1998,
which information is incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information regarding certain relationships and related transactions is
included at page 7 in the Notice of Annual Meeting and Proxy Statement dated
March 9, 1998, for Annual Meeting to be held April 8, 1998, which information
is incorporated by reference.

PART IV

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

(a) (1) The Financial Statements filed herewith as a part of this report on
Form 10-K are as follows:

Consolidated Financial Statements -
Consolidated Statement of Income for the years ended December 31, 1997,
1996 and 1995
Consolidated Balance Sheet at December 31, 1997 and 1996
Consolidated Statement of Capitalization at December 31, 1997 and 1996
Consolidated Statement of Long-term Debt at December 31, 1997 and 1996
Consolidated Statement of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Consolidated Statement of Common Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Selected Supplemental Information

60
<PAGE>

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

<TABLE>
<CAPTION>
SCHEDULE PAGES OF
NUMBER DESCRIPTION 1997 10-K
-------- ----------- -----------------------
<C> <S> <C>
Condensed Financial Information of
I Registrant.................................. 63, 64, 65, 66, 67 & 68
II Valuation and Qualifying Accounts........... 69, 70, 71
</TABLE>

(3) Exhibits-
The exhibits filed herewith as a part of this report on Form 10-K are
listed on the Exhibit Index included on pages 72-75. Each management
contract or compensatory plan or arrangement of Industries listed on
the Exhibit Index is separately identified by an asterisk.

(b) Reports on Form 8-K
None

61
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, HEREUNTO DULY AUTHORIZED.

NIPSCO Industries, Inc.
(Registrant)

March 24, 1998 /s/ Gary L. Neale
Date ________________________________ By___________________________________
Gary L. Neale, Its Chairman and
President

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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Gary L. Neale Chairman, President,
____________________________________ Principal Executive Officer
Gary L. Neale and Director

/s/ Stephen P. Adik Executive Vice President,
____________________________________ Principal Financial Officer
Stephen P. Adik and Principal Accounting
Officer

/s/ Steven C. Beering Director
____________________________________
Steven C. Beering

/s/ James T. Morris Director
____________________________________
James T. Morris

/s/ Arthur J. Decio Director
____________________________________
Arthur J. Decio

/s/ Ernestine M. Raclin Director March 24, 1998
____________________________________
Ernestine M. Raclin

Director
____________________________________
Denis E. Ribordy

/s/ Ian M. Rolland Director
____________________________________
Ian M. Rolland

/s/ Edmund A. Schroer Director
____________________________________
Edmund A. Schroer

/s/ John W. Thompson Director
____________________________________
John W. Thompson
/s/ Robert J. Welsh Director
____________________________________
Robert J. Welsh
</TABLE>

62
<PAGE>

NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES

SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(DOLLARS IN
THOUSANDS)
ASSETS
------
<S> <C> <C>
Property:
Property in service......................................... $ 2,625 $ 2,620
Construction work in progress............................... 5,147 76
Less: accumulated depreciation.............................. 713 541
---------- ----------
Total property............................................ 7,059 2,155
---------- ----------
Investments (principally investments in wholly-owned subsid-
iaries).................................................... 1,407,789 1,097,173
---------- ----------
Current Assets:
Cash and cash equivalents................................... 6,172 455
Amounts receivable from subsidiaries........................ 85,056 75,508
Prepayments................................................. 21,971 3,647
---------- ----------
Total current assets...................................... 113,199 79,610
---------- ----------
Other (principally notes receivable from associated
companies)................................................... 323,672 303,373
---------- ----------
$1,851,719 $1,482,311
========== ==========
<CAPTION>
CAPITALIZATION AND LIABILITIES
------------------------------
<S> <C> <C>
Capitalization:
Common shares............................................... $ 870,930 $ 870,930
Additional paid-in capital.................................. 89,768 32,868
Retained earnings........................................... 667,790 591,370
Less: Treasury shares....................................... 363,943 392,995
Other..................................................... (1,813) 1,532
Currency translation adjustment........................... 1,570 140
---------- ----------
Total capitalization.................................... 1,264,788 1,100,501
---------- ----------
Current Liabilities:
Dividends declared on common and preferred stock............ 29,535 27,053
Amounts payable to subsidiaries............................. 31,818 30,340
Other....................................................... 2,589 5,085
---------- ----------
Total current liabilities............................... 63,942 62,478
---------- ----------
Other (principally notes payable to associated companies)..... 522,989 319,332
---------- ----------
Commitments and Contingencies (Note 3)
$1,851,719 $1,482,311
========== ==========
</TABLE>

The accompanying notes to condensed financial statements are an integral part
of this statement.

63
<PAGE>

NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES

SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Equity in net earnings of
subsidiaries........................ $ 202,680 $ 185,106 $ 180,827
------------ ------------ ------------
Other income (deductions):
Administrative and general expense. (12,117) (10,167) (9,854)
Interest income.................... 27,272 21,443 15,575
Interest expense................... (37,652) (20,604) (12,274)
Other, net......................... (143) 1,543 (663)
------------ ------------ ------------
(22,640) (7,785) (7,216)
------------ ------------ ------------
Net income before income taxes....... 180,040 177,321 173,611
Income taxes......................... (10,809) 587 (1,854)
------------ ------------ ------------
Net income........................... 190,849 176,734 175,465
Dividend requirements on preferred
shares.............................. -- 119 3,063
------------ ------------ ------------
Balance available for common
shareholders........................ $ 190,849 $ 176,615 $ 172,402
============ ============ ============
Average common shares outstanding--
basic*.............................. 123,849,126 122,381,500 126,562,354
Basic earnings per average common
share*.............................. $ 1.54 $ 1.44 $ 1.36
============ ============ ============
Diluted earnings per average common
share*.............................. $ 1.53 $ 1.43 $ 1.35
============ ============ ============
</TABLE>
- --------
*Amounts restated to reflect two-for-one stock split paid February 20, 1998, to
shareholders of record at the close of business on January 30, 1998.

The accompanying notes to condensed financial statements are an integral part
of this statement.

64
<PAGE>

NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES

SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by operating activities...... $ 147,712 $ 183,867 $ 184,300
--------- --------- ---------
Cash flows provided by (used in) investing
activities:
Acquisition of IWC Resources, net of cash
acquired.................................... (288,932) -- --
Acquisition of minority interest............. (5,641) -- --
Capital expenditures......................... (5,000) (22) (100)
Sale of property............................. (5) 83 935
--------- --------- ---------
Net cash provided by (used in) investing
activities................................ (299,578) 61 835
--------- --------- ---------
Cash flows provided by (used in) financing
activities:
Issuance of common shares.................... 218,566 5,716 7,389
Increase in notes payable to subsidiaries.... 205,396 133,298 41,211
Increase (decrease) in notes receivable from
subsidiaries................................ (21,709) (82,740) (58,479)
Redemption of cumulative preferred shares
with mandatory redemption provisions........ -- (35,000) --
Cash dividends paid on common shares......... (111,593) (103,190) (99,043)
Cash dividends paid on preferred shares...... -- (766) (3,063)
Acquisition of treasury shares............... (133,077) (105,498) (69,183)
--------- --------- ---------
Net cash provided by (used in) financing
activities................................ 157,583 (188,180) (181,168)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................... 5,717 (4,252) 3,967
Cash and cash equivalents at beginning of year. 455 4,707 740
--------- --------- ---------
Cash and cash equivalents at end of year....... $ 6,172 $ 455 $ 4,707
========= ========= =========
</TABLE>

The accompanying notes to condensed financial statements are an integral part
of this statement.

65
<PAGE>

NIPSCO INDUSTRIES, INC. AND SUBSIDIARIES

SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. DIVIDENDS FROM SUBSIDIARIES

Cash dividends paid to NIPSCO Industries, Inc. (Industries) by its
consolidated subsidiaries were (in thousands of dollars): $188,175, $184,750
and $183,475 in 1997, 1996, and 1995, respectively.

2. SUPPORT AGREEMENT

The obligations of NIPSCO Capital Markets, Inc. (Capital Markets) are
subject to a Support Agreement between Industries and Capital Markets, under
which Industries has committed to make payments of interest and principal on
Capital Markets' obligations in the event of a failure to pay by Capital
Markets. Restrictions in the Support Agreement prohibit recourse on the part
of Capital Markets' creditors against the stock and assets of Northern Indiana
Public Service Company (Northern Indiana) which are owned by Industries. Under
the terms of the Support Agreement, in addition to the cash flow of cash
dividends paid to Industries by any of its consolidated subsidiaries, the
assets of Industries, other than the stock and assets of Northern Indiana, are
available as recourse for the benefit of Capital Markets' creditors. The
carrying value of the assets of Industries, other than the assets of Northern
Indiana, reflected in the consolidated financial statements of Industries, was
approximately $1.3 billion at December 31, 1997.

3. CONTINGENCIES

Industries and its subsidiaries are parties to various pending proceedings,
including suits and claims against them for personal injury, death and
property damage. Such proceedings and suits, and the amounts involved are
routine litigation and proceedings for the kinds of businesses conducted by
Industries and its subsidiaries, except as described under the captions "NESI
Energy Marketing Canada Ltd. Litigation," and "Environmental Matters" in the
Notes to Consolidated Financial Statements in Item 8, which notes are
incorporated by reference. No other material legal proceedings against
Industries or its subsidiaries are pending or, to the knowledge of Industries,
contemplated by governmental authorities or other parties.

4. CHANGES IN ACCOUNTING PRINCIPLES

At December 31, 1997, Industries adopted Statement of Financial Accounting
Standards (SFAS) No. 128 "Earnings per Share." As a result of adopting SFAS
No. 128, previously reported earnings per share information has been restated.
The effect of this accounting change on previously reported earnings per share
data is insignificant.

66
<PAGE>

The net income, preferred dividends and shares used to compute basic and
diluted earnings per share is presented in the following table:

<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
BASIC
Weighted Average Number of
Shares:
Average Common Shares
Outstanding............. 123,849,126 122,381,500 126,562,354
================ ================ ================
Net Income to be Used to
Compute Basic Earnings per
Share:
Net Income............... $ 190,849 $ 176,734 $ 175,465
Dividend requirements on
Preferred Shares........ -- 119 3,063
---------------- ---------------- ----------------
Balance Available for
Common Shareholders..... $ 190,849 $ 176,615 $ 172,402
================ ================ ================
Basic Earnings per Common
Share..................... $ 1.54 $ 1.44 $ 1.36
================ ================ ================
DILUTED
Weighted Average Number of
Shares:
Average Common Shares
Outstanding............. 123,849,126 122,381,500 126,562,354
Dilutive effective for
Nonqualified Stock
Options................. 374,344 323,367 238,286
---------------- ---------------- ----------------
Weighted Average Shares.. 124,223,470 122,704,867 126,800,640
================ ================ ================
Net Income to be Used to
Compute Diluted Earnings
per Share:
Net Income............... $ 190,849 $ 176,734 $ 175,465
Dividend requirements on
Preferred Shares........ -- 119 3,063
---------------- ---------------- ----------------
Balance Available for
common Shareholders..... $ 190,849 $ 176,615 $ 172,402
================ ================ ================
Diluted Earnings per Common
Share..................... $ 1.53 $ 1.43 $ 1.35
================ ================ ================
</TABLE>

5. STOCK SPLIT

On December 16, 1997, the Board of Directors authorized a two-for-one split
of Industries' common stock. Shareholders received one additional common share
for each common share held. The stock split was paid February 20, 1998, to
shareholders of record at the close of business on January 30, 1998. All
references to number of shares reported for the period including per share
amounts and stock option data of Industries' common stock have been restated
to reflect the two-for-one stock split. The common share cash dividend paid
February 20, 1998 was paid on pre-split common shares.

6. PURCHASE OF IWC RESOURCES CORPORATION

7. PURCHASE OF BAY STATE GAS COMPANY

On December 18, 1997, Industries and Bay State Gas Company (Bay State)
signed a definitive merger agreement under which Industries will acquire all
of the common stock of Bay State in a stock-for-stock transaction valued at
$40 per Bay State share. The transaction is valued at approximately $540
million. Bay State shareholders will have the option of taking up to 50
percent of the total purchase price in cash. Consummation of the merger is
subject to certain closing conditions, including the approval by the
shareholders of Bay State as well as the Securities and Exchange Commission,
FERC and state regulatory agencies in Massachusetts, New Hampshire and Maine.
The transaction is expected to be completed in late 1998.

67
<PAGE>

68
<PAGE>

NIPSCO INDUSTRIES, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

TWELVE MONTHS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------- ----------------------- ------------ --------
ADDITIONS
----------------------- DEDUCTIONS
CHARGED FOR PURPOSES
BALANCE TO CHARGED FOR WHICH BALANCE
JAN. 1, (A) COSTS AND TO OTHER RESERVES DEC. 31,
DESCRIPTION 1997 IWCR EXPENSES ACCOUNTS WERE CREATED 1997
----------- ------- ---- --------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Reserves Deducted in
Consolidated Balance
Sheet from Assets to
Which They Apply:
Reserve for accounts
receivable........... $ 5,569 $ 25 $6,573 -- $6,280 $ 5,887
Reserve for
investments, at
equity............... $ 1,953 $-- $ -- -- $ 191 $ 1,762
Reserve for
investments, at cost. $ -- $-- $ -- -- $ -- $ --
Reserves Classified
Under Reserve Section
of Consolidated Balance
Sheet:
Injuries and damages
reserve.............. $ 4,376 $757 $6,603 -- $5,237 $ 6,499
Environmental
reserves............. $16,789 $-- $9,489 -- $6,912 $19,366
Miscellaneous
operating reserves... $ 4,471 $-- $ 30 -- $ 573 $ 3,928
</TABLE>
- --------
(a) Industries acquired IWCR in March 1997.

69
<PAGE>

NIPSCO INDUSTRIES, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

TWELVE MONTHS ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------- ------------------ ------------ --------
ADDITIONS
------------------
DEDUCTIONS
CHARGED FOR PURPOSES
BALANCE TO CHARGED FOR WHICH BALANCE
JAN. 1, COSTS AND TO OTHER RESERVES DEC. 31,
DESCRIPTION 1996 EXPENSES ACCOUNTS WERE CREATED 1996
----------- ------- --------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Reserves Deducted in
Consolidated Balance Sheet
from Assets to Which They
Apply:
Reserve for accounts
receivable................ $7,264 $ 6,912 $ -- $8,607 $ 5,569
Reserve for investments, at
equity.................... $ 850 $ 1,103 $ -- $ -- $ 1,953
Reserves Classified Under
Reserve Section of
Consolidated Balance Sheet:
Injuries and damages
reserve................... $1,837 $ 4,875 $ -- $2,336 $ 4,376
Environmental reserves..... $5,006 $15,862 $ -- $4,079 $16,789
Miscellaneous operating
reserves.................. $4,091 $ 380 $ -- $ -- $ 4,471
</TABLE>

70
<PAGE>

NIPSCO INDUSTRIES, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

TWELVE MONTHS ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ------- ------------------ ------------ --------
ADDITIONS
------------------ DEDUCTIONS
CHARGED FOR PURPOSES
BALANCE TO CHARGED FOR WHICH BALANCE
JAN. 1, COSTS AND TO OTHER RESERVES DEC. 31,
DESCRIPTION 1995 EXPENSES ACCOUNTS WERE CREATED 1995
----------- ------- --------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Reserves Deducted in
Consolidated Balance Sheet
from Assets to Which They
Apply:
Reserve for accounts
receivable................ $4,899 $6,759 $-- $4,394 $7,264
Reserve for investments, at
equity.................... $2,850 $ -- $-- $2,000 $ 850
Reserves Classified Under
Reserve Section of
Consolidated Balance Sheet:
Injuries and damages
reserve................... $2,538 $2,800 $-- $3,501 $1,837
Environmental reserves..... $3,610 $3,188 $-- $1,792 $5,006
Miscellaneous operating
reserves.................. $4,061 $ 30 $-- $ -- $4,091
</TABLE>

71
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF ITEM
------- -------------------
<C> <S> <C>
(2) Agreement and Plan of Merger dated as of December 19, 1996, by
and among NIPSCO Industries, Inc., Speedway Acquisition Corp.
and IWC Resources Corporation (incorporated by reference to
Annex A of the Proxy Statement-Prospectus contained in NIPSCO
Industries, Inc. Registration Statement on Form S-4
(Registration Statement No. 333-22065)).
(2.1) Amended and Restated Agreement and Plan of Merger, as of
December 18, 1997, amended and restated as of March 4, 1998,
between NIPSCO Industries, Inc. and Bay State Gas Company.
(3.1) Articles of Incorporation of September 22, 1987, as amended
through April 9, 1997 (incorporated by reference to Exhibit
3(b) to the NIPSCO Industries, Inc. Quarterly Report on Form
10-Q for the quarter ended March 31, 1997).
(3.2) By-laws effective April 9, 1997 (incorporated by reference to
Exhibit 3(a) to the NIPSCO Industries, Inc. Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997).
(4.1) Indenture dated August 1, 1939 between Northern Indiana Public
Service Company (Northern Indiana) and Trustees (incorporated
by reference to Exhibit 7 to Northern Indiana Registration
Statement (Registration No. 2-5178)).
(4.2) Third Supplemental Indenture dated August 1, 1943
(incorporated by reference to Exhibit 7-C to Northern Indiana
Registration Statement (Registration No. 2-5178)).
(4.3) Nineteenth Supplemental Indenture dated October 1, 1968
(incorporated by reference to Exhibit 1 to Northern Indiana
Current Report on Form 8-K dated November 8, 1968).
(4.4) Twenty-third Supplemental Indenture dated March 31, 1972
(incorporated by reference to Exhibit 2 to Northern Indiana
Current Report on Form 8-K dated May 5, 1972).
(4.5) Thirty-third Supplemental Indenture dated June 1, 1980
(incorporated by reference to Exhibit 1 to Northern Indiana
Quarterly Report on Form 10-Q for the quarter ended June 30,
1980).
(4.6) Forty-first Supplemental Indenture dated July 1, 1991
(incorporated by reference to Exhibit 1 to Northern Indiana
Current Report on Form 8-K dated March 25, 1992).
(4.7) Indenture dated as of March 1, 1988 between Northern Indiana
and Manufacturers Hanover Trust Company, as Trustee
(incorporated by reference to Exhibit 4 to Northern Indiana
Registration Statement (Registration No. 33-44193)).
(4.8) Indenture dated as of December 1, 1991 between Northern
Indiana and Manufacturers Hanover Trust Company, as Trustee
(incorporated by reference to Exhibit 4.1 to Northern Indiana
Registration Statement (Registration No. 33-63870)).
(4.9) Memorandum of Agreement with City of Michigan City, Indiana
(incorporated by reference to Exhibit 7 to Northern Indiana
Registration Statement (Registration No. 2-48531)).
(4.10) Financing Agreement No. 1 dated November 1, 1988 with Jasper
County, Indiana regarding $37,000,000 Series 1988A Pollution
Control Refunding Revenue Bonds. Identical financing
agreements between Registrant and Jasper County, Indiana
provide for the issuance of $47,000,000 Series 1988B,
$46,000,000 Series 1988C and $24,000,000 Series 1988D
Pollution Control Refunding Revenue Bonds (incorporated by
reference to Exhibit 8 to Northern Indiana Current Report on
Form 8-K dated March 16, 1989).
(4.11) Financing Agreement dated July 1, 1991, with Jasper County,
Indiana regarding $55,000,000 Series 1991 Collateralized
Pollution Control Refunding Revenue Bonds (incorporated by
reference to Exhibit 3 to Northern Indiana Current Report on
Form 8-K dated March 25, 1992).
</TABLE>

72
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF ITEM
------- -------------------
<C> <S> <C>
(4.12) Financing Agreement dated August 1, 1994, with Jasper County,
Indiana regarding $10,000,000 Series 1994A, $18,000,000 Series
1994B and $41,000,000 Series 1994C Pollution Control Refunding
Revenue Bonds (incorporated by reference to Exhibit 4.16 to
Northern Indiana Annual Report on Form 10-K for year ended
December 31, 1994).
(4.13) Indenture between Registrant, NIPSCO Capital Markets, Inc. and
Chemical Bank as Trustees dated February 1, 1996 (incorporated
by reference to Exhibit 1 to NIPSCO Industries, Inc.
Registration Statement (Registration No. 33-65285)).
(4.14) Rights Agreement between Registrant and Harris Trust and
Savings Bank, dated February 27, 1990 (incorporated by
reference to Exhibit 4.1 to the NIPSCO Industries, Inc.
Current Report on Form 8-K dated March 7, 1990).
(4.15) Indenture Agreement between Registrant, NIPSCO Capital
Markets, Inc. and Chase Manhattan Bank as trustee dated
February 14, 1997 (incorporated by reference to Exhibit 4.1 to
NIPSCO Industries, Inc. Registration Statement (Registration
No. 333-22347)).
(4.16) Eleventh Supplemental Indenture dated as of December 1, 1971
(incorporated by reference to Exhibit 4-B6 to IWC's Annual
Report on Form 10-K for the year ended December 31, 1980).
(4.17) Seventeenth Supplemental Indenture dated as of March 1, 1989,
between Fidelity Bank, National Association and IWC
(incorporated by reference to Exhibit 4-A9 to IWCR's Annual
Report on Form 10-K for the year ended December 31, 1988).
(4.18) Eighteenth Supplemental Indenture dated as of March 1, 1989,
between Fidelity Bank, National Association and IWC
(incorporated by reference to Exhibit 4-A10 to IWCR's Annual
Report on Form 10-K for the year ended December 31, 1988).
(4.19) Ninteenth Supplemental Indenture dated as of June 1, 1989,
between Fidelity Bank, National Association and IWC
(incorporated by reference to Exhibit 4-A9 to IWCR's
Registration Statement (Registration No. 33-43939)).
(4.20) Fourteenth Supplemental Indenture dated as of January 15,
1978, between the Fidelity Bank, and IWC, including as
Appendix A the "Restatement of Principal Indenture of
Indianapolis Water Company," which, except as otherwise
specified, restates the granting clauses and all other
sections contained in the First Mortgage dated July 1, 1936,
between Fidelity-Philadelphia Trust Company and Registrant as
amended by the Fourth, Fifth, Sixth, Eighth, Twelfth and
Fourteenth Supplemental Indentures (incorporated by reference
to Exhibit 4-B1 to IWC's Annual Report on Form 10-K for the
year ended December 31, 1980).
(4.21) Twentieth Supplemental Indenture dated as of December 1, 1992,
between Fidelity Bank, National Association and IWC
(incorporated by reference to Exhibit 4-A9 to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1992).

(4.22) Twenty-First Supplemental Indenture dated as of December 1,
1992, between Fidelity Bank, National Association and IWC
(incorporated by reference to Exhibit 4-A10 to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1992).
(4.23) Rights Agreement, dated as of February 9, 1988, between IWCR
and Bank One, Indianapolis, NA, as Rights Agent, which
includes the Form of Certificate of Designations of Series A
Junior Participating Preferred Stock as Exhibit A, the Form of
Right Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C (incorporated by
reference to Exhibit 4 to the IWCR's Current Report on Form 8-
K dated February 9, 1988).
</TABLE>

73
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF ITEM
------- -------------------
<C> <S> <C>
(4.24) Indenture of Trust dated as of March 1, 1989, between IWC,
City of Indianapolis, Indiana, and Merchants National Bank &
Trust Company of Indianapolis, as Trustee (incorporated by
reference to Exhibit 10-F to IWCR's Annual Report on Form 10-K
for the year ended December 31, 1988).
(4.25) Indenture of Trust dated as of March 1, 1989, between IWC,
Town of Fishers, Indiana, and Merchants National Bank & Trust
Company of Indianapolis, as Trustee (incorporated by reference
to Exhibit 10-G to IWCR's Annual Report on Form 10-K for the
year ended December 31, 1988).
(4.26) Indenture of Trust dated as of December 1, 1992, between City
of Indianapolis, Indiana, and IWC to National City Bank,
Indiana, as Trustee (incorporated by reference to Exhibit 10-J
to IWCR's Annual Report on Form 10-K for the year ended
December 31, 1992).
(4.27) Indenture of Trust, City of Indianapolis, Indiana, and IWC to
National City Bank, Indiana, as Trustee, dated as of April 1,
1993 (incorporated by reference to Exhibit 4.14 to IWCR's
Annual Report on Form 10-K for the year ended December 31,
1993).
(4.28) Twenty-Second Supplemental Indenture dated as of April 1,
1993, between IWC and Fidelity Bank, National Association
(incorporated by reference to Exhibit 4.15 to IWCR's Annual
Report on Form 10-K for the year ended December 31, 1993).
(10.1) Supplemental Life Insurance Plan effective January 1, 1991
(incorporated by reference to Exhibit 2 to the NIPSCO
Industries, Inc. Current Report on Form 8-K dated March 25,
1992).*
(10.2) Executive Deferred Compensation Plan effective December 1,
1990 (incorporated by reference to Exhibit 3 to the NIPSCO
Industries, Inc. Current Report on Form 8-K dated March 25,
1992).*
(10.3) Form of Change in Control and Termination Agreements and
Schedule of Parties to the Agreements.*
(10.4) Nonemployee Director Stock Incentive Plan effective February
1, 1992 (incorporated by reference to Exhibit 5 to the NIPSCO
Industries, Inc. Current Report on Form 8-K dated March 25,
1992).*
(10.5) First Amendment to Nonemployee Director Stock Incentive Plan,
effective December 16, 1997.
(10.6) NIPSCO Industries, Inc. 1988 Long-Term Incentive Plan
(incorporated by reference to Exhibit 6 to the NIPSCO
Industries, Inc. Current Report on Form 8-K dated March 5,
1992).*
(10.7) First Amendment to NIPSCO Industries, Inc. 1988 Long-Term
Incentive Plan effective August 24, 1993.*
(10.8) Second Amendment to NIPSCO Industries, Inc. 1988 Long-Term
Incentive Plan effective December 16, 1997.*
(10.9) Amended and Restated Pension Plan Provisions effective January
1, 1989 (incorporated by reference to Exhibit 17 to Northern
Indiana Current Report on Form 8-K dated March 25, 1992).*
(10.10) NIPSCO Industries, Inc. 1994 Long-Term Incentive Plan*
(incorporated by reference to Exhibit 10.8 to NIPSCO
Industries Annual Report on Form 10-K for the year ended
December 31, 1995).
(10.11) Amendment to NIPSCO Industries, Inc. 1994 Long-Term Incentive
Plan effective December 16, 1997.*
(10.12) NIPSCO Industries, Inc. Directors' Charitable Gift Program*
(incorporated by reference to Exhibit 10.8 to NIPSCO
Industries Annual Report on Form 10-K for the year ended
December 31, 1996).
</TABLE>

74
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF ITEM
------- -------------------
<C> <S> <C>
(10.13) Employment Agreement between IWCR and James T. Morris, dated
March 25, 1997.*
(10.14) Executive Supplemental Pension Agreement between IWCR and
James T. Morris, dated January 13, 1998.*
(10.15) Agreement dated October 18, 1971, between IWC and Department
of Public Works of the City of Indianapolis, Indiana,
regarding the purchase of water at Eagle Creek Reservoir
(incorporated by reference to Exhibit 5 to IWC's Registration
Statement (Registration Statement No. 2-55201)).
(10.16) Loan Agreement dated as of March 1, 1989, between IWC and the
City of Indianapolis, Indiana (incorporated by reference to
Exhibit 10-D to IWCR's Annual Report on Form 10-K for the year
ended December 31, 1988).
(10.17) Loan Agreement dated as of March 1, 1989, between IWC and Town
of Fishers, Indiana (incorporated by reference to Exhibit 10-E
to IWCR's Annual Report on Form 10-K for the year ended
December 31, 1988).
(10.18) Guaranty Agreement dated as of March 1, 1989, between IWCR and
Merchants National Bank and Trust Company of Indianapolis
regarding City of Indianapolis, Indiana Industrial Development
Bonds (incorporated by reference to Exhibit 10-H to IWCR's
Annual Report on Form 10-K for the year ended December 31,
1988).
(10.19) Guaranty Agreement dated as of March 1, 1989, between IWCR and
Merchants National Bank & Trust Company of Indianapolis
regarding Town of Fishers, Indiana Industrial Development
Bonds (incorporated by reference to Exhibit 10-I to IWCR's
Annual Report on Form 10-K for the year ended December 31,
1988).
(10.20) Loan Agreement dated as of December 1, 1992, between IWC and
City of Indianapolis, Indiana (incorporated by reference to
Exhibit 10-K to IWCR's Annual Report on Form 10-K for the year
ended December 31, 1992).
(10.21) Guaranty Agreement dated as of December 1, 1992, between IWCR
and National City Bank, Indiana, as Trustee (incorporated by
reference to Exhibit 10-L to IWCR's Annual Report on Form 10-K
for the year ended December 31, 1992).
(10.22) Note Agreement dated as of March 1, 1994, between IWCR and
American United Life Insurance Company (incorporated by
reference to Exhibit 10.10 to IWCR's Annual Report on Form 10-
K for the year ended December 31, 1993).
(10.23) Loan Agreement dated as of April 1, 1993, between IWC and the
City of Indianapolis (incorporated by reference to Exhibit
10.11 to IWCR's Annual Report on Form 10-K for the year ended
December 31, 1993).
(10.24) Guaranty Agreement between IWCR and National City Bank,
Indiana, as Trustee, dated as of April 1, 1993 (incorporated
by reference to Exhibit 10.12 to IWCR's Annual Report on Form
10-K for the year ended December 31, 1993).
(13) 1997 Annual Report to Shareholders for pages 22-28.
(21) List of Subsidiaries.
(23) Consent of Arthur Andersen LLP.
</TABLE>
- --------
*Management contract or compensatory plan arrangement of NIPSCO Industries Inc.

<PAGE>

EXHIBIT 2.1

AMENDED AND RESTATED

AGREEMENT AND PLAN OF MERGER

by and between

NIPSCO INDUSTRIES, INC.

and

BAY STATE GAS COMPANY

dated as of December 18, 1997

and

amended and restated as of March 4, 1998

A-i
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
THE MERGER................................................................. A-1
1.1 The Merger........................................................... A-1
1.2 The Alternative Merger............................................... A-1
1.3 Closing.............................................................. A-2
1.4 Effective Time....................................................... A-2
1.5 Articles of Organization............................................. A-2
1.6 By-Laws.............................................................. A-2
1.7 Directors............................................................ A-2
1.8 Officers............................................................. A-2

ARTICLE II
CONVERSION OF SHARES....................................................... A-3
2.1 Conversion of Acquisition Shares..................................... A-3
2.2 Conversion of Company Shares......................................... A-3
2.2.1 Outstanding Shares of Company Common Stock.................... A-3
2.2.2 Cash Election................................................. A-4
2.2.3 Cash Election Shares.......................................... A-4
2.2.4 Form of Election.............................................. A-4
2.2.5 Deemed Non-Election........................................... A-4
2.2.6 Election Deadline............................................. A-4
2.2.7 Treasury Shares............................................... A-4
2.2.8 Adjustment Per Tax Opinion.................................... A-4
2.2.9 Adjustments to Prevent Dilution............................... A-4
2.3 Exchange of Certificates and Related Matters......................... A-4
2.3.1 Paying Agent.................................................. A-4
2.3.2 Letter of Transmittal......................................... A-5
2.3.3 Exchange Procedures........................................... A-5
2.3.4 Distributions with Respect to Unexchanged Shares.............. A-5
2.3.5 No Further Ownership Rights in Company Shares................. A-6
2.3.6 No Fractional Shares.......................................... A-6
2.3.7 Termination of Paying Agent................................... A-6
2.3.8 No Liability.................................................. A-6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................. A-6
3.1 Organization, Standing and Corporate Power........................... A-7
3.2 Capital Structure.................................................... A-7
3.3 Subsidiaries......................................................... A-7
3.4 Authority; Noncontravention.......................................... A-8
3.5 SEC Documents and Financial Statements............................... A-9
3.6 Absence of Certain Changes or Events................................. A-9
3.7 Real and Personal Property........................................... A-10
3.8 Employee Matters; ERISA.............................................. A-10
3.9 Taxes................................................................ A-13
3.9.1 Filing of Timely Tax Returns.................................. A-13
3.9.2 Payment of Taxes.............................................. A-13
3.9.3 Tax Reserves.................................................. A-13
3.9.4 Tax Liens..................................................... A-13
</TABLE>

A-ii
<PAGE>

<TABLE>
<CAPTION> Page
----
<S> <C>
3.9.5 Withholding Taxes............................................... A-13
3.9.6 Extensions of Time for Filing Tax Returns....................... A-13
3.9.7 Waivers of Statute of Limitations............................... A-13
3.9.8 Expiration of Statute of Limitations............................ A-14
3.9.9 Audit Administrative and Court Proceedings...................... A-14
3.9.10 Powers of Attorney.............................................. A-14
3.9.11 Tax Rulings..................................................... A-14
3.9.12 Availability of Tax Returns..................................... A-14
3.9.13 Tax-Sharing Agreements.......................................... A-14
3.9.14 Code Section 341(f)............................................. A-14
3.9.15 Code Section 168................................................ A-14
3.9.16 Code Section 481 Adjustments.................................... A-14
3.9.17 Code Section 6661 and 6662...................................... A-14
3.9.18 Code Section 280G............................................... A-14
3.9.19 NOLS............................................................ A-14
3.9.20 Credit Carryovers............................................... A-15
3.9.21 Code Section 338 Elections...................................... A-15
3.9.22 Acquisition Indebtedness........................................ A-15
3.9.23 Intercompany Transactions....................................... A-15
3.9.24 Liability for Others............................................ A-15
3.10 Compliance with Applicable Laws..................................... A-15
3.11 Environmental Protection............................................ A-15
3.12 Litigation.......................................................... A-17
3.13 Labor Relations..................................................... A-17
3.14 Intellectual Property............................................... A-18
3.15 No Default.......................................................... A-19
3.16 Regulation as a Utility............................................. A-19
3.17 Insurance........................................................... A-19
3.18 Voting Requirements................................................. A-19
3.19 Brokers............................................................. A-19
3.20 Opinion of Financial Advisor........................................ A-19
3.21 Change in Business Relationships.................................... A-19
3.22 Material Contracts.................................................. A-20
3.23 Commodity Derivatives and Credit Exposure Matters................... A-20
3.24 No Omissions........................................................ A-20

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NIPSCO................................... A-20
4.1 Organization, Standing and Corporate Power........................... A-21
4.2 Nipsco Capital Structure............................................. A-21
4.3 Subsidiaries......................................................... A-21
4.4 Authority; Noncontravention.......................................... A-21
4.5 Nipsco SEC Documents and Financial Statements........................ A-22
4.6 Absence of Certain Changes or Events................................. A-22
4.7 Employee Matters; ERISA.............................................. A-22
4.8 Taxes................................................................ A-22
4.8.1 Filing of Timely Tax Returns.................................. A-22
4.8.2 Payment of Taxes.............................................. A-22
4.9 Environmental Matters................................................ A-22
4.9.1 Environmental Matters......................................... A-22
4.10 Brokers.............................................................. A-23
</TABLE>

A-iii
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.11 No Omissions...................................................... A-23
4.12 Regulation as a Utility........................................... A-23
4.13 Compliance........................................................ A-23

ARTICLE V
ADDITIONAL AGREEMENTS................................................... A-23
5.1 Preparation of Registration Statement and Proxy Statement......... A-23
5.1.1 Registration Statement; Proxy Statement....................... A-24
5.1.2 Company Information........................................... A-24
5.1.3 Nipsco Information............................................ A-24
5.2 Meeting of the Company's Shareholders............................. A-24
5.3 Affiliates and Certain Shareholders............................... A-26
5.4 Best Efforts...................................................... A-26
5.5 Letter of the Company's Accountants............................... A-26
5.6 Letter of Nipsco's Accountants.................................... A-26
5.7 Access to Information; Confidentiality............................ A-26
5.8 Public Announcements.............................................. A-27
5.9 Acquisition Proposals............................................. A-27
5.10 Fiduciary Duties.................................................. A-27
5.11 Filings; Other Action............................................. A-28
5.11.1 HSR Act....................................................... A-28
5.11.2 Other Regulatory Approvals.................................... A-28
5.11.3 Other Approvals............................................... A-28
5.12 Stock Exchange Listings........................................... A-28
5.13 Indemnification................................................... A-28
5.14 Representation on Nipsco Board.................................... A-29
5.15 Cooperation, Notification......................................... A-29
5.16 Termination of Company Dividend Reinvestment Plan................. A-29
5.17 Federal Income Tax Treatment...................................... A-29
5.18 Termination of Shareholder Rights Plan............................ A-29
5.19 Actions Relating to Acquisition................................... A-29
5.20 Recognition of Existing Contracts................................. A-29
5.21 Redemption of Company Preferred Stock............................. A-29
5.22 Company Stock Options............................................. A-29

ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER............... A-30
6.1 Conduct of Business of Company Pending the Merger................. A-30
6.1.1 Ordinary Course of Business................................... A-30
6.1.2 Dividends; Changes in Stock................................... A-30
6.1.3 Issuance of Securities........................................ A-31
6.1.4 Capital Expenditures.......................................... A-31
6.1.5 No Acquisitions............................................... A-31
6.1.6 No Dispositions............................................... A-31
6.1.7 No Dissolution, Etc........................................... A-31
6.1.8 Limitation on Investment in Joint Ventures.................... A-31
6.1.9 Certain Employee Matters...................................... A-31
6.1.10 Indebtedness; Leases.......................................... A-32
6.1.11 Governing Documents........................................... A-32
6.1.12 Accounting.................................................... A-32
6.1.13 Rate Matters.................................................. A-32
6.1.14 Gas Transmission and Storage.................................. A-32
</TABLE>

A-iv
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.1.15 Contracts..................................................... A-33
6.1.16 Insurance..................................................... A-33
6.1.17 Permits....................................................... A-33
6.1.18 Discharge of Liabilities...................................... A-33
6.1.19 1935 Act...................................................... A-33
6.1.20 Tax Matters................................................... A-33
6.1.21 Tax Status.................................................... A-33
6.2 Management of the Company and its Subsidiaries.................... A-33
6.3 Conduct of Business of Nipsco Pending the Merger.................. A-33
6.4 Other Actions..................................................... A-33

ARTICLE VII
CONDITIONS PRECEDENT.................................................... A-34
7.1 Conditions to Each Party's Obligation to Effect the Merger........ A-34
7.1.1 Company Shareholder Approval.................................. A-34
7.1.2 Governmental and Regulatory Consents.......................... A-34
7.1.3 HSR Act....................................................... A-34
7.1.4 No Injunctions or Restraints.................................. A-34
7.1.5 NYSE Listing.................................................. A-34
7.1.6 Registration Statement........................................ A-34
7.1.7 Share Purchase Rights......................................... A-34
7.2 Conditions to Obligations of Nipsco............................... A-34
7.2.1 Representations and Warranties................................ A-34
7.2.2 Performance of Obligations of the Company..................... A-34
7.2.3 Tax Opinion................................................... A-35
7.2.4 Consents and Approvals........................................ A-35
7.3 Conditions to Obligation of the Company........................... A-35
7.3.1 Representations and Warranties................................ A-35
7.3.2 Performance of Obligations of Nipsco.......................... A-35
7.3.3 Tax Opinion................................................... A-35
7.3.4 Consents and Approvals........................................ A-35

ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER....................................... A-35
8.1 Termination....................................................... A-35
8.2 Effect of Termination............................................. A-36
8.3 Amendment......................................................... A-37
8.4 Extension; Waiver................................................. A-37
8.5 Procedure for Termination, Amendment, Extension or Waiver......... A-37

ARTICLE IX
SURVIVAL OF PROVISIONS.................................................. A-37
9.1 Survival.......................................................... A-37

ARTICLE X
NOTICES................................................................. A-37
10.1 Notices........................................................... A-37
</TABLE>

A-v
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE XI
MISCELLANEOUS............................................................ A-38
11.1 Entire Agreement................................................... A-38
11.2 Expenses........................................................... A-39
11.3 Counterparts....................................................... A-39
11.4 No Third Party Beneficiary......................................... A-39
11.5 Governing Law...................................................... A-39
11.6 Assignment; Binding Effect......................................... A-39
11.7 Headings, Gender, etc.............................................. A-39
11.8 Invalid Provisions................................................. A-39
</TABLE>

A-vi
<PAGE>

AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER

This Amended and Restated Agreement and Plan of Merger (the "Agreement") is
made and entered into as of the 18th day of December, 1997, and amended and
restated as of the 4th day of March, 1998, by and among NIPSCO Industries,
Inc., an Indiana corporation ("Nipsco"), and Bay State Gas Company, a
Massachusetts corporation (the "Company").

PREAMBLE

Whereas, the respective boards of directors of Nipsco and the Company have
determined that the Merger (as defined in Section 1.1) is in the best
interests of their respective shareholders and have approved the Merger, upon
the terms and subject to the conditions set forth herein;

Whereas, Nipsco and the Company intend that, for federal income tax
purposes, the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");

Whereas, Nipsco and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger; and

Now, Therefore, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

ARTICLE I

THE MERGER

1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.4), the Company shall be merged
with and into a corporation to be organized as a wholly-owned subsidiary of
Nipsco under the laws of the Commonwealth of Massachusetts ("Acquisition")
(the "Merger"), in accordance with the Massachusetts Gas and Electricity Law
(the "MGEL") and Massachusetts Business Corporation Law (the "MBCL"), and the
separate corporate existence of the Company shall cease and Acquisition shall
continue as the surviving corporation (the "Surviving Corporation") under the
laws of the Commonwealth of Massachusetts with all the rights, privileges,
immunities and powers, and subject to all the duties and liabilities, of a
corporation organized under the MGEL and MBCL. The Merger shall have the
effects set forth in the MGEL and MBCL.

1.2 The Alternative Merger.

1.2.1 If at any time prior to December 31, 1998, (a) it becomes possible
under the laws relating to incorporation and to public utilities applicable
to the Company and its wholly owned subsidiary, Northern Utilities, Inc.
("Northern"), to merge the Company into Nipsco's wholly owned subsidiary,
Northern Indiana Public Service Company, followed immediately by the merger
of Northern into Northern Indiana Public Service Company (the "Alternative
Merger") and (b) the Securities and Exchange Commission (the "SEC") has not
approved, nor has the staff of the SEC recommended that the SEC approve,
the application for the Merger under the Public Utility Holding Company Act
of 1935, as amended (the "1935 Act"), then, subject to Section 1.2.3 and
the other terms and conditions of the Agreement, the form of the
transaction contemplated by this Agreement will be revised to provide for
the Alternative Merger, including establishing the consideration to be used
in the merger of Northern into Northern Indiana Public Service Company to
meet the requirements of a tax-free reorganization pursuant to Section 368
of the Code, and the parties shall amend the terms of this Agreement to
make them consistent with the Alternative Merger;

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provided, however, that so long as the parties are using their best efforts
to consummate the Alternative Merger, the parties may simultaneously
continue to pursue the regulatory approvals necessary for the Merger if it
is practicable to do so in a manner that will not unduly delay the
consummation of the Alternative Merger.

1.2.2 Notwithstanding Sections 1.1 and 1.2.1, if by December 31, 1998,
none of the following conditions has been met: (a) the Alternative Merger
has become legally possible; (b) the SEC has approved the application for
the Merger under the 1935 Act; (c) the SEC staff has recommended that the
SEC approve the application for the Merger under the 1935 Act, or (d) the
1935 Act has been, or subject only to the passage of time up to the time
specified in Section 8.1.2 (iii) will be, repealed or amended in relevant
manner to permit the Merger, then either party may terminate this Agreement
pursuant to Section 8.1.2(iii) of this Agreement.

1.2.3 The parties hereto acknowledge that, in the absence of regulatory
constraints under the 1935 Act, it would be preferable to effect the Merger
and for the Alternative Merger not to be effected. Accordingly, if at the
time all other conditions to the parties' respective obligations to
consummate this Agreement have been satisfied or waived, the 1935 Act has
been, or subject only to the passage of time up to the time specified in
Section 8.1.2 (iii) will be, repealed or amended in relevant manner to
permit the Merger, the parties shall effect the Merger.

1.3 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Merger (the "Closing") shall take place at
9:00 a.m. on the second business day following the date on which the last of
the conditions set forth in Article VII shall have been fulfilled or waived in
accordance with this Agreement (the "Closing Date"), at the offices of Schiff
Hardin & Waite ("SH&W"), 7200 Sears Tower, Chicago, Illinois 60606, unless the
parties hereto agree to another date, time or place.

1.4 Effective Time. The parties hereto shall file with the Secretary of the
Commonwealth of Massachusetts (the "Massachusetts Secretary") on the date of
the Closing (or on such other date as Nipsco and the Company may agree)
articles of merger or other appropriate documents, mutually satisfactory in
form and substance to Nipsco and the Company and executed in accordance with
the relevant provisions of the MGEL and the MBCL, and shall make all other
filings or recordings required under the MGEL and the MBCL in connection with
the Merger. The Merger shall become effective upon the filing of the articles
of merger with the Massachusetts Secretary, or at such later time as is
specified in the articles of merger (the "Effective Time").

1.5 Articles of Organization. The articles of organization of Acquisition as
in effect immediately prior to the Effective Time shall be the articles of
organization of the Surviving Corporation (the "Charter"), until duly amended
as provided therein or by applicable law.

1.6 By-Laws. The by-laws of Acquisition, as in effect immediately prior to
the Effective Time, shall be the by-laws of the Surviving Corporation (the
"By-Laws") until thereafter amended as provided by law, the By-Laws or the
Charter.

1.7 Directors. The board of directors of the Surviving Corporation from and
after the Effective Time shall be comprised of those individuals listed on
Schedule 1.7 hereto, such directors to hold office from the Effective Time
until their respective successors are duly elected or appointed and qualify in
the manner provided in the Charter or By-Laws or as otherwise provided by law.

1.8 Officers. The officers of the Company at the Effective Time shall be the
officers of the Surviving Corporation and shall hold office from the Effective
Time until their respective successors are duly elected or appointed and
qualify in the manner provided in the Charter or By-Laws or as otherwise
provided by law.

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ARTICLE II

CONVERSION OF SHARES

2.1 Conversion of Acquisition Shares. Each share of common stock of
Acquisition issued and outstanding immediately prior to the Effective Time
shall remain outstanding and unchanged by reason of the Merger as one share of
common stock of the Surviving Corporation.

2.2 Conversion of Company Shares.

2.2.1 Outstanding Shares of Company Common Stock. Subject to the
provisions of this Section 2.2, each share of common stock, par value $3.33
1/3 per share of the Company (the "Company Shares") issued and outstanding
immediately prior to the Effective Time (other than shares held as treasury
shares by the Company) shall by virtue of the Merger and without any action
on the part of the holder thereof, be converted into the right to receive
(i) $40.00 in cash (the "Cash Price"), or (ii) such number or fraction
thereof validly issued, fully paid and nonassessable shares of common
stock, without par value, of Nipsco ("Nipsco Common Shares") determined by
dividing the Cash Price by the Nipsco Share Price (as defined below) (the
"Exchange Ratio") or (iii) the right to receive a combination of cash and
Nipsco Common Shares determined in accordance with Section 2.2.2 or Section
2.2.3. The "Nipsco Share Price" shall be equal to the average of the
closing prices of the Nipsco Common Shares on the New York Stock Exchange
("NYSE") Composite Transactions Reporting System, as reported in The Wall
Street Journal, for the 20 trading days immediately preceding the second
trading day prior to the Effective Time.

2.2.2 Cash Election. Subject to the immediately following sentence, each
record holder of Company Shares immediately prior to the Effective Time
shall be entitled to elect to receive cash for all or any part of such
holder's Company Shares (a "Cash Election"). Notwithstanding the foregoing
and subject to Section 2.2.9, the aggregate number of Company Shares that
may be converted into the right to receive cash in the Merger (the "Cash
Election Number") shall not exceed an amount determined by dividing (A) the
dollar number equal to the difference between (i) one-half the product of
(x) the Cash Price multiplied by (y) the aggregate number of Company Shares
outstanding at 5:00 p.m. Eastern Time on the second day prior to the
Effective Time less (ii) the dollar amount of any special dividend paid by
the Company pursuant to the second sentence of Section 6.1.2 and other
dollar amounts as reasonably determined by SH&W, counsel to Nipsco and
Acquisition, and LeBoeuf, Lamb, Greene & MacRae, L.L.P. ("LLG&M"), counsel
to the Company, by (B) the Cash Price. Cash Elections shall be made on a
form designed for that purpose (a "Form of Election"). A holder of record
of Company Shares who holds such Company Shares as nominee, trustee or in
another representative capacity (a "Representative") may submit multiple
Forms of Election, provided that such Representative certifies that each
such Form of Election covers all the Company Shares held by such
Representative for a particular beneficial owner. To the extent not covered
by a properly given Cash Election, all Company Shares issued and
outstanding immediately prior to the Effective Time shall, except as
provided in Section 2.2.1, be converted solely into Nipsco Shares.

2.2.3 Cash Election Shares. If the aggregate number of Company Shares
covered by Cash Elections (the "Cash Election Shares") exceeds the Cash
Election Number, each Cash Election Share shall be converted into (i) the
right to receive an amount in cash, without interest, equal to the product
of (a) the Cash Price and (b) a fraction (the "Cash Fraction"), the
numerator of which shall be the Cash Election Number and the denominator of
which shall be the total number of Cash Election Shares, and (ii) a number
of Nipsco Common Shares equal to the product of (a) the Exchange Ratio and
(b) a fraction equal to one minus the Cash Fraction.

2.2.4 Form of Election. To be effective, a Form of Election must be
properly completed, signed and submitted to Nipsco's transfer agent and
registrar, as paying agent (the "Paying Agent"), and accompanied by the
certificates representing the Company Shares ("Company Certificates") as to
which the election is being made (or by an appropriate guarantee of
delivery of such Company Certificate signed by a firm that is a member of
any registered national securities exchange or a member of the National
Association of

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Securities Dealers, Inc. or a bank, broker, dealer, credit union, savings
association or other entity that is a member in good standing of the
Securities Transfer Agent's Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion
Program). Nipsco shall have the discretion, which it may delegate in whole
or in part to the Paying Agent, to determine whether Forms of Election have
been properly completed, signed and submitted or revoked and to disregard
immaterial defects in Forms of Election. The decision of Nipsco (or the
Paying Agent) in such matters shall be conclusive and binding. Neither
Nipsco nor the Paying Agent shall be under any obligation to notify any
person of any defect in a Form of Election submitted to the Paying Agent.
The Paying Agent shall also make all computations contemplated by this
Section 2.2, and all such computations shall be conclusive and binding on
the holders of Company Shares.

2.2.5 Deemed Non-Election. For the purposes hereof, a holder of Company
Shares who does not submit a Form of Election that is received by the
Paying Agent prior to the Election Deadline (as defined in Section 2.2.6)
shall be deemed not to have properly made a Cash Election. If Nipsco or the
Paying Agent shall determine that any purported Cash Election was not
properly made, such purported Cash Election shall be deemed to be of no
force and effect.

2.2.6 Election Deadline. Nipsco and the Company shall each use its best
efforts to cause copies of the Form of Election to be mailed to the record
holders of the Company Shares not less than thirty days prior to the
Effective Time and to make the Form of Election available to all persons
who become record holders of Company Shares subsequent to the date of such
mailing and no later than the close of business on the seventh business day
prior to the Effective Time. A Form of Election must be received by the
Paying Agent by 5:00 p.m., New York City time, on the last NYSE trading day
prior to the third business day before the anticipated Effective Time (the
"Election Deadline") in order to be effective. All elections may be revoked
until the Election Deadline in writing by the record holders submitting
Forms of Election.

2.2.7 Treasury Shares. Each Company Share issued and outstanding
immediately prior to the Effective Time that is then held as a treasury
share by the Company shall, by virtue of the Merger and without any action
on the part of the Company, be canceled and retired and cease to exist,
without any conversion thereof.

2.2.8 Adjustment Per Tax Opinion. If, after having made the calculation
under Section 2.2.3, the tax opinions referred to in Sections 7.2.3 and
7.3.3 (the "Tax Opinions") cannot be rendered (as reasonably determined by
SH&W and LLG&M), as a result of the Merger possibly failing to satisfy
continuity-of-interest requirements under applicable federal income tax
principles relating to reorganizations described in Section 368(a) of the
Code, then Nipsco shall reduce, to the minimum extent necessary to enable
the Tax Opinions to be rendered, the amount of cash to be delivered with
respect to the Cash Election Shares and in lieu thereof shall deliver the
number of Nipsco Common Shares having an aggregate value, based on the
Nipsco Share Price, equal to the amount of such reduction, and the Cash
Election Number shall be appropriately adjusted to give effect to such
reduction.

2.2.9 Adjustments to Prevent Dilution. In the event of any change in
Nipsco Common Shares between the date of this Agreement and the Effective
Time by reason of any stock split, stock dividend, subdivision,
reclassification, recapitalization, combination, exchange or the like, the
Exchange Ratio, the Cash Price and the calculation of all share prices
provided for in this Agreement shall be proportionately adjusted to
eliminate the effects of such event.

2.3 Exchange of Certificates and Related Matters.

2.3.1 Paying Agent. Prior to the Closing Date, Nipsco shall appoint the
Paying Agent for the purpose of paying the Cash Price and issuing Nipsco
Common Shares in exchange for Company Certificates. From time to time after
completion of the allocation and election procedures in Section 2.2, Nipsco
shall transmit, or shall cause the Surviving Corporation to transmit, cash,
and shall deliver certificates representing Nipsco Common Shares, to the
Paying Agent, for the benefit of the holders of Company Shares, when and as
required for exchanges of Company Shares pursuant to Section 2.2.

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2.3.2 Letter of Transmittal. Promptly after the Effective Time (but in no
event more than five business days thereafter), Nipsco shall require the
Paying Agent to mail to each record holder of certificates that immediately
prior to the Effective Time represented Company Shares that have been
converted pursuant to Section 2.2 a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title shall
pass, only upon proper delivery of Company Certificates to the Paying Agent
and shall be in such form and have such provisions as Nipsco reasonably may
specify) and instructions for surrendering such Company Certificates and
receiving the Merger Consideration (as defined in Section 2.3.3) to which
such holder shall be entitled therefor pursuant to Section 2.2.

2.3.3 Exchange Procedures. Upon surrender to the Paying Agent of a
Company Certificate for cancellation, together with a letter of transmittal
and such other customary documents as may be required by the instructions
to the letter of transmittal (collectively, the "Certificate") and
acceptance thereof by the Paying Agent, the holder of such Company
Certificate shall be entitled to receive in exchange therefor (i)
certificates evidencing that number of whole Nipsco Common Shares into
which the Company Shares previously represented by such Company Certificate
are converted in accordance with Section 2.2.1, (ii) the cash to which such
holder is entitled in accordance with Section 2.2.1, (iii) the cash in lieu
of fractional Nipsco Common Shares to which such holder is entitled
pursuant to Section 2.3.6, and (iv) any dividends or other distributions to
which such holder is entitled pursuant to Section 2.3.4 (the Nipsco Common
Shares, dividends, distributions and cash described in clauses (i), (ii),
(iii) and (iv) above being referred to collectively as the "Merger
Consideration"). The Paying Agent shall accept such Certificate upon
compliance with such reasonable terms and conditions as the Paying Agent
may impose to effect an orderly exchange thereof in accordance with normal
exchange practices. If the Merger Consideration (or any portion thereof) is
to be delivered to any person other than the person in whose name the
Company Certificate surrendered in exchange therefor is registered on the
record books of the Company, it shall be a condition to such exchange that
the Company Certificate so surrendered shall be properly endorsed or shall
otherwise be in proper form for transfer and that the person requesting
such exchange shall pay to the Paying Agent any transfer or other taxes
required by reason of the payment of such consideration to a person other
than the registered holder of the Company Certificate surrendered, or shall
establish to the satisfaction of the Paying Agent that such tax has been
paid or is not applicable. If any Company Certificate shall have been lost,
stolen, mislaid or destroyed, then upon receipt of (a) an affidavit of that
fact from the holder claiming such Company Certificate to be lost, mislaid,
stolen or destroyed, (b) such bond, security or indemnity as the Company or
the Paying Agent may reasonably require, and (c) any other documentation
necessary to evidence and effect the bona fide exchange thereof, the
Exchange Agent shall issue to such holder a certificate representing the
number of shares of Company Shares into which the shares represented by
such lost, stolen, mislaid or destroyed Company Certificate shall have been
converted. After the Effective Time, there shall be no further transfer on
the records of the Company or its transfer agent of any Company
Certificate, and, if any such Company Certificate is presented to the
Company for transfer, it shall be canceled against delivery of the Merger
Consideration as hereinabove provided. Until surrendered as contemplated by
this Section 2.3.3, each Company Certificate (other than a certificate
representing Company Shares to be canceled in accordance with Section
2.2.7), shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration,
without any interest thereon.

2.3.4 Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Nipsco Common Shares with a record date
after the Effective Time shall be paid to the holder of any certificate
that immediately prior to the Effective Time represented Company Shares
that have been converted pursuant to Section 2.2, and no other part of the
Merger Consideration shall be paid to any such holder, until the surrender
for exchange of such Company Certificate in accordance with this Article
II. Following surrender for exchange of any such Company Certificate, there
shall be paid to the holder of certificates evidencing whole Nipsco Common
Shares issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to the
number of whole Nipsco Common Shares into which the Company Shares
represented by such certificate immediately prior to the Effective Time
were converted

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pursuant to Section 2.2, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time, but prior to such surrender, and with a payment date
subsequent to such surrender, payable with respect to such whole Nipsco
Common Shares.

2.3.5 No Further Ownership Rights in Company Shares. The Merger
Consideration paid upon the surrender for exchange of Company Certificates
in accordance with the terms of this Article II shall be deemed to have
been issued and paid in full satisfaction of all rights pertaining to the
Company Shares theretofore represented by such certificates, subject,
however, to the Surviving Corporation's obligation (if any) to pay any
dividends or make any other distributions with a record date prior to the
Effective Time that may have been declared by the Company on such Company
Common Shares in accordance with the terms of this Agreement or prior to
the date of this Agreement and that remain unpaid at the Effective Time.

2.3.6 No Fractional Shares. No certificates or scrip representing
fractional Nipsco Common Shares shall be issued upon the surrender for
exchange of certificates that immediately prior to the Effective Time
represented Company Shares that have been converted pursuant to Section
2.2, and such fractional share interests shall not entitle the owner
thereof to vote or to any rights of a shareholder of Nipsco.
Notwithstanding any other provisions of this Agreement, each holder of
Company Shares who would otherwise have been entitled to receive a fraction
of a Nipsco Common Share (after taking into account all Company
Certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a Nipsco
Common Share multiplied by the Nipsco Share Price.

2.3.7 Termination of Paying Agent. Any portion of cash payable under
Section 2.2 or Nipsco Common Shares held by the Paying Agent that remains
undistributed to the holders of the Company Certificates one year after the
Effective Time shall be delivered to Nipsco, and any holders of Company
Shares who have not theretofore complied with this Article II shall
thereafter look only to Nipsco and only as general creditors thereof for
payment, without interest, of their claim for any Merger Consideration and
any dividends or distributions with respect to Nipsco Common Shares.

2.3.8 No Liability. None of Nipsco, the Surviving Corporation or the
Paying Agent shall be liable to any person in respect of any Merger
Consideration payable with respect to Company Shares delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law. If any Company Certificates shall not have been surrendered prior to
seven years after the Effective Time (or immediately prior to such earlier
date on which any Merger Consideration in respect of such Company
Certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 3.4)), any such cash, Company
Shares, dividends or distributions payable in respect of such Company
Certificate shall, to the extent permitted by applicable law, become the
property of Nipsco free and clear of all claims or interest of any person
previously entitled thereto.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to Nipsco and Acquisition as
follows:

3.1 Organization, Standing and Corporate Power. The Company is a corporation
duly organized and validly existing under the laws of the Commonwealth of
Massachusetts, has the requisite corporate power and authority to carry on its
business as now being conducted, and is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or the leasing of its properties makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not individually or in the aggregate have a
Company Material Adverse Effect. As used in this Agreement, the term "Company
Material Adverse Effect" means a material adverse effect on the business,
assets, liabilities, results of operations, financial condition or prospects
of the Company and its subsidiaries taken as a whole. The Company has
delivered to Nipsco complete and correct copies of its Articles of
Organization and By-Laws, as amended to the date of this Agreement.

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3.2 Capital Structure. As of the date hereof, the authorized capital stock
of the Company consists of 36,000,000 Company Shares and 150,000 shares of
cumulative preferred stock, $50 par value per share (the "Company Preferred A
Shares") and 200,000 shares of cumulative preferred stock, $100 par value per
share (the "Company Preferred B Shares"). At the close of business on December
12, 1997 (i) 13,514,094 Company Shares were issued and outstanding; (ii)
44,399 shares of Company Preferred A Shares were issued and outstanding; and
(iii) 26,989 shares of Company Preferred B Shares were issued and outstanding.
The Company has no Company Shares, Company Preferred A Shares or Company
Preferred B Shares reserved for issuance, except that, as of December 12,
1997, there were 1,602,752 Company Shares reserved for issuance pursuant to
the Company's Key Employee Stock Option Plan, Profit Sharing Plan and Stock
Performance Sharing Plan (the "Company Stock Plans") and the Company's
Dividend Reinvestment Plan and 13,514,094 Company Shares reserved for issuance
under the Shareholder Rights Agreement dated as of November 15, 1989 between
the Company and The First National Bank of Boston as rights agent (the
"Shareholder Rights Agreement"). In addition, the Company has reacquired and
holds 1,620 Company Shares in treasury for reissuance pursuant to the Company
Stock Accumulation Plan for Outside Directors. All outstanding shares of
capital stock of the Company are duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights. No bonds, debentures,
notes or other indebtedness of the Company conferring the right to vote (or
convertible into, or exchangeable for, securities conferring the right to
vote) on any matters on which the shareholders of the Company may vote are
issued or outstanding. Section 3.2 of the disclosure schedule dated as of the
date hereof of the Company (the "Company Disclosure Schedule") sets forth the
name of each participant in each of the Company Stock Plans and the number of
Company Shares awarded to such participant as of the date hereof. Except as
set forth above or in Section 3.2 of the Company Disclosure Schedule, the
Company does not have any outstanding option, warrant, subscription or other
right, agreement or commitment that either obligates the Company to issue,
sell or transfer, repurchase, redeem or otherwise acquire or vote any shares
of capital stock of the Company or that restricts the transfer of Company
Shares.

3.3 Subsidiaries.

3.3.1 Section 3.3.1 of the Company Disclosure Schedule sets forth the
name of each Subsidiary of the Company and the jurisdiction of its
organization. Each Subsidiary of the Company is a corporation or
partnership duly organized and validly existing under the laws of the
jurisdiction of its organization and has the corporate or partnership power
and authority and all necessary government approvals to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing
or to have such power and authority or necessary governmental approvals
would not individually or in the aggregate have a Company Material Adverse
Effect. Each Subsidiary of the Company is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by
it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so qualified or licensed and in good
standing would not individually or in the aggregate have a Company Material
Adverse Effect. A "Subsidiary" of Brass means any corporation or other
entity (including joint ventures, partnerships and other business
associations) in which Brass directly or indirectly owns outstanding
capital stock or other voting securities having the power to elect a
majority of the directors or similar members of the governing body of such
corporation or other entity, or otherwise to direct to the management and
policies of such corporation or other entity.

3.3.2 Section 3.3.2 of the Company Disclosure Schedule sets forth, as to
each Subsidiary of the Company, its authorized capital structure and the
number of its issued and outstanding shares of capital stock or other
ownership units. Except as set forth in Section 3.3.2 of the Company
Disclosure Schedule, the Company is, directly or indirectly, the record and
beneficial owner of all of the outstanding shares of capital stock or other
ownership units of each of its Subsidiaries, and no capital stock or other
ownership units of any such Subsidiary is or may become required to be
issued by reason of any options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable or exercisable for, shares of any
capital stock or other ownership units of any such Subsidiary, and there
are no contracts, commitments, understandings or arrangements by which

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the Company or any of its Subsidiaries is or may be bound to issue, redeem,
purchase or sell additional shares of capital stock or other ownership
units of any such Subsidiary or securities convertible into or exchangeable
or exercisable for any such shares or units. All of such shares and other
ownership units are validly issued, fully paid and nonassessable and,
except as set forth in Section 3.3.2 of the Company Disclosure Schedule,
are owned by the Company, or by a wholly owned Subsidiary of the Company,
free and clear of all liens, claims, encumbrances, restraints on
alienation, or any other restrictions with respect to the transferability
or assignability thereof (other than restrictions on transfer imposed by
federal or state securities laws).

3.4 Authority; Noncontravention. The Company has the requisite corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company, subject, in the case of the Merger, to the approval of its
shareholders as set forth in Section 5.2. This Agreement has been duly
executed and delivered by the Company and, assuming this Agreement has been
duly executed and delivered by Nipsco, constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditors' rights generally and by general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). Except as set forth in Section 3.4 of the Company
Disclosure Schedule, the execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated by this Agreement and
compliance with the provisions hereof will not, (i) conflict with any of the
provisions of the Articles of Organization or By-Laws of the Company or the
comparable documents of any of its Subsidiaries or conflict with the joint
venture agreement or comparable document of any joint venture, partnership or
other business association or entity to which the Company or a Subsidiary is a
party, (ii) subject to the governmental filings and other matters referred to
in the following sentence, conflict with, result in a breach of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or loss
of a material benefit under, or require the consent (the "Company Required
Consents") of any person under, any indenture or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to which
the Company or any of its Subsidiaries is a party or by which the Company or
any of its Subsidiaries or any of their assets is bound or affected, or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, contravene any law, rule or regulation of any state or of
the United States of America or any political subdivision thereof or therein,
or any order, writ, judgment, injunction, decree, determination or award
currently in effect, except where, in the case of clauses (ii) and (iii)
above, such conflicts, breaches, defaults and similar matters, would not,
individually or in the aggregate, have a Company Material Adverse Effect or
materially and adversely affect the Company's ability to consummate the
transactions contemplated hereby. No consent, approval or authorization of, or
declaration or filing with, or notice to, any governmental agency or
regulatory body, court, agency, commission, division, department, public body
or other authority (a "Governmental Entity") that has not been received or
made, is required by or with respect to the Company or any of its Subsidiaries
in connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the transactions contemplated hereby,
except for (a) the filing of pre-merger notification and report forms under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), with respect to the Merger; (b) the filing of applications for
authorization for the Merger with the Federal Energy Regulatory Commission
(the "FERC"), the Massachusetts Department of Telecommunications and Energy
("MDTE"), the New Hampshire Public Utilities Commission ("NHMPUC") and the
Maine Public Utilities Commission ("MNEPUC"); (c) the filing with the
Securities and Exchange Commission (the "SEC") of a proxy statement (as
defined in Section 5.1.1) to be included in the Registration Statement (as
defined in Section 4.4) relating to the approval by the shareholders of the
Company of the Merger and such reports under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as may be required in connection with
this Agreement and the transactions contemplated by this Agreement; (d) the
filing of articles of merger with the Massachusetts Secretary and appropriate
documents with the relevant authorities of other states in which the Company
is qualified to do business; and (e) such other consents, approvals,
authorizations, filings or notices as

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are set forth in Section 3.4 of the Company Disclosure Schedule or as, in the
aggregate could not reasonably be expected to have a Company Material Adverse
Effect (collectively, the "Company Required Statutory Approvals").

3.5 SEC Documents and Financial Statements.

3.5.1 Except as set forth in Section 3.5.1 of the Company Disclosure
Schedule, the Company, and each of its Subsidiaries that is or was required
to do so, has timely filed all required reports, schedules, forms,
statements and other documents with the SEC since October 1, 1992 (the
"Company SEC Documents"). As of their respective dates, the Company SEC
Documents complied with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable
to such Company SEC Documents, and none of the Company SEC Documents as of
such dates contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading.

3.5.2 The consolidated financial statements of the Company included in
the Company SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
during the periods involved ("GAAP") (except as may be indicated in the
notes thereto or, in the case of unaudited interim financial statements, as
permitted by Rule 10-01 of Regulation S-X) and fairly present, in all
material respects, the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations, changes in shareholders' equity and
consolidated cash flows for the periods then ended (subject, in the case of
unaudited interim financial statements, to normal recurring adjustments,
none of which is material).

3.5.3 Except as disclosed in the Company SEC Documents filed and publicly
available prior to December 16, 1997 (the "Filed Company SEC Documents") or
in the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries has any absolute, accrued, contingent or other liabilities or
obligations due or to become due, and there are no claims or causes of
action (including but not limited to those relating to any Company Benefit
Plan (as defined in Section 3.8.1) formerly maintained by the Company or
any of its Subsidiaries or a Company ERISA Affiliate (as defined in Section
3.8.1) on or after January 1, 1992) that have been or, to the knowledge of
the Company, may be asserted against the Company or any of its
Subsidiaries, except (i) as and to the extent reflected or reserved against
on the balance sheet included in the Company's Annual Report on Form 10-K
for the year ended September 30, 1997 (the "Company Base Balance Sheet"),
or included in the notes to the Company Base Balance Sheet, (ii) for normal
and recurring liabilities incurred since September 30, 1997, in the
ordinary course of business consistent with past practice, and (iii) for
such other liabilities and obligations that are not in the aggregate
reasonably likely to have a Company Material Adverse Effect. For purposes
of this Agreement, it is understood that all references to the knowledge of
the Company means solely the knowledge of any one or more of the
individuals listed on Section 3.5.3 of the Company Disclosure Schedule.

3.6 Absence of Certain Changes or Events. Except as disclosed in the Filed
Company SEC Documents or in Section 3.6 of the Company Disclosure Schedule,
since the date of the Company Base Balance Sheet, the Company and its
Subsidiaries have conducted their business only in the ordinary course
consistent with past practice, and, except as otherwise expressly permitted by
this Agreement, there has not been (i) any change that has had or that could
reasonably be expected to have a Company Material Adverse Effect, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of the Company's
outstanding capital stock (other than regular quarterly cash dividends in
accordance with the Company's present dividend policy), (iii) any split,
combination or reclassification of any of its outstanding capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its outstanding
capital stock, (iv) any entry by the Company or any of its Subsidiaries into
any employment, severance, change-of-control, termination or similar agreement
with any

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officer, director or other employee, or any increase in the compensation or
severance or termination benefits payable to any director, officer or other
employee of the Company or any of its Subsidiaries (except in the ordinary
course of business consistent with past practice, or as was required under
employment agreements in effect as of the date of the Company Base Balance
Sheet) or (v) any change in the method of accounting or policy used by the
Company or any of its Subsidiaries and disclosed in the financial statements
included in the Filed Company SEC Documents.

3.7 Real and Personal Property.

3.7.1 The Company and its Subsidiaries own, or have a valid and
enforceable right to use or a valid and enforceable leasehold interest in,
all real property (including all buildings, fixtures and other improvements
thereto) used by them in the conduct of their respective businesses as such
businesses are now being conducted. Except as disclosed in the Filed
Company SEC Documents or Section 3.7.1 of the Company Disclosure Schedule,
neither the Company's nor any of its Subsidiaries' ownership of or
leasehold interest in any such property is subject to any mortgage, pledge,
lien, option, conditional sale agreement, encumbrance, security interest,
title exception or restriction or claim or charge of any kind
("Encumbrances"), except for such Encumbrances as are not in the aggregate
reasonably likely to have a Company Material Adverse Effect. All such
property is in good condition and repair and is suitable in all material
respects for the purposes for which it is now being used in the conduct of
the businesses of the Company and its Subsidiaries, except to the extent
that the poor condition or unsuitability of any such property is not in the
aggregate reasonably likely to have a Company Material Adverse Effect.

3.7.2 Except as otherwise disclosed in Section 3.7.2 of the Company
Disclosure Schedule, all personal property that is owned by the Company or
any of its Subsidiaries or used by any of them in the conduct of their
respective businesses is owned free and clear of any Encumbrances, except
for such Encumbrances as are not in the aggregate reasonably likely to have
a Company Material Adverse Effect. All such property is in good working
condition, subject to normal wear and tear, and is suitable in all material
respects for the purposes for which it is now being used in the conduct of
the businesses of the Company and its Subsidiaries, except to the extent
that the poor condition or unsuitability of any such property is not in the
aggregate reasonably likely to have a Company Material Adverse Effect.

3.8 Employee Matters; ERISA.

3.8.1 Section 3.8.1 of the Company Disclosure Schedule contains a true
and complete list of: (i) each employee benefit plan, program, policy,
agreement or arrangement covering employees, former employees, directors or
former directors of the Company (or any of its Subsidiaries) or any of
their dependents or beneficiaries, or providing benefits to such persons in
respect of services provided to any such entity, including but not limited
to any "employee benefit plan" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(whether or not terminated, if the Company or any of its Subsidiaries could
have statutory or contractual liability with respect thereto on or after
the date hereof); (ii) each management, employment, deferred compensation,
severance (including any payment, right or benefit resulting from a change
in control), bonus or other contract for personal services with or covering
any current or former officer, employee or director or any consulting
contract with any person who prior to entering into such contract was a
director, officer or employee of the Company or any of its Subsidiaries
(whether or not terminated, if the Company or any of its Subsidiaries could
have statutory or contractual liability with respect thereto on or after
the date hereof); (iii) each "employee pension benefit plan" (within the
meaning of ERISA Section 3(2)) subject to Title IV of ERISA or the minimum
funding requirements of Code Section 412 maintained or contributed to by
the Company or any entity required to be aggregated therewith pursuant to
Code Section 414(b), (c) or (m) (each, a "Company ERISA Affiliate") at any
time during the seven-year period immediately preceding the date hereof
(collectively, the "Company Benefit Plans") and (iv) with respect to each
Company Benefit Plan, the source or sources of benefit payments under the
plan (including, where applicable, the identity of any trust (whether or
not a grantor trust), insurance contract, investment advisor agreement,
custodial account, agency

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agreement, or other arrangement that holds the assets of, or serves as a
funding vehicle or source of benefits for, such Company Benefit Plan).

3.8.2 Except as disclosed in Section 3.8.2 of the Company Disclosure
Schedule, all contributions and other payments required to have been made
by the Company or any of its Subsidiaries pursuant to any Company Benefit
Plan (or to any person pursuant to the terms thereof) have been timely made
or provided for, or the amount of such payment or contribution obligation
has been reflected in the Company's financial statements reflected in the
Filed Company SEC Documents.

3.8.3 Except as disclosed in Section 3.8.3 of the Company Disclosure
Schedule, each Company Benefit Plan that is intended to be "qualified"
within the meaning of Code Section 401(a) has been determined by the IRS
within the last three years to be so qualified, and, to the best knowledge
of the Company, no event or condition exists or has occurred that could
reasonably be expected to result in the revocation of any such
determination. The Company and each of its Subsidiaries are in compliance
with, and each Company Benefit Plan is and has been operated in compliance
with, its terms and all applicable laws, rules and regulations governing
such Plans, including without limitation ERISA and the Code, except for
violations that could not reasonably be expected to have a Company Material
Adverse Effect. To the best knowledge of the Company, (i) no individual or
entity has engaged in any transaction with respect to any Company Benefit
Plan that is a non-exempt prohibited transaction under Section 406 of ERISA
or Section 4495 of the Code, or as a result of which the Company or any of
its Subsidiaries could reasonably expect to be subject to liability
pursuant to ERISA Section 409 or 502 or subject to an excise tax pursuant
to Code Section 4975, (ii) no Company Benefit Plan is subject to any
ongoing audit, investigation, or other administrative proceeding of the
Internal Revenue Service (the "IRS"), the Department of Labor (the "DOL"),
or any other federal, state or local Governmental Entity, (iii) no Company
Benefit Plan is the subject of any pending application for administrative
relief under any voluntary compliance program of any Governmental Entity
(including without limitation the IRS's Voluntary Compliance Resolution
Program or Walk-in Closing Agreement Program or the DOL's Delinquent Filer
Voluntary Compliance Program), and (iv) no matter is pending relating to
any Company Benefit Plan before any court.

3.8.4 Except as disclosed in Section 3.8.4 of the Company Disclosure
Schedule with respect to the Company Benefit Plans, individually and in the
aggregate, no termination or partial termination of any Company Benefit
Plan or other event has occurred at any time, and, to the best knowledge of
the Company, there exists no condition or set of circumstances with respect
to any Company Benefit Plan that could subject the Company or any of its
Subsidiaries to any liability arising under the Code, ERISA or any other
applicable law (including without limitation any liability to or under any
such Plan or to the Pension Benefit Guaranty Corporation (the "PBGC")), or
under any indemnity agreement to which the Company, any of its Subsidiaries
or any Company ERISA Affiliate is a party, which liability, excluding
liability for benefit claims and funding obligations payable in the
ordinary course and liability for PBGC insurance premiums payable in the
ordinary course, is reasonably likely to have a Company Material Adverse
Effect. PBGC has not initiated any proceedings, and there exists no event
or condition which would constitute grounds for initiation of proceedings
by PBGC to terminate any Company Benefit Plan under Section 4042 of ERISA.

3.8.5 Except as disclosed in Section 3.8.5 of the Company Disclosure
Schedule, no Company Benefit Plan that is a "welfare plan" (within the
meaning of ERISA Section 3(1)) provides benefits for any retired or former
employees (other than as required pursuant to ERISA Section 601).

3.8.6 The Company has made or will make available to Nipsco a true and
correct copy of each collective bargaining agreement to which the Company
is a party or under which the Company has obligations and, with respect to
each Company Benefit Plan, as applicable (i) the current plan document
(including all amendments adopted since the most recent restatement) and
its most recently prepared summary plan description and all summaries of
material modifications prepared since the most recent summary plan
description, (ii) the annual report (IRS Form 5500 Series) including
financial statements prepared for the most recent three plan years, (iii)
each related trust agreement, insurance contract, annuity contract, service
provider or investment management or advisory agreement (including all
amendments to each such document), (iv) the most recent IRS determination
letter with respect to the qualified status under

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Code Section 401(a) of such Plan and a copy of any application for an IRS
determination letter filed since the most recent IRS determination letter
was issued and (v) the actuarial reports or valuations for the most recent
three plan years.

3.8.7 Except as disclosed in Section 3.8.7 of the Company Disclosure
Schedule, the consummation or announcement of any transaction contemplated
by this Agreement will not (either alone or upon the occurrence of any
additional or further acts or events) result in any (i) payment (whether of
severance pay or otherwise) becoming due from the Company or any of its
Subsidiaries under any applicable Company Benefit Plans to any officer,
employee, former employee, director or former director thereof or to the
trustee under any "rabbi trust," "secular trust" or similar arrangement, or
(ii) benefit under any Company Benefit Plan being established or becoming
accelerated, vested or payable, except for a payment or benefit that would
have been payable under the same terms and conditions without regard to the
transactions contemplated by this Agreement.

3.8.8 Except as disclosed in Section 3.8.8 of the Company Disclosure
Schedule, each Company Benefit Plan that is subject to either or both of
the minimum funding requirements of ERISA Section 302 or to Title IV of
ERISA has assets that, as of the date hereof, have a fair market value
equal to or exceeding the present value, as determined by the Plan's
independent enrolled actuary, of the accrued benefit obligations thereunder
on a termination basis, as of the date hereof, based on the actuarial
methods, tables and assumptions theretofore utilized by such Plan's
enrolled actuary in preparing such Plan's most recently prepared actuarial
valuation report, except to the extent that applicable law would require
the use of different actuarial assumptions if such Plan was to be
terminated as of the date hereof. No Company Benefit Plan subject to the
minimum funding requirements of ERISA Section 302 has incurred any
"accumulated funding deficiency" (within the meaning of ERISA Section 302
or Section 412 of the Code) as of the date hereof. No waiver from the
minimum funding standards of Section 302 of ERISA or Section 412 of the
Code has been obtained, applied for or is contemplated with respect to any
Company Benefit Plan.

3.8.9 Except as disclosed in Section 3.8.9 of the Company Disclosure
Schedule, no Company Benefit Plan is or was at any time a "multiemployer
plan" (within the meaning of ERISA Section 4001(a) (3)), a multiple
employer plan described in Code Section 413(c), or a "multiple employer
welfare arrangement" (within the meaning of ERISA Section 3(40)); and none
of the Company, any Subsidiary thereof or any Company ERISA Affiliate has
at any time within the past five years been obligated to contribute to, or
otherwise has or has had any liability with respect to, any multiemployer
plan, multiple employer plan, or multiple employer welfare arrangement. The
Company and its Subsidiaries have not made or incurred a "complete
withdrawal" or a "partial withdrawal," as such terms are defined in ERISA
Sections 4203 and 4205, from any multiemployer plan at any time during the
five-calendar-year period immediately preceding the date of this Agreement
and the transactions contemplated by the Agreement will not, in and of
themselves, give rise to such a "complete withdrawal" or "partial
withdrawal." Neither the Company nor any Subsidiary has incurred or is
aware of any withdrawal liability (as defined in Section 4201 of ERISA)
assessed against any of them with respect to any multiemployer plan.

3.8.10 Except as disclosed in Section 3.8.10 of the Company Disclosure
Schedule: (i) neither the Company nor any Subsidiary of the Company is
subject to any legal, contractual, equitable or other obligation to
establish as of any date any employee benefit plan of any nature, including
without limitation any pension, profit sharing, welfare, post-retirement
welfare, stock option, stock or cash award, nonqualified deferred
compensation or executive compensation plan, policy or practice, and (ii)
to the best knowledge of the Company, after review of all Company Benefit
Plan documents, the Company or one or more of its Subsidiaries may, in any
manner, and without the consent of any employee, beneficiary or dependent,
employees' organization or other person, terminate, modify or amend any
Company Benefit Plan or any other employee benefit plan, policy, program or
practice (or its participation in any such Company Benefit Plan or other
employee benefit plan, policy, program or practice) at any time sponsored,
maintained or contributed to by the Company or any of its Subsidiaries,
effective as of any date before, on or after the Effective Time except to
the extent that any retroactive amendment would be prohibited by ERISA
Section 204(g) or would deprive a plan participant of a benefit in which
such participant has a vested right.

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3.8.11 Except as disclosed in Section 3.8.11 of the Company Disclosure
Schedule, (i) no event constituting a "reportable event" (within the
meaning of ERISA Section 4043(b) and the regulations issued thereunder) for
which the 30-day notice requirement has not been waived by the PBGC has
occurred with respect to any Company Benefit Plan and (ii) no liability,
claim, action or litigation has been made, commenced or, to the best
knowledge of the Company, threatened, by or against the Company or any of
its Subsidiaries with respect to any Company Benefit Plan (other than for
benefits or PBGC premiums payable in the ordinary course) that is
reasonably likely to have a Company Material Adverse Effect.

3.9 Taxes. "Taxes," as used in this Agreement, means any federal, state,
county, local or foreign taxes, charges, fees, levies, or other assessments,
including all net income, gross income, sales and use, ad valorem, transfer,
gains, profits, excise, franchise, real and personal property, gross receipts,
capital stock, production, business and occupation, disability, employment,
payroll, license, estimated, stamp, custom duties, severance or withholding
taxes or charges imposed by any Governmental Entity, and includes any interest
and penalties (civil or criminal) on or additions to any such taxes and any
expenses incurred in connection with the determination, settlement or
litigation of any tax liability. "Tax Return," as used in this Agreement,
means a report, return or other information required to be supplied to a
Governmental Entity with respect to Taxes including, where permitted or
required, combined or consolidated returns for any group of entities that
includes the Company or any of its Subsidiaries, on the one hand, or Nipsco or
any of its Subsidiaries, on the other hand. "Tax Rulings," as used in this
Agreement, shall mean a written ruling of a taxing authority relating to
Taxes. "Closing Agreement," as used in this Agreement, shall mean a written
and legally binding agreement with a taxing authority relating to Taxes.
Except as disclosed in Section 3.9 of the Company Disclosure Schedule, there
are no Tax matters that, individually or in the aggregate, would reasonably be
likely to have a Company Material Adverse Effect.

3.9.1 Filing of Timely Tax Returns. The Company and each of its
Subsidiaries have filed all Tax Returns required to be filed by each of
them under applicable law. All Tax Returns were in all material respects
(and, as to Tax Returns not filed as of the date hereof, will be) true,
complete and correct and filed on a timely basis.

3.9.2 Payment of Taxes. The Company and each of its Subsidiaries have,
within the time and in the manner prescribed by law, paid (and until the
Closing Date will pay within the time and in the manner prescribed by law)
all Taxes that are currently due and payable except for Taxes for which
reserves have been taken on the Company Balance Sheet.

3.9.3 Tax Reserves. The Company and its Subsidiaries have established
(and until the Closing Date will maintain) on their books and records
reserves adequate to pay all Taxes and reserves for deferred income taxes
in accordance with GAAP.

3.9.4 Tax Liens. There are no Tax liens upon the assets of the Company or
any of its Subsidiaries except liens for Taxes not yet due.

3.9.5 Withholding Taxes. The Company and each of its Subsidiaries have
complied (and until the Closing Date will comply) in all material respects
with the provisions of the Code relating to the payment and withholding of
Taxes, including without limitation the withholding and reporting
requirements under Code Sections 1441 through 1464, 3401 through 3606, and
6041 and 6049, as well as similar provisions under any other laws, and have
within the time and in the manner prescribed by law withheld from employee
wages and paid over to the proper governmental authorities all amounts
required.

3.9.6 Extensions of Time for Filing Tax Returns. Neither the Company nor
any of its Subsidiaries has requested any extension of time within which to
file any Tax Return which Tax Return has not since been filed.

3.9.7 Waivers of Statute of Limitations. Neither the Company nor any of
its Subsidiaries has executed any outstanding waivers or comparable
consents regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns.

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3.9.8 Expiration of Statute of Limitations. The statute of limitations
for the assessment of all Taxes has expired for all applicable Tax Returns
of the Company and each of its Subsidiaries or those Tax Returns have been
examined by the appropriate taxing authorities for all periods through the
date hereof, and no deficiency for any Taxes has been proposed, asserted or
assessed against the Company or any of its Subsidiaries that has not been
resolved and paid in full.

3.9.9 Audit, Administrative and Court Proceedings. No audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Company or any of its
Subsidiaries.

3.9.10 Powers of Attorney. No power of attorney currently in force has
been granted by the Company or any of its Subsidiaries concerning any Tax
matter.

3.9.11 Tax Rulings. Neither the Company nor any of its Subsidiaries has
received a Tax Ruling or entered into a Closing Agreement with any taxing
authority that would have a continuing effect after the Closing Date.

3.9.12 Availability of Tax Returns. The Company and its Subsidiaries have
made available to the Company complete and accurate copies, covering all
open years, of (i) all Tax Returns, and any amendments thereto, filed by
the Company or any of its Subsidiaries, (ii) all audit reports received
from any taxing authority relating to any Tax Return filed by the Company
or any of its Subsidiaries and (iii) any Closing Agreements entered into by
the Company or any of its Subsidiaries with any taxing authority.

3.9.13 Tax-Sharing Agreements. Except as disclosed in Section 3.9.13 of
the Company Disclosure Schedule, there are no agreements relating to the
allocation or sharing of Taxes between or among the Company and any of its
Subsidiaries.

3.9.14 Code Section 341(f). Neither the Company nor any of its
Subsidiaries has filed a consent pursuant to Code Section 341(f) or has
agreed to have Code Section 341(f)(2) apply to any disposition of a
subsection (f) asset (as such term is defined in Code Section 341(f)(4))
owned by the Company or any of its Subsidiaries.

3.9.15 Code Section 168. No property of the Company or any of its
Subsidiaries is property that the Company or any such Subsidiary or any
party to this transaction is or will be required to treat as being owned by
another person pursuant to the provisions of Code Section 168(f)(8) (as in
effect prior to its amendment by the Tax Reform Act of 1986) or is tax-
exempt use property within the meaning of Code Section 168.

3.9.16 Code Section 481 Adjustments. Neither the Company nor any of its
Subsidiaries is required to include in income any adjustment pursuant to
Code Section 481(a) by reason of a voluntary change in accounting method
initiated by the Company or any of its Subsidiaries, and, to the best of
the knowledge of the Company, the IRS has not proposed any such adjustment
or change in accounting method.

3.9.17 Code Sections 6661 and 6662. The Company and its Subsidiaries have
or had substantial authority (within the meaning of Section 6661 of the
Code for Tax Returns filed on or before December 31, 1990, and within the
meaning of Section 6662 of the Code for Tax Returns filed after December
31, 1990) for all transactions that could give rise to an understatement of
federal income tax (within the meaning of Section 6661 of the Code for Tax
Returns filed on or before December 31, 1990, and within the meaning of
Section 6662 of the Code for Tax Returns filed after December 31, 1990).

3.9.18 Code Section 280G. Except as disclosed in Section 3.9.18 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a
party to any agreement, contract, or arrangement that could reasonably be
expected to result, on account of the transactions contemplated hereunder,
separately or in the aggregate, in the payment of any "excess parachute
payment" within the meaning of Code Section 280G.

3.9.19 NOLS. As of December 31, 1997, the Company and its Subsidiaries
had net operating loss carryovers available to offset future income as
disclosed in Section 3.9.19 of the Disclosure Schedule.

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Section 3.9.19 of the Disclosure Schedule discloses the amount of and year
of expiration of each company's net operating loss carryovers.

3.9.20 Credit Carryovers. As of December 31, 1997, the Company and its
Subsidiaries had tax credit carryovers available to offset future tax
liability as disclosed in Section 3.9.20 of the Company Disclosure
Schedule. Section 3.9.20 of the Company Disclosure Schedule discloses the
amount and year of expiration of each company's tax credit carryovers.

3.9.21 Code Section 338 Elections. No election under Code Section 338 (or
any predecessor provision) has been made by or with respect to the Company
or any of its Subsidiaries or any of their respective assets or properties.

3.9.22 Acquisition Indebtedness. No indebtedness of the Company or any of
its Subsidiaries is "corporate acquisition indebtedness" within the meaning
of Code Section 279(b).

3.9.23 Intercompany Transactions. Neither the Company nor any of its
Subsidiaries has engaged in any intercompany transactions within the
meaning of Treasury Regulations Section 1.1502-13 for which any income or
gain will remain unrecognized as of the close of the last taxable year
prior to the Closing Date.

3.9.24 Liability for Others. Neither the Company nor any of its
Subsidiaries has any liability for Taxes of any person other than the
Company and its Subsidiaries (i) under Treasury Regulations Section 1.1502-
6 (or any similar provision of state, local or foreign law) as a transferee
or successor, (ii) by contract or (iii) otherwise.

3.10 Compliance with Applicable Laws. Except as disclosed in Section 3.10 of
the Company Disclosure Schedule:

3.10.1 The business of the Company and each of its Subsidiaries is being
conducted in compliance in all material respects with all applicable laws,
ordinances, rules and regulations, decrees and orders of any Governmental
Entity, and all material notices, reports, documents and other information
required to be filed thereunder within three years of the date hereof were
properly filed and were in compliance in all material respects with such
laws.

3.10.2 Each of the Company and each of its Subsidiaries has all material
licenses (including, without limitation, utility licenses), permits,
authorizations, franchises and rights ("Licenses") that are necessary for
it to own or lease, as the case may be, and operate its properties and
assets and to conduct its business as now conducted. The business of the
Company and each of its Subsidiaries has been and is being conducted in
compliance in all material respects with all such Licenses. All
restrictions and limitations on those Licenses requested or required by any
utility regulator are disclosed in the Filed Company SEC Documents or in
Section 3.10 of the Company Disclosure Schedule. All such Licenses are in
full force and effect, and there is no proceeding or investigation pending
or, to the knowledge of the Company, threatened that would reasonably be
expected to lead to the revocation, amendment, failure to renew,
limitation, suspension or restriction of any such License.

3.10.3 The Company and each of its Subsidiaries that has been or is
required to do so has filed all forms, reports, statements and other
documents required by law to be filed by it with the FERC, MDPU, NHMPUC and
the MNEPUC, and such forms, reports, statements and other documents, did
not at the time they were filed contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.

3.11 Environmental Protection.

3.11.1 Except as disclosed in Section 3.11.1 of the Company Disclosure
Schedule or as disclosed in the Company SEC Documents, the Company and its
Subsidiaries are and have been in material compliance with all applicable
Environmental Laws (as defined in Section 3.11.7), except where the failure
to be or to have so been in material compliance, in the aggregate, is not
reasonably likely to have a Company Material

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Adverse Effect. Except as disclosed in Section 3.11.1 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries has
received any written notice from any person or Governmental Entity that
alleges that the Company or any of its Subsidiaries is not in material
compliance with applicable Environmental Laws, except where the failure to
be or to have so been in material compliance, in the aggregate, would not
have a Company Material Adverse Effect.

3.11.2 Except as disclosed in Section 3.11.2 of the Company Disclosure
Schedule or as disclosed in the Company SEC Documents, the Company and each
of its Subsidiaries have obtained or have applied for all material
environmental, health and safety permits and authorizations (collectively,
"Environmental Permits") necessary for the construction of their facilities
and the conduct of their operations, and all such Environmental Permits are
in good standing or, where applicable, a renewal application has been
timely filed and is pending agency approval, and the Company and its
Subsidiaries are in material compliance with all terms and conditions of
all such Environmental Permits, except where the failure to obtain such
Environmental Permits, to make such application, to be in such compliance
or to make such expenditures, in the aggregate, would not have a Company
Material Adverse Effect. The Company and each of its Subsidiaries have
taken, or prior to Closing will take, all necessary actions to ensure the
transferability of all Environmental Permits that are required with respect
to their respective businesses, operations and properties.

3.11.3 Except as disclosed in Section 3.11.3 of the Company Disclosure
Schedule or as disclosed in the Company SEC Documents, to the best
knowledge of the Company, no Environmental Claim (as defined in Section
3.11.7) is pending or, to the best knowledge of the Company, threatened:
(i) against the Company or any of its Subsidiaries; (ii) against any person
or entity whose liability for any Environmental Claim the Company or any of
its Subsidiaries has or may have retained or assumed either contractually
or by operation of law; or (iii) against any real or personal property or
operations that the Company or any of its Subsidiaries owns, leases or
manages, in whole or in part; that is reasonably likely in the aggregate to
have a Company Material Adverse Effect and the Company has no knowledge of
any facts likely to give rise to such Environmental Claim.

3.11.4 Except as disclosed in Section 3.11.4 of the Company Disclosure
Schedule or as disclosed in the Company SEC Documents, to the best
knowledge of the Company, there has been no Release (as defined in Section
3.11.7) of Hazardous Materials (as defined in Section 3.11.7) that would be
reasonably likely to (i) form the basis of any Environmental Claim against
the Company or any of its Subsidiaries, or against any person or entity
whose liability for any Environmental Claim the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law, or (ii) cause damage to or diminution in value of real
property or operations that the Company or any of its Subsidiaries owns,
leases, or manages, in whole or in part, except for Releases of Hazardous
Materials the liability for which would not in the aggregate have a Company
Material Adverse Effect.

3.11.5 Except as disclosed in Section 3.11.5 of the Company Disclosure
Schedule, or as disclosed in the Company SEC Documents, to the best
knowledge of the Company, with respect to any predecessor of the Company or
any of its Subsidiaries, there is no Environmental Claim pending or
threatened, or Release of Hazardous Materials, that would be reasonably
likely to form the basis of any Environmental Claims that are reasonably
likely to have, in the aggregate, a Company Material Adverse Effect.

3.11.6 To the best knowledge of the Company, the Company has disclosed to
Nipsco all facts and circumstances that are likely to form the basis of an
Environmental Claim or to require expenditures by the Company or any of its
Subsidiaries in order to comply with current or future applicable
Environmental Laws, including but not limited to facts and circumstances
arising from: (i) the cost of pollution-control equipment currently
required or known to be required in the future; (ii) current investigatory,
removal, remediation or response costs or investigatory, removal,
remediation or response costs known to be required in the future, in each
case, both on-site and off-site; and/or (iii) any other environmental
matters affecting the Company or any of its Subsidiaries; and that are
reasonably likely to have, in the aggregate, a Company Material Adverse
Effect.

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3.11.7 As used in this Agreement:

(a) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
non- compliance or violation by any person or entity (including without
limitation any Governmental Entity) alleging potential liability
(including without limitation potential liability for enforcement
costs, investigatory costs, cleanup costs, response costs, removal
costs, remedial costs, natural resources damages, property damages,
personal injuries, fines or penalties) arising out of, based on or
resulting from (i) the presence, or Release or threatened Release, of
any Hazardous Materials at any location, whether or not owned,
operated, leased or managed by the Company or any of its Subsidiaries
or joint ventures, (ii) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Laws or (iii) any
and all claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief
resulting from the presence or Release or threatened Release of any
Hazardous Materials.

(b) "Environmental Laws" means all federal, state and local laws,
rules and regulations, and any binding judicial or administrative
interpretation thereof or requirement thereunder relating to pollution
or protection of human health or the environment (including without
limitation ambient air, surface water, groundwater, land surface or
subsurface strata), including without limitation laws and regulations
relating to Releases or threatened Releases of Hazardous Materials or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials.

(c) "Hazardous Materials" means (i) any petroleum or petroleum
products or petroleum wastes (including crude oil or any fraction
thereof), nuclear fuel or waste or other radioactive materials, friable
asbestos or friable asbestos-containing material, urea formaldehyde
foam insulation, and transformers or other equipment that contain
dielectric fluid containing polychlorinated biphenyls, (ii) any
chemicals, materials or substances that are now defined as or included
in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," or words of
similar import, under any Environmental Law and (iii) any other
chemical, material, substance or waste, exposure to which is now
prohibited, limited or regulated under any Environmental Law in a
jurisdiction in which the Company or any of its Subsidiaries or joint
ventures operates.

(d) "Release" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, groundwater or property (indoors or
outdoors).

3.12 Litigation. Except as set forth in the Filed Company SEC Documents or
Section 3.12 of the Company Disclosure Schedule, there is no suit, claim,
action, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its
Subsidiaries, and the Company has no knowledge of any facts likely to give
rise to any such litigation, that, individually or in the aggregate, could
reasonably be expected to have a Company Material Adverse Effect or to
materially and adversely affect the Company's ability to consummate the
transactions contemplated hereby. Neither the Company nor any of its
Subsidiaries is subject to any outstanding order, writ, injunction or decree
that, individually or in the aggregate, could reasonably be expected to have a
Company Material Adverse Effect. Except as set forth in the Filed Company SEC
Documents or Section 3.12 of the Company Disclosure Schedule, none of the
Company's Subsidiaries whose rates or services are subject to regulation by a
Governmental Entity (i) has rates that have been or are being collected
subject to refund, pending final resolution of any proceeding pending before a
Governmental Entity or on appeal to the courts or (ii) is a party to any
proceeding before the Governmental Entity or on appeal from orders of the
Governmental Entity.

3.13 Labor Relations. Except as set forth in Section 3.13 of the Company
Disclosure Schedule:

3.13.1 Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or other current labor agreement with any
labor union or organization, and there is no current

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union representation question involving employees of the Company or any of
its Subsidiaries, nor does the Company or any of its Subsidiaries know of
any activity or proceeding of any labor organization (or representative
thereof) or employee group (or representative thereof) to organize any such
employees.

3.13.2 There is no unfair labor practice charge or grievance arising out
of a collective bargaining agreement or other grievance procedure against
the Company or any of its Subsidiaries pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened that could reasonably be
expected to have a Company Material Adverse Effect.

3.13.3 There is no complaint, lawsuit or proceeding in any forum by or on
behalf of any present or former employee, any applicant for employment or
any classes of the foregoing alleging breach of any express or implied
contract of employment, any law or regulation governing employment or the
termination thereof or other discriminatory, wrongful or tortious conduct
in connection with the employment relationship against the Company or any
of its Subsidiaries pending or, to the knowledge of the Company or any of
its Subsidiaries, threatened that could reasonably be expected to have a
Company Material Adverse Effect.

3.13.4 There is no strike, dispute, slowdown, work stoppage or lockout
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or involving the Company or any of its Subsidiaries that
could reasonably be expected to have a Company Material Adverse Effect.

3.13.5 The Company and each of its Subsidiaries is in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, except for noncompliance that could not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect.

3.13.6 There is no proceeding, claim, suit, action or governmental
investigation pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened in respect to which any current or former
director, officer, employee or agent of the Company or any of its
Subsidiaries is or may be entitled to claim indemnification from the
Company or any of its Subsidiaries pursuant to their respective articles of
organization or articles or certificates of incorporation or by-laws, as
provided in any indemnification agreement to which the Company or any of
its Subsidiaries is a party or pursuant to applicable law that could
reasonably be expected to have a Company Material Adverse Effect.

3.14 Intellectual Property. The Company and its Subsidiaries possess or have
adequate rights to use all material trademarks, trade names, patents, service
marks, brand marks, brand names, computer programs, databases, industrial
designs and copyrights necessary for the operation of their business
(collectively, the "Company Intellectual Property"), except where the failure
to possess or have adequate rights to use such properties would not have a
Company Material Adverse Effect. Except as set forth in Section 3.14 of the
Company Disclosure Schedule, all of the Company Intellectual Property is owned
by the Company or one of its Subsidiaries, free and clear of any and all
Encumbrances, except for those Encumbrances that would not, individually or in
the aggregate, have a Company Material Adverse Effect, and neither the Company
nor any of its Subsidiaries has forfeited or otherwise relinquished any
Company Intellectual Property which forfeiture would have a Company Material
Adverse Effect. To the knowledge of the Company, the use of the Company
Intellectual Property by the Company or its Subsidiaries does not, in any
material respect, conflict with, infringe upon, violate or interfere with or
constitute an appropriation of any right, title, interest or goodwill
(including, without limitation, any intellectual property right, trademark,
trade name, patent, service mark, brand mark, brand name, computer program,
database, industrial design, copyright or any pending application therefor) of
any other person, and neither the Company nor any of its Subsidiaries has
received notice of any claim or otherwise knows that any of the Company
Intellectual Property is invalid, conflicts with the asserted rights of any
other person, has not been used or enforced or has failed to be used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of any of the Company Intellectual Property, except for such
conflicts, infringements, violations, interferences, claims, invalidity,
abandonments, cancellations or unenforceability that would not, individually
or in the aggregate, have a Company Material Adverse Effect.

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3.15 No Default. Neither the Company nor any of its Subsidiaries is in
default or violation (and no event has occurred that, with notice or the lapse
of time or both, would constitute a default or violation) of any term,
condition or provision of (i) its articles of organization or articles or
certificate of incorporation or by-laws, (ii) any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which it is
now a party or by which it or any of its properties or assets may be bound
(except for the requirement under certain of such instruments to file
supplemental indentures as a result of the transactions contemplated hereby)
or (iii) any order, writ, injunction, decree, statute, rule or regulation
applicable to it, except in the case of (ii) and (iii) for defaults or
violations that in the aggregate would not have a Company Material Adverse
Effect. The Company and each of its Subsidiaries have fulfilled, and have
taken all action reasonably necessary to date to enable them to fulfill when
due, all of their material obligations under all contracts, commitments and
arrangements and, to the knowledge of the Company, no breach or default by any
other party under such contracts, commitments or arrangements has occurred or
is threatened that will or could impair the ability of the Company or any of
its Subsidiaries to enforce any of its rights thereunder in any material
respect.

3.16 Regulation as a Utility. The Company is regulated as a gas utility in
the Commonwealth of Massachusetts and in no other state; Northern is regulated
as a gas utility in the states of New Hampshire and Maine. Except as disclosed
in Section 3.16 of the Company Disclosure Schedule, neither the Company nor
any "subsidiary company" or "affiliate" (as such terms are defined in the 1935
Act) of the Company is subject to regulation as a public utility or public
service company (or similar designation) by any other state in the United
States, by the United States or any agency or instrumentality of the United
States or by any foreign country. The Company is a holding company exempt
under Section 3(a)(2) pursuant to Rule 2 from all provisions of the 1935 Act
except Section 9(a)(2).

3.17 Insurance. Except as disclosed in Section 3.17 of the Company
Disclosure Schedule, each of the Company and each of its Subsidiaries is, and
has been continuously since January 1, 1991, insured with financially
responsible insurers in such amounts and against such risks and losses as are
customary for companies engaged in the respective businesses conducted by the
Company and its Subsidiaries during such time period. Except as disclosed in
Section 3.17 of the Company Disclosure Schedule, neither the Company nor any
of its Subsidiaries has received any notice of cancellation or termination
with respect to any insurance policy. All insurance policies of the Company
and its Subsidiaries are valid and enforceable policies.

3.18 Voting Requirements. The affirmative vote of the holders of two-thirds
of the outstanding Company Shares, are the only votes of the holders of any
class or series of the Company's capital stock necessary to approve this
Agreement and the transactions contemplated by this Agreement (the "Company
Requisite Vote").

3.19 Brokers. Except as relates to the services provided by SG Barr Devlin,
formerly Barr Devlin & Co. Incorporated ("Barr Devlin") as financial advisors
to the Company, all negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Company directly
with Nipsco, without the intervention of any person on behalf of the Company
in such manner as to give rise to any valid claim by any person against
Nipsco, the Company or any of their respective Subsidiaries for a finder's
fee, brokerage commission or similar payment.

3.20 Opinion of Financial Advisor. The Company has received the opinion of
Barr Devlin, dated the date hereof, to the effect that, as of the date hereof,
the consideration to be received by holders of Company Shares pursuant to the
Merger is fair to such holders from a financial point of view.

3.21 Change in Business Relationships. The Company has no knowledge of any
event or circumstance that indicates that, whether on account of the
transactions contemplated by this Agreement or otherwise, any customer, agent,
representative or supplier of the Company or of any of its Subsidiaries
intends to discontinue, diminish or change its relationship with the Company
or any of its Subsidiaries in any way that would be reasonably likely to have
a Company Material Adverse Effect.

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3.22 Material Contracts. Section 3.22 of the Disclosure Schedule lists each
oral and written contract, commitment or arrangement of which the Company has
knowledge that is of a material nature (or that assumes materiality because of
its continuing nature) and under which the Company or any of its Subsidiaries
is obligated on the date hereof, including the following:

3.22.1 All consulting arrangements and contracts for professional,
advisory and other services, including contracts under which the Company or
any of its Subsidiaries performs services for others;

3.22.2 All leases of real or personal property, other than leases of
personal property whereunder total future rentals are, in each instance,
less than $1,000,000;

3.22.3 All contracts, commitments and agreements for the acquisition,
development or disposition of real or personal property, other than
conditional sales contracts and security agreements whereunder total future
payments are, in each instance, less than $1,000,000;

3.22.4 All contracts relating to the source or supply of gas and other
raw materials essential to the conduct of the business of the Company or
any of its Subsidiaries, including any financial derivatives master
agreements of transactions, confirmations, or futures account opening
agreements and/or brokerage statements evidencing financial hedging or
other trading activities;

3.22.5 All contracts relating to the employment, engagements,
compensation or termination of directors, officers, employees or agents of
the Company or any of its Subsidiaries and all pension, retirement, profit
sharing, stock option, stock purchase, stock appreciation, insurance or
similar plans or arrangements for the benefit of any employees, officers or
directors of the Company or any of its Subsidiaries, including all Company
Benefit Plans (as defined in Section 3.8.1);

3.22.6 All loans, loan commitments, letters of credit or other financial
accommodations or arrangements or evidences of indebtedness, including
modifications or amendments thereof, extended to or for the benefit of the
Company or any of its Subsidiaries;

3.22.7 All union and other labor contracts; and

3.22.8 All other material contracts made other than in the usual or
ordinary course of business of the Company or any of its Subsidiaries to
and which the Company or any of its Subsidiaries is a party or under which
the Company or any of its Subsidiaries is obligated.

3.23 Commodity Derivatives and Credit Exposure Matters. Neither the Company
nor any of its Subsidiaries has quantified on a mark-to-market basis and
calculated with respect to physical and financial position exposure, (a)
natural gas forward price exposure exceeding $5,000, (b) on-system pipeline
transportation (basis) exposure exceeding $5,000, (c) off-system pipeline
transportation (basis) exposure exceeding $5,000 or (d) credit exposure (which
is unsecured and not backed by letters of credit or enforceable guarantees
from A-rated credit providers) to any one counterparty which exceeds
$1,000,000.

3.24 No Omissions. None of the information included in the Company
Disclosure Schedule or in the Company SEC Documents (including, without
limitation, the consolidated financial statements included therein) was, as of
the date such information was included in such Schedule or such Documents,
false or misleading in any material respect or omitted to state a fact therein
necessary to make such information not misleading in any material respect.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF NIPSCO

Nipsco hereby represents and warrants to the Company as follows:

4.1 Organization, Standing and Corporate Power. Nipsco is a corporation duly
organized and validly existing under the laws of the State of Indiana. Nipsco
has the requisite corporate power and authority to carry

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on its business as now being conducted, and Nipsco is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary except where the failure to be so
qualified or licensed would not individually or in the aggregate have a Nipsco
Material Adverse Effect. As used in this Agreement, the term "Nipsco Material
Adverse Effect" means a material adverse effect on the business, assets,
liabilities, results of operations, financial condition or prospects of Nipsco
and its Subsidiaries taken as a whole. Nipsco has delivered to the Company
complete and correct copies of its articles of incorporation and by-laws, as
amended to the date of this Agreement.

4.2 Nipsco Capital Structure.

4.2.1 As of the date hereof, the authorized capital stock of Nipsco
consists of 200,000,000 Nipsco Common Shares and 20,000,000 shares of
preferred stock, without par value ("Nipsco Preferred Shares"). At the
close of business on December 12, 1997, (i) 62,196,673 Nipsco Common Shares
were issued and outstanding, and (ii) 11,695,436 Nipsco Common Shares were
held as treasury shares. Nipsco has no Nipsco Common Shares or Nipsco
Preferred Shares reserved for issuance, except that, as of December 12,
1997, there were 1,094,900 Nipsco Common Shares reserved for issuance
pursuant to Nipsco's Long-Term Incentive Plans and its Nonemployer Director
Stock Incentive Plan (the "Nipsco Stock Plans") and 2,000,000 Series A
Junior Participating Preferred Shares reserved for issuance pursuant to
Nipsco's Share Purchase Rights Plan. All outstanding shares of capital
stock of Nipsco are, and all Nipsco Common Shares that may be issued in
connection with the Merger will be when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
No bonds, debentures, notes or other indebtedness of Nipsco conferring the
right to vote (or convertible into, or exchangeable for, securities
conferring the right to vote) on any matters on which the shareholders of
Nipsco may vote are issued or outstanding. Except as set forth above or in
Section 4.2.1 of the disclosure schedule dated as of the date hereof of
Nipsco (the "Nipsco Disclosure Schedule"), Nipsco does not have any
outstanding option, warrant, subscription or other right, agreement or
commitment that either obligates Nipsco to issue, sell or transfer,
repurchase, redeem or otherwise acquire or vote any shares of capital stock
of Nipsco or its Subsidiaries or that restricts the transfer of Nipsco
Common Shares.

4.2.2 Prior to the Effective Time, the authorized capital stock of
Acquisition will consist of 1,000 common shares, without par value, all of
which will be issued and outstanding and owned by Nipsco. All such
outstanding common shares will be duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights.

4.3 Subsidiaries. Section 4.3 of the Nipsco Disclosure Schedule sets forth
the name of each of Nipsco's Subsidiaries and the jurisdiction of its
organization. Except as set forth in Schedule 4.3, Nipsco is, directly or
indirectly, the record and beneficial owner of all of the outstanding shares
of capital stock or other ownership units of each of its Subsidiaries, and no
Nipsco Subsidiary has any outstanding option, warrant, subscription or other
right, agreement or commitment that obligates either Nipsco or any of its
Subsidiaries to issue, sell or transfer, repurchase, redeem or otherwise
acquire or vote any shares of the capital stock of Nipsco or any of its
Subsidiaries, or that restricts the transfer of Nipsco Common Shares. All the
outstanding shares of capital stock of each Nipsco Subsidiary have been
validly issued and are fully paid and nonassessable and are owned by Nipsco or
a wholly owned Subsidiary, free and clear of all Encumbrances, restraints on
alienation, or any other restrictions with respect to the transferability or
assignability thereof (other than restrictions imposed by federal or state
securities laws). A "Subsidiary" of Nipsco means any corporation or other
entity (including joint ventures, partnerships and other business
associations) in which Nipsco directly or indirectly owns outstanding capital
stock or other voting securities having the power to elect a majority of the
directors or similar members of the governing body of such corporation or
other entity, or otherwise to direct to the management and policies of such
corporation or other entity.

4.4 Authority; Noncontravention. Nipsco has, and as of the Effective Time
Acquisition will have, all requisite corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. The execution
and delivery of this Agreement by Nipsco and the consummation by it of the
transactions

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contemplated hereby has been duly authorized by all necessary corporate action
on the part of Nipsco. This Agreement has been duly executed and delivered by
Nipsco and, assuming this Agreement has been duly executed and delivered by
the Company, constitutes a valid and binding obligation of Nipsco, enforceable
against it in accordance with its terms, except that the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors' rights
generally and by general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity). Except as
set forth in Section 4.4 of the Nipsco Disclosure Schedule, the execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions hereof will
not, (i) conflict with any of the provisions of the articles of incorporation
or by-laws of Nipsco or Acquisition or conflict with the joint venture
agreement or comparable document of any joint venture, partnership or other
business association or entity to which Nipsco or Acquisition is a party (ii)
subject to the governmental filings and other matters referred to in the
following sentence, conflict with, result in a breach of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or require the consent (the "Nipsco Required
Consents") of any person under, any indenture, or other agreement, permit,
concession, franchise, license or similar instrument or undertaking to which
Nipsco or any of its Subsidiaries is a party or by which Nipsco or any of its
Subsidiaries or any of their assets is bound or affected, or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, contravene any law, rule or regulation of any state or of the United
States or any political subdivision thereof or therein, or any order, writ,
judgment, injunction, decree, determination or award currently in effect,
subject, in the case of clauses (ii) and (iii) above, to those conflicts,
breaches, defaults and similar matters that, individually or in the aggregate,
would not have a Nipsco Material Adverse Effect nor materially and adversely
affect Nipsco's ability to consummate the transactions contemplated hereby. No
consent, approval or authorization of, or declaration or filing with, or
notice to, any Governmental Entity that has not been received or made is
required by or with respect to Nipsco in connection with the execution and
delivery of this Agreement by Nipsco or the consummation by it of any of the
transactions contemplated hereby, except for (a) the filing of pre-merger
notification and report forms under the HSR Act with respect to the Merger;
(b) the filing with the SEC of a registration statement on Form S-4 by Nipsco
in connection with the issuance of Nipsco Common Shares in the Merger (the
"Registration Statement") and such reports under the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated
by this Agreement; (c) the filing of articles of merger with the Massachusetts
Secretary and appropriate documents with the relevant authorities of the other
states in which the Company is qualified to do business; (d) filing with the
SEC for authorization of the Merger under Section 9(a)(2) of the 1935 Act; and
(e) such other consents, approvals, authorizations, filings or notices as are
set forth in Section 4.4 of the Nipsco Disclosure Schedule or as, in the
aggregate could not reasonably be expected to have a Nipsco Material Adverse
Effect (collectively, the "Nipsco Required Statutory Approvals").

4.5 Nipsco SEC Documents and Financial Statements.

4.5.1 Nipsco has timely filed all required reports, schedules, forms,
statements and other documents with the SEC since January 1, 1992 (the
"Nipsco SEC Documents"). As of their respective dates (or, with respect to
any amendment to the Nipsco SEC Documents, as of the date of the filing of
such amendment), the Nipsco SEC Documents complied with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such Nipsco
SEC Documents, and none of the Nipsco SEC Documents as of such dates
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.

4.5.2 The consolidated financial statements of Nipsco included in the
Nipsco SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
(except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as permitted by Rule 10-01 of
Regulation S-X) and fairly present, in all material respects, the
consolidated financial position of Nipsco and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their

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operations, changes in shareholders' equity and consolidated cash flows for
the periods then ended (subject, in the case of unaudited financial
statements, to normal recurring adjustments, none of which is material).

4.5.3 Except as disclosed in the Nipsco SEC Documents filed and publicly
available prior to December 16, 1997 (the "Filed Nipsco SEC Documents") or
in the Nipsco Disclosure Schedule, neither Nipsco nor any of its
Subsidiaries has any absolute, accrued, contingent or other liabilities or
obligations due or to become due, and there are no claims or causes of
action formerly maintained by Nipsco or any of its Subsidiaries or a Nipsco
ERISA Affiliate (as defined in Section 4.8.1) on or after January 1, 1992)
that have been or, to the knowledge of the officers of Nipsco and its
Subsidiaries and divisions, the members of Nipsco's legal department and
the director(s), manager(s) or supervisor(s) of Nipsco's environmental
compliance and affairs, may be asserted against Nipsco or any of its
Subsidiaries, except (i) as and to the extent reflected or reserved against
on the balance sheet included in Nipsco's Annual Report on Form 10-K for
the year ended December 31, 1996 (the "Nipsco Base Balance Sheet"), or
included in the notes to the Nipsco Base Balance Sheet, (ii) for normal and
recurring liabilities incurred since December 31, 1996, in the ordinary
course of business consistent with past practice, and (iii) for such other
liabilities and obligations that are not in the aggregate reasonably likely
to have a Nipsco Material Adverse Effect.

4.6 Absence of Certain Changes or Events.

(a) Except as set forth in the Nipsco SEC Documents filed prior to the
date hereof or in Section 4.6 of the Nipsco Disclosure Schedule, from
December 31, 1996 there has not been, and no fact or condition exists that
would reasonably be expected to have, a Nipsco Material Adverse Effect.

(b) Neither Nipsco nor any of its Subsidiaries has any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of a
nature required by GAAP to be reflected in a consolidated corporate balance
sheet, except liabilities, obligations or contingencies that are accrued or
reserved against in the consolidated financial statements of Nipsco or
reflected in the notes thereto for the year ended December 31, 1996, or
that were incurred after December 31, 1996 in the ordinary course of
business and would not reasonably likely have a Nipsco Material Adverse
Effect.

4.7 Employee Matters; ERISA. Each employee benefit plan, program, policy,
agreement or arrangement maintained by Nipsco or its Subsidiaries is and has
been operated in compliance with its terms and all applicable laws, rules, and
regulations governing such plans, including without limitation ERISA and the
Code, except for violations that could not reasonably be expected to have a
Nipsco Material Adverse Effect.

4.8 Taxes.

4.8.1 Filing of Timely Tax Returns. Nipsco and each of its Subsidiaries
have filed all Tax Returns required to be filed by each of them under
applicable law. All Tax Returns were in all material respects (and, as to
Tax Returns not filed as of the date hereof, will be) true, complete and
correct and filed on a timely basis except for where the failure to do so
would not have a Nipsco Material Adverse Effect.

4.8.2 Payment of Taxes. Neither Nipsco nor any of its Subsidiaries have
any liability for unpaid Taxes that, in the aggregate, would be reasonably
likely to have a Nipsco Material Adverse Effect.

4.9 Environmental Matters.

4.9.1 Environmental Matters. Except as would not, in the aggregate, be
reasonably expected to result in a Nipsco Material Adverse Effect, but
excluding matters disclosed in Section 4.9.1 of the Nipsco Disclosure
Schedule, (i) Nipsco and its Subsidiaries are and have been in material
compliance with all applicable Environmental Laws and the terms and
conditions of all applicable Environmental Permits, and neither Nipsco nor
any of its Subsidiaries has received any written notice from any person or
Governmental Entity that alleges that Nipsco or any of its Subsidiaries is
not in material compliance with applicable Environmental Laws or the terms
and conditions of all such Environmental Permits, (ii) to the best
knowledge of Nipsco, there are no Environmental Claims pending or
threatened (a) against Nipsco or any of its Subsidiaries, (b) against any
person or entity whose liability for any Environmental Claim Nipsco or

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any of its Subsidiaries has or may have retained or assumed either
contractually or by operation of law or (c) against any real or personal
property or operations that Nipsco or any of its Subsidiaries owns, leases
or manages, in whole or in part, and (iii) to the best knowledge of Nipsco,
there has been no Release of Hazardous Materials that would be reasonably
likely to (a) form the basis of any Environmental Claim against Nipsco or
any of its Subsidiaries or against any person or entity whose liability for
any Environmental Claim Nipsco or any of its Subsidiaries has or may have
retained or assumed either contractually or by operation of law or (b)
cause damage or diminution of value to any of the operations or real
properties owned, leased or managed, in whole or in part, by Nipsco or any
of its Subsidiaries.

4.9.2 To the best knowledge of Nipsco, there are no facts or
circumstances that are likely to form in the basis of an Environmental
Claim or to require expenditures by Nipsco or any of its Subsidiaries in
order to comply with currently applicable Environmental Laws, including but
not limited to facts and circumstances arising from: (i) the cost of
pollution-control equipment currently required or known to be required in
the future; (ii) current investigatory, removal, remediation or response
costs or investigatory, removal, remediation or response costs known to be
required in the future, in each case, both on-site and off-site; and/or
(iii) any other environmental matters affecting Nipsco or any of its
Subsidiaries; and that are reasonably likely to have, in the aggregate, but
excluding matters disclosed in Section 4.9.2 of the Nipsco Disclosure
Schedule, a Nipsco Material Adverse Effect.

4.10 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Nipsco directly with
the Company, without the intervention of any person on behalf of Nipsco in
such manner as to give rise to any valid claim by any person against the
Company or any of its Subsidiaries for a finder's fee, brokerage commission or
similar payment.

4.11 No Omissions. None of the information included in the Nipsco Disclosure
Schedule or in the Nipsco SEC Documents (including, without limitation, the
consolidated financial statements included therein) was, as of the date such
information was included in such Schedule or Documents, false or misleading in
any material respect or omitted to state a fact therein necessary to make such
information not misleading in any material respect.

4.12 Regulation as a Utility. Nipsco is a public utility holding company
within the meaning of the 1935 Act and is either exempt from, or is in
compliance with, all provisions thereof.

4.13 Compliance. Nipsco and its Subsidiaries hold all permits, licenses,
variances, exemptions, orders, franchises, consents and approvals of all
Governmental Entities necessary for them to own, lease and operate their
properties and assets, and to lawfully conduct their respective businesses,
except where the failure to so hold would not have a Nipsco Material Adverse
Effect. Except as set forth in Section 4.13 of the Nipsco Disclosure Schedule
or as disclosed in the Nipsco SEC Documents filed as of the date hereof,
Nipsco and its Subsidiaries are not conducting their business in violation of,
nor have they received notice of an investigation with respect to any
violation of, any law, statute, order, rule, regulation, ordinance or judgment
of any Governmental Authority, except for violations that do not have, and
would not be reasonably likely to have, a Nipsco Material Adverse Effect.

ARTICLE V

ADDITIONAL AGREEMENTS

5.1 Preparation of Registration Statement and Proxy Statement.

5.1.1 Registration Statement; Proxy Statement. As soon as practicable
following the date of this Agreement, the Company shall prepare and file
with the SEC a preliminary proxy statement relating to the Company Special
Meeting (as defined in Section 5.2) as such preliminary proxy statement may
be amended from time to time (the "Proxy Statement"), and Nipsco shall
prepare and file with the SEC the Registration Statement including a
prospectus relating to the Nipsco Common Shares, as amended or supplemented
from

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time to time (the "Prospectus"). Nipsco shall use its best efforts to have
the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing. The Company shall use its best
efforts to cause the Proxy Statement to be mailed to the Company's
shareholders as promptly as practicable after the Registration Statement is
declared effective under the Securities Act. Nipsco shall also take any
action (other than qualifying to do business in any jurisdiction in which
it is not now so qualified) required to be taken under any applicable state
securities laws in connection with the issuance of the Nipsco Common Shares
in the Merger, and the Company shall furnish all information concerning the
Company and the holders of the Company Common Shares as may be reasonably
requested in connection with any such action. It shall be a condition to
the requirement of the Company to mail the Proxy Statement to its
shareholders that the Company shall have received an opinion from Barr
Devlin, dated the date of the Proxy Statement, to the effect that, as of
the date thereof, the consideration to be received by holders of Company
Shares pursuant to the Merger is fair to such holders from a financial
point of view.

5.1.2 Company Information. The Company agrees that none of the
information supplied or to be supplied by the Company specifically for
inclusion or incorporation by reference in (i) the Registration Statement
shall, at the time the Registration Statement is filed with the SEC, at any
time it is amended or supplemented or at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statement therein not misleading and (ii) the Proxy
Statement shall, at the date it is first mailed to the Company's
shareholders or at the time of the Company Special Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement shall comply as to form in all material
respect with the requirements of the Exchange Act and the rules and
regulations thereunder, except with respect to statements made or
incorporated by reference therein based on information supplied by Nipsco
specifically for inclusion or incorporation by reference in the Proxy
Statement.

5.1.3 Nipsco Information. Nipsco agrees that none of the information
supplied or to be supplied by Nipsco specifically for inclusion or
incorporation by reference in (i) the Registration Statement shall, at the
time the Registration Statement is filed with the SEC, at any time it is
amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and (ii) the Proxy Statement shall,
at the date the Proxy Statement is first mailed to the Company's
shareholders or at the time of the Company Special Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement shall comply as to form in all
material respects with the requirements of the Securities Act and the rules
and regulations promulgated thereunder, except with respect to statements
made or incorporated by reference in either the Registration Statement or
the Proxy Statement based on information supplied by the Company
specifically for inclusion or incorporation by reference therein.

5.2 Meeting of the Company's Shareholders. The Company shall take all action
necessary in accordance with applicable federal and state law and the Charter
and By-laws to convene a meeting of its shareholders as promptly as
practicable and consistent with Section 5.1.1 (the "Company Special Meeting")
to consider and vote upon the approval of the Merger. Subject to Section 5.10,
the Company shall, through its board of directors (the "Company Board"),
recommend to its shareholders approval of the Merger. Without limiting the
generality of the foregoing, the Company agrees that, subject to its right to
terminate this Agreement pursuant to Section 8.12(v), its obligations pursuant
to the first sentence of Section 5.2 shall not be affected by (i) the
commencement, public proposal, public disclosure or communication to the
Company of any Acquisition Proposal (as defined in Section 5.9) or (ii) the
withdrawal or modification by the Company Board of its approval or
recommendation of this Agreement or the Merger. Subject to Sections 5.9 and
5.10, the Company shall use its best efforts to obtain the favorable vote of
its shareholders as soon as practicable after the date hereof. It shall be a
condition to the obligation of the Company to hold the Company Special Meeting
that the opinion of Barr Devlin referred to in Section 5.1.1 shall not have
been withdrawn.

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5.3 Affiliates and Certain Shareholders. Prior to the Closing Date, the
Company shall deliver to Nipsco a letter identifying all persons who it
believes to be, at the time the Merger is submitted for approval to the
shareholders of the Company, "affiliates" of the Company for purposes of Rule
145 under the Securities Act. The Company shall use its best efforts to cause
each such person to deliver to Nipsco on or prior to the Closing Date a
written agreement in connection with restrictions on affiliates under Rule
145, in substantially the form attached as Exhibit A to this Agreement. Nipsco
shall not be required to maintain the effectiveness of the Registration
Statement or any other registration statement under the Securities Act for the
purposes of resale of Nipsco Common Shares by such affiliates, and the
certificates representing Nipsco Common Shares received by such affiliates in
the Merger shall bear a customary legend regarding applicable Securities Act
restrictions and the provisions of this Section 5.3. The Company shall use its
best efforts to obtain from each of the beneficial owners (within the meaning
of Rule 13d-3 and Rule 13d-5 of the Exchange Act) of 5% or more of the Company
Common Shares such representation letters addressed to Nipsco, SH&W and LLG&M
as such law firms shall require in connection with the delivery of their Tax
Opinions pursuant to Sections 7.2.3 and 7.3.3, respectively.

5.4 Best Efforts. Upon the terms and subject to the conditions and other
agreements set forth in this Agreement, each of the parties agrees to use its
best efforts to take, or cause to be taken, all actions, and to do, or cause
to be done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement.

5.5 Letter of the Company's Accountants. Following receipt by KPMG Peat
Marwick LLP, the Company's independent auditors, of an appropriate request
from Nipsco pursuant to SAS No. 72, the Company shall use best efforts to
cause to be delivered to Nipsco a letter of KPMG Peat Marwick LLP, dated a
date within two business days before the effective date of the Registration
Statement, and addressed to Nipsco, in form and substance reasonably
satisfactory to Nipsco and customary in scope and substance for "cold comfort"
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.

5.6 Letter of Nipsco's Accountants. Following receipt by Arthur Andersen
LLP, Nipsco's independent auditors, of an appropriate request from the Company
pursuant to SAS No. 72, Nipsco shall use best efforts to cause to be delivered
to the Company a letter of Arthur Andersen LLP, dated a date within two
business days before the effective date of the Registration Statement, and
addressed to the Company, in form and substance reasonably satisfactory to the
Company and customary in scope and substance for "cold comfort" letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.

5.7 Access to Information; Confidentiality. Upon reasonable notice, (i) the
Company shall, and shall cause its Subsidiaries to, afford to the officers,
employees, accountants, counsel, financial advisors and other representatives
of Nipsco, reasonable access during normal business hours during the period
prior to the Effective Time to all its properties, books, contracts,
commitments, personnel and records and (ii) Nipsco shall, and shall cause its
Subsidiaries to, afford to the officers, employees, accountants, counsel,
financial advisors and other representatives of Brass, reasonable access to
senior executives of Nipsco for the purpose of discussing Nipsco's business
(with reasonable access to the documents related thereto) during the period
sixty (60) days prior to the Effective Time. Prior to the Effective Time, each
of the Company and Nipsco shall furnish promptly to the other party a copy of
each Company SEC Document or Nipsco SEC Document, as the case may be, filed by
it (including any separate Subsidiary) during such period, and all
correspondence or written communication with any securities rating agency or
any Governmental Entity or utility regulatory authorities (that relates to the
transactions contemplated hereby or, subject to the terms of any then existing
confidentiality requirements, that is otherwise material to the financial
condition or operations of the Company and its Subsidiaries taken as a whole,
or to Nipsco and its Subsidiaries taken as a whole, as the case may be).
During such period, each of the Company and Nipsco shall furnish to the other
party such other financial, operating and other data as may be reasonably
required by the other party in order to perform its investigation regarding
the representations and

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warranties made by the other party pursuant to this Agreement. Each of Nipsco
and the Company agrees that it shall not, and that it shall cause its
respective representatives not to, use any information obtained pursuant to
this Section 5.7 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement. Except as required by law, each
of the Company and Nipsco shall hold, and shall cause its respective
directors, officers, partners, employees, accountants, counsel, financial
advisors and other representatives and affiliates to hold, any nonpublic
information obtained from the other party in confidence to the extent required
by, and in accordance with, the provisions of the letter agreement dated
October 27, 1997, as amended, between Nipsco and the Company (the
"Confidentiality Agreement").

5.8 Public Announcements. Nipsco and the Company shall consult with each
other before issuing, and shall provide each other a reasonable opportunity to
review and comment upon, any press release or public statement with respect to
this Agreement or the transactions contemplated hereby, except to the extent
disclosure prior to such consultation, review and comment may be required by
applicable law, court process or obligations pursuant to any listing agreement
with any national securities exchange.

5.9 Acquisition Proposals. The Company shall not, nor shall it authorize or
permit any officer, director or employee of, or any investment banker,
attorney or other advisor or representative of, the Company or any of its
Subsidiaries to, directly or indirectly, (i) solicit, initiate or encourage
the submission of any Acquisition Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal; provided,
however, that nothing contained in this Section 5.9 shall prohibit the Company
Board from furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited Acquisition
Proposal after the date hereof if, and only to the extent that, (a) the
Company Board, after consultation with and based upon the advice of outside
counsel, concludes in good faith that a failure to do so could reasonably be
expected to result in a breach of its fiduciary duties to the shareholders of
the Company under applicable law and (b) the Company (x) provides reasonable
notice to Nipsco to the effect that it is taking such action and (y) receives
from such person or entity an executed confidentiality agreement not less
favorable to the Company than the Confidentiality Agreement, except that such
confidentiality agreement shall not prohibit such person or entity from making
an unsolicited Acquisition Proposal to the Company Board. Notwithstanding
anything in this Agreement to the contrary, the Company shall promptly advise
Nipsco orally and in writing of the receipt by it (or by any of the other
entities or persons referred to above) after the date hereof of any
Acquisition Proposal, or any inquiry that could reasonably be expected to lead
to any Acquisition Proposal, the material terms and conditions of such
Acquisition Proposal or inquiry, and the identity of the person or entity
making any such Acquisition Proposal or inquiry, provided that the Company
shall have no obligation to disclose the identity of such person or entity if
such disclosure would violate the terms of any agreement outstanding on the
date hereof with such person or entity, or the Company Board, after
consultation with and based upon the advice of outside counsel, concludes in
good faith that such disclosure would violate its fiduciary duties or would be
otherwise inconsistent with applicable law. For purposes of this Agreement,
"Acquisition Proposal" means any bona fide proposal with respect to a merger,
consolidation, share exchange or similar transaction involving the Company or
any of its Subsidiaries, or any purchase of all or a substantial portion of
the assets or shares of the Company or any of its Subsidiaries, or any other
business combination (including without limitation the acquisition of an
equity interest therein) involving the Company or any of its Subsidiaries,
other than the transactions contemplated hereby.

5.10 Fiduciary Duties. The Company Board shall not (i) withdraw or modify
its approval or recommendation of this Agreement or the Merger, (ii) approve
or recommend an Acquisition Proposal or (iii) enter into any agreement with
respect to any Acquisition Proposal, unless the Company receives an
Acquisition Proposal and the Company Board concludes in good faith, after
consultation with and based upon the advice of outside counsel, that a failure
to do so could reasonably be expected to result in a breach of its fiduciary
duties to the shareholders of the Company under applicable law, it is
necessary for the Company Board to withdraw or modify its approval or
recommendation of this Agreement or the Merger, approve or recommend such
Acquisition Proposal or enter into an agreement with respect to such
Acquisition Proposal. Nothing contained in

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this Section 5.10 shall prohibit the Company from taking and disclosing to its
shareholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act or from making any disclosure to the Company's shareholders that,
in the good faith judgment of the Company Board based on advice of outside
counsel, is required under applicable law; provided that the Company does not
withdraw or modify its position with respect to the Merger or approve or
recommend an Acquisition Proposal, except under the circumstances described in
the immediately preceding sentence. In the event that the Company Board shall
act pursuant to this Section 5.10, Nipsco's remedies shall be limited to the
fees specified in Sections 8.2.4 and 8.2.5.

5.11 Filings; Other Action.

5.11.1 HSR Act. Nipsco and the Company shall file or cause to be filed
with the Federal Trade Commission and the Department of Justice any
notifications required to be filed by them under the HSR Act and the rules
and regulations promulgated thereunder with respect to the transactions
contemplated hereby. Such parties shall use all commercially reasonable
efforts to make such filings promptly and to respond on a timely basis to
any requests for additional information made by either of such agencies.

5.11.2 Other Regulatory Approvals. Nipsco and the Company shall cooperate
and use all reasonable efforts to promptly prepare and file all necessary
documentation, to effect all necessary applications, notices, petitions,
filings and other documents, and to use all commercially reasonable efforts
to obtain (and shall cooperate with each other in obtaining) any consent,
acquiescence, authorization, order or approval of, or any exemption or
nonopposition by, any Governmental Entity required to be obtained or made
by Nipsco, the Company or any of their Subsidiaries in connection with the
Merger or the taking of any action contemplated thereby or by this
Agreement.

5.11.3 Other Approvals. Nipsco and the Company shall, and shall cause
each of their respective Subsidiaries to, take all reasonable actions
necessary to obtain (and shall cooperate with each other in obtaining) all
Nipsco Required Consents and all Company Required Consents, as the case may
be.

5.12 Stock Exchange Listings. Nipsco shall use its best efforts to cause the
Nipsco Common Shares to be issued in the Merger to be approved for listing on
the NYSE, the Chicago Stock Exchange and the Pacific Stock Exchange, in each
case subject to official notice of issuance, prior to the Closing Date.

5.13 Indemnification. From and after the Effective Time, the Surviving
Corporation shall indemnify and hold harmless each Eligible Person (as defined
in the Charter), determined as of the Effective Time, against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring
at or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that the Company or any of its
Subsidiaries would have been permitted under applicable law and the articles
of organization or certificate or articles of incorporation of the Company or
such Subsidiary in effect on the date hereof to indemnify such person (and the
Surviving Corporation shall also advance expenses as incurred to the fullest
extent permitted under applicable law provided the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification). Nipsco shall
cause to be maintained, for a period of not less than six years from the
Effective Time, the Company's directors' and officers' insurance and
indemnification policy in effect as of the date hereof, to the extent that it
provides coverage for events occurring prior to the Effective Time (the "D&O
Insurance") for all persons who are directors or officers of the Company who
are covered persons under the Company's D&O Insurance policies in effect on
the date hereof, so long as the annual premium therefor would not be in excess
of 200% of the last annual premium paid prior to the date hereof (the "Maximum
Premium"). If the existing D&O Insurance expires, is terminated or canceled
during such six-year period, Nipsco shall use all reasonable efforts to cause
to be obtained as much D&O Insurance as can be obtained for the remainder of
such period for an annualized premium not in excess of the Maximum Premium, on
terms and conditions no less advantageous to the covered persons than the
existing D&O Insurance. The provisions of this Section 5.13 are intended to be
for the benefit of, and shall be enforceable by, each such indemnified party,
his heirs and his personal representatives and shall be binding on all
successors and assigns of the Surviving Corporation.

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5.14 Representation on Nipsco Board. Nipsco shall take such action as may be
necessary to cause the number of directors comprising the Nipsco Board at the
Effective Time to be sufficient as to permit, subject to election by the
Nipsco shareholders, one director of the Company to serve thereon and shall
nominate and recommend for such election a Company director, who is to be
mutually determined by Nipsco and the Company and who shall serve on the
Nipsco Board for the remaining term of the class to which such director is
elected.

5.15 Cooperation, Notification. As contemplated by the provisions of Section
6.1 below, officers of the Company shall (i) confer on a regular and frequent
basis with officers of Nipsco to discuss the general status of the operation
of the Company and (ii) promptly notify Nipsco of any significant changes in
its business, properties, financial condition or results of operations. Each
of the Company and Nipsco shall advise the other of any change or event that
has had or is reasonably likely to result in a Company Material Adverse Effect
or a Nipsco Material Adverse Effect, as the case may be; and promptly provide
the other with copies of all filings made by it or any of its Subsidiaries
with any Governmental Entity in connection with this Agreement and the
transactions anticipated hereby.

5.16 Termination of Company Dividend Reinvestment Plan. The Company shall
terminate its Dividend Reinvestment Plan as soon as reasonably practicable,
but in any event no later than two months prior to the anticipated Effective
Time.

5.17 Federal Income Tax Treatment. The Company and Nipsco shall use their
reasonable best efforts to ensure that the Merger constitutes a reorganization
within the meaning of Section 368(a) of the Code.

5.18 Termination of Shareholder Rights Plan. The Company shall coordinate
with Nipsco the timing of the redemption of the common share purchase rights
issued pursuant to the Shareholder Rights Plan Agreement, but such redemption
shall take place in any event before the Effective Time.

5.19 Actions Relating to Acquisition. In connection with the organization of
Acquisition, as soon as practicable following the creation of Acquisition,
Nipsco shall: (a) cause the directors and officers of Acquisition to take such
steps as may be necessary or appropriate to complete the organization of
Acquisition; (b) adopt (as sole shareholder of Acquisition) this Agreement;
(c) cause this Agreement to be approved and to be executed and delivered, by
Acquisition; and (d) cause Acquisition to perform its obligations under this
Agreement.

5.20 Recognition of Existing Contracts. Nipsco shall honor all existing
severance and change of control agreements of the Company and all union
contracts in accordance with their terms as in effect on the date hereof, in
the manner set forth in Section 3.8.7 of the Company Disclosure Schedule.

5.21 Redemption of Company Preferred Stock. The Company shall redeem all of
its outstanding Company Preferred A Shares and Company Preferred B Shares
prior to its mailing of the Proxy Statement to its shareholders in which the
holders of Company Shares are asked to vote to approve the Merger.

5.22 Company Stock Options. (a) At the Effective Time, each outstanding
option issued under the Company Key Employee Stock Option Plan (each, a
"Company Option"), shall be assumed by Nipsco. Each such option shall be
deemed to constitute an option to acquire, on the same terms and conditions as
were applicable under such Company Option, a number of shares of Nipsco Common
Stock equal to the number of shares of Company Common Stock purchasable
pursuant to such Company Option multiplied by the Exchange Ratio, at a price
per share equal to the per-share exercise price for the shares of Company
Common Stock purchasable pursuant to such Company Option divided by the
Exchange Ratio; provided, however, that in the case of any option to which
Section 421 of the Code applies by reason of its qualification under any of
Sections 422-424 of the Code, the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise
of such option shall be determined in order to comply with Section 425(a) of
the Code; and provided further, that the number of shares of Nipsco Common
Stock that may be purchased upon exercise of such Company Option shall not
include any fractional share and, upon exercise of such Company Option, a cash
payment shall be made for any fractional share based upon the closing price of
a share of Nipsco Common Stock on the NYSE on the last trading day of the
calendar month immediately preceding the date of exercise.

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(b) Nipsco shall take all corporate action necessary and appropriate (i) to
reserve for issuance a sufficient number of shares of Nipsco Common Stock for
delivery upon exercise of the Company Options assumed in accordance with this
Section 5.22 and (ii) to obtain approval of its board of directors or the
compensation committee thereof for the assumption of such Company Options
before the Effective Time. As soon as practicable after the Effective Time
Nipsco shall file with the SEC a registration statement on Form S-8 (or any
successor form) or another appropriate form (or shall cause such Company
Option to be deemed an option issued pursuant to a Nipsco stock option plan
for which shares of Nipsco Common Stock have previously been registered
pursuant to an appropriate registration form), with respect to the shares of
Nipsco Common Stock subject to the Company Options assumed in accordance with
this Section 5.22 and shall use all commercially reasonable efforts to
maintain the effectiveness of such registration statement or registration
statements for so long as the Company Options remain outstanding. At or prior
to the Effective Time, the Company shall make all necessary arrangements with
respect to its Key Employee Stock Option Plan to permit the assumption of
unexercised Company Options by Nipsco pursuant to this Section 5.22.

ARTICLE VI

COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER

6.1 Conduct of Business of Company Pending the Merger. Prior to the date
hereof, the Company shall have delivered a capital budget of the Company and
its Subsidiaries dated December 17, 1997 (the "Company Capital Budget") .
During the period from the date of this Agreement and continuing until the
Effective Time or earlier termination of this Agreement, the Company agrees as
to itself and its Subsidiaries that except as expressly contemplated or
permitted by this Agreement or in connection with any joint venture that the
Company and Nipsco may enter into, or to the extent that Nipsco shall
otherwise consent in writing (it being understood that if a particular
activity is permissible as a result of its being disclosed and, where
applicable, approved by Nipsco under any one of the Article VI sections of the
Company Disclosure Schedule, that activity will not be prohibited under any of
the sections of Article VI):

6.1.1 Ordinary Course of Business. The Company shall, and shall cause its
Subsidiaries to, carry on their respective businesses in the usual, regular
and ordinary course consistent with past practice and use all commercially
reasonable efforts to preserve intact their present business organizations
and goodwill, keep available the services of their current officers and key
employees, endeavor to preserve the goodwill and relationships with
regulators, customers, suppliers and others having business dealings with
them, all to the end that their goodwill and ongoing businesses shall not
be impaired in any material respect at the Effective Time.

6.1.2 Dividends; Changes in Stock. The Company shall not, and it shall
not permit any of its Subsidiaries, to: (i) declare or pay any dividends on
or make other distributions in respect of any of its capital stock except
for the declaration and payment, with Record Dates and usual payment dates,
of regular quarterly cash dividends on the Company Common Shares not in
excess, in any fiscal year, of the dividends for the prior fiscal year
increased at a rate consistent with past practice, or dividends payable by
a Subsidiary of the Company to the Company or to a wholly owned Subsidiary
of the Company; (ii) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock;
or (iii) repurchase, redeem or otherwise acquire, or permit any of its
Subsidiaries to purchase, redeem or otherwise acquire, any shares of its
capital stock or other voting securities or any securities convertible
into, or any rights, warrants, calls, subscriptions or options to acquire,
shares of capital stock or other voting securities of the Company or any of
its Subsidiaries, (x) except as required by the terms of any such
securities outstanding on the date hereof, (y) the redemption of Company
Preferred A Shares and Company Preferred B Shares at the lowest applicable
redemption price in accordance with the terms thereof and (z) Company
Shares in ordinary market transactions not in excess of the number of
Company Shares required to be issued pursuant to stock grants or stock-
based awards made as of the date hereof pursuant to the Company Stock Plans
in accordance with the present terms of such plans. Notwithstanding
anything in this Section 6.1.2 to the contrary, the Company

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may declare a special dividend, to be paid at or immediately prior to the
Closing, up to but not in excess of an amount per share determined by
multiplying the "Daily Rate" times the number of days between December 17,
1998 and the Closing. For purposes of the foregoing, the Daily Rate shall
mean the dollar amount per share that results from dividing (A) the
difference between (x) the Company's publicly reported earnings per share
(normalized for the effects of weather) for the twelve months ended as of
the end of the most recently completed quarter for which earnings have been
publicly reported prior to the Closing (adjusted to eliminate the effect of
any extraordinary items or other mutually agreed-upon nonrecurring items,
including, but not limited to, the financial impact of the leaseback of the
Metscan AMR devices) and (y) the greater of (i) the aggregate amount of the
Company's regular cash dividends per share paid during the same twelve
month period or (ii) $1.58 by (B) 365; provided, however, that in no event
shall the Daily Rate exceed $0.00219. As used herein, "Record Date" means
each February 15, May 15, August 15 or November 15 (or, if such date is not
a business day, the first business day immediately following such date).

6.1.3 Issuance of Securities. The Company shall not, and shall not permit
any of its Subsidiaries to, issue, deliver, sell, pledge, dispose of or
encumber, or authorize or propose to issue, deliver, sell, pledge, dispose
of or encumber, any shares of its capital stock of any class or other
voting securities or any securities convertible into, or any rights,
warrants, calls, subscriptions or options to acquire, any shares of capital
stock or other voting securities or convertible securities of the Company
or any of its Subsidiaries, other than: the issuance of the Company Common
Shares pursuant to stock grants or stock-based awards made as of the date
hereof pursuant to the Company Stock Plans in accordance with the present
terms of such plans and issuances of stock by Subsidiaries to its direct or
indirect parent.

6.1.4 Capital Expenditures. Except for capital expenditures that the
Company or any of its Subsidiaries are required to make under applicable
law, the Company shall not, nor shall the Company permit any of its
Subsidiaries to, make capital expenditures (including capital lease
obligations) in excess of the amounts budgeted for capital expenditures as
set forth in the Company Capital Budget.

6.1.5 No Acquisitions. Except as set forth in Section 6.1.5 of the
Company Disclosure Schedule and not objected to by Nipsco within 45 days
after the date of this Agreement, the Company shall not, and shall not
permit any of its Subsidiaries to, acquire or agree to acquire by merging
or consolidating with, or by purchasing an interest in or a portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof.

6.1.6 No Dispositions. Except as set forth in Section 6.1.6 of the
Company Disclosure Schedule, and except for dispositions in the ordinary
course of business as to which the market value is not in excess of $2
million singularly or aggregate, the Company shall not, and it shall not
permit any of its Subsidiaries to, sell, lease (whether such lease is an
operating or capital lease), encumber or otherwise dispose of, or agree to
sell, lease, encumber or otherwise dispose of, any of its assets.

6.1.7 No Dissolution, Etc. The Company shall not authorize, recommend,
propose or announce an intention to adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company or any of its
Subsidiaries; provided that nothing in this Section 6.1.7 preclude any such
transaction which involves only wholly owned Subsidiaries of the Company.

6.1.8 Limitation on Investment in Joint Ventures. Except as set forth in
Section 6.1.8 of the Company Disclosure Schedule, the Company will not
make, and will not permit any Subsidiary to make, any additional material
investments in, or loans or capital contributions to, or to undertake any
guarantees or other obligations with respect to any joint venture or
partnership.

6.1.9 Certain Employee Matters. Except as may be required by applicable
law or any agreement to which the Company or any of its Subsidiaries is a
party on the date hereof or as set forth in Section 6.1.9 of the Company
Disclosure Schedule, the Company shall not, nor shall it permit any of its
Subsidiaries to:

(i) except in the ordinary course of business consistent with past
practice, increase the amount of (or accelerate the payment or vesting
of) any benefit or amount payable under, any employee benefit plan or
any other contract, agreement, commitment, arrangement, plan or policy
providing for

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compensation or benefits to any former, present or future director,
officer or employee of the Company or any of its Subsidiaries and
maintained by, contributed to or entered into by, the Company or any of
its Subsidiaries on or prior to the date hereof, including, without
limitation, any Company Benefit Plan outstanding on the date hereof;

(ii) except in the ordinary course of business consistent with past
practice, increase (or enter into any contract, agreement, commitment
or arrangement to increase in any manner) the compensation or fringe
benefits, or otherwise to extend, expand or enhance the engagement,
employment or any related rights, of any former, present or future
director, officer or employee of the Company or any of its
Subsidiaries, except for (x) normal increases in the ordinary course of
business consistent with past practice, provided that the overall non-
bargaining base pay compensation budget for fiscal year 1998 shall not
increase by more than 4% above the level approved as of the date hereof
for fiscal year 1998, and for fiscal year 1999, the non-bargaining base
pay compensation budget shall be at such level as is proposed by the
Company and approved by Nipsco or (y) increases required under
applicable law; or

(iii) adopt, establish, enter into, implement or amend any plan,
policy, employment agreement, severance agreement, or other contract,
agreement or other arrangement providing for any form of benefits or
other compensation to any former, present or future director, officer
or employee of the Company or any of its Subsidiaries, other than in
the ordinary course of business consistent with past practice.

6.1.10 Indebtedness; Leases. Except as set forth in Section 6.1.10 of the
Company Disclosure Schedule, the Company shall not, nor shall the Company
permit any of its Subsidiaries to, (A) incur any indebtedness for borrowed
money or guarantee, or enter into a "keepwell" or similar arrangement with
respect to, any such indebtedness (including, without limitation, issuances
or sales of any debt securities or warrants or rights to acquire any debt
securities of the Company or any of its Subsidiaries), other than (x)
indebtedness between the Company or any of its Subsidiaries and another of
its Subsidiaries and (y) additional indebtedness in the ordinary course of
business under existing credit facilities, including the Company's
commercial paper facilities, in an amount not to exceed $90,000,000 or (B)
enter into any material operating lease or create any mortgages, liens,
security interests or other encumbrances on the property of the Company or
any of its Subsidiaries in connection with any indebtedness thereof, except
with respect to indebtedness permitted pursuant to this Section 6.1.10 or
(c) enter into any financial derivatives contract or purchase or sell any
exchange traded derivative futures or option contract, except for natural
gas hedging purposes in strict compliance with a price and/or basis risk
management policy approved in writing by Nipsco.

6.1.11 Governing Documents. Neither the Company nor any of its
Subsidiaries shall amend or propose to amend its certificate of
incorporation or by-laws (or similar governing documents).

6.1.12 Accounting. The Company shall not, nor shall it permit any of its
Subsidiaries to, make any changes in their accounting methods, except as
required by law, rule, regulation or GAAP.

6.1.13 Rate Matters. Subject to applicable law and except for non-
material filings in the ordinary course of business consistent with past
practice, the Company shall consult with Nipsco prior to implementing any
changes in its or any of its Subsidiaries' rates or charges (other than
automatic cost pass-through rate adjustment clauses), standards of service
or accounting or executing any agreement with respect thereto that is
otherwise permitted under this Agreement and the Company shall, and shall
cause its Subsidiaries to, deliver to Nipsco a copy of each such filing or
agreement at least five days prior to the filing or execution thereof so
that Nipsco may comment thereon. The Company shall, and shall cause its
Subsidiaries to, make all such filings only in the ordinary course of
business consistent with past practice.

6.1.14 Gas Transmission and Storage. Except as required pursuant to
tariffs on file with the FERC as of the date hereof, in the ordinary course
of business consistent with past practice, neither the Company nor any
Subsidiary of the Company shall commence construction of any additional gas
transmission, gas delivery or gas storage capacity, or obligate itself to
purchase or otherwise acquire any additional transmission, delivery or
storage facilities, or to sell or otherwise dispose of, or to share, any
such facilities owned by it.

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6.1.15 Contracts. Except in the ordinary course of business consistent
with past practice, the Company shall not, nor shall it permit any of its
Subsidiaries to, modify, amend or terminate any material contract or
agreement to which the Company or any of its Subsidiaries is a party or
waive, release or assign any material rights or claims under any such
contract or agreement.

6.1.16 Insurance. The Company shall, and shall cause its Subsidiaries to,
maintain with financially responsible insurance companies (or through self-
insurance) insurance in such amounts and against such risks and losses as
are customary for companies engaged in their respective businesses.

6.1.17 Permits. The Company shall, and shall cause its Subsidiaries to,
maintain in effect all existing governmental permits (including
Environmental Permits) which are material to their respective operations.

6.1.18 Discharge of Liabilities. The Company shall not, nor shall it
permit any of its Subsidiaries to, pay, discharge or satisfy any material
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice (which includes the payment of final and unappealable judgments
and the refinancing of existing indebtedness for borrowed money either at
its stated maturity or at a lower cost of funds) or as required by their
terms, of liabilities reflected or reserved against in, or contemplated by,
the most recent consolidated financial statements (or the notes thereto) of
the Company included in the Filed Company SEC Documents, or incurred in the
ordinary course of business consistent with past practice.

6.1.19 1935 Act. The Company shall not, and shall not permit any of its
Subsidiaries to, engage in any activities which would cause a change in its
status as a holding company exempt from the 1935 Act under Section 3(a)(2)
pursuant to Rule 2 of that Act, or that would impair the ability of Nipsco
to continue to claim an exemption under Section 3(a)(1) of the 1935 Act
following the Merger.

6.1.20 Tax Matters. The Company shall not make or rescind any material
election or settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit, or controversy
relating to Taxes, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
December 31, 1996, except as may be required by applicable law.

6.1.21 Tax Status. The Company and Nipsco shall not, and shall not permit
any of their Subsidiaries to, take any actions which would, or would be
reasonably likely to, adversely affect the status of the Merger as a
reorganization under Section 368(a) of the Code.

6.2 Management of the Company and its Subsidiaries. The Company shall, from
the date of this Agreement through the Effective Time, cause its management
and that of its Subsidiaries to consult on a regular basis and in good faith
with the employees and representatives of Nipsco concerning the management of
the Company's and its Subsidiaries' businesses.

6.3 Conduct of Business of Nipsco Pending the Merger. During the period from
the date of this Agreement and continuing until the Effective Time or earlier
termination of this Agreement, Nipsco shall, and shall cause its Subsidiaries
to, conduct their respective businesses so that the character of the business
of Nipsco and its Subsidiaries taken as a whole will not be fundamentally
altered. In no event shall either Nipsco or any of its Subsidiaries be
required to notify the Company or obtain the Company's consent prior to making
any acquisitions or dispositions of any businesses or assets.

6.4 Other Actions. The Company and Nipsco shall not, and shall not permit
any of their respective Subsidiaries to, take any action that would, or that
could reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement becoming untrue in any
material respect, or (ii) any of the conditions of the Merger set forth in
Article VII not being satisfied on or prior to the Closing Date.

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ARTICLE VII

CONDITIONS PRECEDENT

7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:

7.1.1 Company Shareholder Approval. This Agreement and the Merger shall
have been approved and adopted by an affirmative vote of the holders of the
requisite number of shares present, in person or by proxy, and entitled to
vote on the Merger at the Company Special Meeting.

7.1.2 Governmental and Regulatory Consents. The Company Required
Statutory Approvals and the Nipsco Required Statutory Approvals shall have
been obtained at or prior to the Effective Time, such approvals shall have
become Final Orders (as hereinafter defined), and no Final Order shall
impose terms or conditions that would have, or would be reasonably likely
to have, a material adverse effect on the business, operations, properties,
assets, condition (financial or otherwise), prospects or results of
operations of the Company as if it were organized as a separate subsidiary
of Nipsco following the Merger or a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
prospects or results of operations of Nipsco as if it were organized as a
separate division of Nipsco following the Merger, or that would be
materially inconsistent with the agreements of the parties contained
herein. A "Final Order" means action by the relevant regulatory authority
that has not been reversed, stayed, enjoined, set aside, annulled or
suspended, with respect to which any waiting period prescribed by law
before the transactions contemplated hereby may be consummated has expired,
and as to which all conditions to the consummation of such transactions
prescribed by law, regulation or order have been satisfied, and as to which
all opportunities for rehearing are exhausted (whether or not any appeal
thereof is pending).

7.1.3 HSR Act. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
otherwise expired.

7.1.4 No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; provided, however, that
the party invoking this condition shall use its best efforts to have any
such order or injunction vacated.

7.1.5 NYSE Listing. The Nipsco Common Shares issuable to the Company's
shareholders pursuant to this Agreement shall have been approved for
listing on the NYSE, subject to official notice of issuance.

7.1.6 Registration Statement. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order.

7.1.7 Share Purchase Rights. The common share purchase rights issued
pursuant to the Shareholder Rights Agreement shall have been redeemed.

7.2 Conditions to Obligations of Nipsco. The obligations of Nipsco to effect
the Merger are further subject to the following conditions:

7.2.1 Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects on the date hereof and (except to the extent expressly
given as of a specified date) on and as of the Closing Date as though made
on the Closing Date, and the Company shall have delivered to Nipsco a
certificate dated as of the Closing Date signed by an executive officer to
the effect set forth in this Section 7.2.1.

7.2.2 Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and the Company
shall have delivered to Nipsco a certificate dated as of the Closing Date
signed by an executive officer to the effect set forth in this Section
7.2.2.

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7.2.3 Tax Opinion. Nipsco shall have received the opinion dated the
Closing Date of SH&W, to the effect that for federal income tax purposes
the Merger shall constitute a reorganization within the meaning of Section
368(a) of the Code and no gain or loss shall be recognized by Nipsco,
Acquisition or the Company as a consequence of the Merger. In rendering
such opinion, SH&W shall be entitled to receive and may rely on
representations contained of Nipsco, Acquisition, Northern, the Company and
certain shareholders of the Company, which are in form and substance
reasonably satisfactory to such counsel.

7.2.4 Consents and Approvals. The Company and its Subsidiaries shall have
received the consents set forth in Section 3.4 of the Company Disclosure
Schedule.

7.3 Conditions to Obligation of the Company. The obligation of the Company
to effect the Merger is further subject to the following conditions:

7.3.1 Representations and Warranties. The representations and warranties
of Nipsco contained in this Agreement shall be true and correct in all
material respects on the date hereof and (except to the extent specifically
given as of an earlier date and except for the representations and
warranties set forth in Sections 4.9 and 4.13) as of the Closing Date as
though made on the Closing Date, and Nipsco shall have delivered to the
Company a certificate dated as of the Closing Date, signed by an executive
officer of Nipsco and to the effect set forth in this Section 7.3.1.

7.3.2 Performance of Obligations of Nipsco. Nipsco shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Nipsco shall have
delivered to the Company a certificate dated as of the Closing Date, signed
by an executive officer of Nipsco and to the effect set forth in this
Section 7.3.2.

7.3.3 Tax Opinion. The Company shall have received the opinion dated the
Closing Date of LLG&M, to the effect that for federal income tax purposes
the Merger shall constitute a reorganization within the meaning of Section
368(a) of the Code and that shareholders of the Company shall not be
subject to federal income tax on the receipt of Nipsco Common Shares in
exchange for Company Shares pursuant to the Merger. In rendering such
opinion, LLG&M shall be entitled to receive and may rely on representations
of Nipsco, Acquisition, Northern, the Company and certain shareholders of
the Company, which are in form and substance reasonably satisfactory to
such counsel.

7.3.4 Consents and Approvals. Nipsco and its Subsidiaries shall have
received the consents set forth in Section 4.4 of the Nipsco Disclosure
Schedule.

ARTICLE VIII

TERMINATION, AMENDMENT AND WAIVER

8.1 Termination. This Agreement may be terminated and abandoned at any time
prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the shareholders of the Company:

8.1.1 by mutual written consent of Nipsco and the Company;

8.1.2 by either Nipsco or the Company, by written notice to the other:

(i) if, upon a vote at a duly held Company Special Meeting, the
Company Requisite Vote shall not have been obtained;

(ii) if the Effective Time shall not have occurred on or before
December 31, 1998; provided, however, that such date shall
automatically be changed to June 30, 1999 if, on December 31, 1998:

(a) the conditions set forth in Section 7.1.2 have not been
satisfied or waived;

(b) the other conditions to the consummation of the transactions
contemplated hereby are then capable of being satisfied; and

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(c) any approvals required by Section 7.1.2 that have not yet been
obtained are being pursued with diligence; provided, further, that
the right to terminate this Agreement under this Section 8.1.2 shall
not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before the
termination date;

(iii) if either party shall have exercised its rights set forth in
Section 1.2.2 of this Agreement on or after December 31, 1998;

(iv) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the Merger and such order, decree, ruling or
other action shall have become final and nonappealable; or

(v) if the Company Board shall have exercised its rights set forth in
Section 5.10 of this Agreement.

8.1.3 by the Company if there shall have been any material breach of any
representation or warranty, or any material breach of any covenant or
agreement, of Nipsco hereunder and such breach shall not have been remedied
within 20 days after receipt by Nipsco of notice in writing from the
Company, specifying the nature of such breach and requesting that it be
remedied; or

8.1.4 by Nipsco if there shall have been any material breach of any
representation or warranty, or any material breach of any covenant or
agreement, of the Company hereunder and such breach shall not have been
remedied within 20 days after receipt by the Company of notice in writing
from Nipsco, specifying the nature of such breach and requesting that it be
remedied.

8.2 Effect of Termination.

8.2.1 In the event of termination of this Agreement by either the Company
or Nipsco as provided in Section 8.1, except as provided in Sections 8.2.4
and 8.2.5, this Agreement shall forthwith become void and have no effect,
without any liability or obligation on the part of Nipsco or the Company,
other than the last sentence of Section 5.7 and Sections 8.2 and 11.2.
Nothing contained in this Section shall relieve any party from any
liability resulting from any material breach of the representations,
warranties, covenants or agreements set forth in this Agreement.

8.2.2 In the event of termination of this Agreement by Nipsco pursuant to
Section 8.1.4 and at such time no third party Acquisition Proposal has been
made, the Company shall pay to Nipsco as liquidated damages and not as a
penalty, an amount in cash equal to the out-of-pocket expenses and fees
incurred by Nipsco arising out of, in connection with or related to the
Merger or the transactions contemplated by this Agreement not in excess of
$10,000,000 within 60 days of such termination, provided that Nipsco shall
not be in material breach of its obligations under this Agreement.

8.2.3 In the event of termination of this Agreement by the Company
pursuant to Section 8.1.3, Nipsco shall pay to the Company, as liquidated
damages and not as a penalty, an amount in cash equal to the out-of- pocket
expenses and fees incurred by the Company arising out of, in connection
with or related to the Merger or the transactions contemplated by this
Agreement not in excess of $10,000,000 within 60 days of such termination,
provided that the Company shall not be in material breach of its
obligations under this Agreement.

8.2.4 If (i) this Agreement is terminated (x) pursuant to Section
8.1.2(v), (y) following a failure to hold the Company Special Meeting or
failure to obtain the Company Requisite Vote, as the case may be, or (z)
pursuant to Section 8.1.4; and (ii) in the case of clauses (y) and (z), at
the time of such termination there shall have been made a third party
Acquisition Proposal then promptly (but not later than 30 days after such
termination), the Company shall pay to Nipsco a fee of $10,000,000.

8.2.5 If Section 8.2.4 is applicable and a transaction contemplated by
the Acquisition Proposal referred to in Section 8.2.4 or any other
Acquisition Proposal that the Company Board accepts in lieu of the
Acquisition Proposal referred to in Section 8.2.4 is consummated within two
and one-half years of termination of this Agreement, the Company shall pay
to Nipsco an additional fee of $15,000,000 upon such consummation.

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8.2.6 The payments provided in Sections 8.2.2, 8.2.3, 8.2.4 and 8.2.5
shall be the parties' sole and exclusive remedies hereunder for the
termination of this Agreement under the circumstances in which such
payments are paid (regardless of any breach of this Agreement), and upon
such delivery of such payment to Nipsco or the Company, as the case may be,
no person shall have any further claim or rights against the Company,
Nipsco or Acquisition under this Agreement.

8.3 Amendment. Subject to applicable law, at any time prior to the
Effective Time, the parties hereto may modify or amend this Agreement, by
written agreement executed and delivered by duly authorized officers of the
respective parties; provided, however, that after approval of the Merger by
the shareholders of the Company, no amendment shall be made that reduces the
Merger Consideration payable in the Merger or adversely affects the rights of
the Company's shareholders hereunder without the approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.

8.4 Extension; Waiver. At any time prior to the Effective Time, subject to
applicable law, the parties may (i) extend the time for the performance of any
of the obligations or other acts of the other parties, (ii) waive any
inaccuracies in the representations and warranties of the other parties
contained in this Agreement or in any document delivered pursuant to this
Agreement or (iii) waive compliance with any of the agreements or conditions
of the other parties contained in this Agreement. Any agreement on the part of
a party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.

8.5 Procedure for Termination, Amendment, Extension or Waiver. A termination
of this Agreement pursuant to Section 8.1, an amendment of this Agreement
pursuant to Section 8.3 or an extension or waiver pursuant to Section 8.4
shall, in order to be effective, require in the case of Nipsco or the Company,
action by its board of directors or the duly authorized designee of its board
of directors.

ARTICLE IX

SURVIVAL OF PROVISIONS

9.1 Survival. The representations and warranties respectively required to be
made by the Company and Nipsco in this Agreement, or in any certificate,
respectively, delivered by the Company or Nipsco pursuant to Section 7.2 or
Section 7.3 hereof, shall terminate upon the Closing and be of no further
force or effect.

ARTICLE X

NOTICES

10.1 Notices. Any notice or communication given pursuant to this Agreement
must be in writing and shall be deemed to have been duly given if mailed (by
registered or certified mail, postage prepaid, return receipt requested),
transmitted by facsimile or delivered by courier, as follows:

If to the Company, to:

Bay State Gas Company
300 Friberg Parkway
Westborough, Massachusetts 01581-5039
Attention: Joel L. Singer
Telephone: 508-836-7310
Facsimile: 508-836-7075

A-37

<PAGE>

with a copy to:

LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street New
York, New York 10019
Attention: Douglas W. Hawes, Esq.
Telephone: 212-424-8000
Facsimile: 212-424-8500

If to Nipsco, to:

NIPSCO Industries, Inc.
5265 Hohman Avenue
Hammond, Indiana 46320
Attention: Stephen P. Adik
Telephone: 219-647-6012
Facsimile: 219-647-6060

with copies to:

Schiff Hardin & Waite
7200 Sears Tower
Chicago, Illinois 60606
Attention: Peter V. Fazio, Jr.
Telephone: 312-876-1000
Facsimile: 312-258-5600

All notices and other communications required or permitted under this
Agreement that are addressed as provided in this Section 10.1 shall, whether
sent by mail, facsimile or courier, be deemed given upon the first Business
Day after actual delivery to the party to whom such notice or other
communication is sent (as evidenced by the return receipt or shipping invoice
signed by a representative of such party or by facsimile confirmation). Any
party from time to time may change its address for the purpose of notices to
that party by giving a similar notice specifying a new address, but no such
notice shall be deemed to have been given until it is actually received by the
party sought to be charged with the contents thereof. For purposes of this
Section 10.1, "Business Day" shall mean a day other than Saturday, Sunday or
any day on which the principal commercial banks located in Massachusetts are
authorized or obligated to close under the laws of Massachusetts.

ARTICLE XI

MISCELLANEOUS

11.1 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes, except as set forth in Section 5.7 with respect to the
Confidentiality Agreement, all prior communications, agreements,
understandings, representations and warranties, whether oral or written,
between the parties hereto. There are no oral or written agreements,
understandings, representations or warranties between the parties hereto with
respect to the subject hereof other than those set forth in this Agreement.

11.2 Expenses. The Company and Nipsco each shall pay its own costs and
expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby, except
that (i) the filing fee in respect of the notification and report under the
HSR Act and (ii) the expenses incurred in connection with the printing,
mailing and distribution of the Proxy Statement and the preparation and filing
of the Registration Statement shall be borne equally by the Company and
Nipsco.

A-38

<PAGE>

11.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to the other parties.

11.4 No Third Party Beneficiary. Except as otherwise specifically provided
in Section 5.13, this Agreement is not intended and may not be construed to
create any rights in any parties other than the Company and Nipsco and their
respective successors or assigns, and it is not the intention of the parties
to confer third-party beneficiary rights upon any other person.

11.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts (without regard
to the principles of conflicts of law) applicable to a contract executed and
to be performed therein.

11.6 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties, such consent not to be
unreasonably withheld, and any such assignment that is not consented to shall
be null and void. Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.

11.7 Headings, Gender, etc. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (i) words of any gender are deemed to include
each other gender; (ii) words using the singular or plural number also include
the plural or singular number, respectively; (iii) the terms "hereof,"
"herein," "hereby," "hereto," and derivative or similar words refer to this
entire Agreement; (iv) the terms "Article" or "Section" refer to the specified
Article or Section of this Agreement; (v) all references to "dollars" or "$"
refer to currency of the United States of America; (vi) the term "person"
shall include any natural person, corporation, limited liability company,
general partnership, limited partnership, trust or other entity, enterprise,
authority or business organization; and (vii) the term "or" is inclusive.

11.8 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of the Company or Nipsco under this Agreement shall not
be materially and adversely affected thereby, (i) such provision shall be
fully severable, (ii) this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
hereof, and (iii) the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.

In Witness Whereof, this Agreement has been duly executed and delivered by
the duly authorized officers of the Company and Nipsco effective as of the
date first written above.

Nipsco Industries, Inc.

/s/ Gary L. Neale
By: ___________________________________
Name:Gary L. Neale
Title: Chairman, President and
Chief Executive Officer

Bay State Gas Company

/s/ Roger A. Young
By: ___________________________________
Name:Roger A. Young
Title: Chairman and Co-Chief
Executive Officer

A-39

<PAGE>

EXHIBIT 10.3

CHANGE IN CONTROL AND TERMINATION AGREEMENT
-------------------------------------------

NIPSCO Industries, Inc., an Indiana corporation ("Employer") and
________________ ("Executive") entered into a Change in Control and Termination
Agreement as of ____________________________________________ ("Agreement"), and
Employer and Executive hereby enter into an amendment and restatement of the
Agreement, effective September 1, 1997, which amended and restated Agreement is
hereinafter set forth.

WITNESSETH:
----------

WHEREAS, Executive is currently employed by Employer as its ______________;

WHEREAS, Employer desires to provide security to Executive in connection
with Executive's employment with Employer in the event of a Change in Control
affecting Employer; and

WHEREAS, Executive and Employer desire to enter into this Agreement
pertaining to the terms of the security Employer is providing to Executive with
respect to his employment in the event of a Change in Control;

NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:

1. Term. The term of this Agreement shall be the period beginning on the
date hereof and terminating on the date 36 months after such date (the "Term"),
provided that for each day from and after the date hereof the Term will
automatically be extended for an additional day, unless either Employer or
Executive has given written notice to the other party of its or his election to
cease such automatic extension, in which case the Term shall be the 36-month
period beginning on the date such notice is received by such other party.
<PAGE>

2. Definitions. For purposes of this Agreement:

(a) "Affiliate" or "Associate" shall have the meaning set forth in
Rule 12b-2 under the Securities Exchange Act of 1934.

(b) "Base Salary" shall mean Executive's monthly base salary at the
rate in effect on the date of a reduction for purposes of paragraph (g) of
this Section, or on the date of a termination of employment under
circumstances described in subsections 3(a) or (b) below, whichever is
higher; provided, however, that such rate shall in no event be less than
the highest rate in effect for Executive at any time during the Term.

(c) "Beneficiary" shall mean the person or entity designated by
Executive, by written instrument delivered to Employer, to receive the
benefits payable under this Agreement in the event of his death. If
Executive fails to designate a Beneficiary, or if no Beneficiary survives
Executive, such death benefits shall be paid:

(i) to his surviving spouse; or

(ii) if there is no surviving spouse, to his living descendants
per stirpes; or

(iii) if there is neither a surviving spouse nor descendants, to
his duly appointed and qualified executor or personal
representative.

(d) "Bonus" shall mean Executive's target annual incentive bonus
compensation for the calendar year in which the date of a termination of
employment under circumstances described in subsection 3(a) below occurs,
under the incentive bonus compensation plan then maintained by Employer;
provided, however, that such target annual incentive bonus compensation
shall in no event be less than the highest target annual incentive bonus

2
<PAGE>

compensation of Executive under any such incentive bonus compensation plan
for any calendar year commencing during the Term.

(e) A "Change in Control" shall be deemed to take place on the
occurrence of any of the following events:

(1) The acquisition by an entity, person or group (including all
Affiliates or Associates of such entity, person or group) of
beneficial ownership, as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934, of capital stock of Employer entitled
to exercise more than 30% of the outstanding voting power of all
capital stock of Employer entitled to vote in elections of directors
("Voting Power");

(2) The effective time of (i) a merger or consolidation of
Employer with one or more other corporations as a result of which the
holders of the outstanding Voting Power of Employer immediately prior
to such merger or consolidation (other than the surviving or resulting
corporation or any Affiliate or Associate thereof) hold less than 50%
of the Voting Power of the surviving or resulting corporation, or (ii)
a transfer of 30% of the Voting Power, or a Substantial Portion of the
Property, of Employer other than to an entity of which Employer owns
at least 50% of the Voting Power; or

(3) The election to the Board of Directors of Employer of
candidates who were not recommended for election by the Board of
Directors of Employer in office immediately prior to the election, if
such candidates constitute a majority of those elected in that
particular election.

3
<PAGE>

Notwithstanding the foregoing, a Change in Control shall not be deemed to take
place by virtue of any transaction in which Executive is a participant in a
group effecting an acquisition of Employer and, after such acquisition,
Executive holds an equity interest in the entity that has acquired Employer.

(f) "Good Cause" shall be deemed to exist if, and only if:

(1) Executive engages in acts or omissions constituting
dishonesty, intentional breach of fiduciary obligation or
intentional wrongdoing or malfeasance, in each case that results
in substantial harm to Employer or any Affiliate; or

(2) Executive is convicted of a criminal violation involving
fraud or dishonesty.

(g) "Good Reason" shall be deemed to exist if, and only if:

(1) there is a significant change in the nature or the scope of
Executive's authorities or duties;

(2) there is a significant reduction in Executive's monthly rate
of Base Salary, his opportunity to earn a bonus under an
incentive bonus compensation plan maintained by Employer or his
benefits; or

(3) Employer changes by 100 miles or more the principal location
in which Executive is required to perform services.

(h) "Pension Plan" shall mean any Retirement Plan that is a defined
benefit plan as defined in Section 3(35) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").

4
<PAGE>

(i) "Retirement Plan" shall mean any qualified or supplemental
employee pension benefit plan, as defined in Section 3(2) of ERISA,
currently or hereinafter made available by Employer in which Executive is
eligible to participate.

(j) "Severance Period" shall mean the period beginning on the date
Executive's employment with Employer terminates under circumstances
described in subsection 3(a) and ending on the date 36 months thereafter.

(k) "Substantial Portion of the Property of Employer" shall mean 50%
of the aggregate book value of the assets of Employer and its Affiliates
and Associates as set forth on the most recent balance sheet of Employer,
prepared on a consolidated basis, by its regularly employed, independent,
certified public accountants.

(l) "Welfare Plan" shall mean any health and dental plan, disability
plan, survivor income plan or life insurance plan, as defined in Section
3(1) of ERISA, currently or hereafter made available by Employer in which
Executive is eligible to participate.

3. Benefits Upon Termination of Employment. (a) The following provisions
will apply if a Change in Control occurs during the Term, and (i) at any time
during the 24 months after the Change in Control occurs (whether during or after
the expiration of the Term), the employment of Executive with Employer is
terminated by Employer for any reason other than Good Cause, or Executive
terminates his employment with Employer for Good Reason, or (ii) at any time
during the thirteenth month after the Change in Control occurs (whether during
or after the expiration of the Term), Executive terminates his employment with
Employer for any reason:

(1) Employer shall pay Executive an amount equal to 36 times the sum
of (a) Executive's Base Salary plus (b) one-twelfth of his Bonus. Such
amount shall be paid to

5
<PAGE>

Executive in a lump sum within 180 days after his date of termination of
employment; provided, however, Executive, by written notice to Employer,
may elect to receive such payment on any date that is no earlier than the
later to occur of (i) the date 10 days after the date of termination, and
(ii) the date 10 days after receipt of such notice.

(2) Employer shall pay Executive an amount equal to the pro rata
portion of Executive's target annual incentive bonus compensation for the
calendar year in which the date of termination of employment occurs, under
the incentive bonus compensation plan then maintained by Employer, that is
applicable to the period commencing on the first day of such calendar year
and ending on the date of termination. Such amount shall be paid to
Executive in a lump sum within 180 days after his date of termination of
employment; provided, however, Executive, by written notice to Employer,
may elect to receive such payment on any date that is no earlier than the
later to occur of (i) the date 10 days after the date of termination, and
(ii) the date 10 days after receipt of such notice.

(3) Executive shall receive any and all benefits accrued under any
Retirement Plan, Welfare Plan or other plan or program in which he
participates at the date of termination of employment, to the date of
termination of employment, the amount, form and time of payment of such
benefits to be determined by the terms of such Retirement Plan, Welfare
Plan and other plan or program, and Executive's employment shall be deemed
to have terminated by reason of retirement, and without regard to vesting
limitations in all such Plans and other plans or programs not subject to
the qualification requirements of Section 401 (a) of the Internal Revenue
Code of 1986 as amended ("Code"), under circumstances that have the most
favorable result for Executive thereunder for all purposes of such Plans
and

6
<PAGE>

other plans or programs. Payment shall be made at the earliest date
permitted under any such Plan or other plan or program that is not funded
with a trust agreement.

(4) (A) Employer shall pay to Executive a monthly Supplemental Pension
Benefit in an amount equal to the amount determined pursuant to clause (i)
below less the amount determined pursuant to clause (ii) below:

(i) the aggregate monthly amount of the pension benefit
("Pension") that would have been payable to Executive under all
Pension Plans if that Pension were computed (A) by treating the
Severance Period as service for all purposes of the Pension Plans and
(B) by considering his compensation during the Severance Period to be
his Base Salary and one-twelfth of his Bonus for all purposes of the
Pension Plans;

(ii) the aggregate monthly amount of any Pension actually paid to
Executive under all Pension Plans.

(B) The Supplemental Pension Benefit payable to Executive
hereunder shall be paid (i) commencing at the later to occur of the last
day of the Severance Period or the date payment of his Pension commences
under the Pension Plans; and (ii) in the same form as is applicable to the
Pension payable to Executive under the Pension Plans.

(C) If Executive dies prior to commencement of payment to him of
his Pension under the Pension Plans, under circumstances in which a death
benefit under the Pension Plans is payable to his surviving spouse or other
beneficiary, then Employer shall pay a monthly Supplemental Death Benefit
to Executive's surviving spouse or other beneficiary entitled to receive
the death benefit payable with respect to Executive under the

7
<PAGE>

Pension Plans in an amount equal to the amount determined pursuant to
clause (i) below less the amount determined pursuant to clause (ii) below:

(i) the aggregate monthly amount of the death benefit that would
have been payable to the surviving spouse or other beneficiary of
Executive under the Pension Plans if that death benefit were computed
(A) by treating the Severance Period as service for all purposes of
the Pension Plans and (B) by considering his compensation during the
Severance Period to be his Base Salary and one-twelfth of his Bonus
for all purposes of the Pension Plans;

(ii) the aggregate monthly amount of any death benefit actually
paid to the surviving spouse or other beneficiary of Executive under
the Pension Plans.

(D) The Supplemental Death Benefit payable with respect to
Executive hereunder shall be payable at the same time, in the same form,
and to the same persons as is applicable to the death benefit payable with
respect to Executive under the Pension Plans.

(E) Notwithstanding the foregoing provisions, the total of the
actual years of service of Executive for purposes of each of the Pension
Plans and the years of service for which credit is given pursuant to
subparagraphs (3)(A) and (C) shall not exceed the maximum number of years
of service, if any, that can be considered pursuant to the terms of such
Pension Plan.

(F) Any actuarial adjustments made under the Pension Plans with
respect to the form or time of payment of a Pension or death benefit to
Executive or his surviving spouse or other beneficiary under the Pension
Plans shall also be applicable to the

8
<PAGE>

Supplemental Pension Benefit or Supplemental Death Benefit payable
hereunder and shall be based upon the same actuarial assumptions as those
specified in the Pension Plans.

(5) If upon the date of termination of Executive's employment
Executive holds any options with respect to stock of Employer, all such
options will immediately become exercisable upon such date and will be
exercisable for 200 days thereafter. Any restrictions on stock of Employer
owned by Executive on the date of termination of his employment will lapse
on such date.

(6) During the Severance Period Executive and his spouse and other
dependents will continue to be covered by all Welfare Plans maintained by
Employer in which he and his spouse and other dependents were participating
immediately prior to the date of his termination as if he continued to be
an employee of Employer and Employer will continue to pay the costs of
coverage of Executive and his spouse and other dependents under such
Welfare Plans on the same basis as is applicable to active employees
covered thereunder; provided that, if participation in any one or more of
such Welfare Plans is not possible under the terms thereof, Employer will
provide substantially identical benefits. Coverage under any such Welfare
Plan will cease if and when Executive obtains employment with another
employer during the Severance Period, and becomes eligible for coverage
under any substantially similar Welfare Plan provided by his new employer.

(7) During the Severance Period, Executive shall not be entitled to
reimbursement for fringe benefits, including without limitation, dues and
expenses related to club memberships, automobile expenses, expenses for
professional services and other similar perquisites.

9
<PAGE>

(b) If the employment of Executive with Employer is terminated by Employer
or Executive other than under circumstances set forth in subsection 3(a),
Executive's Base Salary shall be paid through the date of his termination, and
Employer shall have no further obligation to Executive or any other person under
this Agreement. Such termination shall have no effect upon Employee's other
rights, including but not limited to, rights under the Retirement Plans and the
Welfare Plans.

(c) Notwithstanding anything herein to the contrary, (1) in the event
Employer shall terminate the employment of Executive for Good Cause hereunder,
Employer shall give Executive at least thirty (30) days prior written notice
specifying in detail the reason or reasons for Executive's termination, and (2)
in the event Executive terminates his employment for Good Reason hereunder,
Executive shall give Employer at least thirty (30) days prior written notice
specifying in detail the reason or reasons for Executive's termination.

(d) This Agreement shall have no effect, and Employer shall have no
obligations hereunder, if Executive's employment terminates for any reason at
any time other than during the 24 months following a Change in Control.

4. Excise Tax. (a) In the event that a Change in Control shall occur, and a
final determination is made by legislation, regulation, ruling directed to
Executive or Employer, by court decision, or by independent tax counsel
described in subsection (b) next below, that the aggregate amount of any payment
made to Executive (1) hereunder, and (2) pursuant to any plan, program or policy
of Employer in connection with, on account of, or as a result of, such Change in
Control ("Total Payments") will be subject to the excise tax provisions of
Section 4999 of the Code, or any successor section thereof, Executive shall be
entitled to receive from Employer, in addition to any

10
<PAGE>

other amounts payable hereunder, a lump sum payment (the "Gross-Up Payment"),
sufficient to cover the full cost of such excise taxes and Executive's federal,
state and local income and employment taxes on this additional payment so that
the net amount retained by Executive, after the payment of all such excise taxes
on the Total Payments, and all federal, state and local income and employment
taxes and excise taxes on the Gross-Up Payment, shall be equal to the Total
Payments. The Total Payments, however, shall be subject to any federal, state
and local income and employment taxes thereon. For this purpose, Executive shall
be deemed to be in the highest marginal rate of federal, state and local taxes.
The Gross-Up Payment shall be made at the same time as the payments described in
subsections 3(a)(1) and (2) above.

(b) Employer and Executive shall mutually and reasonably determine the
amount of the Gross-Up Payment to be made to Executive pursuant to the preceding
subsection. Prior to the making of any such Gross-Up Payment, either party may
request a determination as to the amount of such Gross-Up Payment. If such a
determination is requested, it shall be made promptly, at Employer's expense, by
independent tax counsel selected by Executive and approved by Employer (which
approval shall not unreasonably be withheld), and such determination shall be
conclusive and binding on the parties. Employer shall provide such information
as such counsel may reasonably request, and such counsel may engage accountants
or other experts at Employer's expense to the extent that they deem necessary or
advisable to enable them to reach a determination. The term "independent tax
counsel," as used herein, shall mean a law firm of recognized expertise in
federal income tax matters that has not previously advised or represented either
party. It is hereby agreed that neither Employer nor Executive shall engage any
such firm as counsel for any purpose, other

11
<PAGE>

than to make the determination provided for herein, for three years following
such firm's announcement of its determination.

(c) In the event the Internal Revenue Service subsequently adjusts the
excise tax computation made pursuant to subsections 4(a) and (b) above, Employer
shall pay to Executive, or Executive shall pay to Employer, as the case may be,
the full amount necessary to make either Executive or Employer whole had the
excise tax initially been computed as subsequently adjusted, including the
amount of any underpaid or overpaid excise tax, and any related interest and/or
penalties due to the Internal Revenue Service.

5. Setoff. No payments or benefits payable to or with respect to Executive
pursuant to this Agreement shall be reduced by any amount Executive or his
spouse or Beneficiary, or any other beneficiary under the Pension Plans, may
earn or receive from employment with another employer or from any other source,
except as expressly provided in subsection 3(a)(6).

6. Death. If Executive's employment with Employer terminates under
circumstances described in subsections 3(a) or (b), then upon Executive's
subsequent death, all unpaid amounts payable to Executive under subsections
3(a)(1), (2) or (3) or 3(b), or Section 4, if any, shall be paid to his
Beneficiary, all amounts payable under subsection 3(a)(4) shall be paid pursuant
to the terms of said subsection to his spouse or other beneficiary under the
Pension Plans, and if subsection 3(a) applies, his spouse and other dependents
shall continue to be covered under all applicable Welfare Plans during the
remainder of the Severance Period, if any, pursuant to subsection 3(a)(6).

7. No Solicitation of Representatives and Employees. Executive agrees that
he shall not, during the Term or the Severance Period, directly or indirectly,
in his individual capacity or otherwise, induce, cause, persuade, or attempt to
do any of the foregoing in order to cause, any

12
<PAGE>

representative, agent or employee of Employer or any of its Affiliates to
terminate such person's employment relationship with Employer or any of its
Affiliates, or to violate the terms of any agreement between said
representative, agent or employee and Employer or any of its Affiliates.

8. Confidentiality. Executive acknowledges that preservation of a
continuing business relationship between Employer or its Affiliates and their
respective customers, representatives, and employees is of critical importance
to the continued business success of Employer and its Affiliates and that it is
the active policy of Employer and its Affiliates to guard as confidential
certain information not available to the public and relating to the business
affairs of Employer and its Affiliates. In view of the foregoing, Executive
agrees that he shall not during the Term and at any time thereafter, without the
prior written consent of Employer, disclose to any person or entity any such
confidential information that was obtained by Executive in the course of his
employment by Employer or any of its Affiliates. This section shall not be
applicable if and to the extent Executive is required to testify in a
legislative, judicial or regulatory proceeding pursuant to an order of Congress,
any state or local legislature, a judge, or an administrative law judge or is
otherwise required by law to disclose such information.

9. Forfeiture. If Executive shall at any time violate any obligation of his
under Sections 7 or 8 in a manner that results in material damage to the
Employer or its business, he shall immediately forfeit his right to any benefits
under this Agreement, and Employer shall thereafter have no further obligation
hereunder to Executive or his spouse, Beneficiary or any other person.

10. Executive Assignment. No interest of Executive, his spouse or any
Beneficiary, or any other beneficiary under the Pension Plans, under this
Agreement, or any right to receive any payment or distribution hereunder, shall
be subject in any manner to sale, transfer, assignment,

13
<PAGE>

pledge, attachment, garnishment, or other alienation or encumbrance of any kind,
nor may such interest or right to receive a payment or distribution be taken,
voluntarily or involuntarily, for the satisfaction of the obligations or debts
of, or other claims against, Executive or his spouse, Beneficiary or other
beneficiary, including claims for alimony, support, separate maintenance, and
claims in bankruptcy proceedings.

11. Benefits Unfunded. Except as otherwise provided in Section 13, all
rights under this Agreement of Executive and his spouse, Beneficiary or other
beneficiary under the Pension Plans, shall at all times be entirely unfunded,
and no provision shall at any time be made with respect to segregating any
assets of Employer for payment of any amounts due hereunder. None of Executive,
his spouse, Beneficiary or any other beneficiary under the Pension Plans shall
have any interest in or rights against any specific assets of Employer, and
Executive and his spouse, Beneficiary or other beneficiary shall have only the
rights of a general unsecured creditor of Employer. Except as otherwise provided
in Section 13, and notwithstanding the preceding provisions of this Section, the
Nominating and Compensation Committee of the Board of Directors of Employer, in
its discretion, shall have the right, at any time and from time to time, to
cause amounts payable to Executive or his Beneficiary hereunder to be paid to
the trustee of the NIPSCO Industries, Inc. Umbrella Trust For Management
established effective January 1, 1991, as amended from time to time, or any
similar trust at any time established by Employer ("Trust").

12. Waiver. No waiver by any party at any time of any breach by the other
party of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of any other provisions
or conditions at the same time or at any prior or subsequent time.

14
<PAGE>

13. Litigation Expenses. Employer shall pay Executive's reasonable
attorneys' fees and legal expenses in connection with any judicial proceeding to
enforce this Agreement, or to construe or determine the validity of this
Agreement or otherwise in connection therewith, whether or not Executive is
successful in such litigation. Within 10 days following the occurrence of a
Potential Change in Control (as defined in the Trust described in Section 11),
the Nominating and Compensation Committee of the Board of Directors of Employer
shall cause Employer to contribute the sum of $100,000 to the Trust to be
applied in satisfaction of Employer's obligations under this Section. The
Nominating and Compensation Committee shall cause Employer to contribute
additional amounts to the Trust, at such time or times as the Committee deems
appropriate, to the extent the aggregate of (1) the aforementioned sum of
$100,000, plus Trust earnings thereon, and (2) any additional Employer
contributions to the Trust, plus Trust earnings thereon, is not sufficient to
satisfy in full Employer's obligations under this Section.

14. Applicable Law. This Agreement shall be construed and interpreted
pursuant to the laws of Indiana.

15. Entire Agreement. This Agreement contains the entire Agreement between
the Employer and Executive and supersedes any and all previous agreements;
written or oral; between the parties relating to the subject matter hereof. No
amendment or modification of the terms of this Agreement shall be binding upon
the parties hereto unless reduced to writing and signed by Employer and
Executive.

16. No Employment Contract. Nothing contained in this Agreement shall be
construed to be an employment contract between Executive and Employer.

15
<PAGE>

17. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original.

18. Severability. In the event any provision of this Agreement is held
illegal or invalid, the remaining provisions of this Agreement shall not be
affected thereby.

19. Successors. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, representatives and
successors.

20. Employment with an Affiliate. For purposes of this Agreement, (A)
employment or termination of employment of Executive shall mean employment or
termination of employment with Employer and all Affiliates, (B) Base Salary and
Bonus shall include remuneration received by Executive from Employer and all
Affiliates, and (C) the terms Pension Plan, Retirement Plan and Welfare Plan
maintained or made available by Employer shall include any such plans of any
Affiliate of Employer.

21. Notice. Notices required under this Agreement shall be in writing and
sent by registered mail, return receipt requested, to the following addresses or
to such other address as the party being notified may have previously furnished
to the other party by written notice:

If to Employer: NIPSCO Industries, Inc.
5265 Hohman Avenue
Hammond, Indiana 46320

Attention: Gary L. Neale

If to Executive:

16
<PAGE>

IN WITNESS WHEREOF, Executive has hereunto set his hand, and Employer has
caused these presents to be executed in its name on its behalf, all on the
________ day of _______________________________, 1997, effective September 1,
1997.

NIPSCO Industries, Inc.

By:
--------------------------------

Title: Chairman, President and
Chief Executive Officer

------------------------------------
, Executive

17
<PAGE>

Schedule of Parties to Change of Control Agreements

The following Industries' executives have entered into amended Change in
Control and Termination Agreements with Industries: Gary L. Neal, Stephen P.
Adik, Patrick J. Mulchay, Jeffrey W. Yundt, Joseph L. Turner, James K. Abcouwer,
John W. Dunn, William R. Elliott, Jerry L. Godwin, Barbara D. Haas, Owen C.
Johnson, David A. Kelly, Mark T. Maassel and Robert J. Schacht. The contracts
are substantially identical in all material respects except as to the parties,
the execution dates and the amount of time following a change of control that
the termination provisions of the agreement apply (from 7-24 months). In
addition, Mr. Adik's and Mr. Neale's agreements provide that if a change of
control occurs during the term of the agreement, they may terminate their
employment within 24 months for any reason; and Mr. Neale's agreement provides
that he will receive termination benefits during the term of the agreement
(regardless of whether a change of control has occurred) if he is terminated for
any reason other than for good cause, if he terminates his employment for good
reason or if his employment terminates due to death or disability.

<PAGE>

EXHIBIT 10.5

FIRST AMENDMENT
TO
NIPSCO INDUSTRIES, INC.
NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
-----------------------------------------

WHEREAS, NIPSCO Industries, Inc. (the "Company") adopted the NIPSCO
Industries, Inc. Nonemployee Director Stock Incentive Plan ("Plan"), effective
February 1, 1992;

WHEREAS, pursuant to Section 9.1, the Board of Directors of the Company may
amend the Plan; and

WHEREAS, on December 16, 1997, the Board of Directors of the Company
authorized the proper officers of the Company to amend the Plan as described
below;

NOW THEREFORE, the Plan is hereby amended as follows, effective as of
December 16, 1997:

1. Section 4.3 is amended to read as follows:

4.3 Adjustments in Authorized Shares. (i) Appropriate adjustments in
the aggregate number of Shares issuable pursuant to the Plan, the number of
Shares subject to each outstanding award granted under the Plan and the
option price with respect to Options, shall be made to give effect to any
increase or decrease in the number of issued Shares resulting from a
subdivision or consolidation of shares, whether through recapitalization,
stock split, reverse stock split, spin-off, spin-out or other distribution
of assets to stockholders, stock distributions or combinations of shares,
payment of stock dividends, other increase or decrease in the number of
such Shares outstanding effected without receipt of consideration by the
Company, or any other occurrence for which the Board determines an
adjustment is appropriate.
<PAGE>

(ii) In the event of any merger, consolidation or reorganization of
the Company with any other corporation or corporations, or an acquisition
by the Company of the stock or assets of any other corporation or
corporations, there shall be substituted on an equitable basis, as
determined by the Board in its sole discretion, for each Share then subject
to the Plan, and for each Share then subject to an award granted under the
Plan, the number and kind of shares of stock, other securities, cash or
other property to which the holders of Shares of the Company are entitled
pursuant to such transaction.

(iii) Without limiting the generality of the foregoing provisions of
this paragraph, any such adjustment shall be deemed to have prevented any
dilution or enlargement of a Participant's rights, if such Participant
receives in any such adjustment, rights that are substantially similar
(after taking into account the fact that the Participant has not paid the
applicable option price) to the rights the Participant would have received
had he exercised his outstanding award and become a shareholder of the
Company immediately prior to the event giving rise to such adjustment.
Adjustments under this paragraph shall be made by the Board, whose decision
as to the amount and timing of any such adjustment shall be conclusive and
binding on all persons.

<PAGE>

This First Amendment has been executed by the Company, by its duly
authorized officer, on this _______ day of ____________, 1998.

NIPSCO Industries, Inc.

By:
______________________________

<PAGE>

EXHIBIT 10.7

WHEREAS, the Company maintains the NIPSCO Industries, Inc. Long-Term
Incentive Plan ("Plan");

WHEREAS, the Board of Directors of the Company deems it advisable to amend
the Plan to make certain changes to the Plan required by the Internal Revenue
Code of 1986 and Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and to permit participants to direct the withholding
of common shares to pay taxes when due;

WHEREAS, Section 20 of the Plan permits the Board to amend the Plan in
certain circumstances without shareholder approval and shareholder approval is
not required under the Exchange Act or otherwise.

NOW, THEREFORE, BE IT RESOLVED, that Section 2 of the Plan be amended in
its entirety to read as follows:

2. Administration. The Plan shall be administered by the Nominating and
Compensation Committee ("Committee") of the board of directors of the Company
("Board"). The Committee shall be composed of not fewer than two members of the
Board who are not employed by the Corporation. No member of the Committee may
exercise discretion with respect to, or participate in, the administration of
the Plan if, at any time, during the twelve-month period prior to such exercise
or participation, he or she has been granted or awarded stock, restricted stock,
stock options, stock appreciation rights or any other derivative security of the
Company or an affiliate thereof under this Plan or any similar plan of the
Company, except as permitted in Rule 16b-3(c)(2)(i)(A) through (D) under the
Securities Exchange Act of 1934, as amended (the "1934 Act"). Members of the
Committee shall be subject to any additional restrictions necessary to satisfy
the requirements for disinterested administration of the Plan as set forth in
Rule l6b-3, as it may be amended from time to time. If at any time any member of
the Committee does not satisfy such disinterested administration requirements,
no awards shall be made under this Plan to any person until such time as all
members of the Committee satisfy such requirements. Subject to the express
provisions of the Plan, the Committee may interpret the Plan, prescribe, amend
and rescind rules and regulations relating to it, determine the terms and
provisions of awards to officers and other key executive employees under the
Plan (which need not be identical) and make such other determinations as it
deems necessary or advisable for the administration of the Plan. The decisions
of the Committee under the Plan shall be conclusive and binding. No member of
the Board or the Committee shall be liable for any action taken, or
determination made, hereunder in good faith. Service on the Committee shall
constitute service as director of the Company so that members of the Committee
shall be entitled to indemnification and reimbursement as directors of the
Company pursuant to its by-laws.

FURTHER RESOLVED, that the title of Section 7 be amended in its entirety to
read "NonQualified Stock Options."

FURTHER RESOLVED, that Sections 7(c) and 8(c) of the Plan be amended in
their entirety to read as follows:

<PAGE>

(c) Payment for Shares. Except as otherwise provided in the Plan or
in any option agreement, the optionee shall pay the purchase price of the
common shares upon exercise of any option (i) in cash, (ii) in cash
received from a broker-dealer to whom the optionee has submitted an
exercise notice consisting of a fully endorsed option (however, in the case
of an optionee subject to Section 16 of the 1934 Act, this payment option
shall only be available to the extent such insider complies with Regulation
T issued by the Federal Reserve Board), (iii) by delivering common shares
having an aggregate fair market value on the date of exercise equal to the
option exercise price, (iv) by directing the Company to withhold such
number of common shares otherwise issuable upon exercise of such option
having an aggregate fair market value on the date of exercise equal to the
option exercise price, (v) by such other medium of payment as the
Committee, in its discretion, shall authorize at the time of grant, or (vi)
by any combination of (i), (ii), (iii), (iv) and (v). In the case of an
election pursuant to (i) or (ii) above, cash shall mean cash or a check
issued by a federally insured bank or savings and loan, and made payable to
NIPSCO Industries, Inc. In the case of payment pursuant to (ii), (iii) or
(iv) above, the optionee's election must be made on or prior to the date of
exercise and shall be irrevocable. In the case of an optionee who is
subject to Section 16 of the 1934 Act and who elects payment pursuant to
(iv) above, the election must be made in writing either (A) within ten (10)
business days beginning on the third business day following release of the
Company's quarterly or annual summary consolidated statements of earnings
and ending on the twelfth business day following such date, or (B) at least
six (6) months prior to the date of exercise of such option. In lieu of a
separate election governing each exercise of an option, an optionee may
file a blanket election with the Committee which shall govern all future
exercises of options until revoked by the optionee. The Company shall
issue, in the name of the optionee, stock certificates representing the
total number of common shares issuable pursuant to the exercise of any
option as soon as reasonably practicable after such exercise, provided that
any common shares purchased by an optionee through a broker-dealer pursuant
to clause (ii) above shall be delivered to such broker-dealer in accordance
with 12 C.F.R. 220.3(e)(4) or other applicable provision of law.

FURTHER RESOLVED, that a new Section 7(d) be hereby added to the Plan to
read in its entirety as follows:

(d) Transferability. Each stock option agreement shall provide that
it is not transferable by the optionee otherwise than by will or the laws
of descent or distribution.

FURTHER RESOLVED, that present Section 7(d) of the Plan be renumbered as
Section 7(e) and that renumbered Section 7(e) shall be amended to add the
following to the end thereof:

For purposes of this Plan, the term "disability" shall mean the inability
of an individual to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which is expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than twelve (12) months. The Committee,

<PAGE>

in its sole discretion, shall determine the date of any disability. The
term "retirement" shall mean retirement as defined in the Company's pension
plan.

FURTHER RESOLVED, that the following shall be added to the beginning of the
first sentence of Section 8(a) of the Plan:

Except as provided in Section 8(b),

FURTHER RESOLVED, that Section 8(b) of the Plan be amended in its entirety
to read as follows:

(b) Exercise of Option. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
optionee, in whole or in part, which shall be such period or periods of
time as may be determined by the Committee, provided that the option period
shall not commence earlier than six months after the date of the grant of
the option nor end later than ten years after the date of the grant of the
option. The aggregate fair market value (determined with respect to each
incentive stock option at the time of grant) of the common shares with
respect to which incentive stock options are exercisable for the first time
by an individual during any calendar year (under all incentive stock option
plans of the Company and its parent and subsidiary corporations) shall not
exceed $100,000. If the aggregate fair market value (determined at the time
of grant) of the common shares subject to an option, which first becomes
exercisable in any calendar year exceeds the limitation of this Section
8(b), 50 much of the option that does not exceed the applicable dollar
limit shall be an incentive stock option and the remainder shall be a
nonqualified stock option; but in all other respects, the original option
agreement shall remain in full force and effect. As used in this Section 8,
the words "parent" and "subsidiary" shall have the meanings given to them
in Section 425(e) and 425(f) of the Internal Revenue Code. Notwithstanding
anything herein to the contrary, if an incentive stock option is granted to
an individual who owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of
its parent or subsidiary corporations, within the meaning of Section
422(b)(6) of the Internal Revenue Code, (i) the purchase price of each
common share subject to the incentive stock option shall be not less than
one hundred ten percent (110%) of the fair market value of the common
shares on the date the incentive stock option is granted, and (ii) the
incentive stock option shall expire and all rights to purchase shares
thereunder shall cease no later than the fifth anniversary of the date the
incentive stock option was granted.

FURTHER RESOLVED, that Section 8(e) is hereby amended by deleting the
reference therein to Section 422A and substituting in lieu thereof Section 422.

FURTHER RESOLVED, that Section 9(c) of the Plan is hereby amended by adding
the following to the end thereof:

<PAGE>

Plan or in any stock appreciation right agreement, the grantee shall pay
the purchase price of the common shares upon exercise of a stock
appreciation right (i) in cash, (ii) by delivering common shares having an
aggregate fair market value on the date of exercise equal to the stock
appreciation exercise right price, (iii) by directing the Company to
withhold such number of common shares otherwise issuable upon exercise of
such stock appreciation right having an aggregate fair market value on the
date of exercise equal to the stock appreciation right exercise price, (iv)
by such other medium of payment as a Committee, in its discretion, shall
authorize at the time of grant, or (v) by any combination of (i), (ii),
(iii) and (iv). In the case of an election pursuant to (i) above, cash will
mean cash or a check issued by a federally insured bank or savings and
loan, and made payable to NIPSCO Industries, Inc. In the case of payment
pursuant to (ii) and (iii) above, the grantee's election must be made on or
prior to the date of exercise and shall be irrevocable. In the case of a
grantee who is subject to Section 16 of the 1934 A c t and who elects
payment pursuant to (iii) above, the election must be made in writing
either (A) within the ten (10) business days beginning on the third bus
ness day following release of the Company's quarterly or annual summary
consolidated statements of earnings and ending on the twelfth business day
following such day, or (B) at least six (6) months prior to the date of
exercise of such stock appreciation right. In lieu of a separate election
governing each exercise of a stock appreciation right, a grantee may file a
blanket election with the Committee which shall govern all future exercises
of stock appreciation rights until revoked by the grantee. Notwithstanding
the foregoing, in the case of a grantee of a stock appreciation right who
is subject to Section 16 of the 1934 Act, the Company's right to elect to
settle any part or all of its obligation arising out of the exercise of 6
stock appreciation right by the payment of cash or by check shall not apply
unless such exercise occurs no/less than six months after the date of grant
of the stock appreciation right and during the period beginning on the
third business day following the date of release for publication of the
Company's quarterly or annual summary consolidated statements of earnings
and ending on the twelfth business day following such day.

FURTHER RESOLVED, that Section 10(e) of the Plan be amended in its entirety
to read as follows:

(e) Payment of Units. Following the conclusion of each performance
period, the Committee shall determine the extent to which performance
targets have been attained for such period as well as the other terms and
conditions established by the Committee. The Committee shall determine
what, if any, payment is due on the Units. Except as otherwise provided in
the Plan or in any performance unit agreement, payment, if any, shall be
made (i) in cash, (ii) by delivering common shares having an aggregate air
market value on the date of payment equal to the payment, (iii) by
directing the Company to withhold such number of common shares otherwise
issuable u on conclusion of each performance period, having an aggregate
fair market value on the date of payment equal to the payment, (iv) by such
other medium of payment a the Committee, in its discretion, shall authorize
at the time of award, or (v) by any combination of the foregoing. Cash will
mean cash or a check issued

<PAGE>

by a federally insured bank or savings and loan, and made pa able to NIPSCO
Industries, Inc. In the case of payment pursuant to (ii) and (iii) above,
the election mus be made on or prior to the date of payment and shall be
irrevocable. In the case of a person who is subject to Section 16 of the
1934 Act and who elects payment pursuant to (iii) above, the election must
b made in writing either (A) within the ten (10) business days beginning on
the third business day following release of the Company's quarterly or
annual summary consolidated statements of earnings and ending on the
twelfth business day following such day, or (B) at lea six months prior to
the date of payment. In lieu of a separate election governing each payment
for a performance unit, a blanket election may be filed with the Committee
which shall govern all future payments of performance units until revoked.

FURTHER RESOLVED, that Section 11(e) of the Plan be amended in its entirety
to read as follows:

(e) Termination Prior to Lapse of Restrictions. In the event of a
participant's termination of employment, other than due to death or
retirement, prior to the lapse of restrictions applicable to any shares
awarded to such participant, all shares as to which there still remains
unlapsed restrictions shall be forfeited by such participant without
payment of any consideration to the participant, and neither the
participant nor any successors, heirs, assigns, or personal representatives
of such participant shall thereafter have any further rights or interest in
such shares or certificates.

FURTHER RESOLVED, that Section 16 of the Plan be amended in its entirety to
read as follows:

16. Withholding. Whenever the Company proposes or is required to
issue or transfer common shares to a participant under the Plan, the
Company shall have the right to require the participant to remit to the
Company an amount sufficient to satisfy all federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares. If such certificates have been delivered
prior to the time a withholding obligation arises, the Company shall have
the right to require the participant to remit to the Company an amount
sufficient to satisfy all federal, state or local withholding tax
requirements at the time such obligation arises and to withhold from other
amounts payable to the participant, as compensation or otherwise, as
necessary. Whenever payments under the Plan are to be made to a participant
in cash, such payments shall be net of any amounts sufficient to satisfy
all federal, state and local withholding tax requirements. In lieu of
requiring a participant to make a payment to the Company in an amount
related to the withholding tax requirement, the Committee may, in its
discretion, provide that at the participant's election, the tax withholding
obligation shall be satisfied by the Company's withholding a portion of the
shares otherwise distributable to the participant, such shares being valued
at their fair market value at the date of exercise, or by the participant's
delivering to the Company a portion of the shares previously delivered by
the Company, such shares being valued at their fair market value as of the
date of delivery of such shares

<PAGE>

by the participant to the Company. For this purpose, the amount of required
withholding shall be a specified rate not less than the statutory minimum
federal and state withholding rate and not greater than the maximum
federal, state and local (if any) marginal tax rate applicable to the
participant and to the particular transaction. Notwithstanding any
provision of the Plan to the contrary, a participant's election pursuant to
the preceding sentences (a) must be made on or prior to the date as of
which income is realized by the recipient in connection with the particular
exercise transaction, (b) must be irrevocable, and (c) if the election is
made by a participant who is subject to Section 16 of the 1934 Act, must be
made in writing either (A) within ten (10) business days beginning on the
third business day following the release of the Company's quarterly or
annual summary consolidated statements of earnings and ending on the
twelfth business day following such day, or (B) at least six (6) months
prior to the effective date of the particular exercise transaction. In lieu
of a separate election on each effective date of each exercise transaction,
a participant may file a blanket election with the Committee which shall
govern all future exercise transactions until revoked by the participant.

FURTHER RESOLVED, that Section 20 of the Plan be amended in its entirety to
read as follows:

20. Amendment or Termination. The Board or the Committee may at any
time terminate, suspend or modify the Plan without the authorization of
stockholders to the extent allowed by law, including without limitation any
rules issued by the Securities and Exchange Commission under Section 16 of
the 1934 Act, insofar as shareholder approval thereof is required in order
for the Plan to continue to satisfy the requirements of Rule 16b-3 under
the 1934 Act. No termination, suspension or modification of the Plan shall
adversely affect any right acquired by any participant under an award
granted before the date of such termination, suspension or modification,
unless such participant shall consent; but it shall be conclusively
presumed that any adjustment for changes in capitalization as provided for
herein does not adversely affect any such right. Any member of the Board
who is an officer or employee of the Company shall be without a vote on any
proposed amendment to the Plan, or on any other matter which might affect
that member's individual interest under the Plan.

<PAGE>

EXHIBIT 10.8

SECOND AMENDMENT
TO
NIPSCO INDUSTRIES, INC.
1988 LONG-TERM INCENTIVE PLAN
-----------------------------

WHEREAS, NIPSCO Industries, Inc. (the "Company") adopted the NIPSCO
Industries, Inc. 1988 Long-Term Incentive Plan, as amended effective August 24,
1993 ("Plan");

WHEREAS, pursuant to Section 20, the Board of Directors of the Company may
amend the Plan; and

WHEREAS, on December 16, 1997, the Board of Directors of the Company
authorized the proper officers of the Company to further amend the Plan as
described below;

NOW THEREFORE, the Plan is hereby amended as follows, effective as of
December 16, 1997:

1. Section 19 is amended to read as follows:

19. Adjustments. (i) Appropriate adjustments in the aggregate
number of common shares issuable pursuant to the Plan, the number of common
shares subject to each outstanding award granted under the Plan, the option
price with respect to options and connected stock appreciation rights, the
specified price of stock appreciation rights not connected to options, and
the value for Units, shall be made to give effect to any increase or
decrease in the number of issued common shares resulting from a subdivision
or consolidation of shares, whether through recapitalization, stock split,
reverse stock split, spin-off, spin-out or other distribution of assets to
stockholders, stock distributions or combinations of shares, payment of
stock dividends, other increase or decrease in the number of such common
shares outstanding effected without receipt of consideration by the
<PAGE>

Company, or any other occurrence for which the Committee determines an
adjustment is appropriate.

(ii) In the event of any merger, consolidation or reorganization of
the Company with any other corporation or corporations, or an acquisition
by the Company of the stock or assets of any other corporation or
corporations, there shall be substituted on an equitable basis, as
determined by the Committee in its sole discretion, for each common share
then subject to the Plan, and for each common share then subject to an
award granted under the Plan, the number and kind of shares of stock, other
securities, cash or other property to which the holders of common shares of
the Company are entitled pursuant to such transaction.

(iii) Without limiting the generality of the foregoing provisions of
this paragraph, any such adjustment shall be deemed to have prevented any
dilution or enlargement of a participant's rights, if such participant
receives in any such adjustment, rights that are substantially similar
(after taking into account the fact that the participant has not paid the
applicable option price) to the rights the participant would have received
had he exercised his outstanding award and become a shareholder of the
Company immediately prior to the event giving rise to such adjustment.
Adjustments under this paragraph shall be made by the Committee, whose
decision as to the amount and timing of any such adjustment shall be
conclusive and binding on all persons.

2
<PAGE>

This Second Amendment has been executed by the Company, by its duly
authorized officer, on this ______ day of __________________, 1998.

NIPSCO Industries, Inc.

By:
_____________________________

<PAGE>

EXHIBIT 10.11

FIRST AMENDMENT
TO
NIPSCO INDUSTRIES, INC.
1994 LONG-TERM INCENTIVE PLAN
-----------------------------

WHEREAS, NIPSCO Industries, Inc. (the "Company") adopted the NIPSCO
Industries, Inc. 1994 Long-Term Incentive Plan ("Plan"), effective April 13,
1994; and

WHEREAS, pursuant to Section 18, the Board of Directors of the Company may
amend the Plan; and

WHEREAS, on December 16, 1997, the Board of Directors of the Company
authorized the proper officers of the Company to amend the Plan as described
below;

NOW THEREFORE, the Plan is hereby amended as follows, effective as of
December 16, 1997:

1. Section 3(b) is amended to read as follows:

(b) (i) Appropriate adjustments in the aggregate number of Common
Shares issuable pursuant to the Plan, the number of Common Shares subject
to each outstanding award granted under the Plan, the option price with
respect to options and connected stock appreciation rights, the specified
price of stock appreciation rights not connected to options, and the value
for Units, shall be made to give effect to any increase or decrease in the
number of issued Common Shares resulting from a subdivision or
consolidation of shares, whether through recapitalization, stock split,
reverse stock split, spin-off, spin-out or other distribution of assets to
stockholders, stock distributions or combinations of shares, payment of
stock dividends, other increase or decrease in the number of such Common
Shares
<PAGE>

outstanding effected without receipt of consideration by the Company, or
any other occurrence for which the Committee determines an adjustment is
appropriate.

(ii) In the event of any merger, consolidation or reorganization of
the Company with any other corporation or corporations, or an acquisition
by the Company of the stock or assets of any other corporation or
corporations, there shall be substituted on an equitable basis, as
determined by the Committee in its sole discretion, for each Common Share
then subject to the Plan, and for each Common Share then subject to an
award granted under the Plan, the number and kind of shares of stock, other
securities, cash or other property to which the holders of Common Shares of
the Company are entitled pursuant to such transaction.

2
<PAGE>

This First Amendment has been executed by the Company, by its duly
authorized officer, on this ______ day of _________________, 1998.

NIPSCO Industries, Inc.

By:
________________________

<PAGE>
Exhibit 10.13

EMPLOYMENT AGREEMENT
--------------------

THIS AGREEMENT is made as of this 25th day of March, 1997 by and between
SPEEDWAY ACQUISITION CORP., an Indiana corporation ("Company"), and James T.
Morris ("Executive").

RECITALS

1. Pursuant to the Agreement and Plan of Merger dated as of December 19,
1996 ("Merger Agreement") by and among NIPSCO Industries, Inc. ("NIPSCO"), the
Company and IWC Resources Corporation, an Indiana corporation ("IWC"), IWC
intends to merge with and into the Company ("Merger"), as a result of which IWC
will become a wholly owned subsidiary of NIPSCO.

2. Executive is the Chairman, President and Chief Executive Officer of
IWC.

3. The Company and Executive desire to enter into arrangements to provide
for the continuation of Executive's employment in his current capacity following
consummation of the Merger.

NOW THEREFORE, in consideration of the mutual covenants and promises
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and Executive, each intending to
be legally bound, agree as follows:

1. TERM
----

The term of employment ("Term") shall commence as of the date of this
Agreement and shall expire on the third anniversary thereof, unless sooner
terminated as set forth in Section 5 below.

2. DUTIES
------

Upon the terms and subject to the conditions set forth in this Agreement,
the Company agrees to employ Executive as Chairman, President and Chief
Executive Officer of the Company. Executive agrees to serve as Chairman,
President and Chief Executive Officer of the Company and to perform such duties
in and consistent with that office as may reasonably be assigned to him by the
Company's Board of Directors.

Executive agrees to devote his full time, energy and skill to the business
of the Company except for periods of vacation and absences made necessary
because of illness, authorized leaves of absence and holidays and to promote the
Company's best interests during the Term. Executive further agrees not to work
for any other employer as an employee during the Term. The Company acknowledges
that it is and has long been IWC's policy to encourage its employees, including
its officers, to participate, to a material extent, in civic, charitable,
community and political activities, and the Company agrees that continued
participation by Executive in such activities on a basis and to an extent
consistent with his prior participation is consistent with his obligations under
this Agreement.

3. COMPENSATION AND BENEFITS
-------------------------

During the Term, Executive shall be entitled to receive compensation and
benefits as follows:

1
<PAGE>

(a) Base Compensation. Executive shall receive Base Compensation from the
Company at an annual rate of $360,535. Executive acknowledges that, in
connection with the Merger, he has already received the Base Compensation
payable through December 31, 1997 and, accordingly, no additional Base
Compensation will accrue after the date hereof until January 1, 1998.
Executive's Base Compensation may be reviewed at least annually and as a result
of such review, may be increased but may not be decreased.

(b) Performance Incentive Bonus Pool. Executive shall be entitled to
participate in a Performance Incentive Bonus Pool ("Pool") for each fiscal year
of the Company during the Term for which the Company's consolidated net income
(after tax), determined in accordance with generally accepted accounting
principles, exceeds by more than $2,000,000 the following amounts, respectively:
for the period between March 26, 1997 through December 31,1997: $11,871,450;
fiscal 1998: $19,798,700, and fiscal 1999: $21,674,900. In the event any
subsidiary of the Company is sold or otherwise disposed of during any such
fiscal year, the above amounts shall be appropriately adjusted for such year and
subsequent years to eliminate the budgeted contribution of such subsidiary to
Company's consolidated net income. The amount of the Pool shall be equal to 20%
of such excess. Executive's share of the Pool shall be 38%. Any bonus payable
from the Pool shall be payable in a lump sum within 90 days after the end of the
fiscal year for which the bonus is earned. Executive must be employed by the
Company during the entire fiscal year to be eligible for participation in the
Pool for that year.

(c) Acquisition Bonus. Executive shall be entitled to participate in an
Acquisition Bonus Pool for each Acquisition (defined as the acquisition by the
Company of all of the common equity securities or assets of an unrelated
company or an "applicable asset acquisition" as such term is defined in Section
1060 of the Internal Revenue Code of 1986, as amended ("Code")) during the Term,
provided that Executive is employed by the Company at the time of the closing of
the applicable Acquisition (unless such closing occurs after the Term or after
the death or disability of Executive, in which case Executive must have been
employed by the Company at the time the Company executed a definitive agreement
relating to the Acquisition). For each Acquisition involving an Acquisition
Price (defined as the aggregate dollar value of the cash and the fair market
value of the non-cash consideration paid for the Acquisition) of at least $10
million and not more than $100 million, the amount of the Acquisition Bonus Pool
shall be equal to 1% of the Acquisition Price. If the Acquisition Price exceeds
$100 million, the amount of the Acquisition Bonus Pool shall be equal to the sum
of: (i) 1% of the first $100 million of the Acquisition Price; (ii) .875% of the
Acquisition Price above $100 million up to $200 million; (iii) .75% of the
Acquisition Price above $200 million up to $300 million; (iv) .625% of the
Acquisition Price above $300 million up to $400 million; and (v) .5% of the
Acquisition Price above $400 million. Executive's share of the Acquisition
Bonus shall be 38%. Awards from the Acquisition Bonus shall be paid in a lump
sum within 30 days after the closing of the applicable Acquisition.

(d) Deferred Compensation. In lieu of contribution to any pension plan,
Executive shall be eligible to receive deferred compensation in the amount that
NIPSCO would have contributed to NIPSCO's defined benefit pension plan with
respect to the Term had Executive been a participant in such plan which shall be
payable in full in a lump sum payment upon the termination of the Agreement.

(e) Additional Benefits. During the Term and thereafter, Executive and
his dependents shall be entitled to participate in any health plan, disability
plan and life insurance plan or arrangement then made available by the Company
to its senior executives generally during the Term or subsequent thereto,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements and the Company's practices with
respect to such plans. During the Term, Executive shall also be entitled to all
miscellaneous fringe benefits and perquisites provided to him or for his benefit
during the twelve months preceding the date hereof.

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<PAGE>

(f) Vacation. Upon commencement of the Term, Executive shall be granted
an annual vacation of six weeks during each year of employment. Vacation cannot
be carried over from one year to the next. Such vacations shall be taken at
times mutually convenient to the Company and Executive.

4. ADDITIONAL COMPENSATION
-----------------------

Executive is entitled to receive additional compensation pursuant to
Section 4.15 of the Merger Agreement. The Company and Executive agree that the
compensation provided in this Section 4 and the Noncompetition Agreement by and
between the Company and Executive dated the date hereof ("Noncompetition
Agreement") is in lieu of any payment described in Section 4.15 of the Merger
Agreement and that Executive shall be entitled to no payments pursuant to
Section 4.15 of the Merger Agreement other than the compensation described in
this Section 4 and the Noncompetition Agreement. Executive shall be entitled to
receive such payments as follows:

(a) Completion Bonus. Executive shall be entitled to receive a Completion
Bonus. The Company shall pay Executive the Completion Bonus plus accrued
interest thereon in the amounts and on the dates set forth on Schedule 4(a)
attached hereto and made a part of this Agreement which sets forth the total
payment to be made to Executive pursuant to this Section 4(a). If Executive
dies prior to the payment by the Company of all of the amounts set forth on
Schedule 4(a) and Executive has a surviving spouse, at the option of
Executive's surviving spouse, the Company shall either (i) pay to Executive's
surviving spouse in a lump sum the amount set forth on Schedule 4(a) as the
Remaining Principal which corresponds to the date of the calendar quarter during
which Executive died or (ii) continue to pay to Executive's surviving spouse the
Completion Bonus plus accrued interest thereon in the amounts and on the dates
set forth on Schedule 4(a). If Executive dies prior to the payment by the
Company of all of the amounts set forth on Schedule 4(a) and Executive does not
have a surviving spouse, the Company shall pay to Executive's Beneficiary (as
defined below) in a lump sum the amount set forth on Schedule 4(a) as the
Remaining Principal which corresponds to the date of the calendar quarter during
which Executive died.

(b) Performance Incentive Bonus. Unless Executive is terminated for cause
(as defined below) during the Term or dies prior to January 1, 1998, Executive
shall be entitled to receive an annual Performance Incentive Bonus (for any one
year or multiple years, "Bonus") equal to 1% of NIPSCO's consolidated earnings
before interest, taxes, depreciation and amortization ("EBITDA") for each of
fiscal years 1997, 1998 and 1999. The maximum amount of the Bonus payable to
Executive for the entire three-year period (without regard to interest) shall be
$1,299,680 ("Maximum Amount"). The Company shall pay Executive the Bonus in the
amounts and on the dates set forth on Schedule 4(b) attached hereto and made a
part of this Agreement which sets forth the total payments to which Executive is
entitled pursuant to this Section 4(b). The payments set forth on Schedule 4(b)
are based on the following assumptions: (i) that the Maximum Amount will be
earned during 1997; (ii) that the Bonus will include interest at an annual rate
of 10% from the beginning of 1997 until December 31, 1999; and (iii) that the
Bonus plus any accrued interest thereon as of December 31, 1999 will include
interest at an annual rate of 8.6% from January 1, 2000 until April 30, 2008.
The payments set forth on Schedule 4(b) will be modified, consistent with the
foregoing assumptions, in the event that: (i) Executive is terminated for cause
during the Term, in which case, Executive shall not be entitled to any Bonus for
or based on the fiscal year during which such termination occurs or any
subsequent fiscal years; (ii) Executive dies during 1997, in which case,
Executive shall be entitled to a Bonus based on NIPSCO's EBITDA for 1997
prorated on a monthly basis through the end of the month in which Executive
died; or (iii) Executive does not earn the Maximum Amount in 1997, in which
case, the payments set forth on Schedule 4(b) shall be adjusted to reflect the
amount of the Bonus earned and the years in which the Bonus was actually earned.
If Executive dies prior to the payment by the Company of all of the amounts set
forth on Schedule 4(b) and Executive has a surviving spouse, at the option of
Executive's surviving spouse, the Company shall either (i) pay to Executive's
surviving spouse in a lump

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<PAGE>

sum the amount set forth on Schedule 4(b) as the Remaining Principal which
corresponds to the date of the calendar quarter during which Executive died or
(ii) continue to pay to Executive's surviving spouse the Bonus plus accrued
interest thereon in the amounts and on the dates set forth on Schedule 4(b). If
Executive dies prior to the payment by the Company of all of the amounts set
forth on Schedule 4(b) and Executive does not have a surviving spouse, the
Company shall pay to Executive's Beneficiary in a lump sum the amount set forth
on Schedule 4(b) as the Remaining Principal which corresponds to the date of the
calendar quarter during which Executive died.

(c) Gross-Up Payments. If Executive is subject to an excise tax under
Section 4999 of the Code as a result of payments made in connection with this
Agreement and/or the Noncompetition Agreement, the Company will make an
additional payment or payments ("Gross-Up Payment") in such amount as shall be
necessary to reimburse Executive for such excise tax and for all excise and
income taxes on the Gross-Up Payment, provided that the maximum Gross-Up Payment
to Executive shall not exceed $2,400,000, unless the Company is instructed to
the contrary in writing by Executive and by Joseph R. Broyles, J. A. Rosenfeld,
Kenneth N. Giffin and John M. Davis or their designees. In no event, however,
shall the obligations of the Company under this Section 4(c) exceed the
difference between $6,000,000 and any amounts paid at any time to Joseph R.
Broyles, J. A. Rosenfeld, Kenneth N. Giffin and John M. Davis under Employment
Agreements and Noncompetition Agreements between the Company and each of them by
reason of any provision in such agreements similar to or intended to serve the
same purpose as this Section 4(c).

(d) Contests.

1. Notice of Contest. If Executive obtains a formal written notice of
a proposed adjustment by the Internal Revenue Service that, if sustained, would
result in an excise tax imposed on Executive for which the Company could be
required to indemnify Executive hereunder ("Claim"), Executive agrees to notify
the Company immediately in writing of such Claim; provided however, that the
failure so to notify the Company shall not affect the Company's liability
hereunder except to the extent that Executive actually received a written
proposed adjustment and such failure precludes the Company's ability to contest
such Claim.

2. Conditions to Contest. At the request of the Company, Executive
shall contest the validity of any Claim in good faith if the Company has agreed
in writing to pay Executive all fees and expenses that Executive shall incur in
connection with contesting the Claim, including, without limitation, attorneys',
accountants' and investigatory fees and disbursements.

3. Initiation of Contest and Choice of Forum. At the sole option of
the Company, Executive may pursue or forego any administrative proceedings and
either pay the tax proposed and sue for a refund or contest the Claim in any
permissible forum. If the Company shall determine to pay the tax proposed and
have Executive sue for a refund, the Company shall advance to Executive on
demand on an interest-free basis and with no additional net after-tax cost to
Executive sufficient funds to pay the tax and interest, penalties and additions
to tax payable with respect thereto ("Deposit").

4. Conduct of Contest and Appeals. In connection with any Claim, the
Company shall maintain full control over any such litigation and shall consult
in good faith with Executive regarding the conduct of such contest. After formal
written notification of a Claim which the Company is contesting, the Company (i)
shall keep Executive fully informed with respect to any contest and (ii) shall
consult in good faith with Executive as to all material decisions relevant to
any audit or contest. Executive shall be required to appeal any adverse judicial
determination with respect to a Claim.

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<PAGE>

5. Determination by the Executive Not to Contest a Claim. Nothing
contained in this Section 4(d) shall require Executive to contest a Claim that
it would otherwise be required to contest pursuant to this Section 4(d) if
Executive (i) waives in writing the payment by the Company of any amount that
might otherwise be payable by the Company under this Agreement by way of
indemnity in respect of such Claim and (ii) pays to the Company any amount
previously paid or advanced by the Company pursuant to this Agreement with
respect to such Claim or the contest of such Claim (other than amounts described
in Section 4(d)(2)).

6. Final Determination and Payment of Amounts. If the Company shall have
requested Executive to contest a Claim as provided in Section 4(d) and shall
have duly complied with all the terms of this Section 4(d), the Company's
liability for payment under this Agreement shall be deferred until a Final
Determination (as defined below) of the Claim. At such time, the Company shall
become obligated for the payment of any indemnification under this Agreement
resulting from the outcome of such contest, and Executive shall become obligated
to refund to the Company any amount received as a refund by Executive that is
fairly attributable to advances or indemnity payments made by the Company under
this Agreement, together with any interest received by Executive on such refund.

For purposes of the Agreement, the term "Final Determination" with respect
to an excise tax asserted to be imposed on Executive shall mean (i) a decision,
judgment, decree or other order by any court of competent jurisdiction, which
decision, judgment, decree or order has become final (i.e., when all appeals
allowable by law and hereby have been exhausted by either party to the action);
(ii) a closing agreement entered into under Section 7121 of the Code or any
other settlement agreement entered into in connection with an administrative or
judicial proceeding which precludes further action by either party; or (iii) the
expiration of the time for instituting a claim for refund, or if such a claim
was filed, the expiration of the time for instituting suit with respect thereto.

5. TERMINATION OF EMPLOYMENT

(a) Termination for Cause. The Company shall have the right to terminate
Executive's employment with the Company for cause. For purposes of this
Agreement, "cause" shall mean the following: (i) Executive's engagement, during
the performance of Executive's duties hereunder, in acts or omissions
constituting dishonesty, fraud, intentional breach of fiduciary obligation or
intentional wrongdoing or malfeasance; (ii) Executive's conviction of a felony
violation involving fraud or dishonesty; (iii) Executive's violation or breach
of any material provision of this Agreement or the Noncompetition Agreement and
the continuation thereof after the receipt by Executive of written notice from
the Company; or (iv) Executive's unreasonable failure or refusal to perform his
duties as the Company reasonably requires or to abide by the Company's policies
for the operation of its business and the continuation thereof after the receipt
by Executive of written notice from the Company.

(b) Termination by Executive. Executive shall have the right, at any time
during the term of this Agreement, and for any reason, to terminate his
employment with the Company upon giving 30-days' written Notice of Termination
as set forth below to the Company.

(c) Compensation in the Event of Termination for Cause or by Executive. If
Executive's employment with the Company is terminated by the Company for cause,
or if Executive's employment with the Company is terminated by Executive, then
(i) the Base Compensation provided for in Section 3 shall cease to accrue as of
the date of termination of Executive's employment with the Company ("Termination
Date") specified in the Notice of Termination as set forth below; (ii) the
Company shall pay to Executive any compensation payable in the amount, at the
time and in the manner set forth in Sections 3 and 4 and specifically shall pay
the Bonus described in Section 4(b) plus any accrued interest thereon if
termination

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<PAGE>

is other than for cause; and (iii) Executive and his dependents shall cease to
participate in the benefit plans and programs, as provided for in Section 3, as
of the Termination Date specified in the Notice of Termination. Any benefits
payable under insurance or health plans as a result of Executive's participation
in such plans through the Termination Date shall be paid when due under those
plans.

(d) Disability. The Company shall have the right to terminate Executive's
employment effective after the determination that Executive is unable to work
due to a Disability. If Executive's employment is terminated pursuant to this
Section 5(d), then: (i) the Base Compensation provided for in Section 3 shall
cease to accrue as of the Termination Date specified in the Notice of
Termination as set forth below; (ii) the Company shall pay to Executive any
compensation payable in the amount, at the time and in the manner set forth in
Sections 3 and 4 and, specifically, shall pay the amount described in Section
4(b) to the extent earned notwithstanding such termination; and (iii) at the
option of Executive, Executive and his dependents may continue to participate in
the benefit plans as provided for in Section 3 to the extent Executive and his
dependents are eligible to participate in such benefit plans pursuant to the
terms of such benefit plans. Any benefits payable under insurance and health
plans as a result of Executive's participation in such plans through the
Termination Date shall be paid when due under those plans. Following the
Termination Date, the Company is not obligated to provide Executive or his
dependents the benefits provided for in Section 3 in the event that Executive or
his dependents are not eligible for participation in such plans pursuant to the
terms of such plans due to the termination of Executive's employment with the
Company or for any other reason.

For purposes of this Agreement, "Disability" shall mean a physical or
mental disability, as determined by an independent physician selected by the
Company, that renders Executive incapable of performing his duties under this
Agreement for 180 days or more within any 365-day period, of which at least 90
days are consecutive. The Termination Date pursuant to this Section 5(d) shall
be no earlier than the date of the first day following the 180-day period
described in this paragraph.

(e) Death. If Executive dies during the term of this Agreement, the
Company shall (i) pay Executive's Base Compensation for the period ending on the
date of his death to his Beneficiary; and (ii) pay to Executive's Beneficiary
any compensation payable in the amount, at the time and in the manner set forth
in Sections 3 and 4 and specifically shall pay the amounts described in Section
4(b) to the extent earned notwithstanding Executive's death. Executive's
dependents may continue to participate in the benefit plans as provided for in
Section 3 to the extent Executive's dependents are eligible to participate in
such benefit plans pursuant to the terms of such benefit plans. Following the
Termination Date, the Company is not obligated to provide Executive's dependents
the benefits provided for in Section 3 in the event that Executive's dependents
are not eligible for participation in such plans pursuant to the terms of such
plans due to the termination of Executive's employment with the Company or for
any other reason.

For purposes of this Agreement, Executive's "Beneficiary" shall be the
personal representative of Executive's estate or if no such representative shall
be appointed within six months after the date of Executive's death, Executive's
heirs under the laws of descent and distribution in effect in the state in which
Executive is domiciled at the date of his death.

(f) Other Termination. If Executive's employment with the Company is
terminated other than pursuant to Sections 5 (a), (b), (d) or (e), then (i) the
Base Compensation provided for in Section 3 shall continue being paid through
the third anniversary of the date of this Agreement as if Executive had
continued to be employed through such period; and (ii) the Company shall pay to
Executive any compensation described in Sections 3(b), 3(c) and 4. If
Executive's employment with the Company is terminated due to Executive's
retirement, at the option of Executive, Executive and his dependents may
continue to participate in the benefit plans as provided for in Section 3 to the
extent Executive and his dependents are eligible to

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<PAGE>

participate in such benefit plans pursuant to the terms of such benefit plans.
The participation of Executive and his dependents in such plans shall cease as
of the date Executive becomes employed by another employer. Following the
Termination Date, the Company is not obligated to provide Executive or his
dependents the benefits provided for in Section 3 in the event that Executive or
his dependents are not eligible for participation in such plans pursuant to the
terms of such plans due to the termination of Executive's employment with the
Company or for any other reason.

(g) Notice of Termination. Any termination of Executive's employment with
the Company pursuant to this Section 5 (except in the circumstances of
Executive's death) shall be communicated by a written notice of termination by
the terminating party to the other party ("Notice of Termination") and shall
indicate the Termination Date. The Notice of Termination by the Company for
termination for cause shall indicate the specific provisions of this Agreement
relied upon and shall set forth the reason for such termination.

(h) Survival of Obligations Provided for in Section 6 and Noncompetition
Agreement. If Executive's employment with the Company is terminated for any
reason, Executive's obligations, duties and responsibilities, as provided for in
Section 6 and the Noncompetition Agreement shall survive the termination of
Executive's employment and shall continue as set forth therein.

6. CONFIDENTIALITY

(a) Covenant Concerning Confidentiality. Executive agrees that he shall
not disclose, during the Term and thereafter, without the prior written consent
of NIPSCO, to anyone outside of the Company, NIPSCO and its subsidiaries any
confidential matters of the Company, NIPSCO or its subsidiaries or their
predecessors for as long as such matters remain confidential and not generally
known to the public, including without limitation, trade secrets, customer
lists, pricing policies, operating methods, any proprietary information of any
nature or any information concerning the business of, or any customer,
representative, agent or employee of, the Company, NIPSCO or its subsidiaries or
their predecessors that was obtained by Executive in the course of his
employment by the Company, NIPSCO or its subsidiaries or their predecessors,
unless such disclosure is made as a proper part of performing his duties for the
Company. Executive further agrees that if his employment by the Company is
terminated for any reason, he will not take with him, but will leave with and
deliver to the Company, any and all records and papers of whatever nature that
relates to his employment by the Company or bears any information about the
Company, NIPSCO or its subsidiaries or their predecessors. In the event
Executive violates this provision, the Company shall be entitled to any and all
its remedies at law or in equity but shall not be entitled, unless directed by a
court of law, to withhold payment of any amounts due Executive hereunder.

(b) Limitation on Covenant Concerning Confidentiality. Executive's
obligations pursuant to this Section shall not apply to any confidential
information if and to the extent Executive is required pursuant to any statute,
law, ordinance, rule, resolution or order of the U.S. Congress, any state or
local legislature, a judge or an administrative law judge to testify in or to a
legislative, judicial or regulatory proceeding or otherwise to disclose such
confidential information. All such information is and will remain the exclusive
property of NIPSCO. For purposes of this Agreement, the terms "trade secrets"
and "confidential information" include, but are not limited to, processes,
methods, techniques, systems, formulas, patents, models, devices, compilations,
customer lists or any information of whatever nature that gives to the Company,
IWC and its subsidiaries an opportunity to obtain an advantage over a competitor
who did not know or use it, but excludes matters which, without breach of
Executive's obligations, are not generally known to the public.

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<PAGE>

(c) Judicial Modification of Covenant Concerning Confidentiality. If any
provision contained in this Section shall for any reason be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Section, rather
this Section shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. It is the intention of the parties
that if any of the restrictions or covenants contained herein is held to any
extent invalid, such provisions shall not be construed to be null, void or of no
effect, but, to the extent such provision would be valid or enforceable under
applicable law if limited in scope, a court of competent jurisdiction shall
construe and interpret or reform this Section to provide for a covenant having
the maximum enforceable scope and other provisions (not greater than those
contained herein) as shall be valid and enforceable under such applicable law.

7. NO ASSIGNMENT

No interest or amount payable to Executive, his spouse or any other
beneficiary under this Agreement shall be assignable (in law or equity) by
Executive or such beneficiary and shall not be subject to any manner of
alienation, sale, transfer, assignment, claims of creditors, pledge, attachment,
garnishment, levy, execution or encumbrance of any kind. No such interest or
amount payable or right to receive a payment or distribution may be taken,
voluntarily or involuntarily, for the satisfaction of the obligations or debts
of, or other claims against, Executive or his spouse or other beneficiary,
including claims for alimony, support, separate maintenance and claims in
bankruptcy proceedings. This Agreement is personal in nature and, except as set
forth in Section 13, neither this Agreement nor any rights or obligations under
it may be assigned or delegated by either party without the express written
consent of the other.

8. INDEMNITY

Executive shall be indemnified under the Company's By-Laws and covered by
officers liability insurance policies to the extent the Company or NIPSCO
provides such coverage for its other officers.

9. NOTICES

Any notice or communication given pursuant to this Agreement must be in
writing and shall be effective only if delivered personally; or sent by
facsimile transmission; or delivered by overnight courier service; or sent by
certified mail, postage paid, return receipt requested, to the recipient at the
address indicated below or to such other address as the party being notified may
have previously furnished to the other party by written notice pursuant to this
Section 9:

If to the Company, to:

IWC Resources Corporation
1220 Waterway Boulevard
P.O. Box 1220
Indianapolis, Indiana 46206
Telephone: (317) 639-1501
Facsimile: (317) 263-6448
Attn: President

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<PAGE>

with a copy to:

NIPSCO Industries, Inc.
801 East 86th Avenue
Merrillville, Indiana 46410
Telephone: (219) 647-6004
Facsimile: (219) 647-6061
Attn: President

If to Executive, to:

James T. Morris
8191 N. Pennsylvania Street
Indianapolis, Indiana 46240
Telephone: (317) 225-2183

Notices under this Agreement shall be effective and deemed received on the
date of personal delivery or facsimile transmission (as evidenced by facsimile
confirmation of transmission); on the day after sending by overnight courier
service (as evidenced by the shipping invoice signed by a representative of the
recipient); or on the date of actual delivery to the party to whom such notice
or communication was sent by certified mail, postage prepaid, return receipt
requested (as evidenced by the return receipt signed by a representative of such
party).

10. ENTIRE AGREEMENT; AMENDMENT

This Agreement and the Noncompetition Agreement represent the entire
agreement of the Company and Executive with respect to the matters set forth in
them. No amendment or modification of the terms of this Agreement shall be
binding upon the parties unless reduced to writing and signed by each of the
parties.

11. SEVERABILITY

Any provision of this Agreement prohibited by law or deemed unenforceable
shall be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions.

12. GOVERNING LAW

This Agreement shall be interpreted and construed under the laws of the
State of Indiana, and the parties consent to the jurisdiction of Indiana state
and federal courts located in the State of Indiana over all matters relating to
this Agreement.

13. SUCCESSORS AND ASSIGNS

This Agreement shall be binding upon and inure to the benefit of the
Company and its successors and assigns.

14. WAIVER

No waiver by any party at any time of any breach by the other party of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of any other provisions or conditions
at the same time or at any prior or subsequent time.

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<PAGE>

15. SURVIVAL OF PROVISIONS

The provisions of Sections 6, 8, 10, 11, 12, 13, 14 and 15 of this
Agreement and the Noncompetition Agreement shall survive the termination of
Executive's employment with the Company and the expiration or termination of
this Agreement.

16. COUNTERPARTS

This Agreement may be executed in counterparts, each of which shall be
deemed an original.

17. WITHHOLDING

The Company may withhold from any payment that it is required to make under
this Agreement amounts sufficient to satisfy applicable withholding requirements
under any federal, state or local law.

[The remainder of this page left intentionally blank.]

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IN WITNESS WHEREOF, the parties, intending to be legally bound hereby, have
duly executed this Agreement as of the day and year first set forth above.

SPEEDWAY ACQUISITION CORP.

By: /s/ Stephen P. Adik
-------------------------------

/s/ James T. Morris
-----------------------------------
JAMES T. MORRIS

The undersigned hereby guarantees the performance by the Company of its
obligations hereunder.

NIPSCO INDUSTRIES, INC.

By: /s/ Stephen P. Adik
-------------------------------

<PAGE>
Exhibit 10.14

Executive Supplemental Pension Agreement

AGREEMENT by and between IWC Resources Corporation, an Indiana Corporation (the
"Company") and James T. Morris (the "Executive") dated as of the 13th day of
January, 1998.

The Board of Directors of the Company has formerly, through the authorized
actions of its duly appointed Compensation Committee, approved provisions
incident to the former Executive Employment (a/k/a Change of Control) Agreement
("Agreement") that created a supplemental pension in the event of a change of
control of the Company and separation from service by the Executive.

The Executive, by acknowledgment and release dated March 25, 1997, discharged
and released Speedway Acquisition Corp. and its subsidiaries and affiliates
from all obligations and liabilities under the Agreement.

Speedway Acquisition Corp. merged with IWC Resources Corporation March 25, 1997,
survived the merger and was renamed IWC Resources Corporation.

The Company and the Executive seek to eliminate uncertainties and risks related
to the supplemental pension status formerly granted and to provide the Executive
with a supplemental pension benefit upon a separation from service which ensures
that expectations of the Executive under the former Agreement will be satisfied.

NOW, THEREFORE IT IS AGREED AS FOLLOWS:

1. The Executive is indefeasibly vested in a pension benefit.

2. The pension benefit has two components:

(a) The amount payable annually to the Executive at the time of separation
from service on a qualified life annuity basis from the IWC Resources
defined benefit plan, and

(b) A Supplemental Amount payable from the general assets of the Company,
which when added to the annuity referred to in 2(a) above, yields a
combined benefit amount of $43,643 on an annual basis for the life of the
Executive.

3. The total annual benefit of $43,643 represents a provision calculated and
intended to overcome actuarial and Plan-provided discounts that apply to
retirement or separation from service prior to the Executive attaining age
65.

4. The Supplemental Amount determined under 2(b) above and payable from the
general assets of the Company is only available to the Executive in the
form of an annuity, unless the parties agree otherwise in writing,
regardless of whether the Executive elects a lump sum distribution on the
qualified plan element of the benefit.

<PAGE>

5. The Supplemental Amount determined under 2(b) above and payable from the
general assets of the Company shall, in the event of the death of the
Executive, be payable to his spouse, if she survives him for the duration
of her life and shall then terminate.

6. This Agreement in no way alters, limits, or enhances the Executive's
benefits available under or participation in IWC Resources Corporation
Pension Plan, or in the deferred Compensation arrangement provided in
Section 3(b) of the Executive's Employment Agreement dated March 25, 1997.

7. The Company may withhold from any amount payable under this Agreement such
Federal, State of local taxes as shall be required by law.

8. All notices and other communication hereunder shall be in writing and shall
be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive: 8191 N. Pennsylvania Street
Indianapolis, IN 46240

If to the Company: 1220 Waterway Blvd.
Indianapolis, IN 46202

Attention: Corporate Secretary and
General Counsel

or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.

IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.

/s/ James T. Morris IWC Resources Corporation
- --------------------------
[Executive]

By: /s/ David A. Kelly
---------------------------

Title: Executive Vice President
------------------------

Attest:

/s/ [SIGNATURE APPEARS HERE], Secretary
- ---------------------------------------

<PAGE>

EXHIBIT 13

1997 FINANCIAL REVIEW

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

HOLDING COMPANY

NIPSCO Industries, Inc. (Industries) is an energy/utility-based holding
company providing electric energy, natural gas and water to the public through
its six wholly-owned regulated subsidiaries (Utilities): Northern Indiana
Public Service Company (Northern Indiana); Kokomo Gas and Fuel Company (Kokomo
Gas); Northern Indiana Fuel and Light Company, Inc. (NIFL); Crossroads
Pipeline Company (Crossroads); Indianapolis Water Company (IWC); and Harbour
Water Corporation (Harbour). Industries' regulated gas and electric
subsidiaries (Northern Indiana, Kokomo Gas, NIFL and Crossroads) are referred
to as "Energy Utilities"; and regulated water subsidiaries (IWC and Harbour)
are referred to as "Water Utilities."

NET INCOME

All references throughout this Annual Report to number of common shares
reported for the period including per share amounts, stock option data and
market prices of Industries' common stock have been restated to reflect a two-
for-one stock split which is payable February 20, 1998, to shareholders of
record at the close of business on January 30, 1998. At December 31, 1997,
Industries adopted SFAS No. 128 "Earnings per Share." The adoption of this
statement required Industries to present basic earnings per share and diluted
earnings per share in place of primary earnings per share. Refer to Earnings
per Share in Notes to Consolidated Financial Statements for information
related to this disclosure.

For 1997, net income of Industries increased to $190.8 million, or basic
earnings of $1.54 per average common share, compared to $176.7 million, or
basic earnings of $1.44 per average common share, for 1996. There were
approximately 1.5 million more average common shares outstanding in 1997 than
1996. In 1995, net income was $175.5 million, or basic earnings of $1.36 per
average common share. See Notes to Consolidated Financial Statements for
Segments of Business regarding revenue and operating income derived from the
delivery of gas, electricity, water and products and services.

REVENUES

In 1997, operating revenues increased $598.6 million, or 30.1%, over 1996.
Operating revenues in 1996 increased $218.6 million, or 12.4%, from 1995.

<PAGE>

During 1997, gas deliveries in dekatherms (dth), which include
transportation services, increased 2.7%. Gas sales levels in 1997 remained
relatively unchanged from 1996. Gas transportation services increased 4.6%
mainly due to increased deliveries of gas transported for others. The Energy
Utilities had approximately 729,400 gas customers at December 31, 1997. During
1996, gas deliveries increased 6.6% over 1995. Gas sales in 1996 increased
14.5% due to higher sales to residential and commercial customers as a result
of colder weather during the first quarter of 1996 and increased sales to
industrial and wholesale customers. Gas transportation services increased 1.6%
mainly due to increased deliveries by Crossroads, which were partially offset
by decreased deliveries to Northern Indiana's industrial customers.

Gas revenues were $807.2 million in 1997, an increase of $7.8 million from
1996. The increase in gas revenues was mainly due to increased sales to
wholesale customers, increased gas costs per dth and increased deliveries of
gas transported for others, partially offset by decreased sales to residential
and commercial customers and decreased gas transition costs. Gas revenues were
$799.4 million in 1996, an increase of $108.0 million from 1995. The increase
in gas revenues was mainly due to increased sales to residential and
commercial customers as the result of colder weather during the first quarter
of 1996, increased sales to industrial and wholesale customers and increased
gas costs per dth, which were partially offset by decreased gas transition
costs. The large commercial and industrial customers continued to utilize
transportation services provided by the Energy Utilities. Gas transportation
customers purchase much of their gas directly from producers and marketers and
then pay a transportation fee to have their gas delivered over the Energy
Utilities' systems. The Energy Utilities transported 203.7, 194.4 and 191.6
million dth in 1997, 1996 and 1995, respectively.

In 1997, sales of electricity in kilowatt-hours (kwh) decreased 4.5% from
1996 mainly due to decreased sales to wholesale and industrial customers
partially offset by increased sales to residential and commercial customers.
Industrial sales decreased during the period as a result of cogeneration
projects with two of Northern Indiana's major industrial customers coming
online during the period. Northern Indiana had approximately 416,300 electric
customers at December 31, 1997. In 1996, sales of electricity in kilowatt-
hours (kwh) decreased 1.1% from 1995 mainly due to decreased sales to
residential customers due to cooler summer weather in 1996 and decreased sales
to industrial customers due to operational difficulties at several major
industrial customers, which were partially offset by increased sales to
commercial and wholesale customers.

In 1997, electric revenues were $1.017 billion, a decrease of $5.1 million
from 1996. The decrease in electric revenues was mainly due to decreased sales
to industrial customers, partially offset by increased sales to residential
and commercial customers and increased revenues related to wholesale
transactions. Industrial sales decreased during the period as a result of
cogeneration projects with two of Northern Indiana's major industrial
customers coming online during the period. In 1996, electric revenues were
$1.022 billion, a decrease of $8.7 million from 1995. The decrease in electric
revenues was mainly due to decreased sales to residential customers due to
cooler summer weather in 1996 and decreased sales to industrial customers due
to operational difficulties at several major industrial customers, which were
partially offset by increased sales to commercial and wholesale customers.

Water revenue for the period April 1997 through December 1997 was $60.7
million. Water sales to residential and commercial customers accounted for
$54.4 million of 1997 revenues. The Water Utilities had sales in millions of
gallons (m.g.) of 35,566 during the last nine months of 1997 and served
approximately 246,600 customers at December 31, 1997.

In 1997, Products and Services revenues were $701.5 million, an increase of
$535.2 million from 1996. The increase was partially due to an additional
$274.4 million in gas energy marketing revenue resulting from increased sales
to existing customers and customer growth during 1997. NESI Power Marketing,
Inc., a wholly-owned subsidiary of Services, formed in December 1996 to market
wholesale electric power accounted for $167.5 million of additional energy
marketing revenue in 1997. Miller and SM&P contributed $95.6 million to
operating revenues since the March 1997 acquisition of IWCR. Products and
Services revenue in 1996 was $166.3 million, an increase of $119.3 million
from 1995. This increase was primarily due to increased volumes in gas energy
marketing.

<PAGE>

The components of the changes in operating revenues are shown in the
following table:

<TABLE>
<CAPTION>
YEAR 1997 YEAR 1996
COMPARED TO COMPARED TO
YEAR 1996 YEAR 1995
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Gas Revenue
Pass through of net changes in purchased gas
costs, gas storage and storage transportation
costs........................................... $ 14.8 $ 55.3
Gas transition costs............................. (4.3) (33.5)
Changes in sales levels.......................... (6.6) 85.6
Gas transported.................................. 3.9 0.6
------ ------
Gas Revenue Change................................. 7.8 108.0
------ ------
Electric Revenue
Pass through of net changes in fuel costs........ 4.0 3.2
Changes in sales levels.......................... (9.1) (11.9)
------ ------
Electric Revenue Change............................ (5.1) (8.7)
------ ------
Water Revenue Change............................... 60.7 --
------ ------
Products and Services Revenue
Energy Marketing................................. 441.9 84.0
Pipeline construction............................ 47.2 --
Locate and marking............................... 48.4 --
Other............................................ (2.3) 35.3
------ ------
Products and Services
Revenue Change................................... 535.2 119.3
------ ------
Total Operating Revenue Change................. $598.6 $218.6
====== ======
</TABLE>

See Rate Matters in Notes to Consolidated Financial Statements regarding
FERC Order No. 636 transition costs.

The basic steel industry accounted for 30% of natural gas delivered
(including volumes transported) and 33% of electric sales during 1997.

The Energy Utilities' rate schedules for electric and gas service to their
customers contain an electric rate adjustment clause for changes in the cost
of fuel and firm purchases of electric energy; and gas rate adjustment clauses
to reflect changes in the cost of gas purchased, contracted gas storage and
storage transportation costs. (See Fuel Adjustment Clause and Gas Cost
Adjustment Clause under Summary of Significant Accounting Policies in Notes to
Consolidated Financial Statements.)

GAS COSTS

The Energy Utilities' gas costs increased $11.5 million (2.3%) in 1997 due
to increased gas costs per dth, which were partially offset by decreased gas
transition costs. The average cost for the Energy Utilities purchased gas in
1997, after adjustment for gas transition costs billed to transport customers,
was $3.15 per dth as compared to $3.06 per dth in 1996. Gas costs increased
$84.6 million (21.2%) in 1996 due to increased purchases and increased gas
costs per dth, which were partially offset by decreased gas transition costs.
The average cost for the Energy Utilities purchased gas in 1996, after
adjustment for gas transition costs billed to transport customers, was $3.06
per dth as compared to $2.68 per dth in 1995.

<PAGE>

FUEL AND PURCHASED POWER

Cost of fuel for electric generation in 1997 increased mainly as a result of
increased production. The average cost per kwh generated decreased 2.3% from
1996 to 15.43 mills. The cost of fuel for electric generation in 1996
decreased mainly as a result of decreased production. The average cost per kwh
generated decreased 0.6% from 1995 to 15.79 mills.

Power purchased decreased $16.5 million in 1997 as a result of decreased
bulk power purchases. Power purchased increased $10.1 million in 1996 as a
result of increased bulk power purchases and increased cost per megawatt
purchased.

COST OF PRODUCTS AND SERVICES

The cost of sales for Products and Services increased $503.3 million in 1997
to $604.5 million. Nine months of operations at IWCR's non-regulated
subsidiaries increased cost of sales $67.2 million in 1997. Additionally,
increased energy marketing activities increased cost of sales $435.7 million
in 1997 compared to 1996. The cost of sales for Products and Services
increased $91.9 million in 1996 to $101.2 million. This increase reflects
primarily an increase in gas marketing activities.

OPERATING MARGINS

Operating margins increased $95.0 million in 1997 to $1.211 billion. The gas
operating margin decreased $3.7 million in 1997 due to decreased sales to
residential and commercial customers reflecting milder weather, partially
offset by increased sales to wholesale customers and increased deliveries of
gas transported for others. Operating margin from electric sales increased
$6.0 million due to increased sales to residential and commercial customers,
and increased wholesale transactions, partially offset by decreased sales to
industrial customers. The Water Utilities contributed $60.7 million to
operating margin since the March 1997 acquisition of IWCR. Additionally,
Miller and SM&P increased Products and Services operating margin $28.4 million
during 1997. Operating margins increased $41.1 million in 1996 to $1.116
billion. The gas operating margin increased $23.3 million in 1996 due to
increased sales to residential and commercial customers reflecting colder
weather during the first quarter of 1996, increased sales to industrial and
wholesale customers and increased deliveries of gas transported for others.
Operating margin from electric sales decreased $9.6 million in 1996 due to
decreased sales to residential customers reflecting cooler summer weather in
1996 and decreased sales to industrial customers due to plant operational
difficulties at several major customers, which were partially offset by
increased sales to commercial and wholesale customers. Operating margin from
Products and Services increased $27.4 million in 1996 mainly due to improved
margins in gas production and gas marketing activities.

OPERATING EXPENSES AND TAXES

Operating expenses and taxes (except income) in 1997 increased 9.6% from
1996 to $800.4 million and in 1996 increased 5.3% from 1995 to $729.7 million.

Operation expenses increased $44.2 million in 1997 over 1996. Nine months of
operations at IWCR increased operation expenses $44.1 million in 1997.
Additionally, new operations at Primary and Services increased operation
expenses $8.4 million in 1997. These increases were partially offset by
reduced pension costs, environmental costs of $4.2 million and pollution
control facility costs of $4.1 million at Northern Indiana. Operation expenses
increased $3.3 million in 1996 over 1995 due to increased pollution control
facility costs, environmental costs of $5.9 million and other various
increased operating costs partially offset by reduced pension costs.

Maintenance expenses increased $2.5 million in 1997 from 1996 mainly
reflecting nine months of maintenance at the Water Utilities. Maintenance
expenses decreased $4.7 million in 1996 from 1995 mainly reflecting decreased
maintenance activity at electric production facilities and gas underground
storage facilities.

<PAGE>

Depreciation and amortization expense increased $15.8 million in 1997 from
1996 resulting from plant additions, amortization of plant acquisition
adjustments and intangible assets. Depreciation and amortization expense
increased $27.0 million in 1996 from 1995 resulting from plant additions,
increased amortization of computer software and the amortization of deferred
costs related to scrubber services provided by Pure Air at the Bailly
Generating Station.

Other Income (Deductions) increased $2.6 million in 1997 from 1996 mainly
resulting from the disposition of certain oil and natural gas properties
during the first quarter of 1997. Other Income (Deductions) increased $10.5
million in 1996 from 1995 mainly reflecting the sale of Crescent Dunes
Lakeshore property to the National Park Service.

Interest and other charges increased $14.9 million and $8.4 million in 1997
and 1996, respectively. The 1997 increase reflects the issuance of $300
million of Capital Markets' medium-term notes and interest expense at IWCR.
The 1996 increase reflects the issuance of $169,275,000 of Northern Indiana's
Medium-Term Notes, Series D, and $75 million of Capital Markets' Junior
Subordinated Deferrable Interest Debentures, Series A, and the discontinuance
of carrying charges on deferred charges related to the Bailly Generating
Station scrubber service agreement.

See Notes to Consolidated Financial Statements for a discussion of
accounting policies and transactions impacting this analysis.

ENVIRONMENTAL MATTERS

The Environmental Protection Agency (EPA) has notified Northern Indiana that
it is a "potentially responsible party" (PRP) under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) and may be
required to share in the cost of cleanup of several waste disposal sites
identified by the EPA. The sites are in various stages of investigation,
analysis and remediation. At each of the sites, Northern Indiana is one of
several PRPs, and it is expected that remedial costs, as provided under
CERCLA, will be shared among them. At some sites, Northern Indiana and/or the
other named PRPs are presently working with the EPA to clean up the sites and
avoid the imposition of fines or added costs.

Refer to Environmental Matters in Notes to Consolidated Financial Statements
for a more detailed discussion of the status of certain environmental issues.

LIQUIDITY AND CAPITAL RESOURCES

During the next few years, it is anticipated that the great majority of
earnings available for distribution of dividends will depend upon dividends
paid to Industries by Northern Indiana. See Notes to Consolidated Financial
Statements for a discussion of the Common Share Dividend.

Utility construction expenditures for 1997, 1996 and 1995 were approximately
$219 million, $208 million and $193 million, respectively. Industries' total
utility plant investment on December 31, 1997, was $6.4 billion.

<PAGE>

During 1997, Industries' non-utility subsidiaries acquired interests in
other properties and investments totaling approximately $38 million.

Capital Markets has a $150 million revolving Credit Agreement which
terminates August 19, 1999. This facility provides short-term financing
flexibility to Industries and also serves as the back-up instrument for a
commercial paper program. As of December 31, 1997, there were no borrowings
outstanding under this agreement.

Capital Markets also has $130 million of money market lines of credit. As of
December 31, 1997, $20.1 million of borrowings were outstanding under these
lines of credit.

As of December 31, 1997, Capital Markets had $17.0 million in commercial
paper outstanding, having a weighted average interest rate of 7.00%.

The obligations of Capital Markets are subject to a Support Agreement
between Industries and Capital Markets, under which Industries has committed
to make payments of interest and principal on Capital Markets' securities in
the event of a failure to pay by Capital Markets. Restrictions in the Support
Agreement prohibit recourse on the part of Capital Markets' investors against
the stock and assets of Northern Indiana. Under the terms of the Support
Agreement, in addition to the cash flow of cash dividends paid to Industries
by any of its consolidated subsidiaries, the assets of Industries, other than
the stock and assets of Northern Indiana, are available as recourse to holders
of Capital Markets' securities. The carrying value of the assets of
Industries, other than the stocks and assets of Northern Indiana, reflected in
the consolidated financial statements of Industries, is approximately $1.3
billion at December 31, 1997.

Cash flow from operations has provided sufficient liquidity to meet current
operating requirements. Because of the seasonal nature of the utility business
and the construction program, Northern Indiana makes use of commercial paper
intermittently as short-term financing. As of December 31, 1997, Northern
Indiana had $71.5 million in commercial paper outstanding, having a weighted
average interest rate of 6.16%.

<PAGE>

Northern Indiana also has $273.5 million of money market lines of credit. As
of December 31, 1997, $47.5 million of borrowings were outstanding under these
lines of credit.

Northern Indiana has a $50 million uncommitted finance facility. At December
31, 1997, there were no borrowings outstanding under this facility.

IWCR and its subsidiaries have lines of credit with banks aggregating $73.7
million. At December 31, 1997, $48.9 million of borrowings were outstanding
under these lines of credit.

During recent years, Northern Indiana has been able to finance its
construction program with internally generated funds and expects to be able to
meet future commitments through such funds.

The Utilities do not expect the effects of inflation at current levels to
have a significant impact on their results of operations, ability to contain
cost increases, or need to seek timely and adequate rate relief. The Energy
Utilities do not anticipate the need to file for gas and electric base rate
increases in the near future.

MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS

The primary market risks to which Industries is exposed and in connection
with which Industries uses market risk sensitive instruments are commodity
price risk and interest rate risk.

Industries engages in price risk management activities related to
electricity and natural gas. Price risk arises from fluctuations in energy
commodity prices due to changes in supply and demand. Industries actively
monitors and limits its exposure to commodity price risk. Industries' price
risk management policy allows the use of derivative financial and commodity
instruments to reduce (hedge) exposure to price risk of its supply and related
purchase and sales commitments of energy, as well as related anticipated
transactions. As part of this commodity price risk, Industries is exposed to
geographic price differentials due primarily to transportation costs and local
supply-demand factors. Industries uses basis swaps to hedge a portion of this
exposure. For economic reasons or otherwise, Industries does not hedge all of
its basis exposure.

Industries enters into certain sales contracts with customers based upon a
fixed sales price and varying volumes which are ultimately dependent upon the
customer's supply requirements. Industries utilizes financial instruments to
reduce the commodity price risk based on modeling techniques to anticipate
these future supply requirements. Industries continues to be exposed to price
risk for the difference between the ultimate supply requirements and those
modeled.

Although the Energy Utilities are subject to commodity price risk as part of
their traditional operations, the current regulatory framework within which
the Energy Utilities operate allows for full collection of fuel and gas costs
in rate-making. Consequently, there is limited commodity price risk after
consideration of the related rate-making. However, as the utility industry
deregulates, Energy Utilities will be providing services without the benefit
of the traditional rate-making allowances and will therefore be more exposed
to commodity price risk.

Because the commodities covered by Industries' derivative financial and
commodity instruments are substantially the same commodities that Industries
buys and sells in the physical market, no special correlation studies other
than monitoring the degree of convergence between the derivative and cash
markets are deemed necessary.

<PAGE>

Industries' daily net commodity position consists of natural gas
inventories, commodity purchase and sales contracts and derivative financial
and commodity instruments. The fair value of such positions is a summation of
the fair values calculated for each commodity by valuing each net position at
quotes from exchanges and over-the-counter markets and includes location
differentials. Based on Industries' net commodity position at fair value at
December 31, 1997, a 10% adverse movement in electric and natural gas market
prices would have reduced net income by approximately $2.3 million. However,
any such movements in prices is not indicative of actual results and is
subject to change. Refer to Summary of Significant Accounting Policies--
Hedging Activities for further discussion of Industries' hedging policies.

Industries utilizes long-term debt as a primary source of capital in its
business. A significant portion of Industries' long-term debt consists of
medium-term notes, the interest component of which resets on a periodic basis
to reflect current market conditions. The Utilities utilize longer term fixed
price debt instruments which have been and will be refinanced at lower
interest rates if Industries deems it to be economical. Refer to Consolidated
Statement of Long-term Debt for detailed information related to Industries'
long-term debt outstanding and Fair Value of Financial Instruments in Notes to
Consolidated Financial Statements for current market valuation of long-term
debt.

YEAR 2000 COSTS

Industries has several major projects underway to modify portions of its
systems for proper functioning in the year 2000. These include a project to
evaluate Industries' proprietary software and to work with each of Industries'
software vendors to assure that appropriate steps are being taken to mitigate
the problem in each vendor's software or, in some cases, to replace software
with year 2000 compliant software; a project to identify and mitigate problems
wherever they exist in Industries' systems ranging from equipment used in
Northern Indiana's generating stations to Industries' phone system that have
date information within them; and an initiative to assure that each entity
that electronically receives information from Industries or sends information
to Industries is aware of the steps that Industries is taking and is taking
appropriate steps of its own to address the problem. Consistent with its plan,
Industries expects to be year 2000 compliant with some systems as early as
third quarter 1998 and other systems no later than the third quarter of 1999.
Costs related to maintenance or modification of Industries' systems have
been and will be expensed as incurred. Industries estimates that costs to
become year 2000 compliant will be approximately $10-$15 million, including
acquisition costs of new systems which will be capitalized consistent with
Industries' accounting policies. Industries does not anticipate the related
costs to have a material impact on its results of operations, nor does
Industries anticipate any disruption of its ability to deliver service as a
result of the year 2000 issue.

COMPETITION

The Energy Policy Act of 1992 (Energy Act) allows FERC to order electric
utilities to grant access to transmission systems by third-party power
producers. The Energy Act specifically prohibits federally mandated wheeling
of power for retail customers. On April 24, 1996, FERC issued its Order No.
888-A which opens wholesale power sales to competition and requires public
utilities owning, controlling, or operating transmission lines to file non-
discriminatory open access tariffs that offer others the same transmission
service they provide themselves. Northern Indiana filed its tariff as did
virtually all other transmission owners subject to FERC jurisdiction. Order
No. 888-A also provides for the full recovery of stranded costs--that is,
costs that were prudently incurred to serve power customers and that could go
unrecovered if these customers use open access to move to another supplier.
FERC expects this rule will accelerate competition and bring lower prices and
more choices to wholesale energy customers. On November 25, 1997, FERC issued
Order No. 888-B on rehearing, affirming in all important respects its earlier
Order No. 888-A. Although wholesale customers represent a relatively small
portion of Northern Indiana's sales, Northern Indiana will continue its
efforts to retain and add customers by offering competitive rates.

In January 1997, legislation was introduced in the Indiana General Assembly
addressing electric utility competition and deregulation. This proposed
legislation was not adopted. Legislation similar to the 1997 electric

<PAGE>

restructuring legislation was introduced in January 1998. Northern Indiana has
begun discussions with other utilities and its largest customers on the
technical and economic aspects of possible legislation to allow customer
choice. Operating in a competitive environment will place added pressures on
utility profit margins and credit quality. Increasing competition in the
electric utility industry has already led the credit rating agencies to apply
more stringent guidelines in making credit rating determinations.

Competition within the electric utility industry will create opportunities
to compete for new customers and revenues, as well as increase the risk of the
loss of customers. Industries' management has taken steps to make the company
more competitive and profitable in the changing utility environment, including
partnering on energy projects with major industrial customers and conversions
of some of its generating units to allow use of lower cost, low sulfur coal.

FERC Order No. 636 shifted primary responsibility for gas acquisition,
transportation and peak days' supply from pipelines to local gas distribution
companies such as the Energy Utilities. Although pipelines continue to
transport gas, they no longer provide sales service. The Energy Utilities
believe they have taken appropriate steps to ensure the continued acquisition
of adequate gas supplies at reasonable prices.

The mix of gas revenues from retail sales, interruptible retail sales, firm
transportation service and interruptible transportation services has changed
significantly over the past several years. The deregulation of the gas
industry, since the mid-1980s, allows large industrial and commercial
customers to purchase their gas supplies directly from producers and use the
Energy Utilities' facilities to transport the gas. Transportation customers
pay the Energy Utilities only for transporting their gas from the pipeline to
the customers' premises.

Northern Indiana filed a petition for an Alternative Regulatory Plan (ARP)
with the Commission on November 29, 1995. Following negotiation and settlement
with major intervenors, Northern Indiana submitted a modified ARP to the
Commission on May 9, 1997. In its modified ARP, Northern Indiana proposed to
implement new rates and services that would include, among other things,
further unbundling of services for additional customer classes, increased
customer choice for sources of natural gas supply, negotiated services and
prices, an incentive gas cost mechanism and a price protection program. On
October 8, 1997, the Commission issued an order approving, in all respects,
the modified ARP which became effective November 1, 1997. The first pilot
program was launched in January 1998 and the first gas volumes will flow under
this program by March 1998. Significantly, the Commission order allows the
natural gas marketing affiliate of Northern Indiana to participate as a
supplier in this pilot and in future expansions of supplier choice to other
customers on the Northern Indiana system. On October 28, 1997, ERI Services,
Inc. and Enron Capital and Trade Resources Corp. filed Petitions for Rehearing
of the October 8, 1997 order. Northern Indiana expects a Commission decision
on these Petitions during the first quarter of 1998.

To date, the Energy Utilities' system has not been materially affected by
competition, and management does not foresee substantial adverse effects in
the near future, unless the current regulatory structure is substantially
altered. The Energy Utilities believe the steps they are taking to deal with
increased competition will have significant, positive effects in the next few
years.

FORWARD LOOKING STATEMENTS

This Annual Report contains forward looking statements within the meaning of
the securities laws. Industries cautions that, while it believes such
statements to be based on reasonable assumptions and makes such statements in
good faith, there can be no assurance that the actual results will not differ
materially from such assumptions or that the expectations set forth in the
forward looking statements derived from such assumptions will be realized.
Investors should be aware of important factors that could have a material
impact on future results. These factors include, but are not limited to,
weather, the federal and state regulatory environment, the economic climate,
regional, commercial, industrial and residential growth in the service
territories served by Industries' subsidiaries, customers' usage patterns and
preferences, the speed and degree to which competition enters the utility
industries, the timing and extent of changes in commodity prices, changing
conditions in the capital and equity markets and other uncertainties, all of
which are difficult to predict, and many of which are beyond the control of
Industries.

<PAGE>

EXHIBIT 21

NIPSCO INDUSTRIES, INC.
LIST OF SUBSIDIARIES AS OF DECEMBER 31, 1997

All subsidiaries are incorporated in Indiana, except for Elm Energy and
Recycling (UK) Ltd., which is incorporated in United Kingdom; FuelMaker
Corporation, which is incorporated in Toronto, Canada; Inventory Management and
Distribution Company, L.L.C., Laredo Nueces Pipeline Company, Midtex Gas Storage
Company, L.L.P. and NFCO Acquisition Company, which are incorporated in Texas; N
Squared Aviation, LLC, Triumph Natural Gas, Inc., Market Hub Partners L.P. and
Bristol Resources Production Company, L.L.C. which are incorporated in Delaware;
Sun Power Corporation which is incorporated in California; Progeni, Inc. which
is incorporated in Illinois; and NESI Energy Marketing Canada Limited, NIPSCO
Energy Services Canada, Limited and Southlake Energy Inc., which are
incorporated in Alberta, Canada. All subsidiaries are wholly-owned unless
otherwise indicated.

NIPSCO Industries Management Services Company

Hamilton Harbour Insurance Services, Ltd.

NI Telecomm, Inc.

Crossroads Pipeline Company

NIPSCO Capital Markets, Inc.

NEM Acquisition Corp.

IWC Resources Corporation
Its subsidiaries are:
Indianapolis Water Company
Harbour Water Corporation
Utility Data Corporation
Waterway Holdings, Inc.
IWC Services, Inc.
Its subsidiary is:
White River Environmental Partnership (1)
SM&P Utility Resources, Inc.
Miller Pipeline Corporation

Primary Energy, Inc.
Its subsidiaries are:
Harbor Coal Company
Lakeside Energy Corporation
North Lake Energy Corporation
Portside Energy Corporation
Cokenergy, Inc.

Northern Indiana Public Service Company
Its subsidiaries are:
NIPSCO Exploration Company, Inc.
Shore Line Shops Incorporated

NI Energy Services, Inc. (formerly known as NIPSCO Energy Services, Inc.)
Its subsidiaries are:
Market Hub Partners, L.P. (2)
Inventory Management and Distribution Company, L.L.C. (3)
NIPSCO Energy Trading Corp.
NIPSCO Fuel Company, Inc.

<PAGE>

Its subsidiaries are:
NFCO Acquisition Company
Bristol Resources Production Company, L.L.C. (4)
NI-TEX, Inc.
Laredo Nueces Pipeline Company (5)
Midtex Gas Storage Company, L.L.P. (6)
NESI Energy Marketing L.L.C. (7) (8)
Green Fuels, Inc.
Parkway Engineering and Distributing Company, Inc.
NESI Power Marketing, Inc.
NESI Integrated Energy Resources, Inc.
NESI Energy Services Company
NIPSCO Energy Services Canada Limited
Its subsidiaries are:
FuelMaker Corporation (9)
Southlake Energy, Inc.
NESI Energy Marketing Canada Ltd. (10)
Triumph Natural Gas, Inc. (11)

NIPSCO Development Company, Inc.
Its subsidiaries are:
Analytic Systems Laboratories, Inc. (12)
Elm Energy and Recycling (UK) Limited (12)
Protonics Research, Inc. (12)
G. R. Clark Corporation
International Polymer Corp.
JOF Transportation Company
KOGAF Enterprises, Inc.
Lake Erie Land Company
Its subsidiary is:
SCC Services, Inc.
N Squared Aviation, LLC (13)
NDC Douglas Properties, Inc.
NIPSCO International Power Systems Company
NIPSCO Security Services, Inc.
RIC, Inc.
Its subsidiary is:
Cardinal Property Management, Inc.
Riverside Caloric Company
Progeni, Inc.
Sun Power Corporation (14)

Kokomo Gas and Fuel Company
Its subsidiary is:
KGF Trading Company

Northern Indiana Fuel and Light Company, Inc.
Its subsidiary is:
Northern Indiana Trading Company
_______________
(1) Majority-owned interest of IWC Services, Inc.
(2) Minority-owned partnership of NI Energy Services, Inc.
(3) Minority-owned interest of NI Energy Services, Inc.
(4) Majority-owned interest of NIPSCO Fuel Company, Inc.
(5) 50% owned interest of NI-TEX, Inc.
(6) Minority-owned interest of NI-TEX, Inc.
(7) Majority-owned interest of NI Energy Services, Inc.
(8) Minority-owned interest of NEM Acquisition Corp.
(9) 50% owned subsidiary of NIPSCO Energy Services Canada Limited. Sold
January 1998.
(10) Majority-owned by NIPSCO Energy Services Canada Limited.
<PAGE>

(11) Majority-owned subsidiary of NI Energy Services, Inc.
(12) Majority-owned subsidiary of NIPSCO Development Company, Inc.
(13) Minority-owned interest of NIPSCO Development Company, Inc.
(14) Minority-owned subsidiary of NIPSCO Development Company, Inc.

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into NIPSCO Industries, Inc.'s
previously filed Form S-8 Registration Statement No. 33-30619; Form S-8
Registration Statement No. 33-30621; Form S-8 Registration Statement No. 333-
08263; Form S-8 Registration Statement No. 333-19981; Form S-8 Registration
Statement No. 333-19983; Form S-8 Registration Statement No. 333-19985; Form S-3
Registration Statement No. 333-22347; Form S-3 Registration Statement No. 333-
26847 and Form S-3 Registration Statement No. 333-39911.

ARTHUR ANDERSEN LLP

Chicago, Illinois
March 24, 1998