10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2008

or

o 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 001-16189

NiSource Inc.

(Exact name of registrant as specified in its charter)

Delaware	35-2108964
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

801 East 86th Avenue
Merrillville, Indiana	46410
(Address of principal executive offices)	(Zip Code)

(877) 647-5990
(Registrant’s telephone number, including area code)

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

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.01 Par Value: 274,243,476 shares outstanding at October 31, 2008.

NISOURCE INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 2008

Table of Contents

	Page
Defined Terms		3
PART I FINANCIAL INFORMATION		6
Item 1. Financial Statements – unaudited		6
Condensed Statements of Consolidated Income (Loss) (unaudited)		6
Condensed Consolidated Balance Sheets (unaudited)		7
Condensed Statements of Consolidated Cash Flows (unaudited)		9
Notes to Condensed Consolidated Financial Statements (unaudited)		10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		45
Item 3. Quantitative and Qualitative Disclosures About Market Risk		81
Item 4. Controls and Procedures		81
PART II OTHER INFORMATION		82
Item 1. Legal Proceedings		82
Item 1A. Risk Factors		84
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		84
Item 3. Defaults Upon Senior Securities		84
Item 4. Submission of Matters to a Vote of Security Holders		84
Item 5. Other Information		84
Item 6. Exhibits		85
Signature		87
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-10.6
EX-10.7
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

DEFINED TERMS

The following is a list of frequently used abbreviations or acronyms that are found in this report:

NiSource Subsidiaries and Affiliates
Bay State	Bay State Gas Company
Capital Markets	NiSource Capital Markets, Inc.
CER	Columbia Energy Resources, Inc.
CNR	Columbia Natural Resources, Inc.
Columbia	Columbia Energy Group
Columbia Deep Water	Columbia Deep Water Service Company
Columbia Energy Services	Columbia Energy Services Corporation
Columbia Gulf	Columbia Gulf Transmission Company
Columbia of Kentucky	Columbia Gas of Kentucky, Inc.
Columbia of Maryland	Columbia Gas of Maryland, Inc.
Columbia of Ohio	Columbia Gas of Ohio, Inc.
Columbia of Pennsylvania	Columbia Gas of Pennsylvania, Inc.
Columbia of Virginia	Columbia Gas of Virginia, Inc.
Columbia Transmission	Columbia Gas Transmission Corporation
CORC	Columbia of Ohio Receivables Corporation
Crossroads Pipeline	Crossroads Pipeline Company
Granite State Gas	Granite State Gas Transmission, Inc.
Hardy Storage	Hardy Storage Company, L.L.C.
Kokomo Gas	Kokomo Gas and Fuel Company
Lake Erie Land	Lake Erie Land Company
Millennium	Millennium Pipeline Company, L.P.
NDC Douglas Properties	NDC Douglas Properties, Inc.
NiSource	NiSource Inc.
NiSource Corporate Services	NiSource Corporate Services Company
NiSource Development Company	NiSource Development Company, Inc.
NiSource Finance	NiSource Finance Corp.
Northern Indiana	Northern Indiana Public Service Company
Northern Indiana Fuel and Light	Northern Indiana Fuel and Light Company
Northern Utilities	Northern Utilities, Inc.
NRC	NIPSCO Receivables Corporation
PEI	PEI Holdings, Inc.
TPC	EnergyUSA-TPC Corp.
Whiting Clean Energy	Whiting Clean Energy, Inc.
Abbreviations
AFUDC	Allowance for funds used during construction
Algonquin	Algonquin Gas Transmission Co.
ANPR	Advance Notice of Proposed Rulemaking
AOC	Administrative Order by Consent
ARRs	Auction Revenue Rights
ASM	Ancillary Services Market
BBA	British Banker Association
Bcf	Billion cubic feet
BPAE	BP Alternative Energy North America Inc
CAA	Clean Air Act
CAIR	Clean Air Interstate Rule
CAMR	Clean Air Mercury Rule
CCGT	Combined Cycle Gas Turbine
CERCLA	Comprehensive Environmental Response Compensation and Liability Act (Also known as Superfund)
CPCN	Certificate of Public Convenience and Necessity

3

DEFINED TERMS (continued)

Day 2	Began April 1, 2005 and refers to the operational control of the energy markets by MISO, including the dispatching of wholesale electricity and generation, managing transmission constraints, and managing the day-ahead, real-time and financial transmission rights markets
DPU	Massachusetts Department of Public Utilities
DSM	Demand Side Management
Dth	dekatherms
ECOS	Environmental Council of the States
ECR	Environmental Cost Recovery
ECRM	Environmental Cost Recovery Mechanism
ECT	Environmental cost tracker
EERM	Environmental Expense Recovery Mechanism
EITF Issue No. 02-3	EITF Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities”
Empire	Empire State Pipeline
EPA	United States Environmental Protection Agency
EPS	Earnings per share
FAC	Fuel adjustment clause
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
FIN 47	FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”
FIN 48	FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” an interpretation of SFAS No. 109
FIP	Federal Implementation Plan
FSP	FASB Staff Position
FSP FAS 157-2	FASB Staff Position FAS 157-2: Effective Date of FASB Statement No. 157
FSP FAS 157-3	FASB Staff Position FAS 157-3: Determining the Fair Value of a Financial Asset in a Market that is Not Active
FSP FIN 39-1	FASB Staff Position FIN 39-1: Amendment of FASB Interpretation No. 39
FTRs	Financial Transmission Rights
GAAP	Generally Accepted Accounting Principles
gwh	Gigawatt hours
IBM	International Business Machines Corp.
IBM Agreement	The Agreement for Business Process & Support Services
IDEM	Indiana Department of Environmental Management
Iroquois	Iroquois Gas Transmission System LP
IRP	Integrated Resource Plan
IURC	Indiana Utility Regulatory Commission
LDCs	Local distribution companies
LIBOR	London InterBank Offered Rate
MGP	Manufactured gas plant
MISO	Midwest Independent Transmission System Operator
MLP	Master Limited Partnership
MMDth	Million dekatherms
mw	Megawatts
NAAQS	National Ambient Air Quality Standards
NOV	Notice of Violation
NOx	Nitrogen oxides
NPDES	National Pollutant Discharge Elimination System
NYDEC	State of New York Department of Environmental Conservation
NYMEX	New York Mercantile Exchange
OUCC	Indiana Office of Utility Consumer Counselor

4

DEFINED TERMS (continued)

PADEP	Pennsylvania Department of Environmental Protection
PCB	Polychlorinated biphenyls
Piedmont	Piedmont Natural Gas Company, Inc.
PPS	Price Protection Service
PUCO	Public Utilities Commission of Ohio
RCRA	Resource Conservation and Recovery Act
SAB No. 92	Staff Accounting Bulletin No. 92, “Accounting and Disclosures Relating to Loss Contingencies”
SEC	Securities and Exchange Commission
SFAS No. 5	Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies”
SFAS No. 71	Statement of Financial Accounting Standards No. 71, “Accounting for the Effects of Certain Types of Regulation”
SFAS No. 109	Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes”
SFAS No. 123R	Statement of Financial Accounting Standards No. 123R, “Share-Based Payment”
SFAS No. 130	Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”
SFAS No. 133	Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended
SFAS No. 140	Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a replacement of FASB Statement 125”
SFAS No. 141R	Statement of Financial Accounting Standards No. 141R, “Business Combinations”
SFAS No. 142	Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”
SFAS No. 143	Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations”
SFAS No. 157	Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”
SFAS No. 158	Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”
SFAS No. 159	Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115”
SFAS No. 160	Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51”
SFAS No. 161	Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging — an amendment of SFAS No. 133”
SIP	State Implementation Plan
SO2	Sulfur dioxide
SOP 96-1	Statement of Position 96-1, “Environmental Remediation Liabilities”
VaR	Value-at-risk and instrument sensitivity to market factors
VADEQ	Virginia Department of Environmental Quality

5

PART I

ITEM 1. FINANCIAL STATEMENTS

NiSource Inc.

Condensed Statements of Consolidated Income (Loss) (unaudited)

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(in millions, except per share amounts)	2008			2007			2008			2007
Net Revenues
Gas Distribution	$	544.4		$	452.8		$	3,697.9		$	3,049.6
Gas Transportation and Storage		217.3			206.1			810.1			778.9
Electric		379.1			377.6			1,050.8			1,037.1
Other		268.3			213.1			929.9			794.5
Gross Revenues		1,409.1			1,249.6			6,488.7			5,660.1
Cost of Sales (excluding depreciation and amortization)		792.7			637.8			4,162.2			3,328.5
Total Net Revenues		616.4			611.8			2,326.5			2,331.6
Operating Expenses
Operation and maintenance		313.1			311.7			1,067.9			1,021.1
Depreciation and amortization		141.0			137.4			424.3			405.2
Impairment and (gain) loss on sale of assets		(0.4	)		0.6			(2.8	)		9.8
Other taxes		58.2			55.2			225.1			219.3
Total Operating Expenses		511.9			504.9			1,714.5			1,655.4
Equity Earnings in Unconsolidated Affiliates		3.4			2.6			7.0			7.8
Operating Income		107.9			109.5			619.0			684.0
Other Income (Deductions)
Interest expense, net		(100.2	)		(101.1	)		(279.4	)		(298.6	)
Other, net		20.8			1.2			20.6			(1.8	)
Total Other Income (Deductions)		(79.4	)		(99.9	)		(258.8	)		(300.4	)
Income From Continuing Operations Before Income Taxes		28.5			9.6			360.2			383.6
Income Taxes (Benefit)		(4.1	)		1.7			117.4			140.2
Income from Continuing Operations		32.6			7.9			242.8			243.4
Income (Loss) from Discontinued Operations — net of taxes		(7.2	)		1.9			(221.5	)		4.1
Gain (Loss) on Disposition of Discontinued Operations — net of taxes		(5.4	)		1.2			(104.3	)		6.9
Net Income (Loss)	$	20.0		$	11.0		$	(83.0	)	$	254.4
Basic Earnings (Loss) Per Share ($)
Continuing operations	$	0.12		$	0.03		$	0.89		$	0.89
Discontinued operations		(0.04	)		0.01			(1.19	)		0.04
Basic Earnings Per Share	$	0.08		$	0.04		$	(0.30	)	$	0.93
Diluted Earnings (Loss) Per Share ($)
Continuing operations	$	0.11		$	0.03		$	0.88		$	0.89
Discontinued operations		(0.04	)		0.01			(1.18	)		0.04
Diluted Earnings Per Share	$	0.07		$	0.04		$	(0.30	)	$	0.93
Dividends Declared Per Common Share	$	0.23		$	0.23		$	0.92		$	0.92
Basic Average Common Shares Outstanding (millions)		274.0			273.9			274.0			273.8
Diluted Average Common Shares (millions)		275.5			274.7			275.4			274.7

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these unaudited statements.

6

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.

Condensed Consolidated Balance Sheets (unaudited)

	September 30,			December 31,
(in millions)	2008			2007
ASSETS
Property, Plant and Equipment
Utility Plant	$	18,227.7		$	17,295.6
Accumulated depreciation and amortization		(8,078.0	)		(7,787.0	)
Net utility plant		10,149.7			9,508.6
Other property, at cost, less accumulated depreciation		112.1			67.0
Net Property, Plant and Equipment		10,261.8			9,575.6
Investments and Other Assets
Assets of discontinued operations and assets held for sale		295.4			593.5
Unconsolidated affiliates		70.5			72.7
Other investments		119.8			117.2
Total Investments and Other Assets		485.7			783.4
Current Assets
Cash and cash equivalents		25.1			34.6
Restricted cash		243.9			57.7
Accounts receivable (less reserve of $40.6 and $37.0, respectively)		586.8			900.3
Gas inventory		706.0			452.2
Underrecovered gas and fuel costs		313.1			158.3
Materials and supplies, at average cost		83.5			78.1
Electric production fuel, at average cost		48.5			58.1
Price risk management assets		106.1			102.2
Exchange gas receivable		407.3			210.5
Regulatory assets		306.4			215.4
Assets of discontinued operations and assets held for sale		70.4			85.9
Prepayments and other		228.9			107.1
Total Current Assets		3,126.0			2,460.4
Other Assets
Price risk management assets		85.0			25.2
Regulatory assets		822.6			867.5
Goodwill		3,677.3			3,677.3
Intangible assets		333.4			341.6
Postretirement and postemployment benefits assets		188.2			157.8
Deferred charges and other		117.8			121.5
Total Other Assets		5,224.3			5,190.9
Total Assets	$	19,097.8		$	18,010.3

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these unaudited statements.

7

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited) (continued)

	September 30,			December 31,
(in millions, except share amounts)	2008			2007
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stockholders’ Equity
Common stock — $0.01 par value, 400,000,000 shares authorized; 274,229,624 and 274,176,752 shares issued and outstanding, respectively	$	2.7		$	2.7
Additional paid-in capital		4,017.8			4,011.0
Retained earnings		739.1			1,074.5
Accumulated other comprehensive income (loss)		(65.3	)		11.7
Treasury stock		(23.5	)		(23.3	)
Total Common Stockholders’ Equity		4,670.8			5,076.6
Long-term debt, excluding amounts due within one year		6,323.3			5,594.4
Total Capitalization		10,994.1			10,671.0
Current Liabilities
Current portion of long-term debt		19.9			33.9
Short-term borrowings		1,263.0			1,061.0
Accounts payable		498.0			713.0
Dividends declared		63.1			—
Customer deposits		120.5			112.8
Taxes accrued		145.1			188.4
Interest accrued		101.8			99.3
Overrecovered gas and fuel costs		—			10.4
Price risk management liabilities		201.5			79.9
Exchange gas payable		649.7			441.6
Deferred revenue		10.9			38.7
Regulatory liabilities		51.8			87.8
Accrued liability for postretirement and postemployment benefits		4.9			4.8
Liabilities of discontinued operations and liabilities held for sale		39.7			20.6
Legal and environmental reserves		467.6			112.3
Other accruals		381.7			393.6
Total Current Liabilities		4,019.2			3,398.1
Other Liabilities and Deferred Credits
Price risk management liabilities		80.6			1.7
Deferred income taxes		1,540.7			1,466.2
Deferred investment tax credits		47.9			53.4
Deferred credits		76.2			81.3
Deferred revenue		5.1			0.2
Accrued liability for postretirement and postemployment benefits		550.0			547.8
Liabilities of discontinued operations and liabilities held for sale		86.9			141.3
Regulatory liabilities and other removal costs		1,400.3			1,337.7
Asset retirement obligations		128.4			128.2
Other noncurrent liabilities		168.4			183.4
Total Other Liabilities and Deferred Credits		4,084.5			3,941.2
Commitments and Contingencies (Refer to Note 17)		—			—
Total Capitalization and Liabilities	$	19,097.8		$	18,010.3

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these unaudited statements.

8

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.

Condensed Statements of Consolidated Cash Flows (unaudited)

Nine Months Ended September 30, (in millions)	2008			2007
Operating Activities
Net income (loss)	$	(83.0	)	$	254.4
Adjustments to reconcile net income to net cash from continuing operations:
Depreciation and amortization		424.3			405.2
Net changes in price risk management assets and liabilities		21.4			(1.0	)
Deferred income taxes and investment tax credits		92.1			(24.3	)
Deferred revenue		(27.9	)		(32.6	)
Stock compensation expense		7.2			2.7
Gain on sale of assets		(4.4	)		(0.3	)
Loss on impairment of assets		1.6			10.1
Income from unconsolidated affiliates		(20.3	)		(11.6	)
(Gain) loss on disposition of discontinued operations — net of taxes		104.3			(6.9	)
(Income) loss from discontinued operations — net of taxes		221.5			(4.1	)
Amortization of discount/premium on debt		5.7			5.4
AFUDC Equity		(4.7	)		(3.0	)
Changes in assets and liabilities:
Accounts receivable		405.2			288.8
Inventories		(248.0	)		(120.7	)
Accounts payable		(259.3	)		(230.3	)
Customer deposits		7.7			0.2
Taxes accrued		(51.2	)		(34.0	)
Interest accrued		2.5			11.1
(Under) Overrecovered gas and fuel costs		(165.3	)		(23.3	)
Exchange gas receivable/payable		(2.0	)		(9.6	)
Other accruals		(17.6	)		(77.2	)
Prepayments and other current assets		(12.7	)		47.3
Regulatory assets/liabilities		(89.1	)		24.3
Postretirement and postemployment benefits		8.1			(84.1	)
Deferred credits		2.3			0.5
Deferred charges and other noncurrent assets		(36.3	)		(1.2	)
Other noncurrent liabilities		(18.3	)		0.2
Net Operating Activities from Continuing Operations		263.8			386.0
Net Operating Activities from or (used for) Discontinued Operations		(13.5	)		12.9
Net Cash Flows from Operating Activities		250.3			398.9
Investing Activities
Capital expenditures		(679.4	)		(505.6	)
Sugar Creek purchase		(329.7	)		—
Proceeds from disposition of assets		42.0			2.3
Restricted cash		(186.1	)		44.6
Other investing activities		(18.9	)		24.5
Net Investing Activities used for Continuing Operations		(1,172.1	)		(434.2	)
Net Investing Activities from or (used for) Discontinued Operations		203.2			(12.3	)
Net Cash Flows used for Investing Activities		(968.9	)		(446.5	)
Financing Activities
Issuance of long-term debt		960.1			802.7
Retirement of long-term debt		(37.9	)		(67.2	)
Repurchase of long-term debt		(254.0	)		—
Change in short-term debt		202.0			(520.0	)
Issuance of common stock		1.1			7.9
Acquisition of treasury stock		(0.2	)		(2.1	)
Dividends paid — common stock		(189.2	)		(189.1	)
Net Cash Flows from Financing Activities		681.9			32.2
Decrease in cash and cash equivalents		(36.7	)		(15.4	)
Cash inflows from or (contributions to) discontinued operations		27.2			(0.3	)
Cash and cash equivalents at beginning of period		34.6			32.8
Cash and cash equivalents at end of period	$	25.1		$	17.1
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	290.2		$	300.4
Interest capitalized		18.2			12.0
Cash paid for income taxes		40.0			149.7

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these unaudited statements.

9

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Basis of Accounting Presentation

The accompanying unaudited condensed consolidated financial statements for NiSource reflect all normal recurring adjustments that are necessary, in the opinion of management, to present fairly the results of operations in accordance with GAAP in the United States of America.

The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in NiSource’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007. Income for interim periods may not be indicative of results for the calendar year due to weather variations and other factors.

The following unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although NiSource believes that the disclosures made are adequate to make the information not misleading.

2. Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

SFAS No. 157 — Fair Value Measurements. In September 2006, the FASB issued SFAS No. 157 to define fair value, establish a framework for measuring fair value and to expand disclosures about fair value measurements. SFAS No. 157 does not change the requirements to apply fair value in existing accounting standards.

Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability.

To increase consistency and comparability in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy disclosed is based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy defined by SFAS No. 157 are as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical asset or liabilities that the company has the ability to access as of the reporting date.

• Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data.

• Level 3 inputs are unobservable inputs, such as internally developed pricing models for the asset or liability due to little or no market activity for the asset or liability.

SFAS No. 157 became effective for NiSource as of January 1, 2008. The provisions of SFAS No. 157 are to be applied prospectively, except for the initial impact on the following three items, which are required to be recorded as an adjustment to the opening balance of retained earnings in the year of adoption: (1) changes in fair value measurements of existing derivative financial instruments measured initially using the transaction price under EITF Issue No. 02-3, (2) existing hybrid financial instruments measured initially at fair value using the transaction price and (3) blockage factor discounts. The adoption of SFAS No. 157 did not have an impact on NiSource’s January 1, 2008 balance of retained earnings and is not anticipated to have a material impact prospectively.

10

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

In February 2008, the FASB issued FSP FAS 157-2, which delays the effective date of SFAS No. 157 for all nonrecurring fair value measurements of non-financial assets and liabilities until fiscal years beginning after November 15, 2008. NiSource has elected to defer the adoption of the nonrecurring fair value measurement disclosures of non-financial assets and liabilities.

In October 2008, the FASB issued FSP FAS 157-3, which clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP was effective upon issuance, including prior periods for which financial statements have not been issued.

See Note 11, “Fair Value of Financial Assets and Liabilities,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding the adoption of SFAS No. 157.

SFAS No. 158 — Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. In September 2006, the FASB issued SFAS No. 158 to improve existing reporting for defined benefit postretirement plans by requiring employers to recognize in the statement of financial position the overfunded or underfunded status of a defined benefit postretirement plan, among other changes.

In the fourth quarter of 2006, NiSource adopted the provisions of SFAS No. 158. Based on the measurement of the various defined benefit pension and other postretirement plans’ assets and benefit obligations at September 30, 2006, the pretax impact of adopting SFAS No. 158 decreased intangible assets by $46.5 million, decreased deferred charges and other assets by $1.1 million, increased regulatory assets by $538.8 million, increased accumulated other comprehensive income by $239.8 million and increased accrued liabilities for postretirement and postemployment benefits by $251.4 million. In addition, NiSource recorded a reduction in deferred income taxes of approximately $96 million. With the adoption of SFAS No. 158 NiSource determined that for certain rate-regulated subsidiaries the future recovery of pension and other postretirement plans costs is probable in accordance with the requirements of SFAS No. 71. These rate-regulated subsidiaries recorded regulatory assets and liabilities that would otherwise have been recorded to accumulated other comprehensive income.

On January 1, 2007, NiSource adopted the SFAS No. 158 measurement date provisions requiring employers to measure plan assets and benefit obligations as of the fiscal year-end. The pre-tax impact of adopting the SFAS No. 158 measurement date provisions increased deferred charges and other assets by $9.4 million, decreased regulatory assets by $89.6 million, decreased retained earnings by $11.3 million, increased accumulated other comprehensive income by $5.3 million and decreased accrued liabilities for postretirement and postemployment benefits by $74.2 million. NiSource also recorded a reduction in deferred income taxes of approximately $2.6 million. In addition, 2007 expense for pension and postretirement benefits reflects the updated measurement date valuations. Refer to Note 14, “Pension and Other Postretirement Benefits,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information.

SFAS No. 159 — The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115. In February 2007, the FASB issued SFAS No. 159 which permits entities to choose to measure certain financial instruments at fair value that are not currently required to be measured at fair value. Upon adoption, a cumulative adjustment would be made to beginning retained earnings for the initial fair value option remeasurement. Subsequent unrealized gains and losses for fair value option items will be reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and should not be applied retrospectively, except as permitted for certain conditions for early adoption. NiSource has chosen not to elect to measure any applicable financial assets or liabilities at fair value pursuant to this standard when SFAS No. 159 was adopted on January 1, 2008.

FSP FIN 39-1 — FASB Staff Position Amendment of FASB Interpretation No. 39. In April 2007, the FASB posted FSP FIN 39-1 to amend paragraph 3 of FIN 39 to replace the terms conditional contracts and exchange contracts with the term derivative instruments as defined in SFAS No. 133. This FSP also amends paragraph 10 of FIN 39 to permit a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement. This FSP became effective for NiSource as of

11

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

January 1, 2008. NiSource has not elected to net fair value amounts for its derivative instruments or the fair value amounts recognized for its right to receive cash collateral or obligation to pay cash collateral arising from those derivative instruments recognized at fair value, which are executed with the same counterparty under a master netting arrangement. This is consistent with NiSource’s current accounting policy prior to the adoption of this amended standard. NiSource discloses amounts recognized for the right to reclaim cash collateral within “Restricted cash” and amounts recognized for the right to return cash collateral within current liabilities on the Consolidated Balance Sheets.

FIN 48 — Accounting for Uncertainty in Income Taxes. In June 2006, the FASB issued FIN 48 to reduce the diversity in practice associated with certain aspects of the recognition and measurement requirements related to accounting for income taxes. Specifically, this interpretation requires that a tax position meet a “more-likely-than-not recognition threshold” for the benefit of an uncertain tax position to be recognized in the financial statements and requires that benefit to be measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The determination of whether a tax position meets the more-likely-than-not recognition threshold is based on whether it is probable of being sustained on audit by the appropriate taxing authorities, based solely on the technical merits of the position. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.

On January 1, 2007, NiSource adopted the provisions of FIN 48. As a result of the implementation of FIN 48, NiSource recognized a charge of $0.8 million to the opening balance of retained earnings. Refer to Note 13, “Income Taxes,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information.

Recently Issued Accounting Pronouncements

SFAS No. 161 — Disclosures about Derivative Instruments and Hedging — an amendment of SFAS No. 133. In March 2008, the FASB issued SFAS No. 161 to amend and expand the disclosure requirements of SFAS No. 133 with the intent to provide users of the financial statement with an enhanced understanding of how and why an entity uses derivative instruments, how these derivatives are accounted for and how the respective reporting entity’s financial statements are affected. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008, and earlier application is encouraged. NiSource is currently reviewing the provisions of SFAS No. 161 to determine the impact it may have on its disclosures within the Notes to Condensed Consolidated Financial Statements (unaudited).

SFAS No. 160 — Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51. In December 2007, the FASB issued SFAS No. 160 to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements regarding non-controlling ownership interests in a business and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption is prohibited. NiSource is currently reviewing the provisions of SFAS No. 160 to determine the impact it may have on the Condensed Consolidated Financial Statements (unaudited) and Notes to Condensed Consolidated Financial Statements (unaudited).

SFAS No. 141R — Business Combinations. In December 2007, the FASB issued SFAS No. 141R to improve the relevance, representational faithfulness, and comparability of information that a reporting entity provides in its financial reports regarding business combinations and its effects, including recognition of assets and liabilities, the measurement of goodwill and required disclosures. SFAS No. 141R is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption is prohibited. NiSource is currently reviewing the provisions of SFAS No. 141R to determine the impact on future business combinations.

12

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

3. Earnings Per Share

Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The weighted average shares outstanding for diluted EPS include the incremental effects of the various long-term incentive compensation plans. The numerator in calculating both basic and diluted EPS for each period is reported net income. The computation of diluted average common shares follows:

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
(in thousands)	2008		2007		2008		2007
Denominator
Basic average common shares outstanding		273,992		273,881		273,962		273,765
Dilutive potential common shares
Nonqualified stock options		—		6		—		136
Shares contingently issuable under employee stock plans		1,285		626		1,285		626
Shares restricted under employee stock plans		209		186		188		173
Diluted Average Common Shares		275,486		274,699		275,435		274,700

4. Restructuring Activities

In the fourth quarter of 2005, NiSource announced a plan to reduce its executive ranks by approximately 15% to 20% of the top-level executive group. In part, this reduction came through anticipated attrition and consolidation of certain positions. Fourteen employees were terminated as a result of the executive initiative.

In previous years, NiSource implemented restructuring initiatives to streamline its operations and realize efficiencies as a result of the acquisition of Columbia. As of September 30, 2008, 1,567 employees were terminated. All of the remaining $0.4 million restructuring liability from the Columbia merger and related initiatives is related to facility exit costs.

Restructuring reserve by restructuring initiative:

	Balance at							Balance at
(in millions)	December 31, 2007		Benefits Paid			Adjustments		September 30, 2008
Executive initiative	$	0.6	$	(0.6	)	$	—	$	—
Columbia merger and related initiatives		2.2		(1.8	)		—		0.4
Total	$	2.8	$	(2.4	)	$	—	$	0.4

13

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

5. Discontinued Operations and Assets Held for Sale

The assets and liabilities of discontinued operations and held for sale on the Condensed Consolidated Balance Sheet (unaudited) at September 30, 2008 were:

(in millions)
	Property, plant				Materials and
Assets of discontinued	and equipment,		Accounts		supplies, at		Regulatory		Intangible		Other
operations and held for sale:	net		receivable, net		average cost		assets		assets		assets		Total
Northern Utilities		180.9		17.2		1.5		18.6		34.6		38.8		291.6
Granite State Gas		15.4		0.6		—		0.1		—		7.7		23.8
Bay State Gas Company		19.7		—		—		—		—		—		19.7
Lake Erie Land		11.9		—		—		—		—		—		11.9
NiSource Corporate Services		7.9		—		—		—		—		—		7.9
NDC Douglas Properties		4.0		—		—		—		—		1.0		5.0
Columbia Transmission		2.6		—		—		—		—		—		2.6
Columbia of Ohio		2.2		—		—		—		—		—		2.2
NiSource Retail Service Corp		—		0.9		—		—		—		—		0.9
Northern Indiana		0.2		—		—		—		—		—		0.2
Total	$	244.8	$	18.7	$	1.5	$	18.7	$	34.6	$	47.5	$	365.8
Liabilities of discontinued				Accounts	Deferred income			Deferred	Regulatory		Other
operations and held for sale:	Debt		payable		taxes		credits		liabilities		liabilities		Total
Northern Utilities		—		7.9		58.3		0.1		20.2		20.5		107.0
Granite State Gas		—		0.8		5.1		—		—		7.8		13.7
NDC Douglas Properties		5.0		0.2		—		—		—		0.1		5.3
NiSource Retail Service Corp		—		0.6		—		—		—		—		0.6
Total	$	5.0	$	9.5	$	63.4	$	0.1	$	20.2	$	28.4	$	126.6

14

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

The assets and liabilities of discontinued operations and held for sale on the Consolidated Balance Sheet at December 31, 2007 including reclassifications of balances for entities discontinued during 2008, were:

(in millions)
	Property, plant				Materials and
Assets of discontinued	and equipment,		Accounts		supplies, at		Regulatory		Intangible		Other
operations and held for sale:	net		receivable, net		average cost		assets		assets		assets		Total
Northern Utilities	$	168.8	$	27.2	$	1.4	$	16.1	$	72.4	$	22.0	$	307.9
Whiting Clean Energy		269.9		12.7		8.9		—		—		11.8		303.3
Granite State Gas		17.2		0.2		—		0.1		8.1		0.2		25.8
Lake Erie Land		12.6		—		—		—		—		—		12.6
NiSource Corporate Services		9.5		—		—		—		—		—		9.5
Columbia Transmission		8.0		—		—		—		—		—		8.0
NDC Douglas Properties		5.2		—		—		—		—		0.9		6.1
Columbia Gulf Transmission		4.8		—		—		—		—		—		4.8
NiSource Retail Service Corp		0.3		0.7		—		—		—		0.2		1.2
Northern Indiana		0.2		—		—		—		—		—		0.2
Total	$	496.5	$	40.8	$	10.3	$	16.2	$	80.5	$	35.1	$	679.4
Liabilities of discontinued			Accounts		Deferred		Deferred		Regulatory		Other
operations and held for sale:	Debt		payable		income taxes		credits		liabilities		liabilities		Total
Northern Utilities	$	—	$	9.9	$	56.0	$	0.1	$	17.3	$	10.2	$	93.5
Whiting Clean Energy		—		1.1		36.0		17.0		—		1.9		56.0
NDC Douglas Properties		4.6		—		—		—		—		1.7		6.3
Granite State Gas		—		0.4		5.1		—		—		0.1		5.6
NiSource Retail Service Corp		—		0.5		—		—		—		—		0.5
Total	$	4.6	$	11.9	$	97.1	$	17.1	$	17.3	$	13.9	$	161.9

Assets classified as discontinued operations and held for sale are no longer depreciated.

NiSource reached an agreement on April 18, 2008 with BPAE for the sale of Whiting Clean Energy. On June 30, 2008, NiSource sold Whiting Clean Energy to BPAE for $217.2 million which included $16.3 million in working capital. During the first quarter of 2008 an estimated loss of $32.5 million was recorded to Gain (Loss) on Disposition of Discontinued Operations in the Condensed Statements of Consolidated Income (Loss) (unaudited). During the second quarter of 2008, a $0.6 million adjustment was made to the estimated loss on the disposition of the asset.

On February 15, 2008, NiSource reached a definitive agreement under which Unitil Corporation will acquire NiSource subsidiaries Northern Utilities and Granite State Gas. Under the terms of the transaction, Unitil Corporation will acquire Northern Utilities, a local gas distribution company serving 52 thousand customers in 44 communities in Maine and New Hampshire and Granite State Gas, an 86-mile FERC regulated gas transmission pipeline primarily located in Maine and New Hampshire. In the first quarter of 2008, net assets for Northern Utilities and Granite State Gas were accounted for as assets and liabilities of discontinued operations. For the third quarter and nine months ended September 30, 2008, estimated losses of $4.8 million and $71.7 million were included in Gain (Loss) on Disposition of Discontinued Operations in the Condensed Statements of Consolidated Income (Loss) (unaudited).

On June 27, 2008, Columbia Gulf sold a portion of Columbia Gulf’s offshore assets to Tennessee Gas Pipeline Company for $7.5 million, which resulted in a gain of $2.9 million that was recorded during the second quarter of 2008. Payment was received on July 1, 2008.

NDC Douglas Properties, a subsidiary of NiSource Development Company, is in the process of exiting some of its low income housing investments. One of these investments was disposed of during 2007 and two other investments

15

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

are expected to be sold or disposed of during 2009. NiSource has accounted for the assets and liabilities of the investments to be sold as assets held for sale.

NiSource Corporate Services is continuing to work with several potential buyers to sell its Marble Cliff facility. In late February 2008 an offer was accepted but the parties have failed to reach a definitive agreement. As a result of the initial offer, an impairment loss of $1.6 million was recognized during the first quarter of 2008. During the first quarter of 2007 an impairment loss of $3.2 million was recognized due to the current book value exceeding the estimated fair value of the facility. NiSource has accounted for this facility as assets held for sale.

Lake Erie Land, which is wholly-owned by NiSource, is in the process of selling real estate over a 10-year period as a part of an agreement reached in June 2006 with a private real estate development group. Part of the sale transaction included the assets of the Sand Creek Golf Club, and NiSource began accounting for the operations of the Sand Creek Golf Club as discontinued operations at that time. NiSource estimates the property to be sold to the private developer during the next twelve months and accounts for these assets as assets held for sale.

Columbia Transmission is in the process of selling certain facilities that are non-core to the operation of the pipeline system. During the third quarter of 2008, certain assets were reclassified to assets held and used, which resulted in a $1.6 million decrease to the balance of assets held for sale. In the first quarter of 2008, certain assets in Ohio were sold, which resulted in a $3.8 million decrease to the balance of assets held for sale. Northern Indiana and Columbia of Ohio are also in the process of selling non-core assets. NiSource has accounted for these assets as assets held for sale.

During the second quarter of 2008 Bay State signed a letter of intent to sell certain assets. Beginning in the second quarter of 2008, these assets were accounted for as assets held for sale.

NiSource Retail Services, a wholly-owned subsidiary of NiSource, is engaged in a process to sell certain assets. These assets and liabilities of NiSource Retail Services were accounted for as assets of discontinued operations and the results of operations and cash flows of NiSource Retail Services were classified as discontinued operations during the third quarter.

Results from discontinued operations from Whiting Clean Energy, Granite State Gas, Northern Utilities, NDC Douglas Properties low income housing investments, the golf course assets of Lake Erie Land, NiSource Retail Services, and reserve changes for NiSource’s former exploration and production subsidiary, CER, are provided in the following table:

	Three Months					Nine Months
	Ended September 30,					Ended September 30,
(in millions)	2008			2007		2008			2007
Revenues from Discontinued Operations	$	13.2		$	53.0	$	168.4		$	190.3
Income (loss) from discontinued operations		(11.0	)		3.8		(338.5	)		9.0
Income tax expense (benefit)		(3.8	)		1.9		(117.0	)		4.9
Income (Loss) from Discontinued Operations - net of taxes	$	(7.2	)	$	1.9	$	(221.5	)	$	4.1
Gain (Loss) on Disposition of Discontinued Operations - net of taxes	$	(5.4	)	$	1.2	$	(104.3	)	$	6.9

Losses from Discontinued Operations for the first nine months of 2008 are primarily attributable to an increase to the reserve for the Tawney litigation associated with CER. Refer to Note 17-B, “Other Legal Proceedings,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for further discussion on the Tawney litigation. The gain (loss) on disposition of discontinued operations for the first nine months of 2008 primarily include the after tax loss on disposition related to the sale of Whiting Clean Energy and pending sales of Northern Utilities and Granite State Gas of $32.3 million, $56.7 million and $14.9 million, respectively.

16

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

6. Purchase of Sugar Creek Plant

On May 30, 2008, Northern Indiana purchased Sugar Creek for $329.7 million. This purchase was in response to Northern Indiana’s need to add approximately 1,000 mw of new capacity. Refer to Note 8, “Regulatory Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for further discussion. The Sugar Creek facility is a CCGT located in West Terre Haute, Indiana. Sugar Creek has a plant capacity rating of 535 mw. Sugar Creek has transmission access to and is able to participate in both the MISO and PJM Interconnection wholesale electricity markets. The plant is currently committed to the PJM Interconnection market until May 31, 2010. At acquisition, Northern Indiana recorded at fair value $328.1 million related to utility plant. No goodwill was recorded in conjunction with the purchase. The preliminary allocation of the purchase price was assigned to the assets and liabilities of Sugar Creek, based on their estimated fair value in accordance with GAAP. This allocation is subject to completion of certain analyses and allocation of property, plant and equipment unit of accounts. Northern Indiana has up to one year from the date of purchase to complete its final purchase price allocation.

7. Asset Retirement Obligations

NiSource accounts for its asset retirement obligations in accordance with SFAS No. 143 and FIN 47. Certain costs of removal that have been, and continue to be, included in depreciation rates and collected in the service rates of the rate-regulated subsidiaries are classified as regulatory liabilities and other removal costs on the Condensed Consolidated Balance Sheets (unaudited).

NiSource activity for asset retirement obligations:

	Three Months					Nine Months
	Ended September 30,					Ended September 30,
(in millions)	2008			2007		2008			2007
Accretion expense	$	0.2		$	0.3	$	0.6		$	0.7
Accretion recorded as a regulatory asset		1.7			1.5		4.5			4.6
Settlements		(1.7	)		—		(4.9	)		—
Increase in Asset Retirement Obligation Liability	$	0.2		$	1.8	$	0.2		$	5.3

Northern Indiana performed retirement activities associated with a landfill and asbestos removal resulting in settlements of $1.7 million and $4.9 million for the quarter and nine months ended September 30, 2008 respectively.

8. Regulatory Matters

Gas Distribution Operations Regulatory Matters

Significant Rate Developments. Columbia of Ohio filed a base rate case with the PUCO on March 3, 2008, requesting an increase in base rates in excess of $80 million annually. Columbia of Ohio is seeking recovery of increased infrastructure rehabilitation costs, as well as the stabilization of revenues and cost recovery through rate design. A settlement agreement was filed on October 24, 2008. The agreement recommends an annual revenue increase of $47.1 million, and also provides for recovery of costs associated with Columbia of Ohio’s infrastructure rehabilitation program. Rate design issues are to be resolved by the PUCO. The case is currently pending, and is expected to be resolved before the end of 2008.

On January 28, 2008, Columbia of Pennsylvania filed a base rate case with the Pennsylvania Public Utility Commission, seeking an increase of approximately $60 million annually, effective October 28, 2008. Through this filing, Columbia of Pennsylvania sought to recover costs associated with its significant infrastructure rehabilitation program, as well as stabilize revenues and cost recovery through modifications to rate design. On July 2, 2008, Columbia of Pennsylvania and all interested parties filed a unanimous settlement with the Pennsylvania Public

17

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Utilities Commission. On October 23, 2008, the Pennsylvania Public Utilities Commission issued an Order approving the settlement as filed, increasing annual revenues by $41.5 million.

On October 17, 2007, Bay State petitioned the DPU to allow the company to collect an additional $7.5 million in annual revenue related to usage reductions occurring since its last rate case. Bay State also requested approval of a steel infrastructure tracker that would allow for recovery of ongoing infrastructure replacement program investments. The DPU held hearings on this matter in the first quarter of 2008 and issued an order denying Bay State’s petition on April 30, 2008. NiSource has decided not to appeal this case, and continues to weigh its options. On July 16, 2008, the DPU issued an order in its generic decoupling proceeding for gas utilities.

On October 1, 2008, Columbia of Maryland filed a base rate case with the Maryland Public Service Commission, seeking an increase of approximately $3.7 million annually. New rates are expected to take effect during the second quarter of 2009.

Cost Recovery and Trackers. A significant portion of the distribution companies’ revenue is related to the recovery of gas costs, the review and recovery of which occurs via standard regulatory proceedings. All states require periodic review of actual gas procurement activity to determine prudence and to permit the recovery of prudently incurred costs related to the supply of gas for customers. NiSource distribution companies have historically been found prudent in the procurement of gas supplies to serve customers.

Certain operating costs of the NiSource distribution companies are significant, recurring in nature, and generally outside the control of the distribution companies. Some states allow the recovery of such costs via cost tracking mechanisms. Such tracking mechanisms allow for abbreviated regulatory proceedings in order for the distribution companies to implement charges and recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as compared with more traditional cost recovery mechanisms. Examples of such mechanisms include gas cost recovery adjustment mechanisms, tax riders, and bad debt recovery mechanisms.

Comparability of Gas Distribution Operations line item operating results is impacted by these regulatory trackers that allow for the recovery in rates of certain costs such as bad debt expenses. Increases in the expenses that are the subject of trackers result in a corresponding increase in net revenues and therefore have essentially no impact on total operating income results.

On April 9, 2008, the PUCO issued an order approving, in all material respects, a joint Stipulation submitted on behalf of Columbia of Ohio. This Stipulation is a result of a process that began on April 13, 2005 with a PUCO ordered investigation into the type of gas risers installed in the state, the conditions of installation and overall performance. The Stipulation provides for: establishment of accounting for and recovery of costs resulting from the Staff’s investigation; Columbia’s performance of a survey to identify those customer-owned risers on its system prone to failure; and related customer education and other program related expenses. In addition this Stipulation provides for: Columbia’s assumption of financial responsibility for the replacement of all risers identified as prone to failure; repair or replacement of hazardous customer owned service lines; and capitalization of this investment with recovery to be addressed in future rate proceedings. As of September 30, 2008, Columbia of Ohio has approximately $38.5 million in costs associated with the gas riser and customer service line programs recorded as a regulatory asset and/or capitalized plant.

On December 28, 2007, Columbia of Ohio entered into a Stipulation with the Ohio Consumers’ Counsel and PUCO Staff and other stakeholders resolving litigation concerning a pending Gas Cost Recovery audit of Columbia of Ohio. The Stipulation calls for an accelerated pass back to customers of $36.6 million that will occur from January 31, 2008 through January 31, 2009, generated through off-system sales and capacity release programs, the development of new energy efficiency programs for introduction in 2009, and the development of a wholesale auction process for customer supply to take effect in 2010. Approximately $21.2 million was passed back through September 2008. The Stipulation also resolves issues related to pending and future Gas Cost Recovery Management Performance audits through 2008. The PUCO approved this agreement on January 23, 2008.

18

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Gas Transmission and Storage Operations Regulatory Matters

Significant FERC Developments. Columbia Gulf and Columbia Transmission are cooperating with the FERC on an informal, non-public investigation of certain operating practices regarding tariff services offered by those companies. Although the companies are continuing to cooperate with the FERC in an effort to reach a consensual settlement, it is likely that any settlement will require the payment of fines or refunds. Management does not expect these fines and refunds to be material to the results of operations for 2008.

Eastern Market Expansion Project. On May 3, 2007, Columbia Transmission filed a certificate application before the FERC for approval to expand its facilities to provide additional storage and transportation services and to replace certain existing facilities. This Eastern Market Expansion is projected to add 97,000 Dth per day of storage and transportation deliverability and is fully subscribed on a 15-year contracted firm basis. On January 14, 2008, the FERC issued a favorable order which granted a certificate to construct the project. Construction of the facilities is underway and the project is expected to be in service by April 2009.

Appalachian Expansion Project. On February 29, 2008, Columbia Transmission filed an application before the FERC for approval to build a new 9,470 horsepower compressor station in West Virginia. The Appalachian Expansion Project will add 100,000 Dth per day of transportation capacity and is fully subscribed on a 15-year contracted firm basis. On August 22, 2008, the FERC issued a favorable order which granted a certificate to construct the project. Construction is in progress and the project is expected to be in service in the fourth quarter of 2009.

Ohio Storage Project. On June 24, 2008, Columbia Transmission filed an application before the FERC for approval to expand two of its Ohio storage fields for additional capacity of nearly 7 MMDths and 103,400 Dth per day of daily deliverability. If required approvals are granted as requested, construction would begin in 2009 and the expanded facilities would be placed in service by the end of 2009. The expansion capacity is 58% contracted on a long-term, firm basis.

Electric Operations Regulatory Matters

Significant Rate Developments. Northern Indiana filed a petition for new electric base rates and charges on June 27, 2008 and filed its case-in-chief on August 29, 2008. The filing requests a two-step increase. Step One is a request for an increase in base rates calculated to produce additional gross margin of approximately $24 million. Step Two requests an additional increase to incorporate the return on and recovery of the Sugar Creek facility, which Northern Indiana purchased on May 30, 2008. The Step Two increase, if granted, would become effective as soon as the Sugar Creek facility is no longer committed to the PJM Interconnection market and is dispatched into MISO, but no later than June 1, 2010. The hearing on Northern Indiana’s case-in-chief is scheduled to begin on January 6, 2009. Several stakeholder groups have intervened in the case, representing customer groups and various counties and towns within Northern Indiana’s electric service territory. Testimony from the OUCC and all intervenors will be due by April 17, 2009. Assuming the case goes through the full procedural schedule without settlement, the final hearing is scheduled to begin July 27, 2009 and new rates are anticipated to take effect in early 2010.

In January 2002, Northern Indiana indefinitely shut down its Mitchell Station. In the base rate case filed on August 29, 2008, Northern Indiana stated in pre-filed testimony that it intends to retire the Mitchell station, demolish it, and remediate the site to industrial condition, subject to the ability to recover these costs.

During 2002, Northern Indiana settled certain regulatory matters related to an electric rate review. On September 23, 2002, the IURC issued an order adopting most aspects of the settlement. The order approving the settlement provides that electric customers of Northern Indiana will receive bill credits of approximately $55.1 million each year. The credits will continue at approximately the same annual level and per the same methodology, until the IURC enters a base rate order that approves revised Northern Indiana electric rates. The order included a rate moratorium that expired on July 31, 2006. The order also provides that 60% of any future earnings beyond a specified earnings level will be retained by Northern Indiana. The revenue credit is calculated based on electric usage; therefore, in times of high usage the credit may be more than $55.1 million. Credits amounting to $40.5 million and $44.3 million were recognized for electric customers for the first nine months of 2008 and 2007, respectively.

19

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

MISO. As part of Northern Indiana’s participation in the MISO transmission service and wholesale energy market, certain administrative fees and non-fuel costs have been incurred. IURC orders have been issued authorizing the deferral for consideration in a future rate case proceeding of the administrative fees and certain non-fuel related costs incurred after Northern Indiana’s rate moratorium, which expired on July 31, 2006. During the first nine months of 2008 non-fuel costs of $1.9 million were deferred in accordance with the aforementioned orders. In addition, administrative, FERC and other fees of $5.0 million were deferred. In the first nine months of 2008 and 2007, MISO costs of $6.9 million and $18.4 million, respectively, were deferred. In the base rate case filed in August 2008, Northern Indiana proposed a tracker for these MISO charges which are currently being deferred.

On April 25, 2006, the FERC issued an order on the MISO’s Transmission and Energy Markets Tariff, stating that MISO had violated the tariff on several issues including not assessing revenue sufficiency guarantee charges on virtual bids and offers and for charging revenue sufficiency guarantee charges on imports. The FERC ordered MISO to perform a resettlement of these charges back to the start of the Day 2 Market. The resettlement began on June 9, 2007 and ended in January 2008. Certain charge types included in the resettlement were originally considered to be non-fuel and were recorded as regulatory assets, in accordance with previous IURC orders allowing deferral of certain non-fuel MISO costs. During the fourth quarter 2007, based on precedent set by an IURC ruling for another Indiana utility, Northern Indiana reclassified these charges, totaling $16.7 million, as fuel and included them in the fuel cost recovery mechanism in its latest FAC filing. Prior to the hearing for FAC-78 on April 17, 2008, several intervenors objected to a portion of the $16.7 million and Northern Indiana agreed to remove $7.6 million from the FAC filing. This amount represents the portion of the resettlement costs related to periods prior to December 9, 2005. The $7.6 million was recorded as a reduction to net revenues in the first quarter of 2008.

Northern Indiana is an active stakeholder in the process used in designing, testing and implementing the ASM and in developing the surrounding business practices. On January 18, 2008, Northern Indiana as part of a Joint Petition among several other Indiana utilities “Joint Petitioners” filed a request to the IURC to participate in ASM and seek approval of timely cost recovery for the associated costs of participating. On August 13, 2008, the IURC issued a Phase I order, authorizing the Joint Petitioners authority to transfer additional balancing authority functions and to implement the operational changes necessary to participate in the ASM and to seek recovery of modified MISO charge-types via the FAC and to defer certain other MISO charge-types, pending a final determination on the issue of cost recovery. This order also created a subdocket for the purpose of further consideration of whether a cost-benefit analysis of participation in MISO or the MISO ASM should be required. Phase II of this proceeding deals with how the Joint Petitioners will approach the ASM, specifically related to operating reserves, and the specifics regarding cost recovery. The evidentiary hearing for Phase II is scheduled for December 22, 2008. At this time, Northern Indiana is unable to determine what impact the ASM will have on its operations or cash flows.

Cost Recovery and Trackers. A significant portion of the Northern Indiana’s revenue is related to the recovery of fuel costs to generate power and the fuel costs related to purchased power. These costs are recovered through a FAC, a standard, quarterly, “summary” regulatory proceeding in Indiana.

On May 30, 2008, Northern Indiana purchased the Sugar Creek facility for $329.7 million. The Sugar Creek facility is a CCGT located in West Terre Haute, Indiana. Sugar Creek has a plant capacity rating of 535 mw. Sugar Creek has transmission access to and is able to participate in both the MISO and PJM Interconnection wholesale electricity markets. The plant is currently committed to the PJM Interconnection market until May 31, 2010. The purchase was in response to Northern Indiana’s need to add approximately 1,000 mw of new capacity, as filed in its bi-annual IRP with the IURC on November 1, 2007.

The IURC had issued an order on May 28, 2008 approving the purchase of Sugar Creek, but denied Northern Indiana’s request for deferral of depreciation expense and carrying costs related to the plant, beginning with the acquisition date, on the basis that the facility would not be used and useful property under traditional regulation until the facility was operating inside of MISO. The order also denied Northern Indiana’s request for alternative regulatory treatment of the plant, based on incomplete presentation of evidence, but provided for the establishment of a subdocket to allow for the proper presentation and consideration of alternative regulatory treatment. On June 6, 2008, Northern Indiana filed its (a) Verified Petition for Rehearing; (b) Request for Establishment of a Subdocket for Presentation and Consideration of an Alternative Regulatory Plan; and (c) Motion for Consolidation (a single document) in Cause No. 43396. The IURC established a subdocket for consideration of Northern Indiana’s Alternative Regulatory Plan. Northern Indiana’s case-in-chief was filed with the IURC on September 26, 2008 and

20

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

an evidentiary hearing in the subdocket proceeding is scheduled for February 3 and 4, 2009. The subdocket proposes deferral of depreciation and carrying costs associated with Sugar Creek and creation of a regulatory asset, which would be reduced by the Sugar Creek capacity and energy revenues, net of operation and maintenance expenses to operate the plant.

The IRP included a commitment to using renewable energy, and a subsequent filing was made with the IURC, requesting approval for Northern Indiana to enter into power purchase contracts with subsidiaries of Iberdrola Renewables for wind-generated power in Iowa and South Dakota, and requesting full recovery of all associated costs. On July 24, 2008, the IURC issued an order approving Northern Indiana’s proposed purchase power agreement with subsidiaries of Iberdrola Renewables. The agreement provides Northern Indiana the opportunity to purchase 100 mw of wind power commencing in early 2009.

On January 30, 2008, the IURC approved a settlement agreement which was reached in October 2007 with the OUCC, LaPorte County and a group of Northern Indiana industrial customers to resolve questions relating to purchased power costs in the period from January 1, 2006 through September 30, 2007. The terms of the settlement called for Northern Indiana to make a one-time payment of $33.5 million to FAC customers. A reserve for the entire amount was recorded in the third quarter of 2007 and the refund was made to customers via the FAC in the periods of February through July 2008. As part of this agreement, Northern Indiana implemented a new “benchmarking standard,” that became effective in October 2007, which defines the price above which purchased power costs must be absorbed by Northern Indiana and are not permitted to be passed on to customers. The benchmark is based upon the costs of power generated by a hypothetical natural gas fired CCGT using gas purchased and delivered to Northern Indiana. During the first nine months of 2008, the amount of purchased power costs exceeding the benchmark amounted to $10.8 million, which was recognized as a net reduction of revenues. The agreement also contemplated Northern Indiana adding generating capacity to its existing portfolio and that the benchmark would be adjusted as new capacity is added. It was anticipated that the addition of the Sugar Creek capacity would trigger a change in the benchmark beginning in June 2008. However, based on the IURC order in the CPCN as described above, the Sugar Creek capacity will not be considered until the plant is operating inside of MISO and therefore the benchmark is unchanged.

On November 26, 2002, Northern Indiana received approval from the IURC for an ECT. Under the ECT, Northern Indiana is permitted to recover (1) AFUDC and a return on the capital investment expended by Northern Indiana to implement IDEM’s NOx SIP through an ECRM and (2) related operation and maintenance and depreciation expenses once the environmental facilities become operational through an EERM. Under the IURC’s November 26, 2002 order, Northern Indiana is permitted to submit filings on a semi-annual basis for the ECRM and on an annual basis for the EERM. In December 2006, Northern Indiana filed a petition with the IURC for appropriate cost treatment and recovery of emission control construction needed to address the Phase I CAIR requirements of the Indiana Air Pollution Control Board’s CAIR rules that became effective on February 25, 2007. On July 3, 2007, Northern Indiana received an IURC order issuing a CPCN for the CAIR and CAMR Phase I Compliance Plan Projects, estimated to cost approximately $23 million. Northern Indiana will include the CAIR and CAMR Phase I Compliance Plan costs to be recovered in the semi-annual and annual ECRM and EERM filing six months after construction costs begin. On October 23, 2008, Northern Indiana filed for approval of a revised cost estimate to meet the NOx and SO2 and mercury emissions environmental standards. Northern Indiana anticipates a total capital investment of approximately $368 million. On October 1, 2008, the IURC approved ECR-12 for capital expenditures (net of accumulated depreciation) of $267.7 million.

In the electric base rate case filed in August 2008, Northern Indiana proposed a new tracker, referred to as the Reliability Adjustment mechanism. The case proposes that this tracker be used for recovery of MISO charges currently being deferred. This tracker is also intended to be used to recover purchased power energy and capacity costs and to share with customers the proceeds of off-system sales and transmission revenues, as well as to track costs and revenues associated with emissions allowances.

21

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Northern Indiana is committed to offering DSM and energy efficiency programs to its electric customers and plans to file a petition and case-in-chief requesting approval to implement a variety of programs. The filing is expected to be made with the IURC in the fourth quarter of 2008, with anticipated approval and implementation in 2009. Proposed programs will include rebates for energy efficiency appliances and an air-conditioning cycling program, designed to reduce peak load.

On October 27, 2006, Indiana Gasification, LLC, Vectren Energy Delivery of Indiana, Citizens Gas & Coke Utility and Northern Indiana filed a joint petition at the IURC seeking approval for Indiana Gasification, LLC to construct a coal gasification facility and the respective utilities to enter into long-term contracts to purchase the energy output of the plant, both gas and electricity. This filing was based upon a Letter of Intent that was entered into by the parties, but subject to finalization of a contract and regulatory approval. On December 12, 2007, Citizens Gas & Coke Utility filed a Motion with the IURC to withdraw from the petition. The parties have had frequent negotiations during the two year period, but have not reached a definitive agreement. On October 15, 2008, Joint Petitioners filed a motion requesting that the technical conference scheduled for November 25, 2008 be used to establish a new procedural schedule.

9. Risk Management and Energy Marketing Activities

NiSource uses commodity-based derivative financial instruments primarily to manage commodity price risk and interest rate risk exposure in its business as well as for commercial and industrial sales. NiSource is not involved in speculative energy trading activity. NiSource accounts for its derivatives in accordance with SFAS No. 133. Under SFAS No. 133, if certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, or (b) a hedge of the exposure to variable cash flows of a forecasted transaction. Additionally, certain NiSource subsidiaries enter into forward physical contracts with various third parties to procure natural gas or power for its operational needs. These forward physical contracts are derivatives which qualify for the normal purchase normal sales exception under SFAS No. 133 and do not require mark-to-market accounting.

NiSource’s derivatives on the Condensed Consolidated Balance Sheet (unaudited) at September 30, 2008 were:

(in millions)	Hedge		Non-Hedge		Total
Price risk management assets
Current assets	$	102.2	$	3.9	$	106.1
Other assets		85.0		—		85.0
Total price risk management assets	$	187.2	$	3.9	$	191.1
Price risk management liabilities
Current liabilities	$	158.0	$	43.5	$	201.5
Other liabilities		73.6		7.0		80.6
Total price risk management liabilities	$	231.6	$	50.5	$	282.1

22

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

NiSource’s derivatives on the Consolidated Balance Sheets at December 31, 2007 were:

(in millions)	Hedge		Non-Hedge		Total
Price risk management assets
Current assets	$	88.5	$	13.7	$	102.2
Other assets		25.0		0.2		25.2
Total price risk management assets	$	113.5	$	13.9	$	127.4
Price risk management liabilities
Current liabilities	$	53.8	$	26.1	$	79.9
Other liabilities		1.5		0.2		1.7
Total price risk management liabilities	$	55.3	$	26.3	$	81.6

The hedging activity for the third quarter and nine months ended September 30, 2008 and 2007 affecting accumulated other comprehensive income (loss), with respect to cash flow hedges included the following:

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(in millions, net of taxes)	2008			2007			2008			2007
Net unrealized gains on derivatives qualifying as cash flow hedges at the beginning of the period	$	34.9		$	34.5		$	7.6		$	31.4
Unrealized hedging losses arising during the period on derivatives qualifying as cash flow hedges		(87.5	)		(12.3	)		(34.7	)		—
Reclassification adjustment for net gain included in net income		(9.7	)		(7.2	)		(35.2	)		(16.4	)
Net unrealized gains (losses) on derivatives qualifying as cash flow hedges at the end of the period	$	(62.3	)	$	15.0		$	(62.3	)	$	15.0

During the third quarter of 2008 and 2007, no amounts were recognized in earnings due to the ineffectiveness of derivative instruments being accounted for as hedges. All derivatives classified as a hedge are assessed for hedge effectiveness, with any components determined to be ineffective charged to earnings or classified as a regulatory asset or liability per SFAS No. 71 as appropriate. During the third quarter of 2008 and 2007, NiSource did not reclassify any amounts related to its cash flow hedges from accumulated other comprehensive income to earnings due to the probability that the underlying forecasted transactions would not occur. It is anticipated that during the next twelve months the expiration and settlement of cash flow hedge contracts will result in income statement recognition of amounts currently classified in accumulated other comprehensive income (loss) of approximately $39.4 million of loss, net of taxes.

Commodity Price Risk Programs. Northern Indiana, Northern Indiana Fuel and Light, Kokomo Gas, Columbia of Pennsylvania, Columbia of Kentucky, Columbia of Maryland and Columbia of Virginia use NYMEX derivative contracts to minimize risk associated with gas price volatility. These derivative hedging programs must be marked to fair value, but because these derivatives are used within the framework of the companies’ gas cost recovery mechanism, regulatory assets or liabilities are recorded to offset the change in the fair value of these derivatives.

Northern Indiana offers a PPS as an alternative to the standard gas cost recovery mechanism. This service provides Northern Indiana customers with the opportunity to either lock in their gas cost or place a cap on the gas costs that could be charged in future months. In order to hedge the anticipated physical purchases associated with these obligations, Northern Indiana has purchased NYMEX futures, NYMEX options and basis contracts that correspond to a fixed or capped price in the associated future delivery months and currently enters into forward physical purchase contracts to secure forward gas prices. Columbia of Virginia started a program in April 2005 similar to the Northern Indiana PPS, which allows non-jurisdictional customers the opportunity to lock in their future gas costs. The NYMEX futures and option contracts associated with these programs are generally designated and accounted

23

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

for as cash flow hedges and Northern Indiana elects the normal purchase normal sale exemption under SFAS No. 133 for its forward physical contracts associated with this program.

Northern Indiana also offers a DependaBill program to its customers as an alternative to the standard tariff rate that is charged to residential customers. The program allows Northern Indiana customers to fix their total monthly bill in future months at a flat rate regardless of gas usage or commodity cost. In order to hedge the anticipated physical purchases associated with these obligations, Northern Indiana has purchased NYMEX futures, NYMEX options and basis contracts that match the anticipated future delivery needs of the program to secure forward gas prices and currently enters into forward physical purchase contracts to secure forward gas prices. The NYMEX futures contracts associated with this program are generally designated and accounted for as cash flow hedges and Northern Indiana elects the normal purchase normal sale exemption under SFAS No. 133 for its forward physical contracts associated with this program.

As part of the MISO Day 2 initiative, Northern Indiana was allocated and has purchased FTRs. These FTRs help Northern Indiana offset congestion costs due to the MISO Day 2 activity. The FTRs are marked to fair value and do not qualify for hedge accounting treatment, but since congestion costs are recoverable through the fuel cost recovery mechanism, the related gains and losses associated with marking these derivatives to market are recorded as a regulatory asset or liability, in accordance with SFAS No. 71. In the second quarter of 2008, MISO changed its allocation procedures from an allocation of FTRs to an allocation of ARRs, whereby Northern Indiana was allocated ARRs based on its historical use of the MISO administered transmission system. ARRs entitle the holder to a stream of revenues or charges based on the price of the associated FTR in the FTR auction. Northern Indiana converted the ARRs that were received in the second quarter of 2008 into FTRs. Additionally, Northern Indiana also uses derivative contracts to minimize risk associated with power price volatility.

For regulatory incentive purposes, Northern Indiana enters into gas purchase contracts at first of the month prices that give counterparties the daily option to either sell an additional package of gas at first of the month prices or recall the original volume to be delivered. Northern Indiana charges a fee for this option. The changes in the fair value of these options are primarily due to the changing expectations of the future intra-month volatility of gas prices. These written options are derivative instruments, must be marked to fair value and do not meet the requirement for hedge accounting treatment. However, in accordance with SFAS No. 71, Northern Indiana records the related gains and losses associated with these transactions as a regulatory asset or liability.

For regulatory incentive purposes, Columbia of Kentucky, Columbia of Ohio, Columbia of Pennsylvania, and Columbia of Maryland (collectively, the “Columbia LDCs”) enter into contracts that allow counterparties the option to sell gas to Columbia LDCs at first of the month prices for a particular month of delivery. Columbia LDCs charge the counterparties a fee for this option. The changes in the fair value of the options are primarily due to the changing expectations of the future intra-month volatility of gas prices. These Columbia LDCs defer a portion of the change in the fair value of the options as either a regulatory asset or liability in accordance with SFAS No. 71 based on the regulatory customer sharing mechanisms in place, with the remaining changes in fair value recognized currently in earnings.

As of September 30, 2008, Columbia Energy Services has fixed price gas delivery commitments to a municipality in the United States which expires in December 2008. Columbia Energy Services entered into a forward purchase agreement with a gas supplier, wherein the supplier will fulfill the delivery obligation requirements at a slight premium to index. In order to hedge this anticipated future purchase of gas from the gas supplier, Columbia Energy Services entered into commodity swaps priced at the locations designated for physical delivery. These commodity swap derivatives are accounted for as cash flow hedges.

24

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Commodity price risk programs included in price risk assets and liabilities:

	September 30, 2008					December 31, 2007
(in millions)	Assets		Liabilities			Assets		Liabilities
Gas price volatility program derivatives	$	—	$	49.0		$	0.2	$	22.1
PPS program derivatives		—		1.4			0.2		1.8
DependaBill program derivatives		0.1		—			0.1		1.1
Electric energy program derivatives		3.8		(1.5	)		13.7		1.1
Regulatory incentive program derivatives		—		—			—		3.1
Forward purchase agreements derivatives		4.6		—			41.0		—
Total commodity price risk programs	$	8.5	$	48.9		$	55.2	$	29.2

Interest Rate Risk Activities. NiSource has entered into interest rate swap agreements to modify the interest rate characteristics of its outstanding long-term debt from fixed to variable. On May 12, 2004, NiSource Finance entered into fixed-to-variable interest rate swap agreements in a notional amount of $660 million with six counterparties having a 6 1/2-year term. NiSource Finance will receive payments based upon a fixed 7.875% interest rate and pay a floating interest amount based on U.S. 6-month BBA LIBOR plus an average of 3.08% per annum. There was no exchange of premium at the initial date of the swaps. In addition, each party has the right to cancel the swaps on May 15, 2009. On September 15, 2008, NiSource Finance terminated a fixed-to-variable interest rate swap agreement with Lehman Brothers having a notional amount of $110 million.

On July 22, 2003, NiSource Finance entered into fixed-to-variable interest rate swap agreements in a notional amount of $500 million with four counterparties with an 11-year term. NiSource Finance will receive payments based upon a fixed 5.40% interest rate and pay a floating interest amount based on U.S. 6-month BBA LIBOR plus an average of 0.78% per annum. There was no exchange of premium at the initial date of the swaps. In addition, each party has the right to cancel the swaps on July 15, 2013.

As stated above, on September 15, 2008, NiSource Finance terminated a fixed-to-variable interest rate swap agreement with Lehman Brothers having a notional amount of $110 million. NiSource Finance elected to terminate the swap when Lehman Holdings Inc., guarantor under the applicable International Swaps and Derivatives Association agreement, filed for Chapter 11 bankruptcy protection on September 14, 2008, which constituted an event of default under the swap agreement between NiSource Finance and Lehman Brothers Special Financing Inc. The mark-to-market close-out value of this swap at the September 15, 2008 termination date was determined to be $4.8 million. NiSource Finance recognized a $4.8 million reserve, which increases interest expense, for the Lehman swap and an additional $0.7 million reserve to recognize potential additional swap counterparty credit exposures. The termination of this swap did not impact NiSource’s ability to assert hedge accounting for its remaining fixed-to-variable interest rate swap agreements.

As a result of the fixed-to-variable interest rate swap transactions referenced above, $1,050 million of NiSource Finance’s existing long-term debt is now subject to fluctuations in interest rates. These interest rate swaps are designated as fair value hedges. The effectiveness of the interest rate swaps in offsetting the exposure to changes in the debt’s fair value is measured pursuant to SFAS No. 133. NiSource had no net gain or loss recognized in earnings due to hedging ineffectiveness from prior years.

Contemporaneously with the issuance on September 16, 2005 of the 5.25% and 5.45% notes, NiSource Finance settled $900 million of forward starting interest rate swap agreements with six counterparties. NiSource paid an aggregate settlement payment of $35.5 million which is being amortized as an increase to interest expense over the term of the underlying debt, resulting in an effective interest rate of 5.67% and 5.88%, respectively.

25

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Interest rate risk activities programs included in price risk management assets and liabilities:

	September 30, 2008				December 31, 2007
(in millions)	Assets		Liabilities		Assets		Liabilities
Interest rate swap derivatives	$	30.6	$	—	$	18.8	$	—

Marketing and Other Activities. The operations of TPC primarily involve commercial and industrial gas sales, whereby TPC utilizes gas derivatives to hedge its expected future gas purchases. These derivatives associated with commercial and industrial gas sales are accounted for as cash flow hedges. In addition, TPC, on behalf of Whiting Clean Energy, had previously entered into power and gas derivative contracts to manage commodity price risk associated with operating Whiting Clean Energy prior to its sale in the second quarter of 2008 to BPAE.

Marketing and power programs included in price risk management assets and liabilities:

	September 30, 2008				December 31, 2007
(in millions)	Assets		Liabilities		Assets		Liabilities
Gas marketing derivatives	$	152.0	$	230.2	$	53.2	$	52.4
Power forward derivatives		—		—		0.2		—
Total marketing and power programs	$	152.0	$	230.2	$	53.4	$	52.4

10. Equity Investments

On August 27, 2008, NiSource Development Company sold its interest in JOF Transportation Company to Lehigh Service Corporation for a pre-tax gain of $16.7 million included within, “Other, net,” on the Condensed Statements of Consolidated income (Loss) (unaudited). JOF Transportation Company held 40% interest in Chicago South Shore & South Bend Railroad Co. and a 40% interest in Indiana Illinois Development Company, LLC.

11. Fair Value of Financial Assets and Liabilities

NiSource adopted the provisions of SFAS No. 157 on January 1, 2008. There was no impact on retained earnings as a result of the adoption.

Recurring Fair Value Measurements. The following table presents assets and liabilities measured and recorded at fair value on NiSource’s Condensed Consolidated Balance Sheet (unaudited) on a recurring basis and their level within the fair value hierarchy as of September 30, 2008:

26

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
Recurring Fair Value Measurements	Assets		Inputs		Inputs		Balance as of
(in millions)	(Level 1)		(Level 2)		(Level 3)		September 30, 2008
Assets
Price risk management assets	$	152.3	$	35.0	$	3.8	$	191.1
Available-for-sale securities		38.6		31.3		—		69.9
Total	$	190.9	$	66.3	$	3.8	$	261.0
Liabilities
Price risk management liabilities	$	275.6	$	6.2	$	0.3	$	282.1
Deferred compensation		—		11.5		—		11.5
Total	$	275.6	$	17.7	$	0.3	$	293.6

Price risk management assets and liabilities include commodity exchange-traded and non-exchange-based derivative contracts. Exchange-traded derivative contracts are generally based on unadjusted quoted prices in active markets and are classified within Level 1. These financial assets and liabilities are secured with cash on deposit with the exchange; therefore nonperformance risk has not been incorporated into these valuations. Certain non-exchange-traded derivatives are valued using broker or over-the-counter, on-line exchanges. In such cases, these non-exchange-traded derivatives are classified within Level 2. Non-exchange-based derivative instruments include swaps, forwards, and options. In certain instances, these instruments may utilize models to measure fair value. The company uses a similar model to value similar instruments. Valuation models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability, and market-corroborated inputs, i.e., inputs derived principally from or corroborated by observable market data by correlation or other means. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. Certain derivatives trade in less active markets with a lower availability of pricing information and models may be utilized in the valuation. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3. Credit risk is considered in the fair value calculation of derivative instruments that are not exchange-traded. Credit exposures are adjusted to reflect collateral agreements which reduce exposures.

Price risk management assets also include fixed-to-floating interest-rate swaps, which are designated as fair value hedges, as a means to achieve its targeted level of variable-rate debt as a percent of total debt. NiSource uses a calculation of future cash inflows and estimated future outflows related to the swap agreements, which are discounted and netted to determine the current fair value. Additional inputs to the present value calculation include the contract terms, as well as market parameters such as current and projected interest rates and volatility. As they are based on observable data and valuations of similar instruments, the interest-rate swaps are categorized in Level 2 in the fair value hierarchy. Credit risk is considered in the fair value calculation of the interest rate swap. Credit exposures are adjusted to reflect collateral agreements which reduce exposures.

Available-for-sale securities include assets in NiSource’s deferred compensation trust and investments pledged as collateral for trust accounts related to NiSource’s wholly-owned insurance company. Available-for-sale securities are included within “Other investments” in the Condensed Consolidated Balance Sheets (unaudited). Securities classified within Level 1 include U.S. Treasury debt securities which are highly liquid and are actively traded in over-the-counter markets. NiSource values corporate and mortgage-backed debt securities using a matrix pricing model that incorporates market-based information. These securities trade less frequently and are classified within Level 2. Unrealized gains and losses from available-for-sale securities are included in other comprehensive income.

NiSource’s deferred compensation plan allows participants to defer certain cash compensation into a notional investment account. NiSource includes the plan in other noncurrent liabilities in the Condensed Consolidated Balance Sheets (unaudited). The value of the deferred compensation obligation is based on the market value of the participants’ notional investment accounts. The notional investments include balances which are credited based

27

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

upon published interest and bond yield indices and investments in mutual funds. NiSource uses the lowest level of input significant to the valuation to determine the fair value hierarchy classification, and therefore the liability is categorized in Level 2.

The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis during the three and nine months ended September 30, 2008:

	Financial
Three Months Ended September 30, 2008 (in millions)	Transmission Rights			Other Derivatives			Total
Balance as of June 30, 2008	$	5.6		$	(5.3	)	$	0.3
Total gains or losses (unrealized/realized)
Included in regulatory assets/liabilities		—			3.6			3.6
Purchases, issuances and settlements (net)		(1.8	)		1.4			(0.4	)
Balance as of September 30, 2008	$	3.8		$	(0.3	)	$	3.5
Change in unrealized gains/(losses) relating to instruments still held as of September 30, 2008	$	—		$	—		$	—

	Financial
Nine Months Ended September 30, 2008 (in millions)	Transmission Rights			Other Derivatives			Total
Balance as of January 1, 2008	$	12.6		$	(3.5	)	$	9.1
Total gains or losses (unrealized/realized)
Included in regulatory assets/liabilities		(0.1	)		1.0			0.9
Purchases, issuances and settlements (net)		(8.7	)		2.2			(6.5	)
Balance as of September 30, 2008	$	3.8		$	(0.3	)	$	3.5
Change in unrealized gains/(losses) relating to instruments still held as of September 30, 2008	$	(0.1	)	$	—		$	(0.1	)

As part of the MISO Day 2 initiative, Northern Indiana was allocated and has purchased FTRs. These rights help Northern Indiana offset congestion costs due to the MISO Day 2 activity. These instruments are considered derivatives and are valued utilizing forecasted congestion source and sink prices in the Day Ahead market. They are classified as Level 3 and reflected in the table above. The FTRs do not qualify for hedge accounting treatment, but since congestion costs are recoverable through the fuel cost recovery mechanism, the related gains and losses associated with marking these derivatives to market are recorded as a regulatory asset or liability, in accordance with SFAS No. 71. Northern Indiana also writes options for regulatory incentive purposes which are also considered Level 3 valuations and accounted for in accordance with SFAS No. 71. Realized gains and losses for these Level 3 recurring items are included in income within, “Cost of Sales,” on the Condensed Statements of Consolidated Income (Loss) (unaudited). Unrealized gains and losses from Level 3 recurring items are included within, “Regulatory assets” or “Regulatory liabilities,” on the Condensed Consolidated Balance Sheets (unaudited).

12. Goodwill Assets

NiSource’s goodwill assets at September 30, 2008 were $3,677.3 million pertaining primarily to the acquisition of Columbia on November 1, 2000 but also includes $13.3 million for Northern Indiana Fuel and Light and $5.5 million for Kokomo Gas.

28

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

In the quarters ended June 30, 2008 and June 30, 2007, NiSource performed its annual impairment test of goodwill associated with the purchases of Columbia, Northern Indiana Fuel and Light and Kokomo Gas. For the purpose of testing impairment of the goodwill recorded in the acquisition of Columbia, the related subsidiaries were aggregated into two distinct reporting units, one within the Gas Distribution Operations segment and one within the Gas Transmission and Storage Operations segment. The results of the June 30 impairment tests indicated that no impairment charge was required, as the fair values of the reporting units exceeded the carrying values. NiSource uses the discounted cash flow method to estimate the fair value of its reporting units for the purposes of this test. This valuation methodology and underlying financial information that are used to determine fair value require significant judgments to be made by management. These judgments include, but are not limited to, long term projections of future financial performance and the selection of appropriate discount rates used to determine the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could produce significantly different results.

As of September 30, 2008, NiSource’s market capitalization was approximately $4.0 billion, while NiSource’s net assets, inclusive of goodwill, were $4.7 billion. NiSource’s market capitalization at June 30, 2008 of approximately $4.9 billion was above NiSource’s net asset value when the annual impairment test was performed. In accordance with paragraph 28 of SFAS No. 142, NiSource considered whether there were any events or changes in circumstances during the third quarter that would more likely than not reduce the fair value of any of the reporting units below their carrying amounts and necessitate another goodwill impairment test and concluded that there were none. NiSource attributes the decline in its market capitalization primarily to the overall stock market decline resulting from the credit crisis taking place in the United States and globally, and not any fundamental change in NiSource’s regulated gas distribution and gas transmission and storage businesses that comprise the reporting units for which goodwill is attributable. NiSource’s stock price decline of 21.9% from December 31, 2007 compares to the overall declines of the S&P Utilities Average and Dow Jones Industrial Average, of 22.3% and 18.2% respectively, over the same nine-month time period. Given the lack of a fundamental change in the underlying businesses and their various assets, NiSource considers the decline in its stock price, and the underlying reasons for that decline, as not indicative of an actual decline in the company’s fair value of the underlying assets.

NiSource’s reportable entities with goodwill consist of regulated companies. Regulated recovery rates and approved rate of returns allow for more predictable and steady streams of revenues and cash flows which helps mitigate the impacts that might otherwise be felt from the recessionary trends seen in other industries and also adds more reliability to the cash flow forecasts used to calculate fair value. NiSource reviewed its estimates and assumptions used in the discounted cash flow model at June 30, 2008, noting that there are no significant changes that would be made in light of the changing economic circumstances during the third quarter. It should also be noted that NiSource’s ability to obtain credit remains strong as evidenced by a new short-term credit facility of $500 million that was obtained on September 23, 2008 and Northern Indiana’s re-issuance of the Jasper County Pollution Control Bonds for $254 million on August 25, 2008 with a weighted average interest rate now fixed at 5.58%.

13. Income Taxes

NiSource’s interim effective tax rates reflect the estimated annual effective tax rate for 2008 and 2007, respectively, adjusted for tax expense associated with certain discrete items. The effective tax rate for the quarter ended September 30, 2008 was negative due to the impact of recent legislation in Massachusetts (described below) that reduced income tax expense by $13.5 million. The effective tax rate for the quarter ended September 30, 2007 was 18.3% due the impact of a $1.6 million reduction in tax expense that was recorded in the third quarter of 2007 for 2006 tax provision to return adjustments.

The effective tax rates for the nine months ended September 30, 2008 and September 30, 2007 were 32.6% and 36.6%, respectively. The lower effective tax rate was primarily the result of the Massachusetts state tax adjustment.

On July 3, 2008, the Governor of Massachusetts signed into law a bill that overhauls the Massachusetts corporate income tax regime. Under the new law, which becomes effective for tax years beginning on or after January 1, 2009, NiSource will calculate its Massachusetts income tax liability on a unitary basis, meaning that the income tax obligation to the Commonwealth of Massachusetts is determined based on an apportioned share of all of NiSource’s income, rather than just the income of NiSource’s subsidiaries doing business in Massachusetts. Because of NiSource’s substantial operations outside of Massachusetts, the new law has the impact of reducing the deferred income tax liability to Massachusetts. Under SFAS 109, NiSource must recognize the impact of this tax law change in the quarter it is enacted. As a result, income tax expense and the deferred income tax liability have been reduced by $13.5 million in the third quarter of 2008.

NiSource adopted the provisions of FIN 48 on January 1, 2007, recognizing a charge of $0.8 million to the opening balance of retained earnings. As of December 31, 2007, the total liability for unrecognized tax benefits, which is included in “Other noncurrent liabilities” on the Consolidated Balance Sheets, was $3.7 million ($4.0 million including interest). There have been no material changes in NiSource’s FIN 48 liabilities from the December 31, 2007 amounts.

Effective January 1, 2007, NiSource records interest and penalties (if any) on prior year tax liabilities as a component of income tax expense.

29

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

included in “Other noncurrent liabilities” on the Consolidated Balance Sheets, was $3.7 million ($4.0 million including interest). There have been no material changes in NiSource’s FIN 48 liabilities from the December 31, 2007 amounts.

Effective January 1, 2007, NiSource records interest and penalties (if any) on prior year tax liabilities as a component of income tax expense.

14. Pension and Other Postretirement Benefits

NiSource provides defined contribution plans and noncontributory defined benefit retirement plans that cover its employees. Benefits under the defined benefit retirement plans reflect the employees’ compensation, years of service and age at retirement. Additionally, NiSource provides health care and life insurance benefits for certain retired employees. The majority of employees may become eligible for these benefits if they reach retirement age while working for NiSource. The expected cost of such benefits is accrued during the employees’ years of service. Current rates of rate-regulated companies include postretirement benefit costs, including amortization of the regulatory assets that arose prior to inclusion of these costs in rates. For most plans, cash contributions are remitted to grantor trusts.

On January 1, 2007, NiSource adopted the SFAS No. 158 measurement date provisions requiring employers to measure plan assets and benefit obligations as of the fiscal year-end. The pre-tax impact of adopting the SFAS No. 158 measurement date provisions increased deferred charges and other assets by $9.4 million, decreased regulatory assets by $89.6 million, decreased retained earnings by $11.3 million, increased accumulated other comprehensive income by $5.3 million and decreased accrued liabilities for postretirement and postemployment benefits by $74.2 million. NiSource also recorded a reduction in deferred income taxes of approximately $2.6 million. In addition, 2007 expense for pension and postretirement benefits reflects the updated measurement date valuations. In the fourth quarter of 2006, NiSource adopted the provisions of SFAS No. 158 requiring employers to recognize in the statement of financial position the overfunded or underfunded status of a defined benefit postretirement plan, measured as the difference between the fair value of the plan assets and the benefit obligation.

The key assumptions used to measure NiSource’s various postretirement benefits plans’ funded status at December 31, 2007 were the same as those used for the previous January 1, 2007 measurement date.

NiSource expects to make contributions of $6.1 million to its pension plans and $38.3 million to its other postretirement benefit plans during 2008, which could change depending on market conditions. Through September 30, 2008, NiSource has contributed $4.8 million to its pension plans and $27.1 million to its other postretirement benefit plans. At September 30, 2008, NiSource’s pension assets have incurred a negative return of approximately 17% from asset values at December 31, 2007, which may have an impact on future pension cash contributions and expense.

The following tables provide the components of the plans’ net periodic benefits cost for the third quarter and nine months ended September 30, 2008 and 2007:

	Pension Benefits						Other Postretirement Benefits
Three Months Ended September 30, (in millions)	2008			2007			2008			2007
Components of Net Periodic Benefit Cost
Service cost	$	9.3		$	10.3		$	2.3		$	2.5
Interest cost		33.1			32.0			11.9			10.9
Expected return on assets		(48.5	)		(46.8	)		(6.3	)		(5.2	)
Amortization of transitional obligation		—			—			2.1			2.0
Amortization of prior service cost		1.1			1.3			0.1			0.1
Recognized actuarial loss		0.3			2.1			1.1			1.4
Total Net Periodic Benefits Cost	$	(4.7	)	$	(1.1	)	$	11.2		$	11.7

30

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

	Pension Benefits						Other Postretirement Benefits
Nine Months Ended September 30, (in millions)	2008			2007			2008			2007
Components of Net Periodic Benefit Cost
Service cost	$	28.0		$	30.9		$	7.0		$	7.4
Interest cost		99.3			95.8			35.7			32.7
Expected return on assets		(145.5	)		(140.2	)		(18.9	)		(15.7	)
Amortization of transitional obligation		—			—			6.1			6.0
Amortization of prior service cost		3.2			4.1			0.5			0.3
Recognized actuarial loss		0.9			6.1			3.1			4.4
Total Net Periodic Benefits Cost	$	(14.1	)	$	(3.3	)	$	33.5		$	35.1

15. Long-Term Debt

On May 15, 2008, NiSource Finance issued $500.0 million of 6.80% unsecured notes that mature January 15, 2019 and $200.0 million of 6.15% unsecured notes that mature on March 1, 2013. The notes due in 2013 constitute a further issuance of the $345.0 million 6.15% notes issued February 19, 2003, and will form a single series having an aggregate principal amount outstanding of $545.0 million.

Jasper County Pollution Control Bonds. Northern Indiana has seven series of Jasper County Pollution Control Bonds with a total principal value of $254 million currently outstanding. Prior to March 25, 2008, each of the series bore interest at rates established through auctions that took place at either 7, 28, or 35 day intervals. Between February 13, 2008 and March 5, 2008, Northern Indiana received notice that six separate market auctions of four series of the Jasper County Pollution Control Bonds had failed. As a result, those series representing an aggregate principal amount of $112 million of the Jasper County Pollution Control Bonds bore interest at default rates equal to 15% or 18% per annum. Subsequent auctions were successful, but resulted in interest rates between 5.13% and 11.0%, which were in excess of historical market rates. These auction failures were attributable to the resulting lack of liquidity in the auction rate securities market, largely driven by the turmoil in the bond insurance market. The Jasper County Pollution Control Bonds are insured by either Ambac Assurance Corporation or MBIA Insurance Corporation.

Northern Indiana converted all seven series of Jasper County Pollution Control Bonds from the auction rate mode to a variable rate demand bond mode between March 25, 2008 and April 11, 2008 and repurchased the bonds as part of the conversion process. Between April 11, 2008 and August 24, 2008, all of the Jasper County Pollution Control Bonds were held in Northern Indiana’s treasury. On August 25, 2008, Northern Indiana converted all of the Jasper County Pollution Control Bonds from a variable rate demand mode to a fixed rate mode, and reoffered the bonds to external investors. As a result of the fixed rate conversion and reoffering process, the weighted average interest rate is now fixed at 5.58%.

Northern Indiana reflected the Jasper County Pollution Control Bonds as an offset to long-term debt within the Condensed Consolidated Balance Sheet (unaudited) as of March 31 and June 30, 2008 upon repurchase and the debt was considered extinguished per SFAS No. 140. As such, unamortized debt expense of $4.6 million previously recorded under deferred charges and other was reclassified to a regulatory asset. The Condensed Consolidated Balance Sheet (unaudited) as of September 30, 2008 reflects the reissuance of the long term debt. The repurchase and the subsequent re-issuance of these bonds are included under, “Financing Activities,” in the Condensed Statement of Consolidated Cash Flow (unaudited).

16. Share-Based Compensation

NiSource currently issues long-term incentive grants to key management employees under a long-term incentive plan approved by stockholders on April 13, 1994 (1994 Plan). The 1994 Plan, as amended and restated, permits the following types of grants, separately or in combination: nonqualified stock options, incentive stock options, restricted stock awards, stock appreciation rights, restricted stock units, contingent stock units and dividend

31

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

equivalents payable on grants of options, performance units and contingent stock awards. At September 30, 2008, there were 28,099,237 shares reserved for future awards under the amended and restated 1994 Plan.

NiSource recognized stock-based employee compensation expense of $7.2 million and $2.7 million during the first nine months of 2008 and 2007, respectively, as well as related tax benefits of $2.6 million and $1.0 million, respectively. There were no modifications to awards as a result of the adoption of SFAS No. 123R.

As of September 30, 2008, the total remaining unrecognized compensation cost related to nonvested awards amounted to $14.1 million, which will be amortized over the weighted-average remaining requisite service period of 1.9 years.

Stock Options. As of September 30, 2008, approximately 5.0 million options were outstanding and exercisable with a weighted average option price of $22.64.

Restricted and Contingent Stock Unit Awards. In the first, second, and third quarter 2008, NiSource granted restricted stock units of 197,311, 2,962, and 42,651, respectively, subject to service conditions. The total grant date fair value of the restricted units was $4.1 million, based on the average market price of NiSource’s common stock at the date of each grant, which will be expensed net of forfeitures over the vesting period of approximately three years. The service conditions lapse on January 31, 2011. If before January 31, 2011, the employee terminates employment (1) due to retirement, having attained age 55 and completed ten years of service, or (2) due to death or disability, the employment conditions will lapse with respect to a pro rata portion of the restricted units on the date of termination. Termination due to any other reason will result in all restricted units awarded being forfeited effective the employee’s date of termination. Employees will be entitled to receive dividends upon vesting. As of September 30, 2008, 242,924 nonvested restricted stock units were granted and outstanding.

In the first, second, and third quarter 2008, NiSource granted contingent stock units of 394,604, 5,923, 12,704, respectively, subject to performance conditions. The total grant date fair value of the award was $7.0 million, based on the average market price of NiSource’s common stock at the date of each grant, which will be expensed net of forfeitures over the vesting period of approximately three years. The performance conditions are based on achievement of a non-GAAP financial measure, cumulative net operating earnings, that NiSource defines as income from continuing operations adjusted for certain items and cumulative funds from operations that NiSource defines as net operating cash flows provided by continuing operations. Per the agreement, to the extent base performance conditions are exceeded during the three year performance period, the award will be increased in increments of 10% up to 50%. If prior to the lapse of the performance conditions, the employee terminates employment (1) due to retirement, having attained age 55 and completed ten years of service, (2) due to disability, or (3) due to death with less than or equal to 12 months remaining in the performance period, the employee will receive a pro rata portion of the contingent shares if the performance conditions have been met. If prior to the lapse of the performance conditions, the employee terminates employment due to death with more than 12 months remaining in the performance period, the employee will receive a pro rata portion of the contingent shares as if the performance conditions had been met. Termination due to any other reason will result in all contingent shares awarded being forfeited effective the employee’s date of termination. Employees will be entitled to receive dividends upon vesting. As of September 30, 2008, 413,231 nonvested contingent stock units were granted and outstanding.

In March 2007, 320,330 contingent stock units were granted. The grant date fair value of the award was $7.5 million, based on the average market price of NiSource’s common stock at the date of grant of $23.46, which will be expensed net of forfeitures over the vesting period of approximately three years. The shares are subject to both performance and service conditions. The performance conditions were based on achievement of a non-GAAP financial measure (net operating earnings) as described above. Per the agreement, to the extent base performance conditions were exceeded, the award would be increased in increments of 10% up to 50%. If the performance conditions were not met, the grants would be cancelled and the shares would be forfeited. Subsequent to meeting the performance conditions, an additional two year service period will then be required before the shares vest on December 31, 2009. If after completing the performance conditions but prior to completing the service conditions the employee terminates employment (1) due to retirement, having attained age 55 and completed ten years of service, or (2) due to death or disability, the employment conditions will lapse with respect to a pro rata portion of the contingent shares on the date of termination. Termination due to any other reason will result in all contingent shares awarded being forfeited effective the employee’s date of termination. During 2007, base performance

32

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

conditions were exceeded, resulting in an increase of the number of shares to be issued upon vesting by 20%. Accordingly, 62,319 additional shares were granted in January 2008. As of September 30, 2008, 357,799 nonvested contingent shares were outstanding. Employees will be entitled to receive dividends upon vesting.

Time-accelerated Awards. NiSource awarded restricted shares and restricted stock units that contain provisions for time-accelerated vesting to key executives under the 1994 Plan. Most of these awards were issued in January 2003 and January 2004. The total shareholder return measures established were not met; therefore these grants do not have an accelerated vesting period. At September 30, 2008, NiSource had 504,633 awards outstanding which contained the time-accelerated provisions.

Non-employee Director Awards. The Amended and Restated Non-employee Director Stock Incentive Plan provides for awards of restricted stock, stock options and restricted stock units, which vest in 20% increments per year, with full vesting after five years. Effective March 25, 2008, the board approved to amend the vesting provisions of the plan such that all outstanding grants and future grants of restricted stock units will vest immediately. The plan requires that restricted stock units be distributed to the directors after their separation from the board. As of September 30, 2008, 89,860 restricted shares and 203,412 restricted stock units had been issued under the Plan.

17. Other Commitments and Contingencies

A. Guarantees and Indemnities. As a part of normal business, NiSource and certain subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. Such agreements include guarantees and stand-by letters of credit. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries’ intended commercial purposes. The total commercial commitments in existence at September 30, 2008 and the years in which they expire were:

(in millions)	Total		2008		2009		2010		2011		2012		After
Guarantees of subsidiaries debt	$	5,814.0	$	—	$	460.0	$	1,000.0	$	—	$	315.0	$	4,039.0
Guarantees supporting commodity transactions of subsidiaries		512.7		171.3		336.8		—		—		—		4.6
Lines of credit		1,263.0		1,263.0		—		—		—		—		—
Letters of credit		90.1		4.2		68.5		2.0		14.4		—		1.0
Other guarantees		610.8		61.7		3.6		—		—		16.3		529.2
Total commercial commitments	$	8,290.6	$	1,500.2	$	868.9	$	1,002.0	$	14.4	$	331.3	$	4,573.8

Guarantees of Subsidiaries Debt. NiSource has guaranteed the payment of $5.8 billion of debt for various wholly-owned subsidiaries including NiSource Finance, and through a support agreement, Capital Markets, which is reflected on NiSource’s Condensed Consolidated Balance Sheet (unaudited) as of September 30, 2008. The subsidiaries are required to comply with certain financial covenants under the debt instruments and in the event of default, NiSource would be obligated to pay the debt’s principal and related interest. NiSource does not anticipate its subsidiaries will have any difficulty maintaining compliance.

Guarantees Supporting Commodity Transactions of Subsidiaries. NiSource has issued guarantees, which support up to approximately $512.7 million of commodity-related payments for its current subsidiaries involved in energy marketing to satisfy requirements under forward gas sales. These guarantees were provided to counterparties in order to facilitate physical and financial transactions involving natural gas and electricity. To the extent liabilities exist under the commodity-related contracts subject to these guarantees, such liabilities are included in the Condensed Consolidated Balance Sheets (unaudited).

Lines and Letters of Credit. NiSource Finance maintains a five-year revolving line of credit with a syndicate of financial institutions which can be used either for borrowings or the issuance of letters of credit. On July 7, 2006, NiSource Finance amended the $1.25 billion five-year revolving credit facility, increasing the aggregate commitment level to $1.5 billion and extending the termination date by one year to July 2011. During September 2008, NiSource Finance entered into a new $500 million six-month revolving credit agreement with a syndicate of

33

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

banks led by Barclays Capital that expires March 23, 2009. At September 30, 2008, NiSource had $1,263.0 million in short-term borrowings outstanding under the credit facility. Through the five-year revolver and through other letter of credit facilities, NiSource has issued stand-by letters of credit of approximately $90.1 million for the benefit of third parties.

Other Guarantees or Obligations. NiSource reached an agreement on April 18, 2008 with BPAE for the sale of Whiting Clean Energy. On June 30, 2008, NiSource sold Whiting Clean Energy to BPAE for $217.2 million which included $16.3 million in working capital. The agreement with BPAE contains customary representations, warranties, covenants and closing conditions. NiSource has executed purchase and sales agreement guarantees totaling $220 million which guarantee performance of PEI’s covenants, agreements, obligations, liabilities, representations and warranties under the agreement with BPAE. No amounts related to the purchase and sales agreement guarantees are reflected in the Condensed Consolidated Balance Sheet (unaudited) as of September 30, 2008.

NiSource has additional purchase and sales agreement guarantees totaling $77.5 million, which guarantee performance of the seller’s covenants, agreements, obligations, liabilities, representations and warranties under the agreements. No amounts related to the purchase and sales agreement guarantees are reflected in the Condensed Consolidated Balance Sheets (unaudited). Management believes that the likelihood NiSource would be required to perform or otherwise incur any significant losses associated with any of the aforementioned guarantees is remote.

On August 29, 2007, Millennium entered into a bank credit agreement to finance the construction of the Millennium Pipeline project. As a condition precedent to the credit agreement, NiSource issued a guarantee securing payment for 47.5%, its indirect ownership interest percentage, of amounts borrowed under the credit agreement up until such time as the amounts payable under the agreement are paid in full. As of September 30, 2008, Millennium borrowed $772.0 million under the financing agreements, of which NiSource guaranteed $366.7 million. NiSource recorded an accrued liability of approximately $7.3 million related to the fair value of this guarantee. The permanent financing for Millennium is expected to be completed when debt capital market conditions improve. In the interim, Millennium will continue to be funded by the $800 million credit agreement, which extends through August 2010.

NiSource also has guarantees issued to two Millennium customers that have associated long-term transportation service agreements with Millennium, Consolidated Edison Company and KeySpan Gas East Corporation, should Millennium not meet certain performance conditions and upon the customer exercising certain rights under their respective precedent agreements upon a triggering event. The total amount for which NiSource has guaranteed payment under these guarantees is $ 24.3 million. No amounts related to these Millennium customer guarantees are reflected in the Condensed Consolidated Balance Sheets (unaudited), as management believes that the likelihood NiSource would be required to perform under these guarantees is remote.

On June 29, 2006, Columbia Transmission, Piedmont, and Hardy Storage entered into multiple agreements to finance the construction of the Hardy Storage project, which is accounted for by NiSource as an equity investment. Under the financing agreement, Columbia Transmission issued guarantees securing payment for 50% of any amounts issued in connection with Hardy Storage up until such time as the project is placed in service and operated within certain specified parameters. As of September 30, 2008, Hardy Storage borrowed $123.4 million under the financing agreement, for which Columbia Transmission recorded an accrued liability of approximately $1.2 million related to the fair value of its guarantee securing payment for $61.7 million, which is 50% of the amount borrowed.

NiSource has issued other guarantees supporting derivative related payments associated with interest rate swap agreements issued by NiSource Finance, operating leases for many of its subsidiaries and for other agreements entered into by its current and former subsidiaries.

B. Other Legal Proceedings. In the normal course of its business, NiSource and its subsidiaries have been named as defendants in various legal proceedings. NiSource assesses liabilities and contingencies in connection with asserted or potential legal matters on a regular basis, and establishes reserves when appropriate.

In the case of Tawney, et al. v. Columbia Natural Resources, Inc., the Plaintiffs, who are West Virginia landowners, filed a lawsuit in early 2003 against CNR alleging that CNR underpaid royalties on gas produced on their land by

34

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

improperly deducting post-production costs and not paying a fair value for the gas. In December 2004, the court granted plaintiffs’ motion to add NiSource and Columbia as defendants. Plaintiffs also claimed that the defendants fraudulently concealed the deduction of post-production charges. The court certified the case as a class action that includes any person who, after July 31, 1990, received or is due royalties from CNR (and its predecessors or successors) on lands lying within the boundary of the state of West Virginia. All claims by the government of the United States are excluded from the class. Although NiSource sold CNR in 2003, NiSource remains obligated to manage this litigation and for the majority of any damages ultimately awarded to the plaintiffs. On January 27, 2007, the jury hearing the case returned a verdict against all defendants in the amount of $404.3 million; this is comprised of $134.3 million in compensatory damages and $270 million in punitive damages. In January 2008, the Defendants filed their petition for appeal, and on March 24, 2008, the Defendants filed their amended petition for appeal with the West Virginia Supreme Court of Appeals. On May 22, 2008, the West Virginia Supreme Court of Appeals refused the Defendants petition for appeal. On August 22, 2008, Defendants filed their petitions to the United States Supreme Court for writ of certiorari. The Plaintiffs filed their response on September 22, 2008. On September 19, 2008, the West Virginia Supreme Court issued an order extending the stay of the judgment until proceedings before the United States Supreme Court are fully concluded. Given the West Virginia Court’s refusal of the appeal, NiSource adjusted its reserve in the second quarter of 2008 to reflect the portion of the trial court judgment for which NiSource would be responsible, inclusive of interest. This amount was included in “Legal and environmental reserves,” on the Condensed Consolidated Balance Sheet (unaudited) as of September 30, 2008. On October 24, 2008, the West Virginia Circuit Court for Roane County, West Virginia, preliminarily approved a settlement agreement with a total settlement amount of $380 million. The settlement is subject to final approval by the Court, following a fairness hearing currently scheduled for November 22, 2008. The settlement agreement is contingent upon a final ruling on the settlement by the trial court prior to the resolution of the petitions for writ of certiorari filed with the United States Supreme Court. NiSource’s share of the settlement liability would be up to $338.8 million.

C. Environmental Matters.

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

A reserve of $76.7 million and $77.2 million has been recorded as of September 30, 2008 and December 31, 2007, respectively, to cover probable corrective actions at sites where NiSource has environmental remediation liability. Regulatory assets have been recorded to the extent environmental expenditures are expected to be recovered in rates. NiSource accrues for costs associated with environmental remediation obligations when the incurrence of such costs is probable and the amounts can be reasonably estimated, regardless of when the expenditures are actually made. The undiscounted estimated future expenditures are based on many factors including currently enacted laws and regulations, existing technology and estimated site-specific costs whereby assumptions may be made about the nature and extent of site contamination, the extent of cleanup efforts, costs of alternative cleanup methods and other variables. NiSource’s estimated environmental remediation liability will be refined as events in the remediation process occur. Actual remediation costs may differ materially from NiSource’s estimates due to the dependence on the factors listed above.

Proposals for voluntary initiatives and mandatory controls are being discussed both in the United States and worldwide to reduce so-called “greenhouse gases” such as carbon dioxide, a by-product of burning fossil fuels, and methane, a component of natural gas. Certain NiSource affiliates engage in efforts to voluntarily report and reduce their greenhouse gas emissions. NiSource is currently a participant in the EPA’s Climate Leaders program. On April 2, 2007, in Massachusetts v. EPA, the Supreme Court ruled that the EPA does have authority under the CAA to regulate emissions of greenhouse gases if it is determined that greenhouse gases have a negative impact on human health or the environment. On July 11, 2008, in response to the April 2, 2007, U.S. Supreme Court decision in Massachusetts v. EPA, the EPA released an ANPR soliciting public input on the effects of climate change and the potential ramifications of the CAA in relation to greenhouse gas emissions. In the ANPR, the EPA presents and requests comment on the best-available science, requests relevant data, and poses questions about the advantages and disadvantages of using the CAA to potentially regulate stationary and mobile sources of greenhouse gases. The ANPR also reviews various petitions, lawsuits and court deadlines before the agency, and the profound effect

35

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

regulating under the CAA could have on the economy. NiSource will continue to monitor and participate in developments related to efforts to register and potentially regulate greenhouse gas emissions.

The EPA is developing a mandatory greenhouse gas reporting rule that would require reporting of greenhouse gas emissions from large sources. The emission information collected would be used by the EPA to develop comprehensive and accurate data relevant to future climate policy decisions, including potential future regulation of greenhouse gases. The final reporting rule is scheduled to be finalized by June 2009. NiSource will continue to monitor development of this rule.

On March 12, 2008, the EPA announced the tightening of the 8-hour ozone NAAQS from 0.08 parts per million to 0.075 parts per million. The number of areas that do not meet the new standards could significantly increase across the country. Over the next several years, states will be required to develop ozone attainment plans to implement the standards and improve air quality in these areas. This could lead to additional emission reductions of NOx, an ozone precursor, from facilities owned by NiSource. NiSource will closely monitor developments in these matters and cannot at this time accurately estimate the timing or cost of emission controls that may eventually be required.

Gas Distribution Operations. Several Gas Distribution Operations subsidiaries are potentially responsible parties at waste disposal sites under the CERCLA (commonly known as Superfund) and similar state laws, as well as at MGP sites, which such subsidiaries, or their corporate predecessors, own or previously owned or operated. Gas Distribution Operations subsidiaries may be required to share in the cost of cleanup of such sites. In addition, some Gas Distribution Operations subsidiaries have responsibility for corrective action under the RCRA for closure and cleanup costs associated with underground storage tanks and under the Toxic Substances Control Act for cleanup of PCBs. The final costs of cleanup have not yet been determined. As site investigations and cleanup proceed and as additional information becomes available reserves are adjusted.

A program has been instituted to identify and investigate former MGP sites where Gas Distribution Operations subsidiaries or predecessors are the current or former owner. The program has identified up to 86 such sites and initial investigations have been conducted at 54 sites. Additional investigation activities have been completed or are in progress at 50 sites and remedial measures have been implemented or completed at 37 sites. This effort includes the sites contained in the January 2004 agreement entered into with the IDEM, Northern Indiana, Kokomo Gas, and other Indiana utilities under the Indiana Voluntary Remediation Program. Only those site investigation, characterization and remediation costs currently known and determinable can be considered “probable and reasonably estimable” under SFAS No. 5. As costs become probable and reasonably estimable, reserves will be adjusted. As reserves are recorded, regulatory assets are recorded to the extent environmental expenditures are expected to be recovered through rates. NiSource is unable, at this time, to accurately estimate the time frame and potential costs of the entire program. Management expects that, as characterization is completed, additional remediation work is performed and more facts become available, NiSource will be able to develop a probable and reasonable estimate for the entire program or a major portion thereof consistent with the SEC’s SAB No. 92, SFAS No. 5 and SOP 96-1.

Gas Transmission and Storage Operations. Columbia Transmission continues to conduct characterization and remediation activities at specific sites under a 1995 EPA AOC. The program pursuant to the AOC covers approximately 245 facilities, approximately 13,000 liquid removal points, approximately 2,200 mercury measurement stations and about 3,700 storage well locations. Field characterization has been performed at all sites. Site characterization reports and remediation plans, which must be submitted to the EPA for approval, are in various stages of development and completion. Remediation has been completed at the mercury measurement stations, liquid removal point sites and storage well locations and at all but 48 of the 245 facilities. The AOC was amended in 2007 to facilitate payment of EPA oversight costs and to remove remediated sites from the AOC.

Columbia Transmission and Columbia Gulf are potentially responsible parties at several waste disposal sites under CERCLA and similar state laws. The potential liability is believed to be de minimis. However, the final allocation of cleanup costs has yet to be determined. As site investigations and cleanups proceed and as additional information becomes available reserves will be adjusted.

On February 21, 2007, the PADEP provided representatives of Columbia Transmission with a proposed Consent Order and Agreement covering an unmanned equipment storage site located in rural southwest Pennsylvania. The

36

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

proposed order alleges that Columbia Transmission has violated the state’s Clean Streams Act and Solid Waste Management Act by discharging petroleum products onto the property and into the waters of the state. In addition to requiring remediation and monitoring activities at the site, the state has proposed penalties for these violations. Columbia Transmission plans to engage in further discussions with the agency regarding the proposed order, including the rationale for the proposed penalty. The site was remediated via an EPA approved Remedial Action Work Plan in the summer of 2008. The PADEP had provided written notification that it would not attempt to stop the EPA approved work and would seek the aforementioned Order after the remedy is completed. Columbia Transmission has not received any communication from the PADEP regarding the aforementioned Order.

On September 26, 2007, Columbia Transmission received an NOV related to bentonite discharge associated with a horizontal directional drill operation for the Hardy Storage project. On November 29, 2007, Columbia Transmission received an NOV related to the collapse of Swift Run stream bed associated with the same horizontal directional drill operation. Columbia Transmission received the final Consent Special Order on July 31, 2008. The total penalty paid to the State of Virginia was $39,635.57. Stream restoration activities are complete. Continued monitoring of the stream will occur for two years.

During installation of the Millennium Pipeline, petroleum hydrocarbon impacted soils and ground water were encountered above State of New York standards at two locations on and adjacent to the Columbia Transmission line A-5. These impacts were reported to the NYDEC. The State of New York required that Columbia Transmission enter into Stipulation Agreements with the NYDEC to address remediation of the impacted media. Reserves have been established for initial response and cleanup activities. Additional cleanup obligations may be identified after more information is available, but costs to address the contamination are not expected to be material.

Electric Operations.

Remediation. Northern Indiana is a potentially responsible party under the CERCLA and similar state laws at two waste disposal sites and shares in the cost of their cleanup with other potentially responsible parties. At one site, the Remedial Investigation and Feasibility Study was submitted to the EPA in 2007. The EPA has issued a proposed plan to remediate the site which is in the public comment period. At the second site, Northern Indiana has agreed to conduct a Remedial Investigation and Feasibility Study in the vicinity of the third party, state-permitted landfill where Northern Indiana contracted for fly ash disposal. In addition, Northern Indiana has corrective action liability under the RCRA for three facilities that historically stored hazardous waste.

As of September 30, 2008 and December 31, 2007, reserves of $2.9 million and $3.1 million, respectively, have been recorded to cover probable environmental response actions for Electric Operations. The ultimate liability in connection with these sites cannot be estimated at this time.

Air. In December 2001, the EPA approved regulations developed by the State of Indiana to comply with the EPA’s NOx SIP call. The NOx SIP call requires certain states, including Indiana, to reduce NOx levels from several sources, including industrial and utility boilers, to lower regional transport of ozone. Compliance with the NOx limits contained in these rules was required by May 31, 2004. To comply with the rule, Northern Indiana developed a NOx compliance plan, which included the installation of Selective Catalytic Reduction NOx reduction technology at each of its active generating stations and is currently in compliance with the NOx limits. In implementing the NOx compliance plan, Northern Indiana has expended approximately $312.8 million as of September 30, 2008. Total costs to comply may vary depending on a number of factors including market demand and resource constraints, uncertainty of future equipment and construction costs, and the potential need for additional control technology.

On March 10, 2005, the EPA issued the CAIR final regulations. The rule establishes phased reductions of NOx and SO2 from 28 Eastern states, including electric utilities in Indiana, by establishing an annual emissions cap for NOx and SO2 and an additional cap on NOx emissions during the ozone control season. On March 15, 2006, the EPA signed three related rulemakings providing final regulatory decisions on implementing the CAIR. The EPA, in one of the rulings, denied several petitions for reconsideration of various aspects of the CAIR, including requests by Northern Indiana to reconsider SO2 and NOx allocations. On March 25, 2008, the U. S. Court of Appeals for the D. C. Circuit held oral arguments in litigation challenging the CAIR. Northern Indiana, along with other utilities,

37

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

directly participated in one of the arguments addressing the legality of using the allowance allocations of the Acid Rain program for the purpose of complying with the CAIR SO2 reduction requirements.

On July 11, 2008, the court vacated the CAIR and the CAIR FIP in their entirety, and remanded them back to the EPA to promulgate a rule consistent with the court’s opinion. Per the Court’s rules, issuance of the mandate is deferred during the 45-day period allowed for the filing of any petitions for rehearing. On September 24, 2008, four petitions were submitted seeking rehearing by the original panel and the full panel (en banc). Among the petitioners were the EPA as well as industry and environmental groups. Numerous issues were raised including: the appropriateness of the vacatur instead of only remanding key contested points; compliance dates; the interstate trading issue; allowance allocations; and emission budgets. In addition, Congressional efforts to achieve an acceptable legislative remedy have been initiated but are facing an uncertain future.

In anticipation of the issuance of the Court’s mandate to vacate CAIR upon the conclusion of legal proceedings, on October 23, 2008, the IDEM took the initial step in a multi-phased process to develop a new state rule to replace CAIR and obtain the emission reductions it would have achieved. Northern Indiana will continue to interact with the IDEM on this matter and can not predict the outcome or impact at this time.

On October 3, 2007, the Indiana Air Pollution Control Board adopted, with minor changes from the EPA CAMR, the state rule to implement EPA’s CAMR. The rule became effective on February 3, 2008, with compliance required in 2010. On February 8, 2008, the United States Court of Appeals for the District of Columbia Circuit vacated two EPA rules addressing utility mercury emissions that are the stimulus for the Indiana Air Pollution Control Board’s CAMR. The first is the EPA’s rule delisting coal and oil-fired electric generating units from the list of sources whose emissions are regulated under section 112 of the CAA, 42 U.S.C. § 7412. Revision of December 2000 Regulatory Finding (“Delisting Rule”), 70 Fed. Reg. 15,994 (March 29, 2005). The second is the EPA’s rule that set performance standards for new coal-fired electric generating units and established total mercury emission limits for states along with a cap-and-trade program for new and existing coal-fired electric generating units. Standards of Performance for New and Existing Stationary Sources: Electric Utility Steam Generating Units (“CAMR”), 70 Fed. Reg. 28,606 (May 18, 2005). On March 24, 2008, the EPA and industry filed petitions with the court for rehearing of these decisions and on May 20, 2008, the D.C. Circuit denied the rehearing requests. Industry has filed a petition for certiorari with the U. S. Supreme Court appealing the decision. The EPA has sought and received extensions of the appeal submittal deadline and filed their appeal on October 17, 2008. The resolution of this legal action and the EPA’s response will affect the implementation and timing of the installation of controls to address potential mercury reduction obligations. Northern Indiana will closely monitor developments regarding any further action by the EPA and subsequent regulatory developments from the EPA and/or the Indiana Air Pollution Control Board in this matter.

Local air quality has improved in three counties in which Northern Indiana generating assets are located. In recognition of this improvement the IDEM submitted petitions to the EPA seeking redesignation of the Indiana counties of Lake, Porter, and LaPorte to attainment of the eight-hour ozone NAAQS. Final EPA rulemaking approving the LaPorte County redesignation became effective on July 19, 2007. The EPA approval for Lake and Porter counties is undergoing further evaluation and may be delayed until after the 2008 ozone season due to monitored values in 2007 at one site that put the design value just above the NAAQS. On October 3, 2007, the Air Pollution Control Board adopted the redesignation of LaPorte County to attainment as part of a reformatting of the state attainment designation rule. The rule became effective January 28, 2008. Upon promulgation of the EPA and subsequent IDEM regulations to implement the redesignations to attainment, new source review rules are expected to change from nonattainment new source review rules to prevention of significant deterioration while measures responsible for existing emission reductions would continue. The March 12, 2008 EPA tightening of the 8-hour ozone NAAQS may preclude the approval of the redesignation requests and may result in these counties remaining and/or again being designated as nonattainment of the ozone NAAQS. As discussed above under “General,” the EPA ozone NAAQS revision could lead to additional emission reductions of NOx, an ozone precursor, from facilities owned by Northern Indiana. Northern Indiana will closely monitor developments in these matters and cannot at this time accurately estimate the timing or cost of emission controls that may eventually be required.

The U. S. Court of Appeals for the D. C. Circuit, in late 2006, ruled a requirement to impose CAA §185 fees on emissions sources located in counties that failed to timely attain the previous (one-hour) ozone standard, which had been rescinded by the EPA in May 2005, remained applicable retroactive to November 2005. The court remanded

38

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

the issue to the EPA for reconsideration. In January 2008, the U. S. Supreme Court denied a petition to hear an appeal on this matter. The EPA has announced that it intends to propose regulations in fall 2008 to specify how CAA §185 fees will be imposed and calculated. One of Northern Indiana’s operating generating assets is located in Porter County where this fee could potentially be applied. On July 7, 2008, the EPA proposed a finding of attainment of the one-hour ozone NAAQS for the Illinois and Indiana one-hour ozone nonattainment area which includes Porter County. Included in the proposed rule is a finding that the area, including Porter County, is not subject to the imposition of the CAA §185 penalty fees. The EPA indicated it anticipates finalization of the attainment rule by the end of 2008. Northern Indiana will closely monitor developments in this matter.

In late 1999, the EPA initiated a New Source Review enforcement action against several industries, including the electric utility industry, concerning rule interpretations that have been the subject of recent (prospective) reform regulations. Northern Indiana has received and responded to the EPA information requests on this subject, most recently in June 2002. The EPA issued an NOV to Northern Indiana on September 29, 2004, for alleged violations of the CAA and the SIP. Specifically, the NOV alleges that modifications were made to certain boiler units at the Michigan City, Schahfer, and Bailly Generating Stations between the years of 1985 and 1995 without obtaining appropriate air permits for the modifications. The ultimate resolution could require additional capital expenditures and operations and maintenance costs as well as payment of substantial penalties and require development of supplemental environmental projects. Northern Indiana is unable, at this time, to predict the timing or outcome of this EPA action.

On October 15, 2008, the EPA announced it is first strengthening of the NAAQS for lead in 30 years by tightening the standards from the current 1.5 micrograms per cubic meter to 0.15 micrograms per cubic meter and changing both the calculation method and averaging time. Also included are provisions for the EPA to improve the existing lead monitoring network by requiring placement of monitors in areas with industrial facilities that emit one or more tons per year of lead. Designations of whether or not areas meet the standards are to be finalized by January 2012 with the state plans for reducing emissions to meet the standards due in June 2013 and compliance by January 2017. Northern Indiana is unable, at this time, to predict the outcome of this EPA action.

Water. The Great Lakes Water Quality Initiative program added new water quality standards for facilities that discharge into the Great Lakes watershed. The State of Indiana has promulgated its regulations for this water discharge permit program and has received final EPA approval. The permit for the Bailly Generating Station was issued on June 26, 2006, and became effective on August 1, 2006. Northern Indiana appealed the Bailly Generating Station NPDES permit, due to an unacceptable internal outfall monitoring permit condition. On February 18, 2008, the Bailly Generating Station NPDES permit was modified to resolve the monitoring issue and to address the 316(b) rule status due to the remand mentioned below.

On February 16, 2004, the EPA Administrator signed the Phase II Rule of the Clean Water Act Section 316(b) which requires all large existing steam electric generating stations meet certain performance standards to reduce the effects on aquatic organisms at their cooling water intake structures. The rule became effective on September 7, 2004. Under this rule, stations will either have to demonstrate that the performance of their existing fish protection systems meet the new standards or develop new systems, such as a closed-cycle cooling tower. On January 25, 2007, the Second Circuit in a court decision on the Phase II 316(b) rule, remanded for EPA reconsideration the options providing flexibility for meeting the requirements of the rule. On March 20, 2007, the EPA issued a guidance memo advising its Regional Administrators that the Agency considers the 316(b), Phase II Rule governing cooling water withdrawals suspended and will be issuing a Federal Register notice to that effect. On July 9, 2007, the EPA published a notice in the Federal Register suspending the Phase II rule. The notice explained that the EPA is not accepting comments on the suspension and notes that “best professional judgment” is to be used in making 316(b) decisions.

On July 5, 2007, the Second Circuit Court of Appeals denied the petitions for rehearing asking the court to reconsider its remand of the Phase II 316(b) ruling. Various parties submitted petitions for a writ of certiorari to the U. S. Supreme Court in early November 2007 seeking to reverse the Second Circuit Court’s decision. Several parties on both sides of the issue have filed amicus curiae briefs on the matter. The U.S. Supreme Court has agreed to hear the appeal which is based on the role of cost-benefit analysis in establishing standards for compliance with the rule. The case is scheduled to be heard in December 2008. The EPA may eventually need to propose a revised

39

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

316(b) rule or provide guidance to address the impact of the court decision. Northern Indiana will continue to closely monitor this activity and at this time cannot estimate the costs associated with the ultimate outcome.

Coal Combustion Products. The Federal government has recently shown an increased interest in evaluating the advisability of Federal regulation of coal combustion waste products because of concern over potential health and environmental risks. A House subcommittee has begun to study this issue building on the EPA’s ongoing activities in this matter. On September 22, 2008, the ECOS approved a resolution stating that federal regulations regarding the management and disposal of coal combustion wastes should not be adopted. ECOS is a national non-profit, non-partisan association of state and territorial environmental agency leaders. Northern Indiana will continue to monitor this activity for any future regulatory actions and cannot predict the potential financial impact at this time.

40

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

18. Changes in Common Stockholders’ Equity and Comprehensive Income (Loss)

The following table displays the changes in Common Stockholders’ Equity and Comprehensive Income (Loss) for the nine months ended September 30, 2008 and 2007.

						Additional					Accum						Comp
	Common		Treasury			Paid-In		Retained			Other Comp						Income
(in millions)	Stock		Stock			Capital		Earnings			Income/(Loss)			Total			(Loss)
Balance January 1, 2008	$	2.7	$	(23.3	)	$	4,011.0	$	1,074.5		$	11.7		$	5,076.6
Comprehensive Income (Loss):
Net Income (loss)									(83.0	)					(96.5	)		(96.5	)
Other comprehensive income (loss), net of tax:
Gain/loss on available for sale securities:
Unrealized (a)												(4.2	)		(4.2	)		(4.2	)
Net unrealized losses on derivatives qualifying as cash flow hedges (b)												(69.9	)		(69.9	)		(69.9	)
Unrecognized Pension Benefit and OPEB cost (c )												(2.9	)		(2.9	)		(2.9	)
Total comprehensive income (loss)																		(173.5	)
Dividends:
Common shares									(252.4	)					(252.4	)
Treasury stock acquired				(0.2	)										(0.2	)
Issued:
Employee stock purchase plan							0.7								0.7
Long-term incentive plan							5.4								5.4
Amortization of Long-term incentive Plan							0.7								0.7
Balance September 30, 2008	$	2.7	$	(23.5	)	$	4,017.8	$	739.1		$	(65.3	)	$	4,670.8

						Additional					Accum
	Common		Treasury			Paid-In		Retained			Other Comp						Comp
(in millions)	Stock		Stock			Capital		Earnings			Income/(Loss)			Total			Income
Balance January 1, 2007	$	2.7	$	(21.2	)	$	3,998.3	$	1,012.9		$	20.9		$	5,013.6
Adjustment to initially apply new measurement date pursuant to SFAS No. 158, net of tax									(6.9	)					(6.9	)
Adjustment to initially apply FIN 48, net of tax									(0.8	)					(0.8	)
Beginning balance, as adjusted	$	2.7	$	(21.2	)	$	3,998.3	$	1,005.2		$	20.9		$	5,005.9
Comprehensive Income:
Net Income									254.4						254.4			254.4
Other comprehensive income, net of tax:
Gain/loss on available for sale securities:
Unrealized (a)												0.4			0.4			0.4
Net unrealized losses on derivatives qualifying as cash flow hedges (b)												(16.4	)		(16.4	)		(16.4	)
Unrecognized Pension Benefit and OPEB cost (c )												3.6			3.6			3.6
Total comprehensive income																		242.0
Dividends:
Common shares									(252.2	)					(252.2	)
Treasury stock acquired				(2.1	)										(2.1	)
Issued:
Employee stock purchase plan							0.6								0.6
Long-term incentive plan							9.2								9.2
Amortization of Long-term incentive Plan							0.8								0.8
Balance September 30, 2007	$	2.7	$	(23.3	)	$	4,008.9	$	1,007.4		$	8.5		$	5,004.2

(a)	Net unrealized gains (losses) on available for sale securities, net of $2.4 million tax benefit and $0.5 million tax expense in the first nine months of 2008 and 2007, respectively.
(b)	Net unrealized losses on derivatives qualifying as cash flow hedges, net of $45.4 million and $6.6 million tax benefit in the first nine months of 2008 and 2007, respectively.
(c)	Unrecognized pension benefit and OPEB costs, net of $1.8 million tax benefit and 2.1 million tax expense in the first nine months of 2008 and 2007, respectively.

41

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

19. Accumulated Other Comprehensive Income (Loss)

The following table displays the components of Accumulated Other Comprehensive Income (Loss), which is included in “Common Stockholders’ Equity,” on the Condensed Consolidated Balance Sheets (unaudited).

	September 30,			December 31,
(in millions)	2008			2007
Other comprehensive income (loss), before taxes:
Unrealized gains on securities	$	0.5		$	7.2
Tax (expense) on unrealized gains on securities		(0.4	)		(2.8	)
Unrealized gains (losses) on cash flow hedges		(105.1	)		10.2
Tax (expense) benefit on unrealized gains on cash flow hedges		42.8			(2.6	)
Unrecognized pension benefit and OPEB costs		(5.1	)		(0.5	)
Tax benefit on unrecognized pension benefit and OPEB costs		2.0			0.2
Total Accumulated Other Comprehensive Income (Loss), net of taxes	$	(65.3	)	$	11.7

Millennium, in which Columbia Transmission has an equity investment, entered into three interest rate swap agreements with a notional amount totaling $420 million with seven counterparties. In accordance with paragraph 121 of SFAS No. 130, Columbia Transmission recorded an unrecognized loss of $1.5 million as a decrease in its investment in Millennium and a corresponding decrease in accumulated other comprehensive, representing its ownership portion of the fair value of these swaps as of September 30, 2008.

20. Business Segment Information

Operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The NiSource Chief Executive Officer is the chief operating decision maker.

NiSource’s operations are divided into four primary business segments. The Gas Distribution Operations segment provides natural gas service and transportation for residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, Maryland, Indiana and Massachusetts. The Gas Transmission and Storage Operations segment offers gas transportation and storage services for LDCs, marketers and industrial and commercial customers located in northeastern, mid-Atlantic, midwestern and southern states and the District of Columbia. The Electric Operations segment provides electric service in 20 counties in the northern part of Indiana. The Other Operations segment primarily includes gas marketing, and ventures focused on distributed power generation technologies, including fuel cells and storage systems.

42

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

The following table provides information about business segments. NiSource uses operating income as its primary measurement for each of the reported segments and makes decisions on finance, dividends and taxes at the corporate level on a consolidated basis. Segment revenues include intersegment sales to affiliated subsidiaries, which are eliminated in consolidation. Affiliated sales are recognized on the basis of prevailing market, regulated prices or at levels provided for under contractual agreements. Operating income is derived from revenues and expenses directly associated with each segment. Gas Distribution, Gas Transmission and Storage, Electric, Other Operations, and Corporate operating income was positively impacted by $6.9 million, $3.3 million, $8.6 million, $0.1 million, and $0.7 million, respectively, for adjustments to medical expenses during the third quarter 2008 due to a misclassification of certain claims in prior periods. This adjustment had no impact on actual medical claims paid and was not material to the results of operations and consolidated financial statements. Electric Operations operating income was negatively impacted by an $8.3 million depreciation expense adjustment recorded by Northern Indiana during the second quarter of 2008. The non-cash adjustment to depreciation expense was not material to the results of operations and consolidated financial statements and will not materially impact depreciation charges in future periods.

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(in millions)	2008			2007			2008			2007
REVENUES
Gas Distribution Operations
Unaffiliated	$	617.6		$	519.3		$	4,079.9		$	3,420.5
Intersegment		3.7			4.2			15.2			15.0
Total		621.3			523.5			4,095.1			3,435.5
Gas Transmission and Storage Operations
Unaffiliated		157.3			152.4			476.8			457.5
Intersegment		44.0			47.1			151.8			160.9
Total		201.3			199.5			628.6			618.4
Electric Operations
Unaffiliated		380.4			378.5			1,054.3			1,039.7
Intersegment		0.2			0.2			0.6			0.6
Total		380.6			378.7			1,054.9			1,040.3
Other Operations
Unaffiliated		250.9			197.6			869.4			735.4
Intersegment		6.7			13.3			32.8			39.9
Total		257.6			210.9			902.2			775.3
Adjustments and eliminations		(51.7	)		(63.0	)		(192.1	)		(209.4	)
Consolidated Revenues	$	1,409.1		$	1,249.6		$	6,488.7		$	5,660.1
Operating Income (Loss)
Gas Distribution Operations	$	(56.2	)	$	(41.2	)	$	188.4		$	226.4
Gas Transmission and Storage Operations		82.3			75.0			265.0			249.4
Electric Operations		81.4			85.4			170.5			223.2
Other Operations		1.3			(1.0	)		1.5			(1.2	)
Corporate		(0.9	)		(8.7	)		(6.4	)		(13.8	)
Consolidated Operating Income	$	107.9		$	109.5		$	619.0		$	684.0

21. Hartsville and Delhi Compressor Stations

On February 5, 2008, tornados struck Columbia Gulf’s Hartsville Compressor Station in Macon County, Tennessee. The damage to the facility forced Columbia Gulf to declare force majeure because no gas was flowing through this portion of the pipeline system while a facility assessment was being performed and the current contractual transportation agreements of 2.156 Bcf per day could not be met. Since that time Columbia Gulf has constructed

43

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

both temporary and permanent facilities at Hartsville. On July 19, 2008, the station completed the installation of temporary horsepower and restored capacity to flow up to 2.156 Bcf per day. During the next 12 to 14 months, the temporary facilities that were constructed to restore system capabilities will be replaced with a permanent solution. The temporary capacity will remain in place while the permanent solution is installed. NiSource expects the majority of the reconstruction costs for the compressor station and ancillary facilities and the business interruption losses caused by this event to be recovered through insurance.

On December 14, 2007, Columbia Gulf’s Line 100 ruptured approximately two miles north of its Delhi Compressor Station in Louisiana. The damage to the pipeline forced Columbia Gulf to declare force majeure because no gas was flowing through this portion of the pipeline system on Lines 100, 200 and 300 while a facility assessment was performed. One day later, Lines 200 and 300 were returned to service and gas flow was restored on December 16, 2007. On December 19, 2007, the U.S. Department of Transportation issued a Corrective Action Order. The Order required Columbia Gulf to develop a remedial work plan to restore Line 100 pipeline’s pressure and capacity. Between December 22, 2007 and June 30, 2008, the Line 100 pipeline operated at less than full pressure and full capacity. On July 1, 2008, Columbia Gulf received permission from the U.S. Department of Transportation to restore full pressure and full capacity on the Line 100 pipeline. Columbia Gulf continues to operate under this Order. NiSource expects to recover a portion of the pipeline replacement costs plus business interruption losses through insurance.

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Note regarding forward-looking statements

The Management’s Discussion and Analysis, including statements regarding market risk sensitive instruments, contains “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Investors and prospective investors should understand that many factors govern whether any forward-looking statement contained herein will be or can be realized. Any one of those factors could cause actual results to differ materially from those projected. These forward-looking statements include, but are not limited to, statements concerning NiSource’s plans, objectives, expected performance, expenditures and recovery of expenditures through rates, stated on either a consolidated or segment basis, and any and all underlying assumptions and other statements that are other than statements of historical fact. From time to time, NiSource may publish or otherwise make available forward-looking statements of this nature. All such subsequent forward-looking statements, whether written or oral and whether made by or on behalf of NiSource, are also expressly qualified by these cautionary statements. All forward-looking statements are based on assumptions that management believes to be reasonable; however, there can be no assurance that actual results will not differ materially.

Realization of NiSource’s objectives and expected performance is subject to a wide range of risks and can be adversely affected by, among other things, weather, fluctuations in supply and demand for energy commodities, growth opportunities for NiSource’s businesses, increased competition in deregulated energy markets, the success of regulatory and commercial initiatives, dealings with third parties over whom NiSource has no control, the effectiveness of NiSource’s restructured outsourcing agreement, actual operating experience of NiSource’s assets, the regulatory process, regulatory and legislative changes, changes in general economic, capital and commodity market conditions, and counterparty credit risk, many of which risks are beyond the control of NiSource. In addition, the relative contributions to profitability by each segment, and the assumptions underlying the forward-looking statements relating thereto, may change over time. NiSource expressly disclaims a duty to update any of the forward-looking statements contained in this report.

The following Management’s Discussion and Analysis should be read in conjunction with NiSource’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

CONSOLIDATED REVIEW

Executive Summary

NiSource is an energy holding company whose subsidiaries are engaged in the transmission, storage and distribution of natural gas in the high-demand energy corridor stretching from the Gulf Coast through the Midwest to New England and the generation, transmission and distribution of electricity in Indiana. NiSource generates virtually 100% of its operating income through these rate-regulated businesses. A significant portion of NiSource’s operations is subject to seasonal fluctuations in sales. During the heating season, which is primarily from November through March, net revenues from gas are more significant, and during the cooling season, which is primarily from June through September, net revenues from electric sales and transportation services are more significant than in other months.

NiSource is a holding company under the Public Utility Holding Company Act of 2005.

For the nine months ended September 30, 2008, NiSource reported income from continuing operations of $242.8 million, or $0.89 per basic share, essentially flat with to $243.4 million, or $0.89 per basic share in 2007.

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Increases in income from continuing operations were due primarily to the following items:

• Income tax expense decreased $22.8 million due to recent legislation in Massachusetts that reduced income tax expense by $13.5 million in the third quarter of 2008. Income tax expense also decreased due to lower pre-tax book income for the nine months ended September 30, 2008 versus the comparable period in 2007. Refer to Note 13, “Income Taxes,” in the Notes to Condensed Consolidated Financial Statements for additional detail.

• Interest expense decreased $19.2 million due to lower short-term interest rates and the retirement late in 2007 of high cost debt associated with the Whiting Clean Energy facility.

• Gas Transmission and Storage Operations’ net revenues increased by $10.2 million due primarily to greater subscriptions for firm transportation services related to new interconnects along the Columbia Gulf pipeline system, deliveries from the Hardy Storage field and incremental demand revenues on the Columbia Transmission system.

• Other, net increased by $22.4 million due primarily to NiSource Development Company’s sale of its interest in JOF Transportation Company to Lehigh Service Corporation on August 27, 2008, for a pre-tax gain of $16.7 million. JOF Transportation Company held 40% interest in Chicago South Shore & South Bend Railroad Co. and a 40% interest in Indiana Illinois Development Company, LLC.

Decreases in income from continuing operations were due primarily to the following items:

• Operating expenses increased by $59.1 million primarily due to higher employee and administrative expenses of $29.6 million across NiSource’s business segments, a $19.1 million increase in depreciation which includes an $8.3 million depreciation expense adjustment recorded by Northern Indiana during the second quarter of 2008 and higher electric generation and maintenance costs of $11.8 million. The increased electric generation and maintenance costs resulted primarily from planned turbine and boiler maintenance and a generator overhaul, as well as $2.3 million in incremental costs associated with the Sugar Creek facility.

• Lower Electric Operations net revenues, which were negatively impacted by $20.4 million due to non-recoverable power purchased and non-recoverable MISO charges. Additionally, lower residential and commercial margins contributed to lower net revenues and were partially offset by higher industrial usage and margins.

These factors and other impacts to the financial results are discussed in more detail within the following discussions of “Results of Operations” and “Results and Discussion of Segment Operations.”

Four-Point Platform for Growth

NiSource has established four key initiatives to build a platform for long-term, sustainable growth: commercial and regulatory initiatives; commercial growth and expansion of the gas transmission and storage business; financial management of the balance sheet; and process and expense management.

Commercial and Regulatory Initiatives

Rate Development and Other Regulatory Matters. NiSource is moving forward on regulatory initiatives across several distribution company markets. Whether through full rate case filings or other approaches, NiSource’s goal is to develop strategies that benefit all stakeholders as it addresses changing customer conservation patterns, develops more contemporary pricing structures, and embarks on long-term investment programs to enhance its infrastructure.

Northern Indiana filed a petition for new electric base rates and charges on June 27, 2008 and filed its case-in-chief on August 29, 2008. The filing requests a two-step increase. Step One is a request for an increase in base rates calculated to produce additional gross margin of approximately $24 million. Step Two requests an additional increase to incorporate the return on and recovery of the Sugar Creek facility, which Northern Indiana purchased on May 30, 2008. The Step Two increase, if granted, would become effective as soon as the Sugar Creek facility is no longer committed to the PJM Interconnection market and is dispatched into MISO, but no later than June 1, 2010. The hearing on Northern Indiana’s case-in-chief is scheduled to begin on January 6, 2009. Several stakeholder groups have intervened in the case, representing customer groups and various counties and towns within Northern Indiana’s electric service territory. Testimony from the OUCC and all intervenors will be due by April 17, 2009. Assuming the case goes through the full procedural schedule without settlement, the final hearing is scheduled to begin July 27, 2009 and new rates are anticipated to take effect in early 2010.

Columbia of Ohio filed a base rate case with PUCO on March 3, 2008, requesting an increase in base rates in excess of $80 million annually. Columbia of Ohio is seeking recovery of increased infrastructure rehabilitation costs, as well as the stabilization of revenues and cost recovery through rate design. A settlement agreement was filed on

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October 24, 2008. The agreement recommends an annual revenue increase of $47.1 million, and also provides for recovery of costs associated with Columbia of Ohio’s infrastructure rehabilitation program. Rate design issues are to be resolved by the PUCO. The case is currently pending, and is expected to be resolved before the end of 2008.

On January 28, 2008, Columbia of Pennsylvania filed a base rate case with the Pennsylvania Public Utility Commission, seeking an increase of approximately $60 million annually, effective October 28, 2008. Through this filing, Columbia of Pennsylvania sought to recover costs associated with its significant infrastructure rehabilitation program, as well as stabilize revenues and cost recovery through modifications to rate design. On July 2, 2008, Columbia of Pennsylvania and all interested parties filed a unanimous settlement with the Pennsylvania Public Utilities Commission. On October 23, 2008, the Pennsylvania Public Utilities Commission issued an Order approving the settlement as filed, increasing annual revenues by $41.5 million.

On October 1, 2008, Columbia of Maryland filed a base rate case with the Maryland Public Service Commission, seeking an increase of approximately $3.7 million annually. New rates are expected to take effect during the second quarter of 2009.

On April 9, 2008, the PUCO issued an order approving, in all material respects, a joint Stipulation submitted on behalf of Columbia of Ohio. This Stipulation is a result of a process that began on April 13, 2005 with a PUCO ordered investigation into the type of gas risers installed in the state, the conditions of installation and overall performance. The Stipulation provides for: establishment of accounting for and recovery of costs resulting from the Staff’s investigation; Columbia’s performance of a survey to identify those customer-owned risers on its system prone to failure; and related customer education and other program related expenses. In addition this Stipulation provides for: Columbia’s assumption of financial responsibility for the replacement of all risers identified as prone to failure; repair or replacement of hazardous customer owned service lines; and capitalization of this investment with recovery to be addressed in future rate proceedings. As of September 30, 2008, Columbia of Ohio has approximately $38.5 million in costs associated with the gas riser and customer service line programs recorded as a regulatory asset and/or capitalized plant.

In July 2008, Columbia of Ohio filed an application with the PUCO for permission to create a new comprehensive energy conservation program. If approved by the PUCO, Columbia of Ohio’s DSM program would offer a wide range of services to residential and small commercial customers. Columbia of Ohio proposes to recover the three-year, $24.9 million cost of the DSM conservation program through a rider that would be added to residential and small commercial customer bills beginning in May 2010. On July 23, 2008, the PUCO issued an order approving Columbia of Ohio’s proposal subject to the approval of the DSM cost recovery rider proposed in the currently pending rate case, and any other conditions that may be imposed in the rate case.

On May 30, 2008, Northern Indiana purchased Sugar Creek for $329.7 million. This purchase was in response to Northern Indiana’s need to add approximately 1,000 mw of new capacity. Refer to Note 8, “Regulatory Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for further discussion. The Sugar Creek facility is a CCGT located in West Terre Haute, Indiana. Sugar Creek has a plant capacity rating of 535 mw. Sugar Creek has transmission access to and is able to participate in both the MISO and PJM Interconnection wholesale electricity markets. The plant is currently committed to the PJM Interconnection market until May 31, 2010. At acquisition, Northern Indiana recorded at fair value $328.1 million related to utility plant. No goodwill was recorded in conjunction with the purchase. The preliminary allocation of the purchase price was assigned to the assets and liabilities of Sugar Creek, based on their estimated fair value in accordance with GAAP. This allocation is subject to completion of certain analyses and allocation of property, plant and equipment unit of accounts.

Refer to the “Results and Discussion of Segment Operations” for a complete discussion of regulatory matters.

Sale of Whiting Clean Energy. On June 30, 2008, NiSource sold Whiting Clean Energy to BPAE for $217.2 million, which included $16.3 million in working capital, resulting in an after-tax loss of $31.9 million.

Sale of Northern Utilities and Granite State Gas. On February 15, 2008, NiSource reached a definitive agreement under which Unitil Corporation will acquire NiSource subsidiaries Northern Utilities and Granite State Gas. Under

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the terms of the transaction, Unitil Corporation will acquire Northern Utilities, a local gas distribution company serving 52 thousand customers in 44 communities in Maine and New Hampshire and Granite State Gas, an 86-mile FERC regulated gas transmission pipeline primarily located in Maine and New Hampshire. In the first quarter of 2008, net assets for Northern Utilities and Granite State Gas were reclassified to assets and liabilities of discontinued operations and held for sale on the Consolidated Balance Sheets. During the third quarter and nine months ended September 30, 2008, estimated losses of $4.8 million and $71.7 million were recorded to Gain (Loss) on Disposition of Discontinued Operations in the Condensed Statements of Consolidated Income (Loss) (unaudited).

NiSource acquired Northern Utilities and Granite State Gas in 1999 as part of the company’s larger acquisition of Bay State. NiSource is retaining its ownership of Bay State as a core component of the company’s long-term, investment-driven growth strategy.

Sale of Columbia Gulf’s Offshore Assets. On June 27, 2008, Columbia Gulf sold a portion of Columbia Gulf’s offshore assets to Tennessee Gas Pipeline Company for $7.5 million, which resulted in a gain of $2.9 million that was recorded during the second quarter of 2008. Payment was received on July 1, 2008.

Commercial Growth and Expansion of the Gas Transmission and Storage Business

Master Limited Partnership. On December 21, 2007, NiSource Energy Partners, L.P., an MLP and subsidiary of NiSource, filed a Form S-1 registration statement with the SEC in which it proposed making an initial public offering of common units in the MLP and NiSource proposed contributing its interest in Columbia Gulf to the MLP. NiSource management believes the formation of an MLP is a natural complement to NiSource’s gas transmission and storage growth strategy, and should provide NiSource access to competitively priced capital to support future growth investment. The initial public offering will not occur in 2008 due to the damage sustained at Columbia Gulf’s Hartsville, Tennessee, compressor station, following the tornados at the facility as described previously, as well as overall financial market conditions.

Millennium Pipeline Project. In June 2007, construction began on the Millennium Pipeline, a 182-mile-long, 30-inch-diameter pipeline across New York’s Southern Tier and lower Hudson Valley. The project is expected to be completed in the fourth quarter of 2008 and will transport up to 525,400 Dth per day of natural gas to markets along its route, as well as to the New York City markets through its pipeline interconnections. Millennium is jointly owned by affiliates of NiSource, KeySpan Corporation, and DTE Energy.

Hardy Storage Project. Hardy Storage completed its sixth full quarter of operations, receiving customer injections and withdrawing natural gas from its new underground natural gas storage facility in West Virginia. Injections this year will allow the field to deliver up to 150,000 Dth of natural gas per day during the 2008-2009 winter heating season. Customers withdrew over 5.44 Bcf from the storage field during the 2007-2008 winter heating season. When fully operational in 2009, the field will have a working storage capacity of 12 Bcf, delivering more than 176,000 Dth of natural gas per day. Hardy Storage is a joint venture of subsidiaries of Columbia Transmission and Piedmont.

Columbia Transmission, the operator of Hardy Storage, has expanded its natural gas transmission system by 176,000 Dth per day to provide the capacity needed to deliver Hardy Storage supplies to customer markets. Construction of these transmission facilities is complete and the facilities were placed into full service during the first half of 2008.

Florida Gas Transmission Expansion Project. An open season to solicit interest and contracts for expanded capacity on Columbia Gulf’s system for delivery to Florida Gas Transmission was held in late 2007 and contracts for 100,000 Dth per day of capacity were executed. This project was placed into service in May 2008.

Eastern Market Expansion Project. On May 3, 2007, Columbia Transmission filed a certificate application before the FERC for approval to expand its facilities to provide additional storage and transportation services and to replace certain existing facilities. This Eastern Market Expansion project is projected to add 97,000 Dth per day of storage and transportation deliverability and is fully subscribed on a 15-year contracted firm basis. On January 14, 2008, the

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FERC issued a favorable order which granted a certificate to construct the project. Construction of the facilities is underway and the project is expected to be in service by April 2009.

Appalachian Expansion Project. On February 29, 2008, Columbia Transmission filed an application before the FERC for approval to build a new 9,470 horsepower compressor station in West Virginia. The Appalachian Expansion Project will add 100,000 Dth per day of transportation capacity and is fully subscribed on a 15-year contracted firm basis. On August 22, 2008, the FERC issued a favorable order which granted a certificate to construct the project. Construction is in progress and the project is expected to be in service in the fourth quarter of 2009.

Ohio Storage Project. On June 24, 2008, Columbia Transmission filed an application before the FERC for approval to expand two of its Ohio storage fields for additional capacity of nearly 7 MMDths and 103,400 Dth per day of daily deliverability. If required approvals are granted as requested, construction would begin in 2009 and the expanded facilities would be placed in service by the end of 2009. The expansion capacity is 58% contracted on a long-term, firm basis.

New Penn Transmission Project. During the first quarter of 2008, Columbia Transmission concluded an open season to gauge customer interest in a new pipeline system to provide 500,000 Dth per day of firm service from storage facilities near Leidy, PA to a new interconnection with Millennium Pipeline in Steuben County, New York in 2010. NiSource is continuing to explore interest in this project and other demand for capacity in the region.

Centerville Expansion Project. An open season to solicit interest and receive bids for expanded capacity on Columbia Gulf’s system for delivery to Southern Natural Gas and the Louisiana intrastate pipeline market was held during the first quarter of 2008, and bids for 60,000 Dth per day of capacity were submitted. The remaining 175,000 Dth per day of capacity is expected to be sold under firm contracts prior to the facilities being placed into service. The project is expected to be placed into service in late 2010.

MarkWest Energy Partners, LP Joint Venture Project. In August 2008, Columbia Transmission and MarkWest Energy Partners, LP, announced their intention to jointly develop several natural gas gathering and processing projects to support increased natural gas production in the Appalachian Basin. The two companies are in discussions with several natural gas producers to provide new gathering and gas processing services in association with Columbia Transmission’s existing Majorsville, WV, compressor station, located in the northern panhandle area of West Virginia and Western Pennsylvania.

Columbia Penn Project. In September 2008, Columbia Transmission announced its intention to develop additional natural gas transmission, gathering and processing services along and around its existing pipeline corridor between Waynesburg, PA, and Corning, NY, referred to as the “Columbia Penn” corridor. This two-phased development will accelerate access to pipeline capacity in conjunction with production increases in the Marcellus Shale formation which underlies Columbia Transmission’s transmission and storage network in the region. Phase I is anticipated to give customers access to capacity in early 2009, while Phase II would be available by the end of 2009.

Financial Management of the Balance Sheet

Despite recent turmoil in business and financial markets, enhancing shareholder value through disciplined, investment-driven earnings growth continues to be the foundation of NiSource’s balanced business plan. NiSource is committed to maintaining its strong liquidity position. NiSource recently supplemented its $1.5 billion revolving credit facility which extends through July 2011, with a new $500 million temporary credit facility which expires in March 2009. This agreement helps ensure ample liquidity to accommodate the company’s seasonable cash flow requirements, such as the purchase of natural gas supplies to meet customer needs.

NiSource will continue to closely monitor events in the credit markets, as well as overall economic conditions in the nation and the markets we serve. Maintaining financial flexibility as we work through this challenging period will remain a key priority for the company’s management and its board of directors.

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NiSource’s interest expense decreased $19.2 million for the first nine months of 2008 compared to the first nine months of last year. This decrease was due primarily to lower short-term interest rates and the retirement late in 2007 of high cost debt associated with the Whiting Clean Energy facility.

In the second quarter of 2008, NiSource issued long-term debt of $700 million to fund future capital expenditures. While the capital markets have recently been adversely impacted by a variety of negative economic events, NiSource believes these events will not impact its continued access to the traditional capital markets.

On August 25, 2008, Northern Indiana converted all of the Jasper County Pollution Control Bonds from a variable rate demand mode to a fixed rate mode, and reoffered the bonds to external investors. As a result of the fixed rate conversion and reoffering process, the weighted average interest rate is now fixed at 5.58%.

Process and Expense Management

IBM Agreement. In December 2007, NiSource and IBM finalized a restructuring of their business services agreement. Under the restructured agreement, IBM will primarily provide information technology services, with a number of other business service functions to be transitioned back to the NiSource organization. Through the third quarter of 2008, certain Meter to Cash, Human Resources, Sales Center, remaining Finance and Accounting (except for Accounts Payable) and Supply Chain Management support services transitioned back to the company. NiSource has made a decision to transition certain Accounts Payable functions to another Service Provider.

In January 2008, NiSource and IBM also agreed to move forward with the Indiana deployment of a Work Management System and its associated transformation initiatives. The Work Management System project will provide technologies that standardize, integrate and support transformation of processes and eliminate costly and inefficient manual work processes while meeting regulatory/compliance standards. Implementation planned for late 2008 has been delayed. The project team is currently working on adjusting the project roll out schedule into 2009.

Results of Operations
Quarter Ended September 30, 2008

Net Income

NiSource reported net income of $20.0 million, or $0.08 per basic share, for the three months ended September 30, 2008, compared to net income of $11.0 million, or $0.04 per basic share, for the third quarter 2007. Income from continuing operations was $32.6 million, or $0.12 per basic share, for the three months ended September 30, 2008, compared to $7.9 million, or $0.03 per basic share, for the third quarter 2007. Operating income was $107.9 million, a decrease of $1.6 million from the same period in 2007. All per share amounts are basic earnings per share. Basic average shares of common stock outstanding at September 30, 2008 were 274.0 million compared to 273.9 million at September 30, 2007.

Net Revenues

Total consolidated net revenues (gross revenues less cost of sales) for the three months ended September 30, 2008, were $616.4 million, a $4.6 million increase from the same period last year. This increase in net revenues was attributable to higher net revenues from Electric Operations, Gas Transmission and Storage Operations and Other Operations of $2.8 million, $1.8 million and $1.2 million, respectively. Net revenues from Electric Operations increased primarily due to the impact of a $33.5 million settlement in third quarter of 2007 related to the cost of power purchased by Northern Indiana in 2006 and 2007, incremental revenues of $3.8 million from the new Sugar Creek plant and $2.6 million in increased industrial net revenues. These increases in net revenues were partially offset by lower wholesale sales of $13.9 million, lower residential and commercial sales volumes and margins of $8.9 million, the impact of cooler weather of approximately $7 million and $4.3 million of non-recoverable purchased power. The non-recoverable purchased power costs are due to the settlement reached in 2007 by Northern Indiana with regulatory stakeholders and large customers as noted previously. The increase in Gas Transmission and Storage net revenues was due to increased subscriptions for firm transportation services of $7.2 million related to new interconnects along the Columbia Gulf pipeline system, deliveries from the Hardy Storage field and incremental demand revenues on the Columbia Transmission system partially offset by $3.0 million of

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lower shorter-term transportation and storage services. Increased net revenues from Other Operations resulted from higher commercial and industrial gas marketing revenues. These increases in net revenues from Electric, Gas Transmission and Storage and Other Operations were partially offset by slightly lower net revenues from Gas Distribution Operations of $2.7 million due primarily to decreased revenues of $4.4 million from the implementation of the Columbia of Ohio Stipulation entered into with the Ohio Consumers’ Counsel and PUCO at the end of 2007, partially offset by increases from regulatory trackers of $3.1 million, and increases in rate proceedings.

Operating Expenses

Operating expenses for the third quarter 2008 were $511.9 million, an increase of $7.0 million from the 2007 period. This increase was primarily due to higher electric generation and maintenance expenses of $5.0 million, which include incremental costs associated with the Sugar Creek facility, a $3.6 million increase in depreciation, higher uncollectible accounts of $2.8 million and higher property and other taxes of $3.0 million. These increases in expense were partially offset by lower NiSource Insurance Corporation costs of $5.4 million. Higher employee and administrative costs for the quarter were mostly offset by an adjustment decreasing employee benefits expense. Third quarter results include a $19.6 million adjustment decreasing medical expenses due to a misclassification of certain claims in prior periods. This adjustment had no impact on actual medical claims paid or coverage to active or retiree benefit participants.

Other Income (Deductions)

Interest expense, net was $100.2 million for the quarter, a decrease of $0.9 million compared to the third quarter of 2007. This decrease was due primarily to lower short-term interest rates and the retirement late in 2007 of high cost debt associated with the Whiting Clean Energy facility. Other, net was income of $20.8 million for the current quarter compared to income of $1.2 million for the comparable 2007 period due to the sale of an investment and lower costs associated with the sale of accounts receivable. On August 27, 2008, NiSource Development Company sold its interest in JOF Transportation Company to Lehigh Service Corporation for a pre-tax gain of $16.7 million. JOF Transportation Company held 40% interest in Chicago South Shore & South Bend Railroad Co. and a 40% interest in Indiana Illinois Development Company, LLC.

Income Taxes

NiSource recognized an income tax benefit for the third quarter of 2008 of $4.1 million due to recent legislation in Massachusetts (described below) compared to income tax expense of $1.7 million in the third quarter of 2007. This tax benefit was partially offset by income taxes recorded on higher pretax income in the third quarter of 2008 versus the third quarter of 2007. In addition, a $1.6 million reduction in tax expense was recorded in the third quarter of 2007 for 2006 tax provision to return adjustments.

On July 3, 2008, the Governor of Massachusetts signed into law a bill that overhauls the Massachusetts corporate income tax regime. Under the new law, which becomes effective for tax years beginning on or after January 1, 2009, NiSource will calculate its Massachusetts income tax liability on a unitary basis, meaning that the income tax obligation to the Commonwealth of Massachusetts is determined based on an apportioned share of all of NiSource’s income, rather than just the income of NiSource’s subsidiaries doing business in Massachusetts. Because of NiSource’s substantial operations outside of Massachusetts, the new law has the impact of reducing the deferred income tax liability to Massachusetts. Under SFAS 109, NiSource must recognize the impact of this tax law change in the quarter it is enacted. As a result, income tax expense and the deferred income tax liability have been reduced by $13.5 million in the third quarter of 2008.

Discontinued Operations

For the three months ended September 30, 2008, NiSource recognized a $12.6 million loss from discontinued operations compared to a gain from discontinued operations of $3.1 million in the comparable 2007 period. NiSource recorded $6.1 million for the after-tax loss from discontinued operations associated with CER for interest cost related to the Tawney proceedings. In the first quarter of 2008, NiSource began accounting for the operations of Northern Utilities, Granite State Gas and Whiting Clean Energy as discontinued operations. As such, a net loss of $1.4 million was classified as net income (loss) from discontinued operations for the three months ended September 30, 2008, and net income of $1.8 million was reclassified for the three months ended September 30, 2007. In the third quarter of 2008, NiSource recorded an estimated after-tax loss adjustment of $5.1 million for the disposition of Northern Utilities, Granite State Gas and Whiting Clean Energy. In the third quarter of 2008, NiSource began accounting for the operations of NiSource Retail Services as discontinued operations. As such, income from continuing operations of $0.1 million was classified as net income (loss) from discontinued operations for the three months ended September 30, 2008, and net income of $0.1 million was reclassified for the three months ended September 30, 2007.

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Results of Operations
Nine Months Ended September 30, 2008

Net Income

NiSource reported a net loss of $83.0 million, or $0.30 loss per basic share, for the nine months ended September 30, 2008, compared to net income of $254.4 million, or $0.93 per basic share, for the first nine months of 2007. Income from continuing operations was $242.8 million, or $0.89 per basic share, for the nine months ended September 30, 2008, compared to $243.4 million, or $0.89 per basic share, for the comparable 2007 period. Operating income was $619.0 million, a decrease of $65.0 million from the same period in 2007. All per share amounts are basic earnings per share. Basic average shares of common stock outstanding at September 30, 2008 were 274.0 million compared to 273.8 million at September 30, 2007.

Net Revenues

Total consolidated net revenues (gross revenues less cost of sales) for the nine months ended September 30, 2008, were $2,326.5 million, a $5.1 million decrease from the same period last year. Lower Electric Operations net revenues of $15.5 million and a slight decrease of $2.2 million in Gas Distribution net revenues were partially offset by higher Gas Transmission and Storage net revenues of $10.2 million. The decrease in Electric Operations net revenues was primarily due to lower residential and commercial sales volumes and margins of $22.0 million, lower wholesale transactions of $12.8 million, $10.8 million of non-recoverable purchased power, the impact of cooler weather of approximately $10 million and $9.6 million of higher non-recoverable MISO charges. These decreases in Electric Operations net revenues were partially offset by the impact of a $33.5 million settlement in third quarter of 2007 related to the cost of power purchased by Northern Indiana in 2006 and 2007, $10.9 million in increased industrial net revenues and incremental revenues of $5.1 million from the new Sugar Creek plant. Gas Distribution net revenues decreased $2.2 million due primarily to warmer weather of approximately $14 million, reduced revenues of $7.7 million from the implementation of the Columbia of Ohio Stipulation entered into with the Ohio Consumers’ Counsel and PUCO at the end of 2007 and decreased industrial and commercial margins of $5.7 million, partially offset by increased residential usage of $7.9 million, increased net revenues of $8.6 million from rate proceedings and an increase in the gas cost adjustment. Gas Transmission and Storage Operations’ increase in net revenues was primarily due to higher subscriptions for firm transportation services of $18.5 million related to new interconnects along the Columbia Gulf pipeline system, deliveries from the Hardy Storage field and incremental demand revenues on the Columbia Transmission system partially offset by lower shorter-term transportation and storage services and commodity related charge revenues of $6.7 million.

Operating Expenses

Operating expenses for the first nine months of 2008 were $1,714.5 million, an increase of $59.1 million from the comparable 2007 period. This increase was primarily due to higher employee and administrative expenses of $29.6 million, a $19.1 million increase in depreciation which includes an $8.3 million depreciation expense adjustment recorded by Northern Indiana during the second quarter of 2008, higher electric generation and maintenance expenses of $11.8 million and higher property and other taxes of $5.8 million. These increases in expense were partially offset by a $6.6 million impairment charge recognized in the comparable 2007 period related to base gas at a storage field, lower NiSource Insurance Corporation costs of $5.4 million and a $2.9 million gain recognized on the sale of certain Columbia Gulf offshore assets. Employee and administrative costs were partially offset by an adjustment decreasing employee benefits expense. The year-to-date results include a $12.7 million adjustment decreasing medical expenses due to a misclassification in 2007 of certain claims. This adjustment had no impact on actual medical claims paid or coverage to active or retiree benefit participants. The higher generation and maintenance expenses were primarily attributable to a planned turbine and boiler maintenance and a generator overhaul, as well as $2.3 million in incremental costs associated with the Sugar Creek facility.

Other Income (Deductions)

Interest expense, net was $279.4 million for the first nine months of 2008 compared to $298.6 million for the first nine months of last year. This decrease of $19.2 million was mainly due to lower short-term interest rates and credit facility fees, and the retirement late in 2007 of high cost debt associated with the Whiting Clean Energy facility. Other, net was income of $20.6 million for the first nine months of 2008 compared to a loss of $1.8 million for the comparable 2007 period due to the sale of an investment and lower costs associated with the sale of accounts receivable. On August 27, 2008, NiSource Development Company sold its interest in JOF Transportation Company

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to Lehigh Service Corporation for a pre-tax gain of $16.7 million. JOF Transportation Company held 40% interest in Chicago South Shore & South Bend Railroad Co. and a 40% interest in Indiana Illinois Development Company, LLC.

Income Taxes

Income taxes for the first nine months of 2008 were $117.4 million, a decrease of $22.8 million compared to the first nine months of 2007 due primarily to recent legislation in Massachusetts that reduced income tax expense by $13.5 million in the third quarter of 2008 (discussed above) and lower pretax income. The effective tax rate for the first nine months of 2008 was 32.6% compared to 36.6% for the comparable period last year due to the impact of the recent legislation in Massachusetts. Absent the adjustment for Massachusetts deferred income taxes discussed above, the effective tax rates for the nine months ended September 30, 2008 and September 30, 2007 are comparable.

Discontinued Operations

For the nine months ended September 30, 2008, NiSource recognized a $325.8 million loss from discontinued operations compared to income from discontinued operations of $11.0 million in the comparable 2007 period. This loss is primarily attributable to an adjustment to the reserve for the Tawney litigation discussed previously. In addition, in the first quarter of 2008, NiSource began accounting for the operations of Northern Utilities, Granite State Gas and Whiting Clean Energy as discontinued operations. As such, net income of $3.2 million was classified as net income (loss) from discontinued operations for the nine months ended September 30, 2008, and net income of $3.7 million was reclassified for the nine months ended September 30, 2007. For the nine months ended September 30, 2008, NiSource recorded an estimated after-tax loss of $103.9 million for the dispositions of Northern Utilities, Granite State Gas and Whiting Clean Energy. In the third quarter of 2008, NiSource began accounting for the operations of NiSource Retail Services as discontinued operations. As such, net income from continuing operations of $0.4 million was classified as net income (loss) from discontinued operations for the nine months ended September 30, 2008, and no amount was reclassified for the nine months ended September 30, 2007.

Liquidity and Capital Resources

A significant portion of NiSource’s operations, most notably in the gas distribution, gas transportation and electric businesses, is subject to seasonal fluctuations in cash flow. During the heating season, which is primarily from November through March, cash receipts from gas sales and transportation services typically exceed cash requirements. During the summer months, cash on hand, together with the seasonal increase in cash flows from the electric business during the summer cooling season and external short-term and long-term financing, is used to purchase gas to place in storage for heating season deliveries, perform necessary maintenance of facilities, make capital improvements in plant and expand service into new areas.

On September 23, 2008, NiSource supplemented its $1.5 billion revolving credit facility (which extends into 2011) with a new $500 million credit agreement. This agreement is designed to provide ample liquidity to fund ongoing operations and accommodate the company’s seasonal cash flow requirements, such as the purchase of natural gas supplies to meet customer needs, as well as to provide for short-term payment requirements related to the Tawney settlement.

Operating Activities

Net cash flows from operating activities for the nine months ended September 30, 2008 were $250.3 million, a decrease of $148.6 million from the first nine months of 2007. A $116.4 million increase in deferred taxes was more than offset by net changes in assets and liabilities. The weather and gas prices significantly impacted working capital. Higher gas prices in 2008 increased the cash requirements for inventories and unrecovered gas cost. Periodic rate filings will generally allow for recovery of higher gas prices in future periods. In addition, increases in regulatory assets, including a bad debt tracker, Percentage of Income Payment Plan, and the pass back to customers per the Columbia of Ohio stipulation settlement, generated a use of working capital.

Pension and Other Postretirement Plan Funding. Consistent with the overall stock market decline, NiSource’s pension assets have incurred a negative return on assets of approximately 17% for 2008 through September 30, 2008. As a result, NiSource expects that cash contributions for pension benefit plans and pension expense will likely be higher in 2009 and future periods. NiSource expects to make contributions of $6.1 million to its pension plans and $38.3 million to its other postretirement benefit plans during 2008, which could change depending on

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market conditions. Through September 30, 2008, NiSource has contributed $4.8 million to its pension plans and $27.1 million to its other postretirement benefit plans.

Investing Activities

Cash capital expenditures of $679.4 million during the first nine months of 2008 were $173.8 million higher than the comparable 2007 period. The spending for the first nine months primarily reflected on-going system improvements and upgrades to maintain service and reliability. Capital spending will be higher in 2008 compared to last year, mainly for increased integrity-management expenditures and growth projects in the Gas Transmission and Storage Operations segment, expenditures to replace key generation unit components within the Electric Operations segment, and bare steel replacement programs in the Gas Distribution Operations segment.

Due to recent developments in the broader economy, management is considering reducing capital expenditures below $1 billion annually for 2009 and 2010. Management will continue to evaluate economic conditions as it sets capital budgets in the future.

On May 30, 2008, Northern Indiana purchased the Sugar Creek facility for $329.7 million.

Proceeds from disposition of assets primarily included the Whiting Clean Energy sale proceeds of $217.2 million.

Restricted cash activity consisted of an increase of $186.1 million in restricted cash balances compared to a decrease of $44.6 million of restricted cash balances for the first nine months of 2008 and 2007, respectively. This increase in restricted cash balances is due to the volatility in forward gas contracts, which resulted in increased margin deposits on open derivative contracts at September 30, 2008.

Financing Activities

Long-Term Debt. During July 2008, Northern Indiana redeemed $24.0 million of its medium-term notes, with an average interest rate of 6.80%.

On May 15, 2008, NiSource Finance issued $500.0 million of 6.80% unsecured notes that mature January 15, 2019 and $200.0 million of 6.15% unsecured notes that mature on March 1, 2013. The notes due in 2013 constitute a further issuance of the $345.0 million 6.15% notes issued February 19, 2003, and will form a single series having an aggregate principal amount outstanding of $545.0 million.

On August 31, 2007, NiSource Finance issued $800 million of 6.40% 10.5-year unsecured notes that mature March 15, 2018.

Jasper County Pollution Control Bonds. Northern Indiana has seven series of Jasper County Pollution Control Bonds with a total principal value of $254 million currently outstanding. Prior to March 25, 2008, each of the series bore interest at rates established through auctions that took place at either 7, 28, or 35 day intervals. Between February 13, 2008 and March 5, 2008, Northern Indiana received notice that six separate market auctions of four series of the Jasper County Pollution Control Bonds had failed. As a result, those series representing an aggregate principal amount of $112 million of the Jasper County Pollution Control Bonds bore interest at default rates equal to 15% or 18% per annum. Subsequent auctions were successful, but resulted in interest rates between 5.13% and 11.0%, which were in excess of historical market rates. These auction failures were attributable to the resulting lack of liquidity in the auction rate securities market, largely driven by the turmoil in the bond insurance market. The Jasper County Pollution Control Bonds are insured by either Ambac Assurance Corporation or MBIA Insurance Corporation.

Northern Indiana converted all seven series of Jasper County Pollution Control Bonds from the auction rate mode to a variable rate demand bond mode between March 25, 2008 and April 11, 2008 and repurchased the bonds as part of the conversion process. Between April 11, 2008 and August 24, 2008, all of the Jasper County Pollution Control Bonds were held in Northern Indiana’s treasury. On August 25, 2008, Northern Indiana converted all of the Jasper County Pollution Control Bonds from a variable rate demand mode to a fixed rate mode, and reoffered the bonds to

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external investors. As a result of the fixed rate conversion and reoffering process, the weighted average interest rate is now fixed at 5.58%.

Northern Indiana reflected the Jasper County Pollution Control Bonds as an offset to long-term debt within the Condensed Consolidated Balance Sheet (unaudited) as of March 31 and June 30, 2008 upon repurchase and the debt was considered extinguished per SFAS No. 140. As such, unamortized debt expense of $4.6 million previously recorded under deferred charges and other was reclassified to a regulatory asset. The Condensed Consolidated Balance Sheet (unaudited) as of September 30, 2008 reflects the reissuance of the long term debt. The repurchase and the subsequent re-issuance of these bonds are included under, “Financing Activities,” in the Condensed Statement of Consolidated Cash Flow (unaudited).

Credit Facilities. During September 2008, NiSource Finance entered into a new $500 million six-month revolving credit agreement with a syndicate of banks led by Barclays Capital that expires March 23, 2009. During July 2006, NiSource Finance amended its $1.25 billion five-year revolving credit facility increasing the aggregate commitment level to $1.5 billion, extending the termination date by one year to July 7, 2011, and reduced the cost of borrowing. These facilities are designed to provide a reasonable cushion of short-term liquidity for general corporate purposes and in anticipation of continuing volatile natural gas prices, as well as to provide for short-term payment requirements related to the Tawney settlement.

NiSource Finance had outstanding credit facility borrowings of $1,263.0 million at September 30, 2008, at a weighted average interest rate of 3.99%, and borrowings of $1,061.0 million at December 31, 2007, at a weighted average interest rate of 5.43%.

As of September 30, 2008 and December 31, 2007, NiSource Finance had $90.1 million and $110.4 million of stand-by letters of credit outstanding, respectively. At September 30, 2008, $3.7 million of the $90.1 million total outstanding letters of credit resided within a separate bi-lateral letter of credit arrangement with Barclays Bank that NiSource Finance obtained during February 2004. Of the remaining $86.4 million of stand-by letters of credit outstanding at September 30, 2008, $83.5 million resided under NiSource Finance’s five-year credit facility and $2.9 million resided under an uncommitted arrangement with another financial institution.

As of September 30, 2008, an aggregate of $653.5 million of credit was available under both credit facilities.

Sale of Trade Accounts Receivables. On May 14, 2004, Columbia of Ohio entered into an agreement to sell, without recourse, substantially all of its trade receivables, as they originate, to CORC, a wholly-owned subsidiary of Columbia of Ohio. CORC, in turn, is party to an agreement with Dresdner Bank AG, also dated May 14, 2004, under the terms of which it sells an undivided percentage ownership interest in the accounts receivable to a commercial paper conduit. On July 1, 2006, the agreement was amended to increase the program limit from $300 million to $350 million. The agreement currently expires on June 26, 2009. As of September 30, 2008, $83.7 million of accounts receivable had been sold by CORC.

Under the agreement, Columbia of Ohio acts as administrative agent, by performing record keeping and cash collection functions for the accounts receivable sold by CORC. Columbia of Ohio receives a fee, which provides adequate compensation, for such services.

On December 30, 2003, Northern Indiana entered into an agreement to sell, without recourse, all of its trade receivables, as they originate, to NRC, a wholly-owned subsidiary of Northern Indiana. NRC, in turn, is party to an agreement with Citibank, N.A. under the terms of which it sells an undivided percentage ownership interest in the accounts receivable to a commercial paper conduit. The conduit can purchase up to $200 million of accounts receivable under the agreement. NRC’s agreement with the commercial paper conduit has a scheduled expiration date of December 19, 2008, and can be renewed if mutually agreed to by both parties. As of September 30, 2008, NRC had sold $139.2 million of accounts receivable. Under the arrangement, Northern Indiana may not sell any new receivables if Northern Indiana’s debt rating falls below BBB- or Baa3 at Standard and Poor’s or Moody’s, respectively.

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Under the agreement, Northern Indiana acts as administrative agent, performing record keeping and cash collection functions for the accounts receivable sold. Northern Indiana receives a fee, which provides adequate compensation, for such services.

Contractual Obligations. As of September 30, 2008, NiSource has $4.1 million of estimated federal and state income tax liabilities, including interest, recorded on its books in accordance with FIN 48. If or when such amounts may be settled is uncertain and cannot be estimated at this time. NiSource does not anticipate any significant changes to its liability for unrecognized tax benefits over the next twelve months.

Market Risk Disclosures

Risk is an inherent part of NiSource’s energy businesses. The extent to which NiSource properly and effectively identifies, assesses, monitors and manages each of the various types of risk involved in its businesses is critical to its profitability. NiSource seeks to identify, assess, monitor and manage, in accordance with defined policies and procedures, the following principal risks that are involved in NiSource’s energy businesses: commodity market risk, interest rate risk and credit risk. Risk management at NiSource is a multi-faceted process with oversight by the Risk Management Committee that requires constant communication, judgment and knowledge of specialized products and markets. NiSource’s senior management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in the identification, assessment and control of various risks. In recognition of the increasingly varied and complex nature of the energy business, NiSource’s risk management policies and procedures continue to evolve and are subject to ongoing review and modification.

Various analytical techniques are employed to measure and monitor NiSource’s market and credit risks, including VaR. VaR represents the potential loss or gain for an instrument or portfolio from changes in market factors, for a specified time period and at a specified confidence level.

Commodity Price Risk

NiSource is exposed to commodity price risk as a result of its subsidiaries’ operations involving natural gas and power. To manage this market risk, NiSource’s subsidiaries use derivatives, including commodity futures contracts, swaps and options. NiSource is not involved in speculative energy trading activity.

Commodity price risk resulting from derivative activities at NiSource’s rate-regulated subsidiaries is limited, since regulations allow recovery of prudently incurred purchased power, fuel and gas costs through the rate-making process, including gains or losses on these derivative instruments. If states should explore additional regulatory reform, these subsidiaries may begin providing services without the benefit of the traditional rate-making process and may be more exposed to commodity price risk. Some of NiSource’s rate-regulated utility subsidiaries offer commodity price risk products to its customers for which derivatives are used to hedge forecasted customer usage under such products. These subsidiaries do not have regulatory recovery orders for these products and are subject to gains and losses recognized in earnings due to hedge ineffectiveness.

Interest Rate Risk

NiSource is exposed to interest rate risk as a result of changes in interest rates on borrowings under revolving credit agreements and floating rate notes, which have interest rates that are indexed to short-term market interest rates. NiSource is also exposed to interest rate risk due to changes in interest rates on fixed-to-variable interest rate swaps that hedge the fair value of long-term debt. Based upon average borrowings and debt obligations subject to fluctuations in short-term market interest rates, an increase (or decrease) in short-term interest rates of 100 basis points (1%) would have increased (or decreased) interest expense by $6.2 million and $17.8 million for the quarter and nine months ended September 30, 2008, respectively.

Credit Risk

Due to the nature of the industry, credit risk is a factor in many of NiSource’s business activities. NiSource’s extension of credit is governed by a Corporate Credit Risk Policy. Written guidelines approved by NiSource’s Risk Management Committee document the management approval levels for credit limits, evaluation of creditworthiness,

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and credit risk mitigation procedures. Exposures to credit risks are monitored by the Corporate Credit Risk function which is independent of commercial operations. Credit risk arises due to the possibility that a customer, supplier or counterparty will not be able or willing to fulfill its obligations on a transaction on or before the settlement date. For derivative contracts such as interest rate swaps, credit risk arises when counterparties are obligated to pay NiSource the positive fair value or receivable resulting from the execution of contract terms. Exposure to credit risk is measured in terms of both current obligations and the market value of forward positions. Current credit exposure is generally measured by the notional or principal value of obligations and direct credit substitutes, such as commitments, stand-by letters of credit and guarantees. In determining exposure, NiSource considers collateral that it holds to reduce individual counterparty credit risk.

As a result of the ongoing credit crisis in the financial markets, NiSource has been closely monitoring the financial status of its banking credit providers and interest rate swap counterparties. NiSource continues to evaluate the financial status of its banking partners through the use of market-based metrics such as credit default swap pricing levels, and also through traditional credit ratings provided by the major credit rating agencies. On October 14, 2008, the U.S. Treasury Department announced plans to inject as much as $250 billion into U.S. banks and savings and loan institutions, (the TARP Capital Purchase Program), in an attempt to improve the financial position of U.S. banks. In addition, the Federal Reserve is evaluating the acquisition of several financial institutions by larger banks having stronger financial positions. As a result of these two recent initiatives, NiSource believes the financial status of its banking partners is generally strong, and will continue to improve as a result of these federal government actions.

Prior to the U.S. Treasury’s announcement of the TARP Capital Purchase Program and the announcement of certain bank acquisitions as described above, the parent company of one of NiSource’s interest rate swap counterparties, Lehman Brothers Holdings Inc., filed for Chapter 11 bankruptcy protection, impacting the status of an outstanding swap in the notional amount of $110 million. As a result, on September 15, 2008, NiSource Finance terminated a fixed-to-variable interest rate swap agreement with Lehman Brothers. NiSource Finance elected to terminate the swap when Lehman Holdings Inc., guarantor under the applicable International Swaps and Derivatives Association agreement, filed for Chapter 11 bankruptcy protection on September 14, 2008, which constituted an event of default under the swap agreement between NiSource Finance and Lehman Brothers Special Financing Inc. The mark-to-market close-out value of this swap at the September 15, 2008 termination date was determined to be $4.8 million. NiSource Finance recognized a $4.8 million reserve, which increases interest expense, for the Lehman swap and an additional $0.7 million reserve to recognize potential additional swap counterparty credit exposures.

NiSource also reviewed its exposure to all other counterparties including the other interest rate swap counterparties. Although NiSource concluded that there was no significant risk, an additional reserve of $0.7 million was recorded at September 30, 2008 to recognize credit risk related to one other counterparty. NiSource will continue to closely monitor events in the credit markets, as well as overall economic conditions in the nation and the markets we serve.

Fair Value Measurement

NiSource measures fair value in accordance with SFAS No. 157 for its financial assets and liabilities. The level of the fair value hierarchy disclosed is based on the lowest level of input that is significant to the fair value measurement. NiSource’s financial assets and liabilities include price risk assets and liabilities, available-for-sale securities and a deferred compensation plan obligation.

Exchange-traded derivative contracts are generally based on unadjusted quoted prices in active markets and are classified within Level 1. These financial assets and liabilities are secured with cash on deposit with the exchange; therefore nonperformance risk has not been incorporated into these valuations. Certain non-exchange-traded derivatives are valued using broker or over-the-counter, on-line exchanges. In such cases, these non-exchange-traded derivatives are classified within Level 2. Non-exchange-based derivative instruments include swaps, forwards, and options. In certain instances, these instruments may utilize models to measure fair value. The company uses a similar model to value similar instruments. Valuation models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability, and market-corroborated inputs, i.e., inputs derived principally from or corroborated by observable market data by correlation or other means. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is

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categorized in Level 2. Certain derivatives trade in less active markets with a lower availability of pricing information and models may be utilized in the valuation. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3. Credit risk is considered in the fair value calculation of derivative instruments that are not exchange-traded. Credit exposures are adjusted to reflect collateral agreements which reduce exposures.

Price risk management assets also include fixed-to-floating interest-rate swaps, which are designated as fair value hedges, as a means to achieve its targeted level of variable-rate debt as a percent of total debt. NiSource uses a calculation of future cash inflows and estimated future outflows related to the swap agreements, which are discounted and netted to determine the current fair value. Additional inputs to the present value calculation include the contract terms, as well as market parameters such as current and projected interest rates and volatility. As they are based on observable data and valuations of similar instruments, the interest-rate swaps are categorized in Level 2 in the fair value hierarchy. Credit risk is considered in the fair value calculation of the interest rate swap. Credit exposures are adjusted to reflect collateral agreements which reduce exposures.

Available-for-sale securities include assets in NiSource’s deferred compensation trust and investments pledged as collateral for trust accounts related to NiSource’s wholly-owned insurance company. Securities classified within Level 1 include U.S. Treasury debt securities which are highly liquid and are actively traded in over-the-counter markets. NiSource values corporate and mortgage-backed debt securities using a matrix pricing model that incorporates market-based information. These securities trade less frequently, take into consideration default risk, and are generally classified within Level 2.

NiSource’s deferred compensation plan allows participants to defer certain cash compensation into a notional investment account. The value of the deferred compensation obligation is based on the market value of the participants’ notional investment accounts. The notional investments include balances which are credited based upon published interest and bond yield indices and investments in mutual funds. NiSource uses the lowest level of input significant to the valuation to determine the fair value hierarchy classification, and therefore the liability is categorized in Level 2.

Refer to Note 11, “Fair Value of Financial Assets,” in the Notes to the Condensed Consolidated Financial Statements for additional information on NiSource’s fair value measurements.

Market Risk Measurement

Market risk refers to the risk that a change in the level of one or more market prices, rates, indices, volatilities, correlations or other market factors, such as liquidity, will result in losses for a specified position or portfolio. NiSource calculates a one-day VaR at a 95% confidence level for the gas marketing group that utilize a variance/covariance methodology. The daily market exposure for the gas marketing portfolio on an average, high and low basis was $0.2 million, $0.3 million and $0.1 million during the third quarter of 2008, respectively. Prospectively, management has set the VaR limit at $0.8 million for gas marketing. Exceeding this limit would result in management actions to reduce portfolio risk. Power and gas derivative contracts entered into to manage price risk associated with Whiting Clean Energy were limited to quantities surrounding the physical generation capacity of Whiting Clean Energy and the gas requirements to operate the facility.

Refer to Note 9, “Risk Management and Energy Marketing Activities,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for further discussion of NiSource’s risk management.

Off Balance Sheet Arrangements

As a part of normal business, NiSource and certain subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. Such agreements include guarantees and stand-by letters of credit.

NiSource has issued guarantees that support up to approximately $512.7 million of commodity-related payments for its current subsidiaries involved in energy marketing to satisfy requirements under forward gas sales. These

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guarantees were provided to counterparties in order to facilitate physical and financial transactions involving natural gas and electricity. To the extent liabilities exist under the commodity-related contracts subject to these guarantees, such liabilities are included in the Condensed Consolidated Balance Sheets (unaudited).

NiSource has purchase and sales agreement guarantees totaling $297.5 million, which guarantee performance of the seller’s covenants, agreements, obligations, liabilities, representations and warranties under the agreements. No amounts related to the purchase and sales agreement guarantees are reflected in the Condensed Consolidated Balance Sheets (unaudited). Management believes that the likelihood NiSource would be required to perform or otherwise incur any significant losses associated with any of the aforementioned guarantees is remote.

NiSource has other guarantees outstanding. Refer to Note 17-A, “Guarantees and Indemnities,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information about NiSource’s off balance sheet arrangements.

Other Information

Critical Accounting Policies

Goodwill Assets. NiSource’s goodwill assets at September 30, 2008 were $3,677.3 million pertaining primarily to the acquisition of Columbia on November 1, 2000. The goodwill balances at September 30, 2008 for Northern Indiana Fuel and Light and Kokomo Gas were $13.3 million and $5.5 million, respectively.

In the quarters ended June 30, 2008 and June 30, 2007, NiSource performed its annual impairment test of goodwill associated with the purchases of Columbia, Northern Indiana Fuel and Light and Kokomo Gas. For the purpose of testing impairment of the goodwill recorded in the acquisition of Columbia, the related subsidiaries were aggregated into two distinct reporting units, one within the Gas Distribution Operations segment and one within the Gas Transmission and Storage Operations segment. The results of the June 30 impairment tests indicated that no impairment charge was required, as the fair values of the reporting units exceeded the carrying values. NiSource uses the discounted cash flow method to estimate the fair value of its reporting units for the purposes of this test. This valuation methodology and underlying financial information that are used to determine fair value require significant judgments to be made by management. These judgments include, but are not limited to, long term projections of future financial performance and the selection of appropriate discount rates used to determine the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could produce significantly different results.

As of September 30, 2008, NiSource’s market capitalization was approximately $4.0 billion, while NiSource’s net assets, inclusive of goodwill, were $4.7 billion. NiSource’s market capitalization at June 30, 2008 of approximately $4.9 billion was above NiSource’s net asset value when the annual impairment test was performed. In accordance with paragraph 28 of SFAS No. 142, NiSource considered whether there were any events or changes in circumstances during the third quarter that would more likely than not reduce the fair value of any of the reporting units below their carrying amounts and necessitate another goodwill impairment test and concluded that there were none. NiSource attributes the decline in its market capitalization primarily to the overall stock market decline resulting from the credit crisis taking place in the United States, and not any fundamental change in NiSource’s regulated gas distribution and gas transmission and storage businesses that comprise the reporting units for which goodwill is attributable. NiSource’s stock price decline of 21.9% from December 31, 2007 compares to the overall declines of the S&P Utilities Average and Dow Jones Industrial Average, of 22.3% and 18.2% respectively, over the same nine-month time period. NiSource considers the decline in its stock price, and the underlying reasons for that decline, to be short-term and not indicative of an actual decline in the company’s fair value.

NiSource’s reportable entities with goodwill consist of regulated companies. Regulated recovery rates and approved rate of returns allow for more predictable and steady streams of revenues and cash flows which helps mitigate the impacts that might otherwise be felt from the recessionary trends seen in other industries and also adds more reliability to the cash flow forecasts used to calculate fair value. NiSource reviewed its estimates and assumptions used in the discounted cash flow model at June 30, 2008, noting that there are no significant changes that would be

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made in light of the changing economic circumstances during the third quarter. It should also be noted that NiSource’s ability to obtain credit remains strong as evidenced by a new short-term credit facility of $500 million that was obtained on September 23, 2008 and Northern Indiana’s re-issuance of the Jasper County Pollution Control Bonds for $254 million on August 25, 2008 with a weighted average interest rate now fixed at 5.58%.

Recently Adopted Accounting Pronouncements

SFAS No. 157 – Fair Value Measurements. In September 2006, the FASB issued SFAS No. 157 to define fair value, establish a framework for measuring fair value and to expand disclosures about fair value measurements. SFAS No. 157 does not change the requirements to apply fair value in existing accounting standards.

Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. The standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability.

To increase consistency and comparability in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy disclosed is based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy defined by SFAS No. 157 are as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical asset or liabilities that the company has the ability to access as of the reporting date.

• Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data.

• Level 3 inputs are unobservable inputs, such as internally developed pricing models for the asset or liability due to little or no market activity for the asset or liability.

SFAS No. 157 became effective for NiSource as of January 1, 2008. The provisions of SFAS No. 157 are to be applied prospectively, except for the initial impact on the following three items, which are required to be recorded as an adjustment to the opening balance of retained earnings in the year of adoption: (1) changes in fair value measurements of existing derivative financial instruments measured initially using the transaction price under EITF Issue No. 02-3, (2) existing hybrid financial instruments measured initially at fair value using the transaction price and (3) blockage factor discounts. The adoption of SFAS No. 157 did not have an impact on NiSource’s January 1, 2008 balance of retained earnings and is not anticipated to have a material impact prospectively.

In February 2008, the FASB issued FSP FAS 157-2, which delays the effective date of SFAS No. 157 for all nonrecurring fair value measurements of non-financial assets and liabilities until fiscal years beginning after November 15, 2008. NiSource has elected to defer the adoption of the nonrecurring fair value measurement disclosures of non-financial assets and liabilities.

In October 2008, the FASB issued FSP FAS 157-3, which clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP was effective upon issuance, including prior periods for which financial statements have not been issued.

See Note 11, “Fair Value of Financial Assets and Liabilities,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding the adoption of SFAS No. 157.

SFAS No. 158 – Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. In September 2006, the FASB issued SFAS No. 158 to improve existing reporting for defined benefit postretirement

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)

NiSource Inc.

plans by requiring employers to recognize in the statement of financial position the overfunded or underfunded status of a defined benefit postretirement plan, among other changes.

In the fourth quarter of 2006, NiSource adopted the provisions of SFAS No. 158. Based on the measurement of the various defined benefit pension and other postretirement plans’ assets and benefit obligations at September 30, 2006, the pretax impact of adopting SFAS No. 158 decreased intangible assets by $46.5 million, decreased deferred charges and other assets by $1.1 million, increased regulatory assets by $538.8 million, increased accumulated other comprehensive income by $239.8 million and increased accrued liabilities for postretirement and postemployment benefits by $251.4 million. In addition, NiSource recorded a reduction in deferred income taxes of approximately $96 million. With the adoption of SFAS No. 158 NiSource determined that for certain rate-regulated subsidiaries the future recovery of pension and other postretirement plans costs is probable in accordance with the requirements of SFAS No. 71. These rate-regulated subsidiaries recorded regulatory assets and liabilities that would otherwise have been recorded to accumulated other comprehensive income.

On January 1, 2007, NiSource adopted the SFAS No. 158 measurement date provisions requiring employers to measure plan assets and benefit obligations as of the fiscal year-end. The pre-tax impact of adopting the SFAS No. 158 measurement date provisions increased deferred charges and other assets by $9.4 million, decreased regulatory assets by $89.6 million, decreased retained earnings by $11.3 million, increased accumulated other comprehensive income by $5.3 million and decreased accrued liabilities for postretirement and postemployment benefits by $74.2 million. NiSource also recorded a reduction in deferred income taxes of approximately $2.6 million. In addition, 2007 expense for pension and postretirement benefits reflects the updated measurement date valuations. Refer to Note 14, “Pension and Other Postretirement Benefits,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information.

SFAS No. 159 – The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115. In February 2007, the FASB issued SFAS No. 159 which permits entities to choose to measure certain financial instruments at fair value that are not currently required to be measured at fair value. Upon adoption, a cumulative adjustment would be made to beginning retained earnings for the initial fair value option remeasurement. Subsequent unrealized gains and losses for fair value option items will be reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and should not be applied retrospectively, except as permitted for certain conditions for early adoption. NiSource has chosen not to elect to measure any applicable financial assets or liabilities at fair value pursuant to this standard when SFAS No. 159 was adopted on January 1, 2008.

FSP FIN 39-1 – FASB Staff Position Amendment of FASB Interpretation No. 39. In April 2007, the FASB posted FSP FIN 39-1 to amend paragraph 3 of FIN 39 to replace the terms conditional contracts and exchange contracts with the term derivative instruments as defined in SFAS No. 133. This FSP also amends paragraph 10 of FIN 39 to permit a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement. This FSP became effective for NiSource as of January 1, 2008. NiSource has not elected to net fair value amounts for its derivative instruments or the fair value amounts recognized for its right to receive cash collateral or obligation to pay cash collateral arising from those derivative instruments recognized at fair value, which are executed with the same counterparty under a master netting arrangement. This is consistent with NiSource’s current accounting policy prior to the adoption of this amended standard. NiSource discloses amounts recognized for the right to reclaim cash collateral within “Restricted cash” and amounts recognized for the right to return cash collateral within current liabilities on the Consolidated Balance Sheets.

FIN 48 – Accounting for Uncertainty in Income Taxes. In June 2006, the FASB issued FIN 48 to reduce the diversity in practice associated with certain aspects of the recognition and measurement requirements related to accounting for income taxes. Specifically, this interpretation requires that a tax position meet a “more-likely-than-not recognition threshold” for the benefit of an uncertain tax position to be recognized in the financial statements and requires that benefit to be measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The determination of whether a tax position meets the more-likely-than-not recognition threshold is based on whether it is probable of being sustained on audit by the appropriate taxing

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)

NiSource Inc.

authorities, based solely on the technical merits of the position. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.

On January 1, 2007, NiSource adopted the provisions of FIN 48. As a result of the implementation of FIN 48, NiSource recognized a charge of $0.8 million to the opening balance of retained earnings. Refer to Note 13, “Income Taxes,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information.

Recently Issued Accounting Pronouncements

SFAS No. 161 – Disclosures about Derivative Instruments and Hedging — an amendment of SFAS No. 133. In March 2008, the FASB issued SFAS No. 161 to amend and expand the disclosure requirements of SFAS No. 133 with the intent to provide users of the financial statement with an enhanced understanding of how and why an entity uses derivative instruments, how these derivatives are accounted for and how the respective reporting entity’s financial statements are affected. SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008, and earlier application is encouraged. NiSource is currently reviewing the provisions of SFAS No. 161 to determine the impact it may have on its disclosures within the Notes to Condensed Consolidated Financial Statements (unaudited).

SFAS No. 160 – Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51. In December 2007, the FASB issued SFAS No. 160 to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements regarding non-controlling ownership interests in a business and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption is prohibited. NiSource is currently reviewing the provisions of SFAS No. 160 to determine the impact it may have on the Condensed Consolidated Financial Statements (unaudited) and Notes to Condensed Consolidated Financial Statements (unaudited).

SFAS No. 141R – Business Combinations. In December 2007, the FASB issued SFAS No. 141R to improve the relevance, representational faithfulness, and comparability of information that a reporting entity provides in its financial reports regarding business combinations and its effects, including recognition of assets and liabilities, the measurement of goodwill and required disclosures. SFAS No. 141R is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption is prohibited. NiSource is currently reviewing the provisions of SFAS No. 141R to determine the impact on future business combinations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)

NiSource Inc.

RESULTS AND DISCUSSION OF SEGMENT OPERATIONS

Presentation of Segment Information

NiSource’s operations are divided into four primary business segments; Gas Distribution Operations, Gas Transmission and Storage Operations, Electric Operations, and Other Operations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Gas Distribution Operations

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(in millions)	2008			2007			2008			2007
Net Revenues
Sales Revenues	$	621.3		$	523.5		$	4,095.1		$	3,435.5
Less: Cost of gas sold (excluding depreciation and amortization)		436.3			335.8			3,029.3			2,367.5
Net Revenues		185.0			187.7			1,065.8			1,068.0
Operating Expenses
Operation and maintenance		157.6			146.7			578.2			550.6
Depreciation and amortization		56.9			56.7			171.2			168.2
(Gain) loss on sale of assets		—			—			—			(0.4	)
Other taxes		26.7			25.5			128.0			123.2
Total Operating Expenses		241.2			228.9			877.4			841.6
Operating Income (Loss)	$	(56.2	)	$	(41.2	)	$	188.4		$	226.4
Revenues ($ in Millions)
Residential		271.2			219.6			2,190.7			1,936.3
Commercial		108.0			81.7			778.0			675.7
Industrial		57.6			48.2			229.0			209.1
Off System		172.9			161.1			782.8			468.3
Other		11.6			12.9			114.6			146.1
Total		621.3			523.5			4,095.1			3,435.5
Sales and Transportation (MMDth)
Residential		15.3			15.9			186.4			189.5
Commercial		16.7			18.4			121.2			122.0
Industrial		92.3			88.9			284.8			276.2
Off System		16.6			24.3			77.0			65.4
Other		0.1			0.1			0.8			0.6
Total		141.0			147.6			670.2			653.7
Heating Degree Days		20			33			3,150			3,157
Normal Heating Degree Days		52			52			3,192			3,163
% Colder (Warmer) than Normal		(62	)%		(37	)%		(1	)%		0	%
Customers
Residential								2,969,166			2,977,935
Commercial								274,383			273,663
Industrial								7,991			8,016
Other								72			79
Total								3,251,612			3,259,693

NiSource’s natural gas distribution operations serve approximately 3.3 million customers in seven states: Ohio, Indiana, Pennsylvania, Massachusetts, Virginia, Kentucky and Maryland. The regulated subsidiaries offer both traditional bundled services as well as transportation only for customers that purchase gas from alternative suppliers. The operating results reflect the temperature-sensitive nature of customer demand with 73% of annual residential and commercial throughput affected by seasonality. As a result, segment operating income is higher in the first and fourth quarters reflecting the heating demand during the winter season.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Gas Distribution Operations(continued)

Regulatory Matters

Significant Rate Developments. Columbia of Ohio filed a base rate case with the PUCO on March 3, 2008, requesting an increase in base rates in excess of $80 million annually. Columbia of Ohio is seeking recovery of increased infrastructure rehabilitation costs, as well as the stabilization of revenues and cost recovery through rate design. A settlement agreement was filed on October 24, 2008. The agreement recommends an annual revenue increase of $47.1 million, and also provides for recovery of costs associated with Columbia of Ohio’s infrastructure rehabilitation program. Rate design issues are to be resolved by the PUCO. The case is currently pending, and is expected to be resolved before the end of 2008.

On January 28, 2008, Columbia of Pennsylvania filed a base rate case with the Pennsylvania Public Utility Commission, seeking an increase of approximately $60 million annually, effective October 28, 2008. Through this filing, Columbia of Pennsylvania sought to recover costs associated with its significant infrastructure rehabilitation program, as well as stabilize revenues and cost recovery through modifications to rate design. On July 2, 2008, Columbia of Pennsylvania and all interested parties filed a unanimous settlement with the Pennsylvania Public Utilities Commission. On October 23, 2008, the Pennsylvania Public Utilities Commission issued an order approving the settlement as filed, increasing annual revenues by $41.5 million.

On October 17, 2007, Bay State petitioned the DPU to allow the company to collect an additional $7.5 million in annual revenue related to usage reductions occurring since its last rate case. Bay State also requested approval of a steel infrastructure tracker that would allow for recovery of ongoing infrastructure replacement program investments. The DPU held hearings on this matter in the first quarter of 2008 and issued an order denying Bay State’s petition on April 30, 2008. NiSource has decided not to appeal this case, and continues to weigh its options. On July 16, 2008, the DPU issued an order in its generic decoupling proceeding for gas utilities.

On October 1, 2008, Columbia of Maryland filed a base rate case with the Maryland Public Service Commission, seeking an increase of approximately $3.7 million annually. New rates are expected to take effect during the second quarter of 2009.

Cost Recovery and Trackers. A significant portion of the distribution companies’ revenue is related to the recovery of gas costs, the review and recovery of which occurs via standard regulatory proceedings. All states require periodic review of actual gas procurement activity to determine prudence and to permit the recovery of prudently incurred costs related to the supply of gas for customers. NiSource distribution companies have historically been found prudent in the procurement of gas supplies to serve customers.

Certain operating costs of the NiSource distribution companies are significant, recurring in nature, and generally outside the control of the distribution companies. Some states allow the recovery of such costs via cost tracking mechanisms. Such tracking mechanisms allow for abbreviated regulatory proceedings in order for the distribution companies to implement charges and recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as compared with more traditional cost recovery mechanisms. Examples of such mechanisms include gas cost recovery adjustment mechanisms, tax riders, and bad debt recovery mechanisms.

Comparability of Gas Distribution Operations line item operating results is impacted by these regulatory trackers that allow for the recovery in rates of certain costs such as bad debt expenses. Increases in the expenses that are the subject of trackers result in a corresponding increase in net revenues and therefore have essentially no impact on total operating income results.

Certain of the NiSource distribution companies are embarking upon plans to replace significant portions of their operating systems that are nearing the end of their useful lives. Those companies are currently evaluating requests for increases in rates in order to allow recovery of the additional capital expenditures required for such plans. Each LDC’s approach to cost recovery may be unique, given the different laws, regulations and precedent that exist in each jurisdiction.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Gas Distribution Operations(continued)

On April 9, 2008, the PUCO issued an order approving, in all material respects, a joint Stipulation submitted on behalf of Columbia of Ohio. This Stipulation is a result of a process that began on April 13, 2005 with a PUCO ordered investigation into the type of gas risers installed in the state, the conditions of installation and overall performance. The Stipulation provides for: establishment of accounting for and recovery of costs resulting from the Staff’s investigation; Columbia’s performance of a survey to identify those customer-owned risers on its system prone to failure; and related customer education and other program related expenses. In addition this Stipulation provides for: Columbia’s assumption of financial responsibility for the replacement of all risers identified as prone to failure; repair or replacement of hazardous customer owned service lines; and capitalization of this investment with recovery to be addressed in future rate proceedings. As of September 30, 2008, Columbia of Ohio has approximately $38.5 million in costs associated with the gas riser and customer service line programs recorded as a regulatory asset and/or capitalized plant.

On December 28, 2007, Columbia of Ohio entered into a Stipulation with the Ohio Consumers’ Counsel and PUCO Staff and other stakeholders resolving litigation concerning a pending Gas Cost Recovery audit of Columbia of Ohio. The Stipulation calls for an accelerated pass back to customers of $36.6 million that will occur from January 31, 2008 through January 31, 2009, generated through off-system sales and capacity release programs, the development of new energy efficiency programs for introduction in 2009, and the development of a wholesale auction process for customer supply to take effect in 2010. Approximately $21.2 million was passed back through September 2008. The Stipulation also resolves issues related to pending and future Gas Cost Recovery Management Performance audits through 2008. The PUCO approved this agreement on January 23, 2008.

In July 2008, Columbia of Ohio filed an application with the PUCO for permission to create a new comprehensive energy conservation program. If approved by the PUCO, Columbia of Ohio’s DSM program would offer a wide range of services to residential and small commercial customers. Columbia of Ohio proposes to recover the three-year, $24.9 million cost of the DSM conservation program through a rider that would be added to residential and small commercial customer bills beginning in May 2010. On July 23, 2008, the PUCO issued an order approving Columbia of Ohio’s proposal subject to the approval of the DSM cost recovery rider proposed in the currently pending rate case, and any other conditions that may be imposed in the rate case.

Customer Usage. The NiSource distribution companies have experienced declining usage by customers, due in large part to the sensitivity of sales to increases in commodity prices. A significant portion of the LDCs’ operating costs are fixed in nature. Historically, rate design at the distribution level has been structured such that a large portion of cost recovery is based upon throughput, rather than in a fixed charge. Many of NiSource’s LDCs are evaluating mechanisms that would “de-couple” the recovery of fixed costs from throughput, and implement recovery mechanisms that more closely link the recovery of fixed costs with fixed charges. Each of the states in which the NiSource LDCs operate has different requirements regarding the procedure for establishing such changes.

Environmental Matters

Various environmental matters occasionally impact the Gas Distribution Operations segment. As of September 30, 2008, a reserve has been recorded to cover probable environmental response actions. Refer to Note 17-C, “Environmental Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding environmental matters for the Gas Distribution Operations segment.

Restructuring

Payments made for all restructuring initiatives within Gas Distribution Operations amounted to zero and $0.9 million for the third quarter and first nine months of 2008, respectively, and the restructuring liability remaining at September 30, 2008 was zero. Refer to Note 4, “Restructuring Activities,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding restructuring initiatives.

Sale of Northern Utilities

On February 15, 2008, NiSource reached a definitive agreement under which Unitil Corporation will acquire NiSource subsidiaries Northern Utilities and Granite State Gas for $160 million plus net working capital at the time of closing. Northern Utilities is a local gas distribution company serving 52 thousand customers in 44 communities in Maine and New Hampshire. In the first quarter of 2008, NiSource began accounting for the operations of

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Gas Distribution Operations(continued)

Northern Utilities as discontinued operations. As such, a net loss of $1.3 million and net income of $5.0 million from continuing operations for Northern Utilities, which affected the Gas Distribution Operations segment, was classified as net income from discontinued operations for the three months and nine months ended September 30, 2008, respectively, and there was a net loss of $1.4 million and net income of $3.2 million reclassified for the three months and nine months ended September 30, 2007, respectively. Refer to Note 5, “Discontinued Operations and Assets Held for Sale,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information.

Weather

In general, NiSource calculates the weather related revenue variance based on changing customer demand driven by weather variance from normal heating degree-days. Normal is evaluated using heating degree days across the NiSource distribution region. While the temperature base for measuring heating degree-days (i.e. the estimated average daily temperature at which heating load begins) varies slightly across the region, the NiSource composite measurement is based on 62 degrees. NiSource composite heating degree-days reported do not directly correlate to the weather related dollar impact on the results of Gas Distribution operations. Heating degree-days experienced during different times of the year or in different operating locations may have more or less impact on volume and dollars depending on when and where they occur. When the detailed results are combined for reporting, there may be weather related dollar impacts on operations when there is not an apparent or significant change in the aggregated NiSource composite heating degree-day comparison.

Weather in the Gas Distribution Operation’s territories for the third quarter of 2008 was 62% warmer than normal and 39% warmer than the comparable quarter in 2007.

Weather in the Gas Distribution Operation’s territories for the first nine months of 2008 was close to normal and comparable to the same period in 2007.

Throughput

Total volumes sold and transported of 141.0 MMDth for the third quarter of 2008 decreased slightly by 6.6 MMDth from the same period last year. Decreases in residential, commercial and off-system sales volumes resulting primarily from warmer weather were mostly offset by increased industrial usage in the current period compared to the same period last year.

Total volumes sold and transported of 670.2 MMDth for the first nine months of 2008 increased 16.5 MMDth from the same period last year. This increase in volume was primarily due to higher off-system sales and increased industrial usage for the first nine months of 2008 compared to the same period last year.

Net Revenues

Net revenues for the three months ended September 30, 2008 were $185.0 million, a decrease of $2.7 million from the same period in 2007, due primarily to decreased revenues of $4.4 million from the implementation of the Columbia of Ohio Stipulation entered into with the Ohio Consumers’ Counsel and the PUCO at the end of 2007, partially offset by increases from regulatory trackers of $3.1 million.

Net revenues for the nine months ended September 30, 2008 were $1,065.8 million, a decrease of $2.2 million from the same period in 2007, due primarily to warmer weather of approximately $14 million, reduced revenues of $7.7 million from the implementation of the Columbia of Ohio Stipulation entered into with the Ohio Consumers’ Counsel and the PUCO at the end of 2007 and decreased industrial and commercial margins of $5.7 million. These decreases were partially offset by increased residential usage of $7.9 million, increased net revenues of $8.6 million from rate proceedings and an increase in the gas cost adjustment

Operating Income

For the third quarter of 2008, Gas Distribution Operations reported an operating loss of $56.2 million compared to an operating loss of $41.2 million for the same period in 2007. The increase in operating loss was attributable to higher operating expenses of $12.3 million, inclusive of an increase in regulatory tracker expenses of $2.5 million which are offset in revenues, and lower net revenues described above. Operating expenses increased primarily due

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Gas Distribution Operations(continued)

to higher uncollectible accounts of $2.4 million, the impact of a $2.4 million reduction of expense incurred in 2007 for a regulatory initiative and a $1.7 million increase in outside service cost and higher property and other taxes.

For the first nine months of 2008, Gas Distribution Operations reported operating income of $188.4 million compared to operating income of $226.4 million for the same period in 2007. The decrease in operating income was primarily attributable to increased operating expenses of $35.8 million. Operating expense increases were primarily due to higher employee and administrative expenses of $12.1 million, increased property and other taxes of $4.8 million, higher depreciation expense of $3.0 million, higher uncollectible accounts of $2.6 million and the impact of a $2.4 million reduction of expense incurred in 2007 for a regulatory initiative.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Gas Transmission and Storage Operations

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(in millions)	2008			2007			2008			2007
Operating Revenues
Transportation revenues	$	155.8		$	154.2		$	491.4		$	480.4
Storage revenues		44.6			44.4			134.7			134.8
Other revenues		0.9			0.9			2.5			3.2
Total Operating Revenues		201.3			199.5			628.6			618.4
Operating Expenses
Operation and maintenance		80.3			84.9			243.9			241.1
Depreciation and amortization		29.1			29.4			87.8			87.4
Impairment and (gain) loss on sale of assets		0.1			—			(3.9	)		6.4
Other taxes		12.9			12.8			42.8			41.9
Total Operating Expenses		122.4			127.1			370.6			376.8
Equity Earnings in Unconsolidated Affiliates		3.4			2.6			7.0			7.8
Operating Income	$	82.3		$	75.0		$	265.0		$	249.4
Throughput (MMDth)
Columbia Transmission
Market Area		217.5			170.1			770.7			742.1
Columbia Gulf
Mainline		156.2			163.8			482.3			489.8
Short-haul		67.7			68.4			212.8			159.6
Columbia Pipeline Deep Water		—			0.6			0.9			2.1
Crossroads Gas Pipeline		8.4			8.2			27.5			27.6
Intrasegment eliminations		(128.7	)		(129.9	)		(398.0	)		(419.9	)
Total		321.1			281.2			1,096.2			1,001.3

NiSource’s Gas Transmission and Storage Operations segment consists of the operations of Columbia Transmission, Columbia Gulf, Columbia Deep Water, Crossroads Pipeline, and Central Kentucky Transmission. In total NiSource owns a pipeline network of approximately 16 thousand miles extending from offshore in the Gulf of Mexico to New York and the eastern seaboard. The pipeline network serves customers in 16 northeastern, mid-Atlantic, midwestern and southern states, as well as the District of Columbia. In addition, the NiSource Gas Transmission and Storage Operations segment operates one of the nation’s largest underground natural gas storage systems.

NiSource Energy Partners, L.P.

On December 21, 2007, NiSource Energy Partners, L.P., an MLP and subsidiary of NiSource, filed a Form S-1 registration statement with the SEC in which it proposed making an initial public offering of common units in the MLP and NiSource proposed contributing its interest in Columbia Gulf to the MLP. NiSource management believes the formation of an MLP is a natural complement to NiSource’s gas transmission and storage growth strategy, and should provide NiSource access to competitively priced capital to support future growth investment. The initial public offering will not occur in 2008 due to the damage sustained at Columbia Gulf’s Hartsville, Tennessee, compressor station, following the tornados at the facility as described previously, as well as overall financial market conditions.

Millennium Pipeline Project

Millennium received FERC approval for a pipeline project, in which Columbia Transmission is participating, which will provide access to a number of supply and storage basins and the Dawn, Ontario trading hub. The reconfigured project, which was approved by the FERC in a certificate order issued December 21, 2006, will begin at an

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Gas Transmission and Storage Operations (continued)

interconnect with Empire, an existing pipeline that originates at the Canadian border and extends easterly towards Syracuse, New York. Empire will construct a lateral pipeline southward to connect with Millennium near Corning, New York. Millennium will extend eastward to an interconnect with Algonquin at Ramapo, New York. The Millennium partnership is currently made up of the following companies: Columbia Transmission (47.5%), DTE Millennium (26.25%), and KeySpan Millennium (26.25%). Columbia Transmission is the operator.

The reconfigured Millennium project relies on completion of some or all of several other related pipeline projects proposed by Empire, Algonquin, and Iroquois collectively referred to as the “Companion Pipelines.” The December 21, 2006 certificate order also granted the necessary project approvals to the Companion Pipelines. Construction began on June 22, 2007 with a projected in-service date in December 2008. Mainline construction activities continue to proceed. All shipments of pipe and deliveries to various pipeyards are complete. The project includes twelve horizontal direction drill sites, four of which are complete and eight are in process. Construction on the compressor station is progressing as planned.

On August 29, 2007, Millennium entered into a bank credit agreement to finance the construction of the Millennium Pipeline project. As a condition precedent to the credit agreement, NiSource issued a guarantee securing payment for its indirect ownership interest percentage of amounts borrowed under the financing agreement up until such time as the amounts payable under the agreement are paid in full. The permanent financing for Millennium is expected to be completed when debt capital market conditions improve. In the interim, Millennium will continue to be funded by the $800 million credit agreement, which extends through August 2010. Additional information on this guarantee is provided in Note 17-A, “Guarantees and Indemnities,” in the Notes to Condensed Consolidated Financial Statements (unaudited).

Hardy Storage Project
Hardy Storage completed its sixth full quarter of operations, receiving customer injections and withdrawing natural gas from its new underground natural gas storage facility in West Virginia. Injections this year will allow the field to deliver up to 150,000 Dth of natural gas per day during the 2008-2009 winter heating season. Customers withdrew over 5.44 Bcf from the storage field during the 2007-2008 winter heating season. When fully operational in 2009, the field will have a working storage capacity of 12 Bcf, delivering more than 176,000 Dth of natural gas per day. Hardy Storage is a joint venture of subsidiaries of Columbia Transmission and Piedmont.

Columbia Transmission, the operator of Hardy Storage, has expanded its natural gas transmission system by 176,000 Dth per day to provide the capacity needed to deliver Hardy Storage supplies to customer markets. Construction of these transmission facilities is complete and the facilities were placed into full service during the first half of 2008.

Florida Gas Transmission Expansion Project

An open season to solicit interest and contracts for expanded capacity on Columbia Gulf’s system for delivery to Florida Gas Transmission was held in late 2007 and contracts for 100,000 Dth per day of capacity were executed. This project was placed into service in May 2008.

Eastern Market Expansion Project

On May 3, 2007, Columbia Transmission filed a certificate application before the FERC for approval to expand its facilities to provide additional storage and transportation services and to replace certain existing facilities. This Eastern Market Expansion is projected to add 97,000 Dth per day of storage and transportation deliverability and is fully subscribed on a 15-year contracted firm basis. On January 14, 2008, the FERC issued a favorable order which granted a certificate to construct the project. Construction of the facilities is underway and the project is expected to be in service by April 2009.

Appalachian Expansion Project

On February 29, 2008, Columbia Transmission filed an application before the FERC for approval to build a new 9,470 horsepower compressor station in West Virginia. The Appalachian Expansion Project will add 100,000 Dth per day of transportation capacity and is fully subscribed on a 15-year contracted firm basis. On August 22, 2008,

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Gas Transmission and Storage Operations (continued)

the FERC issued a favorable order which granted a certificate to construct the project. Construction is in progress and the project is expected to be in service in the fourth quarter of 2009.

Ohio Storage Project

On June 24, 2008, Columbia Transmission filed an application before the FERC for approval to expand two of its Ohio storage fields for additional capacity of nearly 7 MMDths and 103,400 Dth per day of daily deliverability. If required approvals are granted as requested, construction would begin in 2009 and the expanded facilities would be placed in service by the end of 2009. The expansion capacity is 58% contracted on a long-term, firm basis.

New Penn Transmission Project

During the first quarter of 2008, Columbia Transmission concluded an open season to gauge customer interest in a new pipeline system to provide 500,000 Dth per day of firm service from storage facilities near Leidy, PA to a new interconnection with Millennium Pipeline in Steuben County, New York in 2010. NiSource is continuing to explore interest in this project and other demand for capacity in the region.

Centerville Expansion Project

An open season to solicit interest and receive bids for expanded capacity on Columbia Gulf’s system for delivery to Southern Natural Gas and the Louisiana intrastate pipeline market was held during the first quarter of 2008, and bids for 60,000 Dth per day of capacity were submitted. The remaining 175,000 Dth per day of capacity is expected to be sold under firm contracts prior to the facilities being placed into service. The project is expected to be placed into service in late 2010.

MarkWest Energy Partners, LP Joint Venture Project

In August 2008, Columbia Transmission and MarkWest Energy Partners, LP, announced their intention to jointly develop several natural gas gathering and processing projects to support increased natural gas production in the Appalachian Basin. The two companies are in discussions with several natural gas producers to provide new gathering and gas processing services in association with Columbia Transmission’s existing Majorsville, WV, compressor station, located in the northern panhandle area of West Virginia and Western Pennsylvania.

Columbia Penn Project

In September 2008, Columbia Transmission announced its intention to develop additional natural gas transmission, gathering and processing services along and around its existing pipeline corridor between Waynesburg, PA, and Corning, NY, referred to as the “Columbia Penn” corridor. This two-phased development will accelerate access to pipeline capacity in conjunction with production increases in the Marcellus Shale formation which underlies Columbia Transmission’s transmission and storage network in the region. Phase I is anticipated to give customers access to capacity in early 2009, while Phase II would be available by the end of 2009.

Sales and Percentage of Physical Capacity Sold

Columbia Transmission and Columbia Gulf compete for transportation customers based on the type of service a customer needs, operating flexibility, available capacity and price. Columbia Gulf and Columbia Transmission provide a significant portion of total transportation services under firm contracts and derive a smaller portion of revenues through interruptible contracts, with management seeking to maximize the portion of physical capacity sold under firm contracts.

Firm service contracts require pipeline capacity to be reserved for a given customer between certain receipt and delivery points. Firm customers generally pay a “capacity reservation” fee based on the amount of capacity being reserved regardless of whether the capacity is used, plus an incremental usage fee when the capacity is used. Annual capacity reservation revenues derived from firm service contracts generally remain constant over the life of the contract because the revenues are based upon capacity reserved and not whether the capacity is actually used. The high percentage of revenue derived from capacity reservation fees mitigates the risk of revenue fluctuations within the Gas Transmission and Storage Operations segment due to changes in near-term supply and demand conditions. For the nine months ended September 30, 2008 approximately 90.2% of the transportation revenues were derived from capacity reservation fees paid under firm contracts and 5.5% of the transportation revenues were derived from usage fees under firm contracts. This is compared to approximately 88.7% of the transportation revenues derived from capacity reservation fees paid under firm contracts and 5.3% of transportation revenues derived from usage

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Gas Transmission and Storage Operations (continued)

fees under firm contracts for the nine months ended September 30, 2007.

Interruptible transportation service is typically short term in nature and is generally used by customers that either do not need firm service or have been unable to contract for firm service. These customers pay a usage fee only for the volume of gas actually transported. The ability to provide this service is limited to available capacity not otherwise used by firm customers, and customers receiving services under interruptible contracts are not assured capacity in the pipeline facilities. Gas Transmission and Storage Operations provides interruptible service at competitive prices in order to capture short-term market opportunities as they occur and interruptible service is viewed by management as an important strategy to optimize revenues from the gas transmission assets. For the nine months ended September 30, 2008 and 2007, approximately 4.3% and 6.0% of the transportation revenues were derived from interruptible contracts, respectively.

Significant FERC Developments

Columbia Gulf and Columbia Transmission are cooperating with the FERC on an informal, non-public investigation of certain operating practices regarding tariff services offered by those companies. Although the companies are continuing to cooperate with the FERC in an effort to reach a consensual settlement, it is likely that any settlement will require the payment of fines or refunds. Management does not expect these fines and refunds to be material to the results of operations for 2008.

Hartsville and Delhi Compressor Stations

On February 5, 2008, tornados struck Columbia Gulf’s Hartsville Compressor Station in Macon County, Tennessee. The damage to the facility forced Columbia Gulf to declare force majeure because no gas was flowing through this portion of the pipeline system while a facility assessment was being performed and the current contractual transportation agreements of 2.156 Bcf per day could not be met. Since that time Columbia Gulf has constructed both temporary and permanent facilities at Hartsville. On July 19, 2008, the station completed the installation of temporary horsepower and restored capacity to flow up to 2.156 Bcf per day. During the next 12 to 14 months, the temporary facilities that were constructed to restore system capabilities will be replaced with a permanent solution. The temporary capacity will remain in place while the permanent solution is installed. NiSource expects the majority of the reconstruction costs for the compressor station and ancillary facilities and the business interruption losses caused by this event to be recovered through insurance.

On December 14, 2007, Columbia Gulf’s Line 100 ruptured approximately two miles north of its Delhi Compressor Station in Louisiana. The damage to the pipeline forced Columbia Gulf to declare force majeure because no gas was flowing through this portion of the pipeline system on Lines 100, 200 and 300 while a facility assessment was performed. One day later, Lines 200 and 300 were returned to service and gas flow was restored on December 16, 2007. On December 19, 2007, the U.S. Department of Transportation issued a Corrective Action Order. The Order required Columbia Gulf to develop a remedial work plan to restore Line 100 pipeline’s pressure and capacity. Between December 22, 2007 and June 30, 2008, the Line 100 pipeline operated at less than full pressure and full capacity. On July 1, 2008, Columbia Gulf received permission from the U.S. Department of Transportation to restore full pressure and full capacity on the Line 100 pipeline. Columbia Gulf continues to operate under this Order. NiSource expects to recover a portion of the pipeline replacement costs plus business interruption losses through insurance.

Sale of Columbia Gulf’s Offshore Assets

On June 27, 2008, Columbia Gulf sold a portion of Columbia Gulf’s offshore assets to Tennessee Gas Pipeline Company for $7.5 million, which resulted in a gain of $2.9 million that was recorded during the second quarter of 2008. Payment was received on July 1, 2008.

Sale of Granite State Gas

On February 15, 2008, NiSource reached a definitive agreement under which Unitil Corporation will acquire NiSource subsidiaries Northern Utilities and Granite State Gas for $160 million plus net working capital at the time of closing. Granite State Gas is an 86-mile FERC regulated gas transmission pipeline primarily located in Maine and New Hampshire. In the first quarter of 2008, NiSource began accounting for the operations of Granite State Gas as discontinued operations. As such, net income of zero and $0.5 million from continuing operations for Granite State Gas, which affected the Gas Transmission and Storage Operations segment, was classified as net income from

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

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Gas Transmission and Storage Operations (continued)

discontinued operations for the three months and nine months ended September 30, 2008, respectively, and no amounts were reclassified for the three months and nine months ended September 30, 2007, respectively. Refer to Note 5, “Discontinued Operations and Assets Held for Sale,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information.

Environmental Matters

Various environmental matters occasionally impact the Gas Transmission and Storage Operations segment. As of September 30, 2008, a reserve has been recorded to cover probable environmental response actions. Refer to Note 17-C, “Environmental Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding environmental matters for the Gas Transmission and Storage Operations segment.

Restructuring

Payments made for all restructuring initiatives within Gas Transmission and Storage Operations amounted to $0.4 million and $0.9 million for the third quarter and first nine months of 2008, respectively, and the restructuring liability remaining at September 30, 2008 was $0.4 million. Refer to Note 4, “Restructuring Activities,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding restructuring initiatives.

Throughput

Throughput for the Gas Transmission and Storage Operations segment totaled 321.1 MMDth for the third quarter of 2008, compared to 281.2 MMDth for the same period in 2007. The increase of 39.9 MMDth for the three-month period was primarily due to incremental volumes transported into storage on Columbia Transmission.

Throughput totaled 1,096.2 MMDth for the first nine months of 2008, compared to 1,001.3 MMDth for the same year-ago period. The increase of 94.9 MMDth for the period was due primarily to incremental volumes transported from new interconnects along the Columbia Gulf pipeline system and market area transportation into storage on Columbia Transmission.

Net Revenues

Net revenues were $201.3 million for the third quarter of 2008, an increase of $1.8 million from the same period in 2007, primarily due to increased subscriptions for firm transportation services of $7.2 million related to new interconnects along the Columbia Gulf pipeline system, deliveries from the Hardy Storage field and incremental demand revenues on the Columbia Transmission system partially offset by $3.0 million of lower shorter-term transportation and storage services.

Net revenues were $628.6 million for the first nine months of 2008, an increase of $10.2 million from the same period in 2007, primarily due to increased subscriptions for firm transportation services of $18.5 million related to new interconnects along the Columbia Gulf pipeline system, deliveries from the Hardy Storage field and incremental demand revenues on the Columbia Transmission system. These increases in net revenues were partially offset by lower shorter-term transportation and storage services and commodity related charge revenues of $6.7 million and insurance proceeds from a business interruption claim that improved last year’s results by $2.6 million.

Operating Income

Operating income was $82.3 million for the third quarter of 2008 compared to $75.0 million in the third quarter of 2007. Operating income increased $7.3 million as a result of higher net revenues described above and a decrease in operating expenses of $4.7 million, which included lower employee and administrative costs and outside services expenses partially offset by a $3.5 million increase in a legal reserve. Equity earnings increased by $0.8 million due to higher earnings on Millennium and Hardy Storage.

Operating income was $265.0 million for the first nine months of 2008 compared to $249.4 million in the first nine months of 2007. Operating income increased $15.6 million as a result of higher net revenues described above and a decrease in operating expenses of $6.2 million, partially offset by a decrease in equity earnings of $0.8 million. Operating expenses decreased as a result of a $6.6 million impairment charge recognized in the comparable 2007 period related to base gas at a storage field, a $2.9 million gain recognized on the sale of certain Columbia Gulf offshore assets, $1.3 million in lower uncollectible accounts and lower insurance cost. These decreases in operating

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Gas Transmission and Storage Operations (continued)

expenses were partially offset by higher employee and administrative costs of $6.1 million, $4.1 million in increased legal reserves and a $2.8 million reversal of a reserve in the comparable 2007 period for a legal matter. Equity earnings decreased by $0.8 million due to lower earnings associated with Millennium partially offset by increased earnings from Hardy Storage, which was partially in service in 2007.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Electric Operations

	Three Months						Nine Months
	Ended September, 30						Ended September 30,
(in millions)	2008			2007			2008			2007
Net Revenues
Sales revenues	$	380.6		$	378.7		$	1,054.9		$	1,040.3
Less: Cost of sales (excluding depreciation and amortization)		160.0			160.9			449.5			419.4
Net Revenues		220.6			217.8			605.4			620.9
Operating Expenses
Operation and maintenance		71.9			68.5			233.0			208.2
Depreciation and amortization		51.7			49.2			157.5			143.8
Gain on sale of assets		—			(0.2	)		—			(0.2	)
Other taxes		15.6			14.9			44.4			45.9
Total Operating Expenses		139.2			132.4			434.9			397.7
Operating Income	$	81.4		$	85.4		$	170.5		$	223.2
Revenues ($ in millions)
Residential		109.8			123.0			277.1			302.8
Commercial		107.2			108.4			274.3			292.5
Industrial		139.2			133.4			408.8			389.8
Wholesale		20.3			23.3			47.1			47.6
Other		4.1			(9.4	)		47.6			7.6
Total		380.6			378.7			1,054.9			1,040.3
Sales (Gigawatt Hours)
Residential		980.0			1,129.2			2,532.6			2,768.2
Commercial		1,083.2			1,109.3			2,979.7			3,043.0
Industrial		2,403.8			2,409.8			7,294.0			7,083.2
Wholesale		220.9			437.1			550.8			782.2
Other		37.5			44.4			102.1			103.4
Total		4,725.4			5,129.8			13,459.2			13,780.0
Cooling Degree Days		504			606			705			919
Normal Cooling Degree Days		578			580			808			812
% Warmer (Colder) than Normal		(13	%)		4	%		(13	%)		13	%
Electric Customers
Residential								399,243			398,772
Commercial								53,197			52,378
Industrial								2,487			2,513
Wholesale								11			6
Other								754			755
Total								455,692			454,424

NiSource generates and distributes electricity, through its subsidiary Northern Indiana, to approximately 456 thousand customers in 20 counties in the northern part of Indiana. The operating results reflect the temperature-sensitive nature of customer demand with annual sales affected by temperatures in the northern part of Indiana. As a result, segment operating income is generally higher in the second and third quarters, reflecting cooling demand during the summer season.

Electric Supply

On November 1, 2007, Northern Indiana filed its bi-annual IRP with the IURC. The plan showed the need to add approximately 1,000 mw of new capacity. Additionally, during November 2007, Northern Indiana filed a CPCN as

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NiSource Inc.
Electric Operations (continued)

well as contracts to purchase power generated with renewable energy, specifically with wind. The CPCN requested approval to purchase two CCGT power plants — the Whiting Clean Energy facility owned by PEI, a wholly-owned subsidiary of NiSource, and the Sugar Creek facility located in west central Indiana and owned by LS Power Group. On December 22, 2007, BPAE indicated it would exercise a contractual right of first refusal to purchase the Whiting Clean Energy facility and subsequently purchased the facility on June 30, 2008. As a result, on January 25, 2008, Northern Indiana filed an amended CPCN to address just the Sugar Creek CCGT facility. On May 30, 2008, Northern Indiana purchased the facility for $329.7 million.

On October 24, 2008, Northern Indiana issued two requests for proposals to secure new sources of electric power to meet the future needs of its residential, commercial and industrial customers. The first request seeks capacity and energy proposals for up to 300 mw of electricity to address Northern Indiana’s projected electricity supply needs during the 2011 to 2016 time period. The second request seeks up to 300 mw of electricity generated from renewable sources and/or DSM technologies to address the Northern Indiana’s projected electricity supply needs beginning in 2011.

Regulatory Matters

Significant Rate Developments. Northern Indiana filed a petition for new electric base rates and charges on June 27, 2008 and filed its case-in-chief on August 29, 2008. The filing requests a two-step increase. Step One is a request for an increase in base rates calculated to produce additional gross margin of approximately $24 million. Step Two requests an additional increase to incorporate the return on and recovery of the Sugar Creek facility, which Northern Indiana purchased on May 30, 2008. The Step Two increase, if granted, would become effective as soon as the Sugar Creek facility is no longer committed to the PJM Interconnection market and is dispatched into MISO, but no later than June 1, 2010. The hearing on Northern Indiana’s case-in-chief is scheduled to begin on January 6, 2009. Several stakeholder groups have intervened in the case, representing customer groups and various counties and towns within Northern Indiana’s electric service territory. Testimony from the OUCC and all intervenors will be due by April 17, 2009. Assuming the case goes through the full procedural schedule without settlement, the final hearing is scheduled to begin July 27, 2009 and new rates are anticipated to take effect in early 2010.

In January 2002, Northern Indiana indefinitely shut down its Mitchell Station. In the base rate case filed on August 29, 2008, Northern Indiana stated in pre-filed testimony that it intends to retire the Mitchell station, demolish it, and remediate the site to industrial condition, subject to the ability to recover these costs.

During 2002, Northern Indiana settled certain regulatory matters related to an electric rate review. On September 23, 2002, the IURC issued an order adopting most aspects of the settlement. The order approving the settlement provides that electric customers of Northern Indiana will receive bill credits of approximately $55.1 million each year. The credits will continue at approximately the same annual level and per the same methodology, until the IURC enters a base rate order that approves revised Northern Indiana electric rates. The order included a rate moratorium that expired on July 31, 2006. The order also provides that 60% of any future earnings beyond a specified earnings level will be retained by Northern Indiana. The revenue credit is calculated based on electric usage; therefore, in times of high usage the credit may be more than $55.1 million. Credits amounting to $40.5 million and $44.3 million were recognized for electric customers for the first nine months of 2008 and 2007, respectively.

MISO. As part of Northern Indiana’s participation in the MISO transmission service and wholesale energy market, certain administrative fees and non-fuel costs have been incurred. IURC orders have been issued authorizing the deferral for consideration in a future rate case proceeding of the administrative fees and certain non-fuel related costs incurred after Northern Indiana’s rate moratorium, which expired on July 31, 2006. During the first nine months of 2008 non-fuel costs of $1.9 million were deferred in accordance with the aforementioned orders. In addition, administrative, FERC and other fees of $5.0 million were deferred. In the first nine months of 2008 and 2007, MISO costs of $6.9 million and $18.4 million, respectively, were deferred. In the base rate case filed in August 2008, Northern Indiana proposed a tracker for these MISO charges which are currently being deferred.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Electric Operations (continued)

On April 25, 2006, the FERC issued an order on the MISO’s Transmission and Energy Markets Tariff, stating that MISO had violated the tariff on several issues including not assessing revenue sufficiency guarantee charges on virtual bids and offers and for charging revenue sufficiency guarantee charges on imports. The FERC ordered MISO to perform a resettlement of these charges back to the start of the Day 2 Market. The resettlement began on June 9, 2007 and ended in January 2008. Certain charge types included in the resettlement were originally considered to be non-fuel and were recorded as regulatory assets, in accordance with previous IURC orders allowing deferral of certain non-fuel MISO costs. During the fourth quarter 2007, based on precedent set by an IURC ruling for another Indiana utility, Northern Indiana reclassified these charges, totaling $16.7 million, as fuel and included them in the fuel cost recovery mechanism in its latest FAC filing. Prior to the hearing for FAC-78 on April 17, 2008, several intervenors objected to a portion of the $16.7 million and Northern Indiana agreed to remove $7.6 million from the FAC filing. This amount represents the portion of the resettlement costs related to periods prior to December 9, 2005. The $7.6 million was recorded as a reduction to net revenues in the first quarter of 2008.

Northern Indiana is an active stakeholder in the process used in designing, testing and implementing the ASM and in developing the surrounding business practices. On January 18, 2008, Northern Indiana as part of a Joint Petition among several other Indiana utilities “Joint Petitioners” filed a request to the IURC to participate in ASM and seek approval of timely cost recovery for the associated costs of participating. On August 13, 2008, the IURC issued a Phase I order, authorizing the Joint Petitioners authority to transfer additional balancing authority functions and to implement the operational changes necessary to participate in the ASM and to seek recovery of modified MISO charge-types via the FAC and to defer certain other MISO charge-types, pending a final determination on the issue of cost recovery. This order also created a subdocket for the purpose of further consideration of whether a cost-benefit analysis of participation in MISO or the MISO ASM should be required. Phase II of this proceeding deals with how the Joint Petitioners will approach the ASM, specifically related to operating reserves, and the specifics regarding cost recovery. The evidentiary hearing for Phase II is scheduled for December 22, 2008. At this time, Northern Indiana is unable to determine what impact the ASM will have on its operations or cash flows.

Cost Recovery and Trackers. A significant portion of the Northern Indiana’s revenue is related to the recovery of fuel costs to generate power and the fuel costs related to purchased power. These costs are recovered through a FAC, a standard, quarterly, “summary” regulatory proceeding in Indiana.

On May 30, 2008, Northern Indiana purchased the Sugar Creek facility for $329.7 million. The Sugar Creek facility is a CCGT located in West Terre Haute, Indiana. Sugar Creek has a plant capacity rating of 535 mw. Sugar Creek has transmission access to and is able to participate in both the MISO and PJM Interconnection wholesale electricity markets. The plant is currently committed to the PJM Interconnection market until May 31, 2010. The purchase was in response to Northern Indiana’s need to add approximately 1,000 mw of new capacity, as filed in its bi-annual IRP with the IURC on November 1, 2007.

The IURC had issued an order on May 28, 2008 approving the purchase of Sugar Creek, but denied Northern Indiana’s request for deferral of depreciation expense and carrying costs related to the plant, beginning with the acquisition date, on the basis that the facility would not be used and useful property under traditional regulation until the facility was operating inside of MISO. The order also denied Northern Indiana’s request for alternative regulatory treatment of the plant, based on incomplete presentation of evidence, but provided for the establishment of a subdocket to allow for the proper presentation and consideration of alternative regulatory treatment. On June 6, 2008, Northern Indiana filed its (a) Verified Petition for Rehearing; (b) Request for Establishment of a Subdocket for Presentation and Consideration of an Alternative Regulatory Plan; and (c) Motion for Consolidation (a single document) in Cause No. 43396. The IURC established a subdocket for consideration of Northern Indiana’s Alternative Regulatory Plan. Northern Indiana’s case-in-chief was filed with the IURC on September 26, 2008 and an evidentiary hearing in the subdocket proceeding is scheduled for February 3 and 4, 2009. The subdocket proposes deferral of depreciation and carrying costs associated with Sugar Creek and creation of a regulatory asset, which would be reduced by the Sugar Creek capacity and energy revenues, net of operation and maintenance expenses to operate the plant.

The IRP included a commitment to using renewable energy, and a subsequent filing was made with the IURC, requesting approval for Northern Indiana to enter into power purchase contracts with subsidiaries of Iberdrola Renewables for wind-generated power in Iowa and South Dakota, and requesting full recovery of all associated

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NiSource Inc.
Electric Operations (continued)

costs. On July 24, 2008, the IURC issued an order approving Northern Indiana’s proposed purchase power agreement with subsidiaries of Iberdrola Renewables. The agreement provides Northern Indiana the opportunity to purchase 100 mw of wind power commencing in early 2009.

On January 30, 2008, the IURC approved a settlement agreement which was reached in October 2007 with the OUCC, LaPorte County and a group of Northern Indiana industrial customers to resolve questions relating to purchased power costs in the period from January 1, 2006 through September 30, 2007. The terms of the settlement called for Northern Indiana to make a one-time payment of $33.5 million to FAC customers. A reserve for the entire amount was recorded in the third quarter of 2007 and the refund was made to customers via the FAC in the periods of February through July 2008. As part of this agreement, Northern Indiana implemented a new “benchmarking standard,” that became effective in October 2007, which defines the price above which purchased power costs must be absorbed by Northern Indiana and are not permitted to be passed on to customers. The benchmark is based upon the costs of power generated by a hypothetical natural gas fired CCGT using gas purchased and delivered to Northern Indiana. During the first nine months of 2008, the amount of purchased power costs exceeding the benchmark amounted to $10.8 million, which was recognized as a net reduction of revenues. The agreement also contemplated Northern Indiana adding generating capacity to its existing portfolio and that the benchmark would be adjusted as new capacity is added. It was anticipated that the addition of the Sugar Creek capacity would trigger a change in the benchmark beginning in June 2008. However, based on the IURC order in the CPCN as described above, the Sugar Creek capacity will not be considered until the plant is operating inside of MISO and therefore the benchmark is unchanged.

On November 26, 2002, Northern Indiana received approval from the IURC for an ECT. Under the ECT, Northern Indiana is permitted to recover (1) AFUDC and a return on the capital investment expended by Northern Indiana to implement IDEM’s NOx SIP through an ECRM and (2) related operation and maintenance and depreciation expenses once the environmental facilities become operational through an EERM. Under the IURC’s November 26, 2002 order, Northern Indiana is permitted to submit filings on a semi-annual basis for the ECRM and on an annual basis for the EERM. In December 2006, Northern Indiana filed a petition with the IURC for appropriate cost treatment and recovery of emission control construction needed to address the Phase I CAIR requirements of the Indiana Air Pollution Control Board’s CAIR rules that became effective on February 25, 2007. On July 3, 2007, Northern Indiana received an IURC order issuing a CPCN for the CAIR and CAMR Phase I Compliance Plan Projects, estimated to cost approximately $23 million. Northern Indiana will include the CAIR and CAMR Phase I Compliance Plan costs to be recovered in the semi-annual and annual ECRM and EERM filing six months after construction costs begin. On October 23, 2008, Northern Indiana filed for approval of a revised cost estimate to meet the NOx and SO2 and mercury emissions environmental standards. Northern Indiana anticipates a total capital investment of approximately $368 million. On October 1, 2008, the IURC approved ECR-12 for capital expenditures (net of accumulated depreciation) of $267.7 million.

In the electric base rate case filed in August 2008, Northern Indiana proposed a new tracker, referred to as the Reliability Adjustment mechanism. The case proposes that this tracker be used for recovery of MISO charges currently being deferred. This tracker is also intended to be used to recover purchased power energy and capacity costs and to share with customers the proceeds of off-system sales and transmission revenues, as well as to track costs and revenues associated with emissions allowances.

Northern Indiana is committed to offering DSM and energy efficiency programs to its electric customers and plans to file a petition and case-in-chief requesting approval to implement a variety of programs. The filing is expected to be made with the IURC in the fourth quarter of 2008, with anticipated approval and implementation in 2009. Proposed programs will include rebates for energy efficiency appliances and an air-conditioning cycling program, designed to reduce peak load.

On October 27, 2006, Indiana Gasification, LLC, Vectren Energy Delivery of Indiana, Citizens Gas & Coke Utility and Northern Indiana filed a joint petition at the IURC seeking approval for Indiana Gasification, LLC to construct a coal gasification facility and the respective utilities to enter into long-term contracts to purchase the energy output of the plant, both gas and electricity. This filing was based upon a Letter of Intent that was entered into by the parties, but subject to finalization of a contract and regulatory approval. On December 12, 2007, Citizens Gas & Coke Utility filed a Motion with the IURC to withdraw from the petition. The parties have had frequent negotiations

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Electric Operations (continued)

during the two year period, but have not reached a definitive agreement. On October 15, 2008, Joint Petitioners filed a motion requesting that the technical conference scheduled for November 25, 2008 be used to establish a new procedural schedule.

Environmental Matters

Various environmental matters occasionally impact the Electric Operations segment. As of September 30, 2008, a reserve has been recorded to cover probable environmental response actions. Refer to Note 17-C, “Environmental Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding environmental matters for the Electric Operations segment.

Sales

Electric Operations sales quantities for the third quarter of 2008 were 4,725.4 gwh, compared to 5,129.8 gwh in the third quarter of 2007. The decrease was primarily due to lower residential, commercial and wholesale volumes for the second quarter of 2008 compared to the same period last year. The lower volumes were partially the result of cooler weather compared to last year.

Electric Operations sales quantities for the first nine months of 2008 were 13,459.2 gwh, compared to 13,780.0 gwh in the first nine months of 2007. The decrease was primarily due to lower residential, commercial and wholesale volumes partially offset by higher industrial volumes for the first nine months of 2008 compared to the same period last year. The lower volumes were partially the result of cooler weather compared to last year.

Net Revenues

In the third quarter of 2008, Electric Operations net revenues of $220.6 million increased by $2.8 million from the comparable 2007 period. This increase was primarily due to the impact of a $33.5 million settlement in third quarter of 2007 related to the cost of power purchased by Northern Indiana in 2006 and 2007, incremental revenues of $3.8 million from the new Sugar Creek facility and $2.6 million in increased industrial net revenues. These increases in quarter over quarter net revenues were partially offset by lower wholesale transactions of $13.9 million, lower residential and commercial sales volumes and margins of $8.9 million, the impact of cooler weather of approximately $7 million and $4.3 million of non-recoverable purchased power.

In the first nine months of 2008, Electric Operations net revenues of $605.4 million decreased by $15.5 million from the comparable 2007 period. This decrease was due to lower residential and commercial sales volumes and margins of $22.0 million, lower wholesale transactions of $12.8 million, $10.8 million of non-recoverable purchased power, the impact of cooler weather of approximately $10 million and $9.6 million of higher non-recoverable MISO charges. These decreases in net revenues were partially offset by the impact of a $33.5 million settlement in third quarter of 2007 related to the cost of power purchased by Northern Indiana in 2006 and 2007, incremental revenues of $5.1 million from the new Sugar Creek facility and $10.9 million in increased industrial net revenues.

Operating Income

Operating income for the third quarter of 2008 was $81.4 million, a decrease of $4.0 million from the same period in 2007. The decrease in operating income was due to increased operating expenses of $6.8 million, partially offset by higher net revenues described above. Operating expenses increased primarily due to higher electric generation and maintenance expenses of $5.0 million, which include incremental costs associated with the Sugar Creek facility, and a $2.5 million increase in depreciation expense.

Operating income for the first nine months of 2008 was $170.5 million, a decrease of $52.7 million from the same period in 2007. The decrease in operating income was due to lower net revenues described above and increased operating expenses of $37.2 million. Operating expenses increased primarily due to a $13.7 million increase in depreciation which includes an $8.3 million depreciation expense adjustment recorded by Northern Indiana during the second quarter of 2008, higher electric generation and maintenance expenses of $11.8 million and higher employee and administrative costs of $16.0 million. The higher generation and maintenance expenses were primarily attributable to a planned turbine and boiler maintenance and a generator overhaul and $2.3 million of incremental costs associated with the Sugar Creek facility.

79

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.
Other Operations

	Three Months						Nine Months
	Ended September, 30						Ended September, 30
(in millions)	2008			2007			2008			2007
Net Revenues
Products and services revenue	$	257.6		$	210.9		$	902.2		$	775.3
Less: Cost of products purchased (excluding depreciation and amortization)		249.7			204.2			879.0			753.6
Net Revenues		7.9			6.7			23.2			21.7
Operating Expenses
Operation and maintenance		5.2			5.3			16.0			16.8
Depreciation and amortization		0.6			0.8			2.0			2.0
Impairment and (gain) loss on sale of assets		(0.4	)		0.7			(0.4	)		0.8
Other taxes		1.2			0.9			4.1			3.3
Total Operating Expenses		6.6			7.7			21.7			22.9
Operating Income (Loss)	$	1.3		$	(1.0	)	$	1.5		$	(1.2	)

The Other Operations segment participates in energy-related services including gas marketing, gas risk management and ventures focused on distributed power generation technologies, including fuel cells and storage systems. Additionally, the Other Operations segment is involved in real estate and other businesses.

Lake Erie Land Company, Inc.

Lake Erie Land, which is wholly-owned by NiSource, is in the process of selling real estate over a 10-year period as a part of an agreement reached in June 2006 with a private real estate development group. Part of the sale transaction included the assets of the Sand Creek Golf Club, and NiSource began accounting for the operations of the Sand Creek Golf Club as discontinued operations at that time. NiSource estimates the property to be sold to the private developer during the next twelve months and classifies these assets as assets of discontinued operations and held for sale.

NDC Douglas Properties

NDC Douglas Properties, a subsidiary of NiSource Development Company, is in the process of exiting some of its low income housing investments. One of these investments was disposed of during 2007 and two other investments are expected to be sold or disposed of during 2009. NiSource has accounted for the investments to be sold as assets and liabilities of discontinued operations and held for sale.

Net Revenues

Net revenues of $7.9 million for the third quarter of 2008 increased by $1.2 million from the third quarter of 2007, as a result of higher commercial and industrial gas marketing revenues.

Net revenues of $23.2 million for the first nine months of 2008 increased by $1.5 million from the first nine months of 2007, as a result of increased commercial and industrial gas marketing revenues.

Operating Income (Loss)

Other Operations reported operating income of $1.3 million for the third quarter of 2008, versus an operating loss of $1.0 million for the comparable 2007 period. The increase in operating income resulted primarily from higher net revenues described above.

Other Operations reported operating income of $1.5 million for the first nine months of 2008, versus an operating loss of $1.2 million for the comparable 2007 period. The increase in operating income resulted primarily from increased net revenues described above.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

NiSource Inc.

For a discussion regarding quantitative and qualitative disclosures about market risk see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk Disclosures.”

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

NiSource’s chief executive officer and its principal financial officer, after evaluating the effectiveness of NiSource’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), have concluded based on the evaluation required by paragraph (b) of Exchange Act Rules 13a-15 and 15d-15 that, as of the end of the period covered by this report, NiSource’s disclosure controls and procedures are considered effective.

Changes in Internal Controls

There have been no changes in NiSource’s internal control over financial reporting during the fiscal period covered by this report that has materially affected, or is reasonably likely to affect, NiSource’s internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

NiSource Inc.

1. Stand Energy Corporation, et al. v. Columbia Gas Transmission Corporation, et al., Kanawha County Court, West Virginia

On July 14, 2004, Stand Energy Corporation filed a complaint in Kanawha County Court in West Virginia. The complaint contains allegations against various NiSource companies, including Columbia Transmission and Columbia Gulf, and asserts that those companies and certain “select shippers” engaged in an “illegal gas scheme” that constituted a breach of contract and violated state law. The “illegal gas scheme” complained of by the plaintiffs relates to the Columbia Transmission and Columbia Gulf gas imbalance transactions that were the subject of the FERC enforcement staff investigation and subsequent settlement approved in October 2000. Columbia Transmission and Columbia Gulf filed a Motion to Dismiss on September 10, 2004. In October 2004, however, the plaintiffs filed their Second Amended Complaint, which clarified the identity of some of the “select shipper” defendants and added a federal antitrust cause of action. To address the issues raised in the Second Amended Complaint, the Columbia companies revised their briefs in support of the previously filed motions to dismiss. In June 2005, the Court granted in part and denied in part the Columbia companies’ motion to dismiss the Second Amended Complaint. The Columbia companies have filed an answer to the Second Amended Complaint. On December 1, 2005, Plaintiffs filed a motion to certify this case as a class action. The Columbia companies filed their opposition to this motion in March 2008. All briefing has been completed. Oral argument was heard on June 3, 2008, and on August 19, 2008, the Court denied the Motion for Class Certification. The Columbia companies continue to defend against the claims made by the individual plaintiffs. Trial is scheduled to begin April 28, 2009.

2. United States of America ex rel. Jack J. Grynberg v. Columbia Gas Transmission Corporation, et al., U.S. District Court, E.D. Louisiana

The plaintiff filed a complaint in 1995, under the False Claims Act, on behalf of the United States of America, against approximately seventy pipelines, including Columbia Gulf and Columbia Transmission. The plaintiff claimed that the defendants had submitted false royalty reports to the government by mismeasuring natural gas produced on Federal land and Indian lands. The Plaintiff’s original complaint was dismissed without prejudice for misjoinder of parties and for failing to plead fraud with specificity. In 1997, the plaintiff filed over sixty-five new False Claims Act complaints against over 330 defendants in numerous Federal courts. One of those complaints was filed in the Federal District Court for the Eastern District of Louisiana against Columbia and thirteen affiliated entities (collectively, the “Columbia defendants”). This complaint repeats the mismeasurement claims previously made and adds valuation claims alleging that the defendants undervalued natural gas for royalty purposes in various ways, including sales to affiliated entities at artificially low prices. This case was transferred, along with most of the other new Grynberg cases, to Federal court in Wyoming in 1999.

On October 20, 2006, the Federal District Court issued an Order granting the Columbia defendants’ motion to dismiss for lack of subject matter jurisdiction. The Plaintiff has appealed the dismissal of the Columbia defendants to the United States Court of Appeals for the Tenth Circuit. All briefing has been completed and oral argument was held on September 25, 2008.

3. Tawney, et al. v. Columbia Natural Resources, Inc., Roane County, WV Circuit Court

The Plaintiffs, who are West Virginia landowners, filed a lawsuit in early 2003 against CNR alleging that CNR underpaid royalties on gas produced on their land by improperly deducting post-production costs and not paying a fair value for the gas. In December 2004, the court granted plaintiffs’ motion to add NiSource and Columbia as defendants. Plaintiffs also claimed that the defendants fraudulently concealed the deduction of post-production charges. The court certified the case as a class action that includes any person who, after July 31, 1990, received or is due royalties from CNR (and its predecessors or successors) on lands lying within the boundary of the state of West Virginia. All claims by the government of the United States are excluded from the class. Although NiSource sold CNR in 2003, NiSource remains obligated to manage this litigation and for the majority of any damages ultimately awarded to the plaintiffs. On January 27, 2007, the jury hearing the case returned a verdict against all

82

ITEM 1. LEGAL PROCEEDINGS (continued)

NiSource Inc.

defendants in the amount of $404.3 million; this is comprised of $134.3 million in compensatory damages and $270 million in punitive damages. In January 2008, the Defendants filed their petition for appeal, and on March 24, 2008, the Defendants filed their amended petition for appeal with the West Virginia Supreme Court of Appeals. On May 22, 2008, the West Virginia Supreme Court of Appeals refused the Defendants petition for appeal. On August 22, 2008, Defendants filed their petitions to the United States Supreme Court for writ of certiorari. The Plaintiffs filed their response on September 22, 2008. On September 19, 2008, the West Virginia Supreme Court issued an order extending the stay of the judgment until proceedings before the United States Supreme Court are fully concluded. Given the West Virginia Court’s refusal of the appeal, NiSource adjusted its reserve in the second quarter of 2008 to reflect the portion of the trial court judgment for which NiSource would be responsible, inclusive of interest. This amount was included in “Legal and environmental reserves,” on the Condensed Consolidated Balance Sheet (unaudited) as of September 30, 2008. On October 24, 2008, the West Virginia Circuit Court for Roane County, West Virginia, preliminarily approved a settlement agreement with a total settlement amount of $380 million. The settlement is subject to final approval by the Court, following a fairness hearing currently scheduled for November 22, 2008. The settlement agreement is contingent upon a final ruling on the settlement by the trial court prior to the resolution of the petitions for writ of certiorari filed with the United States Supreme Court. NiSource’s share of the settlement liability would be up to $338.8 million.

4. John Thacker, et al. v. Chesapeake Appalachia, L.L.C., U.S. District Court, E.D. Kentucky

On February 8, 2007, Plaintiff filed this purported class action, alleging that Chesapeake Appalachia, L.L.C. (“Chesapeake”) has failed to pay royalty owners the correct amounts pursuant to the provisions of their oil and gas leases covering real property located within the state of Kentucky. Columbia has assumed the defense of Chesapeake in this matter pursuant to the provisions of the Stock Purchase Agreement dated July 3, 2003, among Columbia, NiSource, and Triana Energy Holding, Inc., Chesapeake’s predecessor in interest. Plaintiffs filed an amended complaint on March 19, 2007, which, among other things, added NiSource and Columbia as defendants. On March 31, 2008, the Court denied the Defendants’ Motions to Dismiss; the Defendants filed their answers to the complaint on April 25, 2008. On June 3, 2008, the Plaintiffs moved to certify a class consisting of all persons entitled to payment of royalty by Chesapeake under leases operated by Chesapeake at any point after February 5, 1992, on real property in Kentucky. Defendants’ response was filed on July 18, 2008. The class certification hearing scheduled for November 13, 2008 was vacated.

5. Environmental Protection Agency Notice of Violation

On September 29, 2004, the EPA issued an NOV to Northern Indiana for alleged violations of the CAA and the Indiana SIP. The NOV alleges that modifications were made to certain boiler units at three of Northern Indiana’s generating stations between the years of 1985 and 1995 without obtaining appropriate air permits for the modifications. The ultimate resolution could require additional capital expenditures and operations and maintenance costs as well as payment of substantial penalties and require development of supplemental environmental projects. Northern Indiana is currently in discussions with the EPA regarding possible resolutions to this NOV.

6. Pennsylvania Department of Environmental Protection Proposed Consent Order and Agreement

On February 21, 2007, PADEP provided representatives of Columbia Transmission with a proposed Consent Order and Agreement covering an unmanned equipment storage site located in rural southwest Pennsylvania. The site in question is also subject to the EPA’s AOC (Refer to Note 17-C, “Environmental Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding the AOC). PADEP’s proposed order alleges that Columbia Transmission has violated the state’s Clean Streams Act and Solid Waste Management Act by discharging petroleum products onto the property and into the waters of the state. In addition to requiring remediation and monitoring activities at the site, the state has proposed penalties for these violations. Columbia Transmission plans to engage in further discussions with the agency regarding the proposed order, including the rationale for the proposed penalty. The site was remediated via an EPA approved Remedial Action Work Plan in the summer of 2008. The PADEP had provided written notification that it would not attempt to stop the EPA approved work and would seek the aforementioned Order after the remedy is completed. To date, Columbia Transmission has not received any communication from the PADEP regarding the afore-mentioned order.

83

ITEM 1A. RISK FACTORS

NiSource Inc.

NiSource is exposed to risk that customers will not remit payment for delivered energy or services, and that suppliers or counterparties will not perform under various financial or operating agreements.

NiSource’s extension of credit is governed by a Corporate Credit Risk Policy, involves considerable judgment and is based on an evaluation of a customer or counterparty’s financial condition, credit history and other factors. Credit risk exposure is monitored by obtaining credit reports and updated financial information for customers and suppliers, and by evaluating the financial status of its banking partners and other counterparties through the use of market-based metrics such as credit default swap pricing levels, and also through traditional credit ratings provided by the major credit rating agencies.

Recently, the credit markets and the general economy have been experiencing a period of large-scale turmoil and upheaval characterized by the bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented level of intervention from the United States federal government. While the ultimate outcome of these events cannot be predicted, it may have an adverse material effect on NiSource.

Other than the risk factor disclosed above, there were no other material changes from the risk factors disclosed in NiSource’s 2007 Form 10-K filed on March 5, 2008.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

On November 4, 2008, NiSource entered into a Change in Control and Termination Agreement (the “Agreement”) with each of Robert C. Skaggs, Stephen P. Smith, Christopher A. Helms and Robert D. Campbell. Each Agreement is effective for a two year term and provides that payment would occur upon (i) a change in control of NiSource and either (ii) termination of the executive occurs by NiSource for any reason other than good cause, or (iii) termination of employment occurs by the executive for good reason. Additionally, payment would occur under each Agreement following a change in control if (i) the termination occurs within a year prior to the change in control for other than good reason but after steps have been taken to reasonably effect a change in control and (ii) it is reasonably demonstrated by the executive that such termination of employment was in connection with or in anticipation of a change in control. Payment under the Agreement with Mr. Skaggs would be equal to 36 times his then-current monthly base salary plus 36 times one-twelfth of his then-current target annual incentive bonus. Payment under each Agreement for Messrs. Smith, Helms and Campbell would be equal to 24 times the executive’s then-current monthly base salary plus 24 times one-twelfth of his then-current target annual incentive bonus. Additionally, each Agreement provides for the following additional benefits:

• Payment of the pro rata portion of the executive’s target annual incentive bonus for the then-current calendar year calculated based on the proportion of the full calendar year employed by NiSource;

• Receipt of accrued benefits in the various NiSource or NiSource affiliates retirement plans, welfare plans or other plan or program within which such executive participates. For purposes of

84

ITEM 5. OTHER INFORMATION (continued)

NiSource Inc.

• determining this benefit, each executive would further be deemed to have been terminated by reason of retirement without regard to vesting limitations in such plans or programs, except for plans subject to the qualification requirements of Section 401(a) of the Internal Revenue Code of 1986 as amended, or otherwise under circumstances with the most favorable result to the executive;

• Any options held by the executive become immediately exercisable and any restrictions on NiSource stock immediately lapse;

• Payment of 130% of the amount of any welfare plan premiums for which the executive participated for a period of 36 months for Mr. Skaggs and for a period of 24 months for Messrs. Smith, Helms and Campbell;

• Outplacement services in an amount not to exceed $25,000;

• If determined that an excise tax payment is required as a result of the payments made under each respective Agreement, a “gross-up” payment would be paid to the executive in the amount of the excise tax plus any federal, state and local income and employment taxes on the excise tax payment. The gross-up payment will not be made, however, if it is determined that the total payment to the executive would not exceed 110% of the greatest amount that could be paid without requiring an excise tax payment; rather, in such case, the total payments to the executive would be reduced to the highest amount of total payments that would not require payment of an excise tax.

Each Agreement also provides that the executive will not solicit employees of NiSource to terminate their employment with the company and that each executive will not disclose confidential information concerning the company obtained by the executive in the course of his employment.

ITEM 6. EXHIBITS

(10.1)	Revolving Credit Agreement among NiSource Finance Corp., as Borrower, NiSource Inc., as Guarantor, the lender parties thereto as Lenders, Barclays Bank PLC as Administrative Agent, and Barclays Bank as Sole Lead Arranger and Sole Book Runner, dated as of September 23, 2008 (incorporated by reference to Exhibit 10.1 to the NiSource Inc. Current Report on Form 8-K filed on September 26, 2008).
(10.2)	Amendment No. 1, dated as of September 19, 2008, to Amended and Restated Revolving Credit Agreement among NiSource Finance Corp., as Borrower, NiSource Inc., as Guarantor, the lender parties thereto as Lenders, Credit Suisse as Syndication Agent, JPMorgan Chase Bank, N.A., The Bank Of Tokyo-Mitsubishi UFJ, Ltd., Chicago Branch and Citicorp USA, Inc., as Co-Documentation Agents and Barclays Bank PLC, as Administrative Agent and LC Bank dated July 7, 2006. *
(10.3)	NiSource Inc. Executive Deferred Compensation Plan, Amended and Restated Effective January 1, 2008. *
(10.4)	NiSource Inc. Supplemental Executive Retirement Plan, as Amended and Restated Effective January 1, 2008. *
(10.5)	Pension Restoration Plan for NiSource Inc. and Affiliates, as Amended and Restated Effective January 1, 2008. *
(10.6)	Savings Restoration Plan for NiSource Inc. and Affiliates, as Amended and Restated Effective January 1, 2008. *

85

ITEM 6. EXHIBITS (continued)

NiSource Inc.

(10.7)	Form of Change in Control and Termination Agreement dated November 4, 2008 by and between NiSource Inc. and each of Robert C. Skaggs, Stephen P. Smith, Christopher A. Helms and Robert D. Campbell. *
(31.1)	Certification of Robert C. Skaggs, Jr., Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
(31.2)	Certification of Stephen P. Smith, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
(32.1)	Certification of Robert C. Skaggs, Jr., Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). *
(32.2)	Certification of Stephen P. Smith, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). *

* Exhibit filed herewith.

Pursuant to Item 601(b)(4)(iii) of Regulation S-K, NiSource hereby agrees to furnish the SEC, upon request, any instrument defining the rights of holders of long-term debt of NiSource not filed as an exhibit herein. No such instrument authorizes long-term debt securities in excess of 10% of the total assets of NiSource and its subsidiaries on a consolidated basis.

86

SIGNATURE

NiSource Inc.

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

		NiSource Inc.
		(Registrant)
Date: November 4, 2008	By:	/s/ Jeffrey W. Grossman
		Jeffrey W. Grossman
		Vice President and Controller
		(Principal Accounting Officer
		and Duly Authorized Officer)

87

EX-10.2

Exhibit 10.2

AMENDMENT NO. 1

to

AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT

          THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (the “Amendment”) is made as of September 19, 2008, by and among NISOURCE FINANCE CORP. (the “Borrower”), NISOURCE INC. (the “Guarantor”), the lenders from time to time parties thereto (the “Lenders”) and BARCLAYS BANK PLC, as issuer of letters of credit (the “LC Bank”) and as administrative agent (the “Administrative Agent”) under that certain Amended and Restated Revolving Credit Agreement dated as of July 7, 2006, by and among the Borrower, the Guarantor, the Lenders and the Administrative Agent (as further amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). Defined terms used herein and not otherwise defined herein shall have the meaning given to them in the Credit Agreement.

WITNESSETH

          WHEREAS, the Borrower, the Guarantor, the Lenders, the LC Bank and the Administrative Agent are parties to the Credit Agreement; and

          WHEREAS, the Borrower and the Guarantor have requested that the Lenders, the LC Bank and the Administrative Agent amend the Credit Agreement on the terms and conditions set forth herein;

          WHEREAS, the Borrower, the Guarantor, the Administrative Agent, the LC Bank and the Required Lenders under Section 11.02 of the Credit Agreement have agreed to amend the Credit Agreement on the terms and conditions set forth herein;

          NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto have agreed to the following amendments to the Credit Agreement:

1. Amendments to the Credit Agreement. Effective as of September 19, 2008 and subject to the satisfaction of the condition precedent set forth in Section 2 below, the Credit Agreement is hereby amended as follows:

1.1. Section 1.01 of the Credit is amended to insert alphabetically therein the following defined term:

     “Tawney Litigation” means Estate of Garrison G. Tawney, et al. v. Columbia Natural Resources, LLC, et al., Civil Action No. 03-C-10E (Circuit Court of Roane County, West Virginia), petition for writ of certiorari, NiSource Inc., et al. v. Estate of Tawney, et al., U.S. Supreme Court No. 08-219 and No. 08-228.

1.2. Section 8.01(h) of the Credit Agreement is amended to delete clause (ii) thereof in its entirety and to substitute the following therefor:

(ii) there shall be any period of 30 consecutive days (or, solely with respect to the Tawney Litigation, a period of 30 consecutive days from and after July 1, 2009) during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect, except that, with respect to the Tawney Litigation, expiration or any other failure of a stay of judgment to be in place shall have no effect under clause (ii) of this Section 8.01(h), either as a Default or, after lapse of time, as an Event of Default, prior to July 1, 2009; or

2. Condition of Effectiveness. The effectiveness of this Amendment is subject to the condition precedent that the Administrative Agent shall have received duly executed originals of this Amendment from each of the Borrower, the Guarantor, the Required Lenders under Section 11.02 of the Credit Agreement, the LC Bank and the Administrative Agent.

3. Representations and Warranties of the Borrower and the Guarantor. Each of the Borrower and the Guarantor hereby represents and warrants as follows:

(a) Each of the Borrower and the Guarantor hereby represents and warrants that this Amendment and the Credit Agreement as previously executed and as modified hereby constitute legal, valid and binding obligations of the Borrower and the Guarantor and are enforceable against the Borrower and the Guarantor in accordance with their terms (except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally).

(b) Upon the effectiveness of this Amendment and after giving effect hereto, each of the Borrower and the Guarantor hereby (i) reaffirms all covenants, representations and warranties made in the Credit Agreement as modified hereby, and agrees that all such covenants, representations and warranties shall be deemed to have been remade as of the date of this Amendment except that any such covenant, representation, or warranty that was made as of a specific date shall be considered reaffirmed only as of such date and (ii) certifies to the Administrative Agent, the LC Bank and the Lenders that no Default has occurred and is continuing.

4. Reference to the Effect on the Credit Agreement.

4.1. Upon the effectiveness of Section 1 hereof, on and after the date hereof, each reference in the Credit Agreement (including any reference therein to “this Credit Agreement,” “hereunder,” “hereof,” “herein” or words of like import referring thereto) or in any other Credit Document shall mean and be a reference to the Credit Agreement as modified hereby.

4.2. Except as specifically modified above, the Credit Agreement and all other documents, instruments and agreements executed and/or delivered in connection

2

therewith, shall remain in full force and effect, and are hereby ratified and confirmed.

4.3. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Administrative Agent, the LC Bank or the Lenders, nor constitute a waiver of any provision of the Credit Agreement or any other documents, instruments and agreements executed and/or delivered in connection therewith.

5. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

6. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

7. Counterparts. This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

3

          IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written.

NISOURCE FINANCE CORP., as Borrower
By:	/s/ David J. Vajda
	Name:	David J. Vajda
	Title:	Vice President and Treasurer
NISOURCE INC., as Guarantor
By:	/s/ David J. Vajda
	Name:	David J. Vajda
	Title:	Vice President and Treasurer
BARCLAYS BANK PLC, as a Lender, as LC Bank and as Administrative Agent
By:	/s/ Sydney G. Dennis
	Name:	Sydney G. Dennis
	Title:	Director

Signature Page to Amendment No. 1 to
Amended and Restated Revolving Credit Agreement

CREDIT SUISSE, CAYMAN ISLANDS BRANCH, as a Lender
By:	/s/ Karim Blasetti
Name:	Karim Blasetti
Title:	Vice President
By:	/s/ Christopher Day
Name:	Christopher Day
Title:	Associate

Signature Page to Amendment No. 1 to
Amended and Restated Revolving Credit Agreement

JPMORGAN CHASE BANK, N.A., as a Lender
By:	/s/ Helen D. Davis
Name:	Helen D. Davis
Title:	Vice President

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as a Lender
By:	/s/ Chi-Cheng Chen
Name:	Chi-Cheng Chen
Title:	Authorized Signatory

CITICORP USA, INC., as a Lender
By:	/s/ Amit Vasani
Name:	Amit Vasani
Title:	Vice President

BNP PARIBAS, as a Lender
By:	/s/ Denis O’Meara
Name:	Denis O’Meara
Title:	Managing Director
By:	/s/ Andrew Platt
Name:	Andrew Platt
Title:	Managing Director

DEUTSCHE BANK AG NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender
By:	/s/ Thomas Brady
Name:	Thomas Brady
Title:	Managing Director
By:	/s/ Mark McGuigan
Name:	Mark McGuigan
Title:	Vice President

MIZUHO CORPORATE BANK, LTD., NEW YORK BRANCH, as a Lender
By:	/s/ Raymond Ventura
Name:	Raymond Ventura
Title:	Deputy General Manager

THE ROYAL BANK OF SCOTLAND plc, as a Lender
By:	/s/ Andrew N. Taylor
Name:	Andrew N. Taylor
Title:	Vice President

WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender
By:	/s/ Shawn Young
Name:	Shawn Young
Title:	Director

BANK OF AMERICA, N.A., as a Lender
By:	/s/ Patrick N. Martin
Name:	Patrick N. Martin
Title:	Vice President

THE NORTHERN TRUST COMPANY, as a Lender
By:	/s/ Phillip McCaulay
Name:	Phillip McCaulay
Title:	Second Vice President

PNC BANK, NATIONAL ASSOCIATION, as a Lender
By:	/s/ Helmut Vogel
Name:	Helmut Vogel
Title:	Credit Officer

U.S. BANK NATIONAL ASSOCIATION, as a Lender
By:	/s/ James N. DeVries
Name:	James N. DeVries
Title:	Senior Vice President

EX-10.3

Exhibit 10.3

NISOURCE INC.

EXECUTIVE DEFERRED COMPENSATION PLAN

Amended and Restated Effective January 1, 2008

TABLE OF CONTENTS

	Page
ARTICLE I PURPOSE; EFFECTIVE DATE		1
1.1 Purpose		1
1.2 Effective Date		1
ARTICLE II DEFINITIONS		1
2.1 Account		1
2.2 Beneficiary		2
2.3 Code		2
2.4 Committee		2
2.5 Company		2
2.6 Compensation		2
2.7 Deferral Commitment		2
2.8 Deferral Period		2
2.9 Determination Date		2
2.10 Discretionary Contribution		2
2.11 Election Form		2
2.12 Eligible Employee		2
2.13 Employer		2
2.14 Participant		2
2.15 Plan		2
2.16 Post-2004 Account		3
2.17 Pre-2005 Account		3
2.18 Retirement Committee		3
2.19 Unforeseeable Emergency		3
2.20 Gender and Number		3
ARTICLE III MERGER OF NISOURCE PLAN AND OTHER PLANS		3
3.1 Bay State Plan		3
3.2 Columbia Plan		3
ARTICLE IV PARTICIPATION AND DEFERRAL COMMITMENTS		3
4.1 Eligibility		4
4.2 Participation		4
4.3 Amendment of Eligibility Criteria		4
ARTICLE V DEFERRAL COMMITMENTS		4
5.1 Timing of Deferral Commitments		4
5.2 Amount of Deferral		4
5.3 Distribution Options		5
5.4 Duration of Deferral Commitment		5
5.5 Modification of Deferral Commitment		5

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	Page
5.6 Change in Employment Status		5
ARTICLE VI DEFERRED COMPENSATION ACCOUNT		5
6.1 Account		5
6.2 Timing of Credits; Withholding		5
6.3 Discretionary Contributions		6
6.4 Determination of Account		6
6.5 Vesting of Account		6
6.6 Statement of Account		6
ARTICLE VII INVESTMENTS		6
7.1 Investment Options		6
7.2 Special Investment Option for Former Participants in the Bay State Plan and Participants in the Plan		7
7.3 Special Investment Option for Former Participants in the Columbia Plan		7
ARTICLE VIII BENEFICIARY DESIGNATION		7
8.1 Distributions — Events Generally		8
8.2 In-Service Distributions		8
8.3 Distributions After Separation from Service		9
8.4 Hardship Distributions		11
8.5 Distribution Provisions Applicable to a Transferred Bay State Account		12
8.6 Automatic Cash-Out		12
8.7 Special Payment Election by December 31, 2006, for Code Section 409A Transition Relief		12
8.8 Withholding for Taxes		13
8.9 Payment to Guardian		13
ARTICLE IX BENEFICIARY DESIGNATION		13
9.1 Beneficiary Designation		13
9.2 Changing Beneficiary		13
9.3 Community Property		13
9.4 No Beneficiary Designation		14
ARTICLE X ADMINISTRATION		14
10.1 Committee; Duties		14
10.2 Agents		15
10.3 Binding Effect of Decisions		15
10.4 Indemnity of Retirement Committee		15
ARTICLE XI CLAIMS PROCEDURE		15
11.1 Claim		15
11.2 Review of Claim		15
11.3 Notice of Denial of Claim		15

ii 

	Page
11.4 Reconsideration of Denied Claim		16
11.5 Employer to Supply Information		16
ARTICLE XII AMENDMENT AND TERMINATION OF PLAN		16
12.1 Amendment		16
12.2 Employer’s Right to Terminate		17
ARTICLE XIII MISCELLANEOUS		17
13.1 Unfunded Plan		17
13.2 Company and Employer Obligations		17
13.3 Unsecured General Creditor		17
13.4 Trust Fund		18
13.5 Nonassignability		18
13.6 Not a Contract of Employment		18
13.7 Protective Provisions		18
13.8 Governing Law		18
13.9 Validity		19
13.10 Notice		19
13.11 Successors		19
13.12 Tax Savings Clause		19
EXHIBIT A		A-1

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NISOURCE INC.

EXECUTIVE DEFERRED COMPENSATION PLAN

ARTICLE I

PURPOSE; EFFECTIVE DATE

     1.1 Purpose. The purpose of this Executive Deferred Compensation Plan is to provide current tax planning opportunities as well as supplemental funds for retirement or death for selected employees of an Employer. It is intended that the Plan will aid in attracting and retaining employees of exceptional ability by providing them with these benefits. Effective November 1, 2000, the Bay State Gas Company Key Employee Deferred Compensation Plan (the “Bay State Plan”) was merged into the NIPSCO Industries, Inc. Executive Deferred Compensation Plan (the “NIPSCO Plan”), and the NIPSCO Plan was renamed the NiSource Inc. Executive Deferred Compensation Plan (the “Plan”). Effective January 1, 2004, the Columbia Energy Group Deferred Compensation Plan (the “Columbia Plan”) was merged into the Plan. Effective January 1, 2005, the Plan was amended and restated to comply with Code Section 409A, and guidance and regulations thereunder. Deferred Compensation, Discretionary Contributions, and earnings thereon, earned and vested prior to January 1, 2005 shall be administered without giving effect to Code Section 409A, and guidance and regulations thereunder. Effective January 1, 2008, the Plan is hereby amended and restated to incorporate the provisions of amendments to the Plan since the January 1, 2005, amendment and restatement and to allow participants to elect to participate in the Plan only during the applicable enrollment period or at such later date allowed under Code Section 409A for certain performance based bonuses.

     1.2 Effective Date. The Plan, as amended and restated, generally is effective as of January 1, 2008.

ARTICLE II

DEFINITIONS

     For the purposes of the Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise:

     2.1 Account. “Account” means the device used by an Employer to measure and determine the amount to be paid to a Participant under the Plan. Each Account shall be divided into a Pre-2005 Account containing contributions to the Plan earned and vested prior to January 1, 2005, a Post-2004 Account containing contributions to the Plan earned and/or vested on or after January 1, 2005, and, if applicable, a Transferred Bay State Account containing any amount transferred from the Bay State Plan or a Transferred Columbia Account containing any amount transferred from the Columbia Plan.

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     2.2 Beneficiary. “Beneficiary” means the person, persons or entity entitled under Article IX to receive any Plan benefits payable after a Participant’s death.

     2.3 Code. “Code” means the Internal Revenue Code of 1986, as amended from time to time.

     2.4 Committee. “Committee” means the Officer Nomination and Compensation Committee of the Board of Directors of the Company.

     2.5 Company. “Company” means NiSource Inc., a Delaware corporation.

     2.6 Compensation. “Compensation” means base salary and annual incentive awards paid to a Participant during the calendar year, before reduction for amounts deferred under the Plan or any other salary reduction program. Compensation earned on or after January 1, 2005 shall not include incentive payments other than annual incentive awards. Compensation does not include expense reimbursements, any form of noncash compensation, or benefits. Compensation does not include lump sum severance payments or lump sum vacation payouts.

     2.7 Deferral Commitment. “Deferral Commitment” means a commitment made by a Participant to defer Compensation pursuant to Article IV.

     2.8 Deferral Period. “Deferral Period” means each calendar year.

     2.9 Determination Date. “Determination Date” means each business day.

     2.10 Discretionary Contribution. “Discretionary Contribution” means the Employer contribution credited to a Participant’s Account under Section 6.3.

     2.11 Election Form. “Election Form” means the agreement submitted by a Participant to the Retirement Committee prior to the beginning of a Deferral Period, with respect to a Deferral Commitment made for such Deferral Period.

     2.12 Eligible Employee. “Eligible Employee” means a select group of management or highly compensated employees of the Employer selected by the Committee in accordance with this Plan.

     2.13 Employer. “Employer” means the Company and any subsidiary or affiliate of the Company designated by the Committee to participate in the Plan.

     2.14 Participant. “Participant” means any eligible individual who has elected to defer Compensation under the Plan.

     2.15 Plan. “Plan” means the NiSource Inc. Executive Deferred Compensation Plan, as set forth herein and as amended from time to time.

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     2.16 Post-2004 Account. “Post-2004 Account” means the excess of (1) the total balance of the Participant’s Account determined as of a Participant’s date of separation from service with all Employers (provided that such separation from service occurred after December 31, 2004) over (2) his Pre-2005 Account, to which the Participant would be entitled under the Plan if he voluntarily separated from service without cause as of such date and received a full payment of benefits from the Plan on the earliest possible date allowed under the Plan following his separation from service.

     2.17 Pre-2005 Account. “Pre-2005 Account” means the balance of a Participant’s Account determined as of December 31, 2004, adjusted to reflect earnings credited to such balance from and after such date.

     2.18 Retirement Committee. “Retirement Committee” means a committee consisting of the Senior Vice President of Human Resources and the Vice President of Human Resources (in charge of Total Rewards) of the Company.

     2.19 Unforeseeable Emergency. “Unforeseeable Emergency” means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in Code Section 152(a)) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

     2.20 Gender and Number. Except when otherwise required by the context, any masculine terminology in this document shall include the feminine, and any singular terminology shall include the plural.

ARTICLE III

MERGER OF NISOURCE PLAN AND OTHER PLANS

     3.1 Bay State Plan. As of November 1, 2000, the Bay State Plan was merged into the Plan. The balance of the account of each Bay State Plan participant, determined as of November 1, 2000, was transferred to the Plan and became the initial balance in such Participant’s Transferred Bay State Account in the Plan. A Participant’s Transferred Bay State Account shall be held, administered, invested, and distributed pursuant to the terms of the Plan.

     3.2 Columbia Plan. As of January 1, 2004, the Columbia Plan was merged into the Plan. The balance of the account of each Columbia Plan participant, determined as of December 31, 2003, was transferred to the Plan and became the initial balance in such Participant’s Transferred Columbia Account in the Plan. A Participant’s Transferred Columbia Account shall be held, administered, invested, and distributed pursuant to the terms of the Plan.

ARTICLE IV

ELIGIBILITY AND PARTICIPATION

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     4.1 Eligibility. From and after January 1, 2005, eligibility to participate in the Plan for a Deferral Period shall be limited to (1) an employee in job scope level D2 or above, and (2) any other key employee of an Employer who is designated from time to time by the Committee.

     4.2 Participation. An Eligible Employee shall become a Participant in the Plan by electing to defer Compensation in accordance with Article V. An Eligible Employee also becomes a participant if the Employer credits the Participant’s Account with a Discretionary Contribution.

     4.3 Amendment of Eligibility Criteria. The Committee may, in its discretion, change the criteria for eligibility for any reason, provided, however, that no change in the criteria for eligibility shall be effective unless such changes are (a) within guidelines established by the Committee or (b) approved by the Committee. Eligibility for participation in one year does not guarantee eligibility to participate in any future year.

ARTICLE V

DEFERRAL COMMITMENTS

     5.1 Timing of Deferral Elections. An Eligible Employee may elect to defer Compensation for services performed in any Deferral Period by submitting an Election Form to the Retirement Committee only during the annual enrollment period, established by the Retirement Committee, which shall end no later than December 31, of the year preceding such Deferral Period. Thus, for any salary to be paid for services performed in a year, an election to defer such salary must be made no later than December 31, of the prior year. Further, except as provided in Section 5.1(b) below, for annual incentive awards paid for services performed in a year, an election to defer such annual incentive award must be made no later than December 31, of the prior year. To illustrate these provisions, an election to defer salary payable for services performed in 2008 must be made by December 31, 2007. Further, an election to defer annual incentive awards that are (1) not performance-based compensation described in Section 5.1(b) below, (2) earned for the 2009 calendar year, and (3) to be paid in March 2010, must be made by December 31, 2008.

     5.2 Amount of Deferral. A Participant may make a Deferral Commitment in the Election Form as follows:

     (a) Compensation Deferral Commitment. The amount of base Compensation that a Participant may elect to defer in a Compensation Deferral Commitment shall be stated as a whole percentage of base Compensation from five percent (5%) to 80%; provided, however, that the Company may reduce the amount deferred to the extent necessary to satisfy federal, state, local, or other tax withholding obligations and employee benefit plan withholding requirements.

     (b) Annual Incentive Deferral Commitment. The amount of any annual incentive award that a Participant may elect to defer in a Compensation Deferral Commitment shall be stated as a whole percentage of the annual incentive award from five percent (5%) to 100%; provided, however, that the Company may reduce the amount deferred to the extent necessary to

4

satisfy federal, state, local, or other tax withholding obligations and employee benefit plan withholding requirements.

     No Deferral Commitment shall be made subsequent to the date of a Participant’s separation from service with all Employers.

     5.3 Distribution Options. Each Deferral Commitment with respect to a calendar year shall specify the date on which the applicable deferred amount and earnings thereon shall be distributed. Such date shall be the first to occur of (1) the date of the Participant’s separation from service with all Employers; or (2) a date selected by the Participant, provided that a selected date must be at least one year after the date the deferred amount would have been paid to the Participant in cash in the absence of the election to make the deferral.

     5.4 Duration of Deferral Commitment. A Participant shall make an election in his Election Form as to the time and form of payment of the Deferral Commitment for each Deferral Period. A Participant’s Deferral Commitment for any Deferral Period is effective only for such Deferral Period in order to defer Compensation for a subsequent Deferral Period, an Eligible Employee must file a new deferral election with respect to such Compensation. A Participant shall not be required to designate the same time and form of payment for each Deferral Period.

     5.5 Modification of Deferral Commitment. Except as provided otherwise in this Plan, Deferral Commitments shall be irrevocable.

     5.6 Change in Employment Status. If the Committee determines that a Participant’s performance is no longer at a level that deserves reward through participation in the Plan, but does not terminate the Participant’s employment with an Employer, the Participant’s existing Deferral Commitment shall terminate at the end of the current Deferral Period, and no new Deferral Commitment may be made by such Participant for any Deferral Period beginning after notice of such determination is given by the Committee.

ARTICLE VI

DEFERRED COMPENSATION ACCOUNT

     6.1 Account. The Compensation deferred by a Participant under the Plan, including any Discretionary Contributions and earnings thereon, shall be credited to the Participant’s Account. Separate subaccounts may be maintained to reflect different forms of distribution, investment options, levels of vesting, and forms of payment. The Account shall be a bookkeeping device utilized for the sole purpose of determining the benefits payable under the Plan and shall not constitute a separate fund of assets.

     6.2 Timing of Credits; Withholding. A Participant’s deferred Compensation shall be credited to the Participant’s Account at the time it would have been payable to the Participant. Any withholding of taxes or other amounts with respect to deferred Compensation that is required by federal, state or local law shall be withheld from the Participant’s nondeferred Compensation to the maximum extent possible and any remaining amount shall reduce the amount credited to the Participant’s Account.

5

     6.3 Discretionary Contributions. An Employer may make Discretionary Contributions to a Participant’s Account. Discretionary Contributions shall be credited at such times and in such amounts as the Committee in its sole discretion shall determine.

     6.4 Determination of Account. Each Participant’s Account as of each Determination Date shall consist of the balance of the Account as of the immediately preceding Determination Date, adjusted as follows:

     (a) New Deferrals. The Account shall be increased by any deferred Compensation credited since such preceding Determination Date.

     (b) Discretionary Contributions. The Account shall be increased by any Discretionary Contributions credited since such preceding Determination Date.

     (c) Distributions. The Account shall be reduced by any benefits distributed from the Account to the Participant since such preceding Determination Date.

     (d) Valuation of Account. The Account shall be increased or decreased by the aggregate earnings, gains and losses on such Account since such preceding Determination Date.

     6.5 Vesting of Account. Each Participant shall be vested in the amounts credited to such Participant’s Account and earnings thereon as follows:

     (a) Amounts Deferred. A Participant shall be 100% vested at all times in the amount of Compensation elected to be deferred under the Plan, and earnings thereon.

     (b) Discretionary Contributions. A Participant’s Discretionary Contributions, and earnings thereon, shall become vested as determined by the Committee.

     (c) Transferred Account. A Participant shall be 100% vested at all times in the balance of his Transferred Bay State Account or Transferred Columbia Account, if any.

     6.6 Statement of Account. The Retirement Committee shall give to each Participant a statement showing the balance in the Participant’s Account periodically, at such times as may be determined by the Retirement Committee, in written or electronic form.

ARTICLE VII

INVESTMENTS

     7.1 Investment Options. Amounts credited hereunder to the Account of a Participant shall be invested as such Participant elects among the investment choices provided to the Participant. The investment options shall be determined by the Company from time to time in its sole and absolute discretion. No election of a Deferral Commitment by a Participant shall be effective until such time as the Participant submits his initial investment election to the

6

Company. Such investment election shall continue to apply to subsequent Deferral Commitments made by the Participant until changed by the Participant.

     7.2 Special Investment Option for Former Participants in the Bay State Plan and Participants in the Plan. Former participants in the Bay State Plan who became Participants in the Plan, or Participants in the Plan on November 1, 2000, shall have an additional special investment option applicable solely to their Transferred Bay State Account balances, or their Account balances in the Plan, valued as of November 1, 2000, and any subsequent amounts contributed to such Participant’s Account. Such Participants may invest their Transferred Bay State Account balances, or their Account balances in the Plan as of November 1, 2000, and any subsequent amounts contributed to such Participant’s Account, in a subaccount which shall be credited with earnings equal to one percentage point higher than the effective annual yield of the average of the Moody’s Average Corporate Bond Yield Index for the previous calendar month as published by Moody’s Investor Services, Inc. (or any successor publisher thereto), or, if such index is no longer published, a substantially similar index selected by the Committee. A Participant’s Transferred Bay State Account balance, or his Account balance in the Plan on November 1, 2000, shall be invested pursuant to this special investment option from and after November 1, 2000, and until such time as another investment choice is designated by him pursuant to Section 7.1 with respect to all or a portion of his Transferred Bay State Account, or his Account balance in the Plan on November 1, 2000. Subsequent amounts contributed to any such Participant’s Account may be invested pursuant to this option as designated by the Participant pursuant to Section 7.1. However, any portion of a Transferred Bay State Account, or an Account balance in the Plan, subsequently transferred from the investment option described in this Section 7.2 to another investment option may not be reinvested under this Section 7.2.

     7.3 Special Investment Option for Former Participants in the Columbia Plan. Former participants in the Columbia Plan who become Participants in the Plan on January 1, 2004 shall have an additional special investment option applicable solely to their Transferred Columbia Account balances, valued as of January 1, 2004. Such Participants may invest all or any portion of their Transferred Columbia Account balances in a subaccount that shall be credited each day with earnings equal to the prime rate of interest in effect as of such business day, as listed in The Wall Street Journal. All or the designated portion of a Participant’s Transferred Columbia Account balance shall be invested pursuant to this special investment option from and after January 1, 2004, and until such time as another investment choice is designated by him pursuant to Section 7.1 with respect to all or a portion of his Transferred Columbia Account. Any portion of a Transferred Columbia Account subsequently transferred from the investment option described in this Section 7.3 to another investment option may not be reinvested under the investment option described in this Section 7.3. Amounts contributed to any such Participant’s Account on or after January 1, 2004 shall not be eligible for the investment option described in this Section 7.3.

ARTICLE VIII

PLAN BENEFITS — PAYMENTS AND DISTRIBUTIONS

7

     8.1 Distributions/Events Generally. Participants generally will not be entitled to receive a distribution of their Account balance until they separate from service with the Employer for any reason, as provided in Section 8.3. A Participant may receive a distribution before separation from service, however, in accordance with this Article VIII, upon (1) an Unforeseeable Emergency that occurs before separation from service, or (2) a year that has been designated by the Participant in a Deferral Commitment and that occurs before separation from service.

     8.2 In-Service Distributions.

     (a) General Payments. A Participant, in connection with a Deferral Commitment, may elect to receive his or her Compensation deferred for a Deferral Period, and all amounts credited or debited thereto, in a specified year while employed with an Employer. The Participant, in a Deferral Commitment, may elect to receive such an in-service distribution as either a lump sum or equal annual installments over a period of not more than 15 years. If a Participant does not make such an election, the payment shall be made in a lump sum.

     If a Participant elects to receive an in-service distribution as a lump sum, the amount of the lump sum payment will be based on the value of the Participant’s account as of March 15 of the designated year. The distribution date generally shall be March 31 of such year, or, if later, within such time frame permitted under Code Section 409A and the guidance and regulations thereunder.

     If a Participant elects to receive installments, the amount of each installment payment will be based on the value of the participant’s account as of the March 15 preceding the distribution of each installment payment. The distribution date generally shall be each subsequent March 31, or if later, within such time frame permitted under Code Section 409A, and the guidance and regulations thereunder.

     (b) Modifying In-Service Distributions.

     (1) Pre-2005 Account. Notwithstanding any other provision of the Plan, a Participant may modify his election as to the form or time of distribution of his entire Pre-2005 Account, and earnings thereon, by a writing filed with the Retirement Committee at any time prior to the commencement of payment. A Participant’s modification of his election as to the form or time of commencement of payment shall be ineffective, unless (1) the modification election is filed with the Retirement Committee more than 12 months prior to the time of commencement of payment, or (2) a Participant elects by written instrument delivered to the Company prior to the time of commencement of payment to have his Pre-2005 Account reduced by 10%. This reduction shall be forfeited and used by the Plan to reduce expenses of administration. This reduction is intended to discourage a Participant from modifying his election as to the form or time of commencement of payment within the period set forth in clause (1) above and prevent him from being deemed in constructive receipt of his Pre-2005 Account prior to its actual payment to him.

8

     (2) Post-2004 Account. The Company, in its discretion, may allow a Participant to modify his election as to the form or time of distribution of his entire Post-2004 Account, and earnings thereon, or of any Post-2004 Deferral Commitment under the Plan and earnings thereon, if (1) such election does not take effect until at least 12 months after the date on which the election is made, (2) the first payment with respect to which such election is made is deferred for a period of not less than five (5) years from the date on which such payment would otherwise have been made, and (3) any election related to a payment to be made at a specified date is made at least 12 months prior to the date of the first scheduled payment. For purposes of the Plan, the term “payment” means each separate installment and not the collective group of installment payments.

     (c) Precedence of Distributions. In the event a Participant has a separation from service, Severe Financial Hardship, or other event that triggers distribution of benefits under Article VIII of this Plan, all amounts subject to an in-service distribution shall be paid in accordance with other applicable provisions of the Plan and not under this Section 8.2. If, however, a Participant made an election to postpone an in-service distribution under Section 8.2(b), and the Participant separates from service, the distribution will be made in accordance with Section 8.2(b) and not Section 8.3.

     8.3 Distributions After Separation from Service.

     (a) Generally. If a Participant separates from service with an Employer, the provisions of this Section 8.3 shall apply to the distribution of the Participant’s account. The Participant may elect, in his or her, Deferral Commitment, to receive such benefits as either a lump sum or in equal annual installments over a period not to exceed 15 years. If no such election is made, payment shall be made as a lump sum.

     (b) Lump Sum.

          (1) Pre-2005 Account. If payment of a Participant’s Pre-2005 Account is to be made in a lump sum, the lump sum payment generally shall be made on or as soon as administratively practicable after the March 31^st immediately after the date in which the Participant separates from service.

          (2) Post-2004 Account.

               (a) Non-Specified Employees. If payment of a Participant’s Post-2004 Account is to be made to the Participant in a lump sum, and the Participant is not a Specified Employee of any Employer as defined in Section 8.3(d) of this Plan and consistent with the guidance under Code Section 409A, the lump sum payment generally shall be made on or as soon as administratively practicable after the March 31^st immediately after the date in which the Participant separates from service.

               (b) Specified Employees. If payment of a Participant’s Post-2004 Account is to be made to the Participant in a lump sum, and the Participant is a Specified Employee of any Employer, as defined in Section 8.3(d) of this Plan and consistent with the

9

guidance under Code Section 409A, the lump sum payment generally shall be made on or as soon as administratively practicable after the later of (1) the March 31^st immediately after the date in which the Participant separates from service, or (2) the date that is six (6) months after the date in which the Participant separates from service, unless due to such Participant’s death, in which case payment generally shall be made to the Beneficiary as soon as practicable after the date of the Participant’s death.

     (c) Installments.

          (1) Pre-2005 Account. If payment of a Participant’s Pre-2005 Account is to be made in annual installments, the distribution of the first annual installment payment generally shall be made on or as soon as administratively practicable after the March 31^st immediately after the date in which the Participant separates from service. The amount of this first installment payment shall be based on the value of the Participant’s Account as of the March 15 preceding the distribution date of this installment payment. Each subsequent installment payment generally shall be paid on or as soon as administratively practicable after each subsequent March 31. The amount of each such installment shall be based on the value of the Participant’s account as of the March 15 preceding the distribution date of such installment.

          (2) Post-2004 Account.

               (a) Non-Specified Employees. If payment of a Participant’s Post-2004 Account is to be made to the Participant in annual installments, the distribution of the first annual installment payment generally shall be made on or as soon as administratively practicable after the March 31^st immediately after the date in which the Participant separates from service. The amount of this first installment payment shall be based on the value of the Participant’s Account as of the March 15 preceding the distribution date of this installment payment. Each subsequent installment payment generally shall be paid on or as soon as administratively practicable after each subsequent March 31. The amount of each such installment shall be based on the value of the Participant’s account as of the March 15 preceding the distribution date of such installment.

               (b) Specified Employees. If payment of a Participant’s Post-2004 Account is to be made to the Participant in annual installments, and the Participant is a Specified Employee of any Employer, as defined in Section 8.3(d) of this Plan and consistent with the guidance under Code Section 409A, the distribution of the first annual installment payment generally shall be made on or as soon as administratively practicable after the later of (1) the March 31^st immediately after the date in which the Participant separates from service, or (2) the date that is six (6) months after the date in which the Participant separates from service, unless due to such Participant’s death, in which case such installment payment generally shall be made to the Beneficiary as soon as practicable after the date of the Participant’s death. The amount of this first installment payment shall be based on the value of the Participant’s Account as of the March 15 preceding the distribution date of this installment payment. Each subsequent installment payment generally shall be paid on or as soon as administratively practicable after each subsequent March 31. The amount of each such installment shall be based on the value of the Participant’s account as of the March 15 preceding the distribution date of such installment.

10

     (d) Specified Employee Determination. A Participant shall be deemed to be a Specified Employee for purposes of this Section 8.3 if he or she is in job scope level C2 or above with respect to any Employer that employees him; provided that if at any time the total number of Employees in job category C2 and above is less than 50, a Specified Employee shall include any employee who meets the definition of Key Employee set forth in Code Section 416(i) without reference to paragraph (5). A Participant shall be deemed to be a Specified Employee with respect to a calendar year if he or she is a Specified Employee on September 30 of the preceding calendar.

     (e) Modifying Separation from Service Distributions.

     (1) Pre-2005 Account. Notwithstanding any other provision of the Plan, a Participant may modify his election as to the form or time of distribution of his entire Pre-2005 Account, and earnings thereon, by a writing filed with the Retirement Committee at any time prior to the commencement of payment. A Participant’s modification of his election as to the form or time of commencement of payment shall be ineffective, unless (1) the modification election is filed with the Retirement Committee more than 12 months prior to the time of commencement of payment, or (2) a Participant elects by written instrument delivered to the Company prior to the time of commencement of payment to have his Pre-2005 Account reduced by 10%. This reduction shall be forfeited and used by the Plan to reduce expenses of administration. This reduction is intended to discourage a Participant from modifying his election as to the form or time of commencement of payment within the period set forth in clause (1) above and prevent him from being deemed in constructive receipt of his Pre-2005 Account prior to its actual payment to him.

     (2) Post-2004 Account. The Company, in its discretion, may allow a Participant to modify his election as to the form or time of distribution of his entire Post-2004 Account, and earnings thereon, or of any Post-2004 Deferral Commitment under the Plan and earnings thereon, if (1) such election does not take effect until at least 12 months after the date on which the election is made, (2) the first payment with respect to which such election is made is deferred for a period of not less than five (5) years from the date on which such payment would otherwise have been made, and (3) any election related to a payment to be made at a specified date is made at least 12 months prior to the date of the first scheduled payment. For purposes of the Plan, the term “payment” means each separate installment and not the collective group of installment payments.

     8.4 Unforeseeable Emergency/Hardship Distributions.

     (a) Upon a finding that a Participant has suffered an Unforeseeable Emergency, the Retirement Committee may, in its sole discretion, make distributions from the Participant’s Pre-2005 Account (including his Transferred Bay State Account or Transferred Columbia Account, if applicable). The amount of such a distribution shall be limited to the amount reasonably necessary to meet the Participant’s needs resulting from the Unforeseeable Emergency. Any distribution pursuant to this Section 8.4(a) shall be payable in a lump sum.

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The distribution shall be paid within 30 days after the determination of an Unforeseeable Emergency.

     (b) Upon a finding that a Participant has suffered an Unforeseeable Emergency, the Retirement Committee may, in its sole discretion, make distributions from the Participant’s Post-2004 Account and/or allow a Participant to suspend his Deferred Commitment entirely. The amount of such distribution shall be limited to the amount necessary to satisfy such Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship). Any distribution pursuant to this Section 8.4(b) shall be payable in a lump sum. The distribution shall be paid within 30 days after the determination of an Unforeseeable Emergency.

     8.5 Distribution Provisions Applicable to a Transferred Bay State Account. Notwithstanding any other provision in the Plan, the following provisions shall apply to the form and time of payment of the balance of a Transferred Bay State Account:

     (a) The portion of a Transferred Bay State Account not paid pursuant to Section 8.2 shall be paid to a Participant following his separation from service, or to his Beneficiary in the case of death, in the form selected by the Participant, by written instrument delivered to the Retirement Committee before November 1, 2000. If no form is selected by the Participant, payment shall be made in a lump sum. The provisions of Section 8.2(b) shall apply with respect to the election of the form of payment of a Transferred Bay State Account and the modification of such election.

     (b) Any former employee of Bay State Gas Company who (1) was a participant in the Bay State Plan immediately prior to November 1, 2000, (2) terminated employment with Bay State Gas Company prior to November 1, 2000, for any reason other than Retirement, death or Disability (as such terms were defined in the Bay State Plan immediately prior to November 1, 2000), and (3) as of November 1, 2000, had not commenced payment of his Account shall not commence payment of his Transferred Bay State Account until the earlier of the Participant’s attainment of age 65, Disability or death. Notwithstanding the preceding sentence, the Retirement Committee may, in its sole discretion, vary the manner and time of making the payment of a Participant’s Transferred Bay State Account to such former Bay State employee, and may make such distributions over a longer or shorter period of time or in a lump sum.

     8.6 Automatic Cash-Out. In the event a Participant’s Account balance at the time distribution begins, or following a distribution of an installment payment is $15,000 or less, that balance shall be paid to the Participant or his Beneficiary in a lump sum on the next annual installment distribution date notwithstanding any form of benefit payment elected by the Participant.

     8.7 Special Payment Election by December 31, 2006, for Code Section 409A Transition Relief. Notwithstanding any other provision of this Plan, a Participant may change

12

an election with respect to the time and form of payment of Post-2004 Benefit, without regard to the restrictions imposed under paragraph (i) next above, on or before December 31, 2006; provided that such election (1) applies only to amounts that would not otherwise be payable in calendar year 2006, and (2) shall not cause an amount to be paid in calendar year 2006 that would not otherwise be payable in such year.

     8.8 Withholding for Taxes. To the extent required by the law in effect at the time payments are made, an Employer shall withhold from the payments made hereunder any taxes required to be withheld by the federal or any state or local government, including any amounts which the Employer determines is reasonably necessary to pay any generation-skipping transfer tax which is or may become due. A Beneficiary, however, may elect not to have withholding of federal income tax pursuant to Code Section 3405(a)(2).

     8.9 Payment to Guardian. The Retirement Committee may direct payment to the duly appointed guardian, conservator or other similar legal representative of a Participant or Beneficiary to whom payment is due. In the absence of such a legal representative, the Retirement Committee may, in its sole and absolute discretion, make payment to a person having the care and custody of a minor, incompetent or person incapable of handling the disposition of property upon proof satisfactory to the Retirement Committee of incompetency, status as a minor, or incapacity. Such distribution shall completely discharge the Company from all liability with respect to such benefit.

ARTICLE IX

BENEFICIARY DESIGNATION

     9.1 Beneficiary Designation. Subject to Section 9.3, each Participant shall have the right, at any time, to designate one or more persons or an entity as Beneficiary (both primary as well as secondary) to whom benefits under the Plan shall be paid in the event of the Participant’s death prior to complete distribution of the Participant’s Account. Each Beneficiary designation shall be in a written form prescribed by the Retirement Committee and shall be effective only when filed with the Retirement Committee during the Participant’s lifetime.

     9.2 Changing Beneficiary. Subject to Section 9.3, any Beneficiary designation may be changed by a Participant without the consent of the previously named Beneficiary by the filing of a new designation with the Retirement Committee. The filing of a new designation shall cancel all designations previously filed.

     9.3 Community Property. If the Participant resides in a community property state, the following rules shall apply:

     (a) Designation by a married Participant of a Beneficiary other than the Participant’s spouse shall not be effective unless the spouse executes a written consent that acknowledges the effect of the designation, or it is established that the consent cannot be obtained because the spouse cannot be located.

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     (b) A married Participant’s Beneficiary designation may be changed by a Participant with the consent of the Participant’s spouse as provided for in Section 9.3(a) by the filing of a new designation with the Retirement Committee.

     (c) If the Participant’s marital status changes after the Participant has designated a Beneficiary, the following shall apply:

     (i) If the Participant is married at the time of death but was unmarried when the designation was made, the designation shall be void unless the spouse has consented to it in the manner prescribed in Section 98.3(a).

     (ii) If the Participant is unmarried at the time of death but was married when the designation was made:

     (a) The designation shall be void if the spouse was named as Beneficiary, unless the designation is reaffirmed when the Participant is unmarried.

     (b) The designation shall remain valid if a nonspouse. Beneficiary was named.

     (iii) If the Participant was married when the designation was made and is married to a different spouse at death, the designation shall be void unless the new spouse has consented to it in the manner prescribed above.

     9.4 No Beneficiary Designation. If any Participant fails to designate a Beneficiary in the manner provided above, if the designation is void or if the Beneficiary designated by a deceased Participant dies before the Participant or before complete distribution of the Participant’s benefits, the Participant’s Beneficiary shall be the person in the first of the following classes in which there is a survivor:

     (a) The Participant’s spouse;

     (b) The Participant’s children in equal shares, except that if any of the children predeceases the Participant but leaves issue surviving, then such issue shall take, by right of representation, the share the parent would have taken if living;

     (c) The Participant’s estate.

ARTICLE X

ADMINISTRATION

     10.1 Committee; Duties. The Plan shall be administered by the Retirement Committee. The Retirement Committee shall have the authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of the Plan and decide or

14

resolve any and all questions, including interpretations of the Plan, as may arise in such administration. Members of the Retirement Committee may be Participants under the Plan.

     10.2 Agents. The Retirement Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company.

     10.3 Binding Effect of Decisions. The decision or action of the Retirement Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in the Plan.

     10.4 Indemnity of Retirement Committee. The Company shall indemnify and hold harmless the members of the Retirement Committee against any and all claims, loss, damage, expense, or liability arising from any action or failure to act with respect to the Plan on account of such person’s service on the Retirement Committee, except in the case of gross negligence or willful misconduct.

ARTICLE XI

CLAIMS PROCEDURE

     11.1 Claim. The Retirement Committee shall establish rules and procedures to be followed by Participants and Beneficiaries in filing claims for benefits, and for furnishing and verifying proof necessary to establish the right to benefits in accordance with the Plan, consistent with the remainder of this Article. Such rules and procedures shall require that claims and proofs be made in writing and directed to the Retirement Committee.

     11.2 Review of Claim. The Retirement Committee shall review all claims for benefits. Upon receipt by the Retirement Committee of such a claim, it shall determine all facts that are necessary to establish the right of the claimant to benefits under the provisions of the Plan and the amount thereof as herein provided within 90 days of receipt of such claim. If prior to the expiration of the initial 90 day period, the Retirement Committee determines additional time is needed to come to a determination on the claim, the Retirement Committee shall provide written notice to the Participant, Beneficiary or other claimant of the need for the extension, not to exceed a total of 180 days from the date the application was received.

     11.3 Notice of Denial of Claim. In the event that any Participant, Beneficiary or other claimant claims to be entitled to a benefit under the Plan, and the Retirement Committee determines that such claim should be denied in whole or in part, the Retirement Committee shall, in writing, notify such claimant that the claim has been denied, in whole or in part, setting forth the specific reasons for such denial. Such notification shall be written in a manner reasonably expected to be understood by such claimant and shall refer to the specific sections of the Plan relied on, shall describe any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and, where appropriate, shall include an explanation of how the claimant can obtain reconsideration of such denial.

15

     11.4 Reconsideration of Denied Claim.

     (a) Within 60 days after receipt of the notice of the denial of a claim, such claimant or duly authorized representative may request, by mailing or delivery of such written notice to the Retirement Committee, a reconsideration by the Retirement Committee of the decision denying the claim. If the claimant or duly authorized representative fails to request such a reconsideration within such 60 day period, it shall be conclusively determined for all purposes of the Plan that the denial of such claim by the Retirement Committee is correct. If such claimant or duly authorized representative requests a reconsideration within such 60 day period, the claimant or duly authorized representative shall have 30 days after filing a request for reconsideration to submit additional written material in support of the claim, review pertinent documents and submit issues and comments in writing.

     (b) After such reconsideration request, the Retirement Committee shall determine within 60 days of receipt of the claimant’s request for reconsideration whether such denial of the claim was correct and shall notify such claimant in writing of its determination. The written notice of decision shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. In the event of special circumstances determined by the Retirement Committee, the time for the Retirement Committee to make a decision may be extended by an additional 60 days upon written notice to the claimant prior to the commencement of the extension. If such determination is favorable to the claimant, it shall be binding and conclusive. If such determination is adverse to such claimant, it shall be binding and conclusive unless the claimant or his duly authorized representative notifies the Retirement Committee within 90 days after the mailing or delivery to the claimant by the Retirement Committee of its determination that claimant intends to institute legal proceedings challenging the determination of the Retirement Committee and actually institutes such legal proceedings within 180 days after such mailing or delivery.

     11.5 Employer to Supply Information. To enable the Retirement Committee to perform its functions, each Employer shall supply full and timely information to the Retirement Committee of all matters relating to the retirement, death or other cause for separation from service of all Participants, and such other pertinent facts as the Retirement Committee may require.

ARTICLE XII

AMENDMENT AND TERMINATION OF PLAN

     12.1 Amendment. The Committee may at any time amend the Plan by written instrument, notice of which is given to all Participants, and to Beneficiaries receiving installment payments. Notwithstanding the preceding sentence, no amendment shall reduce the amount accrued in any Account prior to the date such notice of the amendment is given.

16

     12.2 Employer’s Right to Terminate. The Committee may at any time partially or completely terminate the Plan if, in its judgment, the tax, accounting or other effects of the continuance of the Plan, or potential payments thereunder, would not be in the best interests of the Employers.

     (a) Partial Termination. The Committee may partially terminate the Plan by instructing the Retirement Committee not to accept any additional Deferral Commitments. If such a partial termination occurs, the Plan shall continue to operate and be effective with regard to Deferral Commitments entered into prior to the effective date of such partial termination.

     (b) Complete Termination. The Committee may completely terminate the Plan by instructing the Retirement Committee not to accept any additional Deferral Commitments, and by terminating all ongoing Deferral Commitments. If such a complete termination occurs, the Plan shall cease to operate and the Employers shall pay out each Pre-2005 Account in equal monthly installments over the following period, based on the Pre-2005 Account balance:

Account Balance	Payout Period
Less than $50,000	Lump Sum
$50,000 but less than $100,000	3 Years
More than $100,000	5 Years

Payments shall commence within 65 days after the Committee terminates the Plan, and earnings shall continue to be credited on the unpaid Account balance. Employers shall pay out each Post-2004 Account in the manner and at the time described in Articles V and VIII.

ARTICLE XIII

MISCELLANEOUS

     13.1 Unfunded Plan. The Plan is an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of “management or highly-compensated employees” within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA.

     13.2 Company and Employer Obligations. The obligation to make benefit payments to any Participant under the Plan shall be a joint and several liability of the Company and the Employer that employed the Participant.

     13.3 Unsecured General Creditor. Participants and Beneficiaries shall be unsecured general creditors, with no secured or preferential right to any assets of the Employer or any other party for payment of benefits under the Plan. Any life insurance policies, annuity contracts or other property purchased by the Employer in connection with the Plan shall remain its general, unpledged and unrestricted assets. The Employer’s obligation under the Plan shall be an unfunded and unsecured promise to pay money in the future.

17

     13.4 Trust Fund. Subject to Section 13.3, the Company may establish separate subtrusts for deferrals by employees of each Employer, pursuant to a trust agreement entered into with such trustees as the Committee may approve, for the purpose of providing for the payment of benefits owed under the Plan. At its discretion, each Employer may contribute deferrals under the Plan for its employees to the subtrust established with respect to such Employer under such trust agreement. To the extent any benefits provided under the Plan are paid from any such subtrust, the Employer shall have no further obligation to pay them. If not paid from a subtrust, such benefits shall remain the obligation of the Employer. Although such subtrusts may be irrevocable, their assets shall be held for payment of all the Company’s general creditors in the event of insolvency or bankruptcy.

     13.5. Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate, or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof or rights to, which are expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony, or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency.

     Notwithstanding the preceding paragraph, the Account of any Participant shall be subject to and payable in the amount determined in accordance with any qualified domestic relations order, as that term is defined in Section 206(d)(3) of ERISA. The Retirement Committee shall provide for payment in a lump sum from a Participant’s Account to an alternate payee (as defined in Code Section 414(p)(8)) as soon as administratively practicable following receipt of such order. Any federal, state or local income tax associated with such payment shall be the responsibility of the alternate payee. The balance of an Account that is subject to any qualified domestic relations order shall be reduced by the amount of any payment made pursuant to such order.

     13.6 Not a Contract of Employment. The Plan shall not constitute a contract of employment between an Employer and the Participant. Nothing in the Plan shall give a Participant the right to be retained in the service of an Employer or to interfere with the right of an Employer to discipline or discharge a Participant at any time.

     13.7 Protective Provisions. A Participant shall cooperate with his Employer by furnishing any and all information requested by the Employer in order to facilitate the payment of benefits hereunder, and by taking such physical examinations as the Employer may deem necessary and taking such other action as may be requested by the Employer.

     13.8 Governing Law. The provisions of the Plan shall be construed and interpreted according to the laws of the State of Indiana, except as preempted by federal law.

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     13.9 Validity. In case any provision of the Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but the Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.

     13.10 Notice. Any notice required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed as given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Retirement Committee shall be directed to the Company’s address. Mailed notice to a Participant or Beneficiary shall be directed to the individual’s last known address in the applicable Employer’s records.

     13.11 Successors. The provisions of the Plan shall bind and inure to the benefit of the Employers and their successors and assigns. The term successors as used herein shall include any corporate or other business entity that shall, whether by merger, consolidation, purchase, or otherwise, acquire all or substantially all of the business and assets of an Employer, and successors of any such corporation or other business entity.

     13.12 Tax Savings Clause. Notwithstanding anything to the contrary contained in the Plan, (1) in the event that the Internal Revenue Service prevails in its claim that amounts contributed to the Plan for the benefit of a Participant, and/or earnings thereon, constitute taxable income under Code Section 409A, and guidance and regulations thereunder, to the Participant or his Beneficiary for a taxable year prior to the taxable year in which such contributions and/or earnings are distributed to him, or (2) in the event that legal counsel satisfactory to the Company, and the applicable Participant or his Beneficiary, renders an opinion that the Internal Revenue Service would likely prevail in such a claim, the Post-2004 Account, to the extent constituting such taxable income, shall be immediately distributed to the Participant or his Beneficiary. For purposes of this Section, the Internal Revenue Service shall be deemed to have prevailed in a claim if such claim is upheld by a court of final jurisdiction, or, if based upon an opinion of legal counsel satisfactory to the Company and the Participant or his Beneficiary, the Plan fails to appeal a decision of the Internal Revenue Service, or a court of applicable jurisdiction, with respect to such claim to an appropriate Internal Revenue Service appeals authority or to a court of higher jurisdiction within the appropriate time period.

     IN WITNESS WHEREOF, the Company has caused the Plan to be executed in its name by its duly authorized officer this 28 day of October 2008, effective as of the 1^st day of January 2008.

NISOURCE INC.
By:	/s/ Robert Campbell

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EX-10.4

Exhibit 10.4

NISOURCE INC.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

As Amended and Restated Effective January 1, 2008

TABLE OF CONTENTS

			Page
ARTICLE I PURPOSE				1
ARTICLE II DEFINITIONS				1
	2.1	Affiliate		1
	2.2	Board		2
	2.3	Code		2
	2.4	Committee		2
	2.5	Company		2
	2.6	Compensation		2
	2.7	Disability or Disabled		2
	2.8	Early Retirement		2
	2.9	Final Average Compensation		2
	2.10	NiSource Pension Plan		2
	2.11	Normal Retirement		3
	2.12	Participant		3
	2.13	Pension		3
	2.14	Pension Restoration Plan		3
	2.15	Plan		3
	2.16	Post-2004 Benefit		3
	2.17	Pre-2005 Benefit		3
	2.18	Primary Social Security Benefit		3
	2.19	Qualified Pension Plan		3
	2.20	Retirement		4
	2.21	Retirement Committee		4
	2.22	Service		4
ARTICLE III PARTICIPATION				4
ARTICLE IV SUPPLEMENTAL RETIREMENT PENSION				4
	4.1	Applicability		4
	4.2	Supplemental Retirement Pension		4
	4.3	Reduction for Early Retirement		5
	4.4	Separation from Service Prior to Early Retirement		5
	4.5	Supplemental Disability Pension		6
	4.6	Supplemental Spouse Pension		7
	4.7	Retiree Death Benefit		7
	4.8	Cost of Living Adjustment		7
	4.9	Separate Agreement		8
ARTICLE V SUPPLEMENTAL RETIREMENT ACCOUNT				8
	5.1	Applicability		8
	5.2	Supplemental Retirement Account		8
	5.3	Supplemental Credits		8

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TABLE OF CONTENTS
(continued)

			Page
	5.4	Separation from Service		8
	5.5	Death		8
ARTICLE VI DISTRIBUTIONS				9
	6.1	Pre-2005 Benefit		9
	6.2	Post-2004 Benefit		10
ARTICLE VII MISCELLANEOUS				12
	7.1	Plan Financing		12
	7.2	Non-Compete and Related Provisions		12
	7.3	Nonguarantee of Employment		12
	7.4	Nonalienation of Benefits		13
	7.5	Plan Amendment or Termination		13
	7.6	Indemnification		13
	7.7	Action by Company		14
	7.8	Protective Provisions		14
	7.9	Governing Law		14
	7.10	Notice		14
	7.11	Successors		14
	7.12	Actuarial Assumptions		15
	7.13	Tax Savings		15
ARTICLE VIII CHANGE IN CONTROL				16
	8.1	Change in Control		16
	8.2	Potential Change in Control		18
	8.3	Additional Service and Compensation Upon Change in Control		18
	8.4	Waiver of Service and Age Requirements Upon Change in Control		18
	8.5	Funding of Plan Benefits Upon Potential Change in Control		19
	8.6	Plan Administration and Amendment Upon a Change in Control		19
	8.7	Committee Discretion to Pay Lump Sum After a Change in Control		19
	8.8	Lump Sum Election		19
	8.9	Definitions		20
ARTICLE IX PLAN ADMINISTRATION:THE COMMITTEE				21
	9.1	General Powers, Rights and Duties		21
	9.2	Information Required by Committee		21
	9.3	Committee Decision Final		22
	9.4	Claims Procedure		22

ii

NISOURCE INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
As Amended and Restated Effective January 1, 2008
ARTICLE I

Purpose

     Effective as of December 23, 1982, and as subsequently amended as of January 1, 1989, Northern Indiana Public Service Company adopted the Northern Indiana Public Service Company Supplemental Executive Retirement Plan. Effective as of January 1, 1991, NIPSCO Industries, Inc. (the “Company”) adopted the NIPSCO Industries, Inc. Supplemental Executive Retirement Plan (the “Plan”) to benefit the Company by providing key executives and employees with additional security in order to aid the Company in retaining its present management and, should circumstances require it, to aid the Company in attracting additions to management. The Company, by providing such additional benefits, expects key executives and employees to be available for consulting assignments to the Company after retirement, at the Company’s request. The Plan was amended and restated, effective January 1, 1993, in order to clarify certain provisions, and was further amended and restated effective September 1, 1994. The Plan was further amended and restated effective June 1, 2002 to reflect the name change of the Company to NiSource Inc. and to make other administrative and technical changes. The Plan was further amended, effective January 1, 2004, to reflect changes in the structure of benefits under the Plan. The Plan was again amended and restated, effective January 1, 2005, to comply with Internal Revenue Code Section 409A with respect to benefits earned under the Plan from and after January 1, 2005. Benefits under the Plan earned and vested prior to January 1, 2005 shall be administered without giving effect to Code Section 409A, and guidance and regulations thereunder. The Plan is now further amended and restated, effective January 1, 2008, to incorporate special transition relief under Internal Revenue Service Notice 2007-86 to allow Participants to elect to change the time and form of payment of certain Post-2004 Benefits.

     It is intended that the Plan be exempt from the reporting and disclosure requirements of Title I of the Employee Retirement Income Security Act of 1974 because it is an unfunded plan maintained by an employer for the purpose of providing benefits for a select group of management or highly compensated employees.

ARTICLE II

Definitions

     Where the following words or phrases appear in the Plan, they shall have the respective meanings set forth in the following Sections of this Article, unless the context clearly indicates to the contrary.

     2.1 Affiliate. Any corporation that is a member of a controlled group of corporations (as defined in Code Section 414(b)) that includes the Company; any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c)) with the

Company; any organization (whether or not incorporated) that is a member of an affiliated service group (as defined in Code Section 414(m)) that includes the Company; any leasing organization, to the extent that its employees are required to be treated as if they were employed by the Company pursuant to Code Section 414(n) and the regulations thereunder; and any other entity required to be aggregated with the Company pursuant to regulations under Code Section 414(o). An entity shall be an Affiliate only with respect to the existing period as described in the preceding sentence.

     2.2 Board. The Board of Directors of NiSource Inc.

     2.3 Code. The Internal Revenue of Code of 1986, as amended.

     2.4 Committee. The Officer Nomination and Compensation Committee of the Board, which has certain specific duties with respect to the Plan.

     2.5 Company. NiSource Inc. and its subsidiaries and affiliates that adopt the Plan for the benefit of key employees, or its successor or successors.

     2.6 Compensation. As defined in the NiSource Pension Plan, but disregarding the definition of Taxable Compensation and the limitations required by Code Section 401(a)(17), or any successor Section. In addition, for purposes of the Plan, bonuses shall be considered in full as Compensation and not limited to 50% of base pay.

     2.7 Disability or Disabled. A Participant has a Disability or is Disabled if he or she has a condition that (a) causes a Participant to be unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, (b) causes a Participant, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, to receive income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company or an Affiliate or (c) causes a Participant to be eligible to receive Social Security disability payments.

     2.8 Early Retirement. Separation from Service for reasons other than death or Disability after the Participant has both attained age 55 and completed at least 10 years of Service, but before the Participant’s Normal Retirement, except as otherwise provided.

     2.9 Final Average Compensation. The result obtained by dividing the total Compensation paid to a Participant during a considered period by the number of months for which such Compensation was received. The considered period shall be the 60 consecutive calendar months within the last 120 months of service that produces the highest result.

     2.10 NiSource Pension Plan. NiSource Inc. and Northern Indiana Public Service Company Pension Plan Provisions Pertaining to Salaried and Non-Exempt Employees, as amended from time to time.

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     2.11 Normal Retirement. Separation from Service for reasons other than death or Disability after a Participant has: (1) attained age 62; or (2) attained age 60 and completed at least 25 years of Service, except as otherwise provided.

     2.12 Participant. An employee or retiree participating in the Plan in accordance with the provisions of Article III.

     2.13 Pension. A series of monthly amounts that are payable to a person who is entitled to receive benefits under the Plan.

     2.14 Pension Restoration Plan. Pension Restoration Plan for NiSource Inc. and Affiliates, as amended from time to time.

     2.15 Plan. NiSource Inc. Supplemental Executive Retirement Plan.

     2.16 Post-2004 Benefit. The portion of a Participant’s Supplemental Retirement Pension or Supplemental Retirement Account, as applicable, equal to the present value, determined as of a Participant’s date of separation from Service after December 31, 2004, of the excess of such benefit or account balance to which a Participant would be entitled under the Plan if he or she voluntarily separated from Service without cause after December 31, 2004 over his or her Pre-2005 Benefit and received a full payment of benefits from the Plan on the earliest possible date allowed under the Plan following the separation from Service, pursuant to Articles IV and V, calculated from and after January 1, 2005 to the date of separation from Service.

     2.17 Pre-2005 Benefit. The portion of a Participant’s Supplemental Retirement Pension or Supplemental Retirement Account, as applicable, equal to the present value of the benefit or account balance, determined as of December 31, 2004, to which a Participant would be entitled under the Plan if he or she voluntarily separated from Service without cause on December 31, 2004 and received a full payment of benefits from the Plan on the earliest possible date allowed under the Plan following separation from Service, pursuant to Articles IV and V, calculated as of December 31, 2004.

     2.18 Primary Social Security Benefit. The monthly amount available to a Participant at age 65 (or at Retirement, if later) under the provisions of Title II of the Social Security Act in effect at the time of separation from Service, assuming the following:

(a)	The Participant attained age 65 in the year of Retirement, and
(b)	The Participant earned maximum taxable wages under Code Section 3121(a)(1) in all years prior to the year of Retirement. A Participant’s Primary Social Security Benefit will be deducted in accordance with Article IV, even though he or she may not be receiving or may not be eligible to receive Social Security benefits.

     2.19 Qualified Pension Plan. The NiSource Pension Plan and any other tax-qualified defined benefit pension plan maintained by the Company or any Affiliate.

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     2.20 Retirement. A Participant’s Normal or Early Retirement.

     2.21 Retirement Committee. The NiSource Inc. and Affiliates Retirement Plan Administrative and Investment Committee.

     2.22 Service. A Participant’s or employee’s employment or service with the Company, as defined in the NiSource Pension Plan, or such other employment or service date as determined by the Board.

ARTICLE III

Participation

     The Board or the Committee shall select which key employees of the Company will participate in the Plan. In accordance with Article I, it is intended that officers and certain other employees be eligible for participation.

     After the Board or the Committee approves participation for an individual, the Company or the Committee shall provide the individual with a notice of participation in the Plan and a description of the Plan.

ARTICLE IV

Supplemental Retirement Pension

     4.1 Applicability. This Article IV shall apply to each Participant or former Participant who first participated in the Plan prior to January 23, 2004.

     4.2 Supplemental Retirement Pension. Upon Normal Retirement, a Participant shall receive a monthly Supplemental Retirement Pension calculated on a single-life basis equal to the larger of (a) or (b) below, reduced in each case by the single-life pension (excluding any supplements related to eligibility for a Social Security benefit) the Participant is eligible to receive under (1) either the Final Average Pay Option or the Account Balance Option of the NiSource Pension Plan, or any other Qualified Pension Plan and (2) the Pension Restoration Plan.

(a) The sum of:

(i)	1.7% of the Participant’s Final Average Compensation multiplied by the Participant’s Service to a maximum of 30 years; plus
(ii)	0.6% of the Participant’s Final Average Compensation multiplied by the Participant’s Service in excess of 30 years.

(b) The sum of:

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(i)	3% of the Participant’s Final Average Compensation multiplied by the Participant’s Service to a maximum of 20 years; plus
(ii)	0.5% of the Participant’s Final Average Compensation multiplied by the Participant’s Service in excess of 20 years, to a maximum of 30 years;
(iii)	less 5% of the Participant’s Primary Social Security Benefit, multiplied by the Participant’s Service to a maximum of 20 years.

     Upon Early Retirement, a Participant shall receive a monthly Supplemental Retirement Pension in a reduced amount (as described in Section 4.3 below).

     4.3 Reduction for Early Retirement. A Participant who experiences a separation from Service prior to Normal Retirement, but after Early Retirement, shall receive a monthly Supplemental Retirement Pension in an amount determined in accordance with Section 4.2 above, but reduced as follows: (1) by 6% for each of the first two (2) years and 4% for each of the next five years that commencement of the Participant’s Supplemental Retirement Pension precedes the date that the Participant would attain age 62; or (2) if the Participant had completed 25 years of Service at the time of his or her separation, by 6% for the first year and 4% for each of the next four years that commencement of the Participant’s Supplemental Retirement Pension precedes the date that the Participant would attain age 60, with a pro rata reduction for any fraction of a year.

     Payment of the Participant’s monthly reduced Supplemental Retirement Pension shall normally commence within 45 days following a separation from Service, or, if later, within such timeframe permitted under Code Section 409A, and guidance and regulations thereunder. Notwithstanding the preceding sentence, a Participant may elect to defer the commencement of the portion of his or her reduced Supplemental Retirement Pension that constitutes the Pre-2005 Benefit to any date between Early Retirement and attainment of age 62 by a written election delivered to the Retirement Committee on or before the last day of the calendar year preceding the calendar year of Early Retirement. A Participant may elect to defer the commencement of the portion of his or her reduced Supplemental Retirement Pension that constitutes the Post-2004 Benefit to any date between Early Retirement and attainment of age 62 by a written election delivered to the Retirement Committee only if such election (i) constitutes a delay in payment or change in the form of payment, (ii) does not take effect until at least 12 months after the date on which the election is made, (iii) defers the first payment with respect to which such new election is effective for a period of not less than five years from the date such payment would otherwise have been made, and (iv) is not made less than 12 months prior to the date of the first scheduled payment.

     4.4 Separation from Service Prior to Early Retirement. Upon separation from Service prior to Early Retirement, a Participant shall receive a monthly Supplemental Retirement Pension, calculated on a single-life basis equal to the excess, if any, of the single-life pension the Participant would be eligible to receive under either the Final Average Pay Option or the Account Balance Option of the NiSource Pension Plan, or any other Qualified Pension Plan, if

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the limitations required by Code Sections 401(a)(17) and 415, or any other limitation imposed by the Code, the limitation on bonuses to 50% of base pay and the potential limitations relating to Taxable Compensation were not applied, reduced by the single-life pension the Participant is eligible to receive under (1) either such Option of the NiSource Pension Plan, or any other Qualified Pension Plan and (2) the Pension Restoration Plan.

     Payment of the Pre-2005 Benefit to a Participant or his or her beneficiary in accordance with this Section shall commence on the same date as the pension under the NiSource Pension Plan or any other Qualified Pension Plan. Payment of the Post-2004 Benefit to a Participant or his or her beneficiary in accordance with this Section, shall commence within 45 days after (i) the Participant attains (or would have attained) age 62, if the Participant has not completed at least 25 years of Service, or (ii) if the Participant has completed at least 25 years of Service, the Participant attains (or would have attained) age 60, or, if later, within such timeframe permitted under Code Section 409A, and guidance and regulations thereunder.

     4.5 Supplemental Disability Pension. If a Participant becomes Disabled while in the active employment of the Company prior to age 65, the Participant shall be eligible for a monthly Supplemental Disability Pension commencing on the date the Disability begins and continuing to the first to occur of the Participant’s death or attainment of age 65, calculated on a single-life basis, and equal to the larger of (a) or (b) below, reduced in each case by the basic benefit the Participant is eligible to receive under the long-term group disability insurance coverage provided under any long term disability plan maintained by the Company or any Affiliate.

(a) The sum of:

(i)	1.7% of the Participant’s Final Average Compensation multiplied by the Participant’s Service to a maximum of 30 years, plus
(ii)	0.6% of the Participant’s Final Average Compensation multiplied by the Participant’s Service in excess of 30 years.

(b) The sum of:

(i)	3% of the Participant’s Final Average Compensation multiplied by the Participant’s Service to a maximum of 20 years; plus
(ii)	0.5% of the Participant’s Final Average Compensation multiplied by the Participant’s Service in excess of 20 years, to a maximum of 30 years; less
(iii)	5% of the Participant’s Primary Social Security Benefit, multiplied by the Participant’s Service to a maximum of 20 years.

     After age 65, the Participant shall be eligible for a monthly Supplemental Retirement Pension in accordance with Section 4.2, based on Service the Participant would have had if the

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Participant had continued working for the Company or an Affiliate to age 65, the Participant’s Final Average Compensation at the time he or she became Disabled, the Primary Social Security Benefit determined at the time the Participant became Disabled, and the single-life pension the Participant is entitled to receive at age 65 from the NiSource Pension Plan, or any other Qualified Pension Plan, and the Pension Restoration Plan, determined at the time he or she became Disabled.

     4.6 Supplemental Spouse Pension. Upon the death of a Participant in active employment or while receiving a Supplemental Disability Pension, his or her surviving spouse, if any, shall be eligible to receive a monthly Supplemental Spouse Pension equal to the greater of:

(a)

25% of the Participant’s Final Average Compensation; or

(b)

the monthly amount that would have been payable to such surviving spouse if the Participant had elected payment of his or her monthly Supplemental Retirement Pension in the form of a reduced 50% joint and survivor Pension, with his or her spouse as the contingent annuitant, terminated employment (on the date of his or her actual death) and then died immediately prior to the commencement of payments.

     The Supplemental Spouse Pension shall commence in the month next following the month of the Participant’s death and continue for the life of such spouse. In the event that the Supplemental Spouse Pension calculated under option (a) of this Section will provide a greater benefit to the spouse immediately following the Participant’s death, but option (b) of this Section will provide a greater monthly benefit as of the date the Participant would have attained age 55, the amount of monthly Supplemental Spouse Pension payable to the surviving spouse shall be: (1) calculated and payable under option (a) during the period immediately following the Participant’s death; and (2) recalculated and payable according to option (b) beginning on the date the Participant would have attained age 55. Beginning on the earliest date that the surviving spouse could have begun receiving a benefit under the NiSource Pension Plan, or any other Qualified Pension Plan, the Supplemental Spouse Pension payable under this Section shall be reduced by the amount of benefit under the NiSource Pension Plan, or any other Qualified Pension Plan, and the Pension Restoration Plan that the spouse is (or would have been) entitled to receive.

     4.7 Retiree Death Benefit. Upon the death of a retired Participant, a lump sum death benefit equal to 50% of his or her retiree group life insurance coverage shall be paid to the retiree’s spouse or other beneficiaries designated with respect to such coverage.

     4.8 Cost of Living Adjustment. For Participants in the Final Average Pay Option of the NiSource Pension Plan, the benefits payable under Sections 4.2 through 4.7 shall be increased in the same percentage and at the same time as cost of living adjustments are made to the pensions of salaried employees of the Company or an Affiliate under the NiSource Pension Plan, or any other Qualified Pension Plan.

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     4.9 Separate Agreement. Notwithstanding Sections 2.6 and 2.22, each Participant who first becomes eligible to participate in the Plan on and after January 1, 2004 and prior to January 23, 2004 shall have his or her Supplemental Retirement Pension determined based upon his or her Service and Compensation as set forth in a separate, written agreement, if any, between the Company and such Participant.

ARTICLE V

Supplemental Retirement Account

     5.1 Applicability. This Article V shall apply to each Participant who first participates in the Plan on and after January 23, 2004.

     5.2 Supplemental Retirement Account. A Participant’s Supplemental Retirement Account is a notional account equal to the sum of his or her Compensation Credits, Supplemental Credits, if any, and Interest Credits. Compensation Credits shall be credited to a Participant’s Supplemental Retirement Account as of the last day of each Plan Year beginning on or after January 1, 2004 equal to five percent of the Participant’s Compensation for such Plan Year. Supplemental Credits, if any, shall be credited pursuant to Section 5.3. Interest Credits shall be calculated in the same manner and shall be credited to a Participant’s Supplemental Retirement Account at the same time as provided under the NiSource Pension Plan or any other Qualified Pension Plan.

     5.3 Supplemental Credits. The Committee, subject to approval of the Board, may authorize Supplemental Credits to a Participant’s Supplemental Retirement Account in such amounts and at such times, and subject to such specific terms and provisions, as authorized by the Committee.

     5.4 Separation from Service. Upon separation from Service, for any reason other than death, with five or more years of Service, unless a shorter period is provided in a separate, written agreement between the Company and the Participant and approved by the Board, a Participant shall receive the balance of his or her Supplemental Retirement Account distributed in accordance with Sections 6.1 and 6.2 within 45 days after such separation from Service, or, if later, within such timeframe permitted under Code Section 409A, and guidance and regulations thereunder.

     5.5 Death. Upon the death of a Participant prior to final distribution of his or her Supplemental Retirement Account after completing five or more years of Service, unless a shorter period is provided in a separate, written agreement between the Company and the Participant and approved by the Board, the Participant’s beneficiary, designated in such manner as provided by the Committee, shall receive the balance of the Participant’s Supplemental Retirement Account distributed in accordance with Sections 6.1 and 6.2. If the Participant designates multiple beneficiaries, he or she shall designate the percentage, in whole numbers, allocated to each such beneficiary.

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     If any Participant fails to designate a beneficiary in the manner provided above, if the designation is void or if the beneficiary designated by a deceased Participant dies before the Participant or before complete distribution of the Participant’s benefits, the Participant’s beneficiary shall be the person in the first of the following classes in which there is a survivor:

(a)	The Participant’s spouse;
(b)	The Participant’s children in equal shares, except that if any of the children predeceases the Participant but leaves issue surviving, then such issue shall take, by right of representation, the share the parent would have taken if living;
(c)	The Participant’s estate.

ARTICLE VI

Distributions

     6.1 Pre-2005 Benefit. This Section 6.1 applies only to a Pre-2005 Benefit.

(a)

Form of Payment. Notwithstanding Sections 4.2, 4.3 and 4.4, a Participant shall receive distribution of his or her Pre-2005 Benefit, pursuant to Articles IV or V, in the same form as his or her distribution under the NiSource Pension Plan, computed in the same manner as in the NiSource Pension Plan, or under any other Qualified Pension Plan, computed in the same manner as in such Qualified Pension Plan. Any election under the NiSource Pension Plan or any other Qualified Pension Plan shall apply to his or her Pre-2005 Benefit pursuant to the preceding sentence only if it is made by written instrument delivered to the Retirement Committee at least 30 days prior to the date of such distribution. If such election is not so made at least 30 days prior to the date of distribution of his or her Pre-2005 Benefit, the Participant’s Pre-2005 Benefit shall be paid as a 50% joint and survivor Pension if such Participant is married, or as a single-life Pension if such Participant is unmarried. If a Participant who makes an election pursuant to this subsection 6.1(a) at least 30 days prior to the date of distribution dies prior to distribution pursuant to such election, such election shall be revoked and the provisions of Article IV and subsection 6.1(b) shall apply.

(b)

Small Benefit Amounts. At the discretion of the Committee, the present value of any Pre-2005 Benefit payable under the Plan that does not exceed $5,000 may be paid to the Participant or his or her surviving spouse or other designated beneficiary in quarterly, semi-annual or annual installments, or in a single lump sum.

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     6.2 Post-2004 Benefit. This Section 6.2 applies only to a Post-2004 Benefit.

(a)	Form of Payment. The Post-2004 Benefit shall be payable in a form available under the NiSource Pension Plan, computed in the same manner as in the NiSource Pension Plan, or under any other Qualified Pension Plan, computed in the same manner as in such Qualified Pension Plan, as elected by a Participant by written notice delivered to the Retirement Committee on or before December 31, 2005. Notwithstanding the preceding sentence, in the case of an employee who first becomes a Participant on or after January 1, 2005, the aforementioned election with respect to a Post-2004 Benefit shall be made by written notice delivered to the Retirement Committee within 30 days after the date the Participant first becomes eligible to participate in the Plan and such election shall be effective with respect to Compensation related to services to be performed subsequent to the election; provided, however, that a Participant shall not be considered first eligible if, on the date he or she becomes a Participant, he or she participates in any other nonqualified plan of the same category (account balance or nonaccount balance, as applicable), which is subject to Code Section 409A, maintained by the Company or any Affiliate. If payment in the form of an annuity is elected, the annuity type shall be elected by the Participant at the time he or she makes the election described in the first or second sentence of this paragraph from among those annuities available at that time under the NiSource Pension Plan or under any other Qualified Pension Plan. If a Participant fails to elect a form of distribution, the Participant’s Post-2004 Benefit shall be payable in a lump sum.
	If a Participant who makes an election pursuant to this subsection 6.2(a) dies prior to distribution pursuant to such election, such election shall be revoked and the provisions of Article IV and subsection 6.2(b) shall apply.
	Any change in an election of a form of distribution available under the NiSource Pension Plan or any other Qualified Pension Plan shall apply to his or her Post-2004 Benefit pursuant to the preceding paragraph only if it is made by written instrument delivered to the Retirement Committee and if (i) such new election does not take effect until at least 12 months after the date on which the election is made, (ii) the first payment with respect to which such new election is effective is deferred for a period of not less than five (5) years from the date such payment would otherwise have been made, and (iii) such new election is not made less than 12 months prior to the date of the first scheduled payment; provided, however, that an election to change from one type of annuity payment to a different, actuarially equivalent, type of annuity payment shall not be considered a change to the method of payment for purposes of applying the restrictions in clauses (i), (ii) and (iii).
	Notwithstanding the preceding paragraph of this Section 6.2(a), a Participant may change an election with respect to the form of payment of a Post-2004 Benefit,

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	without regard to the restrictions imposed under the preceding paragraph, on or before December 31, 2006; provided that such election (i) applies only to amounts that would not otherwise be payable in calendar year 2006, and (ii) shall not cause an amount to be paid in calendar year 2006 that would not otherwise be payable in such year. Additionally, a Participant may change an election with respect to the form of payment of a Post-2004 Benefit, without regard to the restrictions imposed under the preceding paragraph, on or before December 31, 2007; provided that such election (i) applies only to amounts that would not otherwise be payable in calendar year 2007, and (ii) shall not cause an amount to be paid in calendar year 2007 that would not otherwise be paid in such year. Additionally, a Participant may change an election with respect to the form of payment of a Post-2004 Benefit, without regard to the restrictions imposed by the preceding paragraph, on or before December 31, 2008; provided that such election (i) applies only to amounts that would not otherwise be payable before January 1, 2009, and (ii) shall not cause an amount to be paid in calendar year 2007 or 2008 that would not otherwise be paid in such years.
(b)	Specified Employees. Notwithstanding any other provision of the Plan, in no event can a payment of a Post-2004 Benefit, pursuant to Article IV or Section 5.4, to a Participant who is a Specified Employee of the Company or an Affiliate, at a time during which the Company’s capital stock or capital stock of an Affiliate is publicly traded on an established securities market, in the calendar year of his or her separation from Service be made before the date that is six months after the date of the Participant’s separation from Service with the Company and all Affiliates, unless such separation is due to his or her death or Disability.
	A Participant shall be deemed to be a Specified Employee for purposes of this paragraph (b) if he or she is in job category C2 or above with respect to the Company or any Affiliate that employs him or her; provided that if at any time the total number of employees in job category C2 and above is less than 50, a Specified Employee shall include any person who meets the definition of Key Employee set forth in Code Section 416(i) without reference to paragraph (5). A Participant shall be deemed to be a Specified Employee with respect to a calendar year if he or she is a Specified Employee on September 30th of the preceding calendar year. If a Specified Employee will receive payments hereunder in the form of installments or an annuity, the first payment made as of the date six months after the date of the Participant’s separation from Service with the Company and all Affiliates shall be a lump sum, paid as soon as practicable after the end of such six-month period, that includes all payments that would otherwise have been made during such six-month period. From and after the end of such six month period, any such installment or annuity payments shall be made pursuant to the terms of the applicable installment or annuity form of payment.

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ARTICLE VII

Miscellaneous

     7.1 Plan Financing. Except as set forth below in this Section and in Section 8.5, benefits under the Plan shall be paid from the general assets of the Company. To the extent any Participant or surviving spouse or other designated beneficiary acquires a right to receive payments hereunder, such right shall be no greater than the right of any other unsecured creditor of the Company. Notwithstanding the foregoing, the Company has entered into a trust agreement (“Trust Agreement”) whereby the Company agrees to contribute to a trust (“Trust”) for the purpose of accumulating assets to assist the Company in fulfilling its obligations to Participants and surviving spouses or other designated beneficiaries hereunder. Such Trust includes the provision that all assets of the Trust shall be subject to the creditors of the Company in the event of its insolvency.

     7.2 Non-Compete and Related Provisions. Benefits under the Plan may be forfeited if:

(a)

A Participant, while employed by the Company or within a period of three years after the Participant’s separation from Service for any reason, including Retirement (the “Restrictive Period”), engages in activity or employment that directly or indirectly competes with the business of the Company or its Affiliates, including, but not by way of limitation, by directly or indirectly owning, managing, operating, controlling, financing, or by directly or indirectly serving as an employee, officer or director of or consultant to, or by soliciting or inducing, or attempting to solicit or induce, any employee or agent of the Company or its Affiliates to terminate employment with the Company or its Affiliates, and become employed by, any person, firm, partnership, corporation, trust or other entity that provides commodities, products or services to customers of the Company or its Affiliates of the same type as commodities, products or services provided by the Company or its Affiliates (the “Restrictive Covenant”). The foregoing Restrictive Covenant shall not prohibit a Participant from owning directly or indirectly capital stock or similar securities which are listed on a securities exchange or quoted on the National Association of Securities Dealers Automated Quotation System which do not represent more than 1% of the outstanding capital stock of any such entity; or

(b)

A Participant performs any action or makes any statement that is detrimental to the Company or its Affiliates, unless such action or statement is retracted to the Company’s satisfaction after the Participant is notified regarding such action or statement.

     7.3 Nonguarantee of Employment. Participation in the Plan does not limit the right of the Company or an Affiliate to discharge any individual with or without cause.

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     7.4 Nonalienation of Benefits. Neither a Participant, nor a surviving spouse or other designated beneficiary may assign or transfer any benefits under the Plan.

     7.5 Plan Amendment or Termination. The Committee may amend any provision of the Plan. In addition, the Chief Executive Officer of the Company may amend any provision of the Plan, except for Articles III, IV and V, which may only be amended by the Committee. The Committee may terminate the Plan at any time, except that any benefits that are payable due to a Retirement, death, Disability, or other separation from Service occurring prior to the amendment or termination shall not be reduced or discontinued. No amendment or termination of the Plan shall directly or indirectly deprive any current or former Participant (or surviving spouse) of all or any portion of any Supplemental Retirement Benefit, Supplemental Disability Pension, Supplemental Spouse Pension, or Supplemental Retirement Account, the payment of which has commenced prior to the effective date of such amendment or termination, or which would be payable if the Participant experienced a separation from Service for any reason on such effective date. Upon termination of the Plan, distribution of a Participant’s Supplemental Retirement Benefits, Supplemental Disability Pension, Supplemental Retirement Account, or Supplemental Spouse Pension shall be made to the Participant or his or her surviving spouse or beneficiary in the manner and at the time described in Articles IV, V and VI of the Plan. In addition, no additional Supplemental Retirement Benefits, Supplemental Disability Pension, Supplemental Spouse Pension, or Compensation Credits or Supplemental Credits under a Supplemental Retirement Account, shall be earned after termination of the Plan, except as provided in Section 8.3.

     7.6 Indemnification.

(a)

Limitation of Liability. Notwithstanding any other provision of the Plan or the Trust, none of the Company, any member of the Committee, nor an individual acting as an employee or agent of any of them, shall be liable to any Participant or former Participant, or any surviving spouse or other designated beneficiary of any Participant or former Participant, for any claim, loss, liability or expense incurred in connection with the Plan or the Trust, except when the same shall have been judicially determined to be due to the willful misconduct of such person.

(b)

Indemnity. The Company shall indemnify and hold harmless each member of the Committee, or any employee of the Company or any individual acting as an employee or agent of either of them (to the extent not indemnified or saved harmless under any liability insurance or any other indemnification arrangement with respect to the Plan or the Trust) from any and all claims, losses, liabilities, costs and expenses (including attorneys’ fees) arising out of any actual or alleged act or failure to act made in good faith pursuant to the provisions of the Plan, including expenses reasonably incurred in the defense of any claim relating thereto with respect to the administration of the Plan or the Trust, except that no indemnification or defense shall be provided to any person with respect to any conduct that has been judicially determined, or agreed by the parties, to have constituted willful misconduct on the part of such person, or to have resulted in

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his or her receipt of personal profit or advantage to which he or she is not entitled. In connection with the indemnification provided by the preceding sentence, expenses incurred in defending a civil or criminal action, suit or proceeding, or incurred in connection with a civil or criminal investigation, may be paid by the Company in advance of the final disposition of such action, suit, proceeding, or investigation, as authorized by the Committee in the specific case, upon receipt of an undertaking by or on behalf of the party to be indemnified to repay such amount unless it shall ultimately be determined that the person is entitled to be indemnified by the Company pursuant to this paragraph.

(c)

Severability. Each of the Sections contained in the Plan, and each provision in each Section, shall be enforceable independently of every other Section or provision in the Plan, and the invalidity or unenforceability of any Section or provision shall not invalidate or render unenforceable any other Section or provision contained herein. If any Section or provision in a Section is found invalid or unenforceable, it is the intent of the parties that a court of competent jurisdiction shall reform the Section or provision to produce its nearest enforceable economic equivalent.

     7.7 Action by Company. Any action required of, or permitted by, the Company under the Plan shall be by resolution of the Committee, or by a person or persons authorized by resolution of the Committee.

     7.8 Protective Provisions. A Participant shall cooperate with the Company by furnishing any and all information requested by the Company and its Affiliates in order to facilitate the payment of benefits hereunder, and by taking such physical examinations as the Company and its Affiliates may deem necessary and taking such other action as may be requested by the Company and its Affiliates.

     7.9 Governing Law. The provisions of the Plan shall be construed and interpreted according to the laws of the State of Indiana, except as preempted by federal law.

     7.10 Notice. Any notice required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed as given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Committee shall be directed to the Company’s address. Mailed notice to a Participant, a surviving spouse or other designated beneficiary shall be directed to the individual’s last known address in the Company’s records.

     7.11 Successors. The provisions of the Plan shall bind and inure to the benefit of the Company, its Affiliates and their successors and assigns. The term successors as used herein shall include any corporate or other business entity that shall, whether by merger, consolidation, purchase, or otherwise, acquire all or substantially all of the business and assets of the Company, and successors of any such corporation or other business entity.

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     7.12 Actuarial Assumptions. Unless otherwise provided in the Plan, all actuarial adjustments necessary to determine the amount, form or timing of any distribution shall be based on the same actuarial assumptions used for the pension a Participant is eligible to receive under the NiSource Pension Plan.

     7.13 Tax Savings.

(a)

Notwithstanding anything to the contrary contained in the Plan, (1) in the event that the Internal Revenue Service prevails in its claim that benefits under the Plan constitute taxable income to a Participant, his or her spouse or other designated beneficiary, for any taxable year, prior to the taxable year in which such benefits are distributed to him or her, or (2) in the event that legal counsel satisfactory to the Company and the applicable Participant, his or her spouse or other designated beneficiary, renders an opinion that the Internal Revenue Service would likely prevail in such a claim, the Pre-2005 Benefit, to the extent constituting taxable income, shall be immediately distributed to the Participant, his or her spouse or other designated beneficiary. For purposes of this Section, the Internal Revenue Service shall be deemed to have prevailed in a claim if such claim is upheld by a court of final jurisdiction, or, if based upon an opinion of legal counsel satisfactory to the Company and the Participant, his or her spouse or other designated beneficiary, the Plan fails to appeal a decision of the Internal Revenue Service, or a court of applicable jurisdiction, with respect to such claim to an appropriate Internal Revenue Service appeals authority or to a court of higher jurisdiction within the appropriate time period.

(b)

Notwithstanding anything to the contrary contained in the Plan, (1) in the event that the Internal Revenue Service prevails in its claim that benefits under the Plan constitute taxable income under Code Section 409A, and guidance and regulations thereunder, to a Participant, his or her spouse or other designated beneficiary, for any taxable year prior to the taxable year in which such benefits are distributed to him or her, or (2) in the event that legal counsel satisfactory to the Company and the applicable Participant, his or her spouse or other designated beneficiary, renders an opinion that the Internal Revenue Service would likely prevail in such a claim, the Post-2004 Benefit or Supplemental Spouse Pension, to the extent constituting taxable income, shall be immediately distributed to the Participant, his or her spouse or other designated beneficiary. For purposes of this Section, the Internal Revenue Service shall be deemed to have prevailed in a claim if such claim is upheld by a court of final jurisdiction, or, if based upon an opinion of legal counsel satisfactory to the Company and the Participant, his or her spouse or other designated beneficiary, the Plan fails to appeal a decision of the Internal Revenue Service, or a court of applicable jurisdiction, with respect to such claim to an appropriate Internal Revenue Service appeals authority or to a court of higher jurisdiction within the appropriate time period.

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ARTICLE VIII

Change in Control

     8.1 Change in Control. A “Change in Control” shall be deemed to take place on the occurrence of either a “Change in Ownership,” “Change in Effective Control” or a “Change of Ownership of a Substantial Portion of Assets,” as defined below:

(a)

Change in Ownership. A Change in Ownership of the Company occurs on the date that any one person, or more than one Person Acting as a Group (as defined below), acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company. However, if any one person or more than one Person Acting as a Group, is considered to own more than 50% of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons is not considered to cause a Change in Ownership of the Company, as applicable (or to cause a Change in Effective Control of the Company). An increase in the percentage of stock owned by any one person, or Persons Acting as a Group, as a result of a transaction in which the Company acquires its stock in exchange for property s be treated as an acquisition of stock. This paragraph (a) applies only when there is a transfer of stock of the Company (or issuance of stock of the Company) and stock in the Company remains outstanding after the transaction.

(b)

Change in Effective Control. A Change in Effective Control of the Company occurs on the date that either –

(i)	Any one person, or more than one Person Acting as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 35% or more of the total voting power of the stock of the Company; or
(ii)	a majority of members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election,

In the absence of an event described in paragraph (i) or (ii), a Change in Effective Control of the Company will not have occurred.

Acquisition of additional control. If any one person, or more than one Person Acting as a Group, is considered to effectively control the Company, the acquisition of additional control of the Company by the same person or persons is

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	not considered to cause a Change in Effective Control of the Company (or to cause a Change in Ownership of the Company).
(c)	Change of Ownership of a Substantial Portion of Assets. A Change of Ownership of a Substantial Portion of Assets occurs on the date that any one person, or more than one Person Acting as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.
	Transfers to a related person. There is no Change in Control when there is a transfer to an entity that is controlled by the shareholders of the Company immediately after the transfer. A transfer of assets by the Company is not treated as a Change of Ownership of a Substantial Portion of Assets if the assets are transferred to –

(i)	A shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock;
(ii)	An entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company;
(iii)	A person, or more than one Person Acting as a Group, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company; or
(iv)	An entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in paragraph (iii).

A person’s status is determined immediately after the transfer of the assets. For example, a transfer to a corporation in which the Company has no ownership interest before the transaction, but which is a majority-owned subsidiary of the Company after the transaction is not treated as a Change of Ownership of a Substantial Portion of Assets of the Company.

(d)

Persons Acting as a Group. Persons shall not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time or as a result of the same public offering. However, persons shall be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company. If a person, including an entity, owns stock in

17

both corporations that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation prior to the transaction giving rise to the change and not with respect to the ownership interest in the other corporation.

     8.2 Potential Change in Control. A “Potential Change in Control” shall include any of the following:

(a)	The delivery to the Company by any “person,” as defined in Section 13(d)(3) of The Securities Exchange Act of 1934 (the “Act”), of a statement containing the information required by Schedule 13-D under the Act, or any amendment to any such statement, that shows that such person has acquired, directly or indirectly, the beneficial ownership of (1) more than twenty percent (20%) of any class of equity security of the Company entitled to vote as a class in the election or removal from office of directors, or (2) more than twenty percent (20%) of the voting power of any group of classes of equity securities of the Company entitled to vote as a single class in the election or removal from office of directors.
(b)	The Company becomes aware that preliminary or definitive copies of a proxy statement and information statement or other information have been filed with the Securities and Exchange Commission pursuant to Rule 14a-6, Rule 14c-5 or Rule 14f-1 under the Act relating to a proposed change in control of the Company.
(c)	The delivery to the Company pursuant to Rule 14d-3 under the Act of a Tender Offer Statement relating to equity securities of the Company.
(d)	The Board adopts a resolution to the effect that for purposes of the Plan a Potential Change in Control has occurred.

     8.3 Additional Service and Compensation Upon Change in Control. With respect to a Participant who, pursuant to contract with the Company, is entitled to compensation from the Company for an additional 36 months in the event that after a Change in Control the Participant’s employment is terminated by the Company or an Affiliate under circumstances described in the contract, such Participant’s years of Service under Article II, and Supplemental Retirement Pension under Section 4.2 or Supplemental Retirement Account under Section 5.2, as applicable, shall be calculated as if the Participant had continued in employment with the Company for an additional 36 months at the rate of Compensation in effect immediately prior to his or her employment termination; provided that, in no event shall the counting of a Participant’s Compensation during this 36-month period reduce his or her Final Average Compensation figure below its highest level prior to the Participant’s separation from Service.

     8.4 Waiver of Service and Age Requirements Upon Change in Control. A Participant who separates from service within 24 months following a Change in Control for any reason other

18

than a termination by the Company for Good Cause, but prior to Early Retirement, shall be eligible for the Supplemental Retirement Pension specified in Section 4.2, rather than the Supplemental Retirement Pension specified in Section 4.4, commencing at Normal Retirement. Notwithstanding the previous sentence, such a Participant may elect to begin receiving the portion of his or her Supplemental Retirement Pension that constitutes his or her Pre-2005 Benefit pursuant to this Section 8.4 at any time after attaining age 55 years, subject to the reduction specified in Section 4.3. Such election shall have no effect on the distribution of his or her Post-2004 Benefit at his or her Normal Retirement Date.

     8.5 Funding of Plan Benefits Upon Potential Change in Control. Upon a Potential Change in Control, the Committee shall identify the amount by which the present value of all benefits earned to date under the Plan (after offsets) exceeds the then fair market value of the applicable Trust assets, calculated using the Pension Benefit Guaranty Corporation immediate annuity interest rate as of the date of the Potential Change in Control, the 1983 GAM mortality tables, and the most valuable optional payment form (the “Full Funding Amount”), and the Company shall contribute such Full Funding Amount to the Trust. Each Participant’s benefits for purposes of calculating present value shall be the highest benefit the Participant would have under the Plan within the six months following a Potential Change in Control, assuming that the Participant’s employment continues for six months at the same rate of Compensation, and that the Participant receives any benefit enhancement provided by the Plan, or any other agreement, upon a Change in Control.

     8.6 Plan Administration and Amendment Upon a Change in Control. Upon and after a Change in Control, the Company no longer shall have the power to appoint or remove members of the Committee, nor the power to approve legal counsel or actuaries employed by the Committee. Upon and after a Change in Control, only the Committee members shall have the power to appoint or remove members. If, at any time after a Change in Control, all members of the Committee have been removed or resigned, then all of the powers, rights and duties vested in the Committee by Article IX below shall be vested in the trustee of the Trust.

     8.7 Committee Discretion to Pay Lump Sum After a Change in Control. Upon and after a Change in Control, the Committee may, in its sole discretion, distribute, or cause the trustee under the Trust to distribute, to a Participant or a surviving spouse, the present value (determined in accordance with the assumptions in Section 7.12) of the Participant’s Pre-2005 Benefit, or the portion of Supplemental Disability Pension or the surviving spouse’s Supplemental Spouse Pension attributable to his or her Pre-2005 Benefit, payable under the Plan in a lump sum payment. The Committee shall distribute, or cause the trustee under the Trust to distribute, the present value of the Participant’s Post-2004 Benefit.

     8.8 Lump Sum Election. Each calendar year, a Participant shall have the right to elect to receive the present value (determined in accordance with the assumptions in Section 7.12) of the portion of the Participant’s Supplemental Retirement Pension or the balance of the Participant’s Supplemental Retirement Account that constitutes the Participant’s Pre-2005 Benefit or the Participant’s Supplemental Disability Pension, in a lump sum if:

19

(a) a Change in Control occurs in the calendar year subsequent to the calendar year in which the election is made; and

(b) (i) within 24 months following the Change in Control any one of the payment triggering conditions set forth in the Change in Control and Termination Agreement between the Company and the Participant shall have occurred; or

(ii) if no Change in Control and Termination Agreement is in effect between the Company and the Participant on the date of the Change in Control and within 24 months following the Change in Control the employment of the Participant with the Company is terminated by the Company for any reason other than Good Cause or the Participant terminates his or her employment with the Company for Good Reason.

Such election shall be irrevocable for the calendar year to which it applies. A distribution pursuant to this Section 8.8 shall be made as soon as practicable following the Participant’s separation from Service. Notwithstanding the preceding provisions of this Section 8.8, a Participant had the right to make the election set forth in this Section at any time during the first three (3) months of calendar year 2003 with respect to a Change in Control that occurred during the last nine (9) months of calendar year 2003. Any such election was irrevocable for calendar year 2003 and was subject to the other provisions of this Section 8.8.

     8.9 Definitions.

(a) “Good Cause” shall be deemed to exist if, and only if:

(i)	the Participant 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 the Company; or
(ii)	the Participant is convicted of a criminal violation involving fraud or dishonesty.

(b) “Good Reason” shall be deemed to exist if, and only if:

(i)	there is a significant change in the nature or the scope of the Participant’s authorities or duties;
(ii)	there is a significant reduction in the Participant’s monthly rate of base salary, his or her opportunity to earn a bonus under an incentive bonus compensation plan maintained by the Company or his or her benefits; or

20

(iii) the Company changes by 100 miles or more the principal location in which the Participant is required to perform services.

ARTICLE IX

Plan Administration:  The Committee

     9.1 General Powers, Rights and Duties. The Committee has the following powers, rights and duties in addition to those given it elsewhere in the Plan:

(a)	To interpret the Plan and determine all questions arising in the administration, interpretation and application of the Plan, including, but not limited to, the power to determine the rights or eligibility of employees or Participants, and their surviving spouses and any other beneficiaries, and the amount of their respective benefits under the Plan, and to remedy ambiguities, inconsistencies or omissions.
(b)	To adopt such rules of procedure and regulations as in its opinion may be necessary for the proper and efficient administration of the Plan and as are consistent with the Plan.
(c)	To enforce the Plan and the rules and regulations, if any, adopted by the Committee as above.
(d)	To direct the trustee as respects benefit payments or other distributions from the Trust fund pursuant to the provisions of the Plan.
(e)	To furnish the Company with such information as may be required by it for tax or other purposes as respects the Plan.
(f)	To employ agents, attorneys, accountants, actuaries or other persons (who also may be employed by the Company or an Affiliate) and to allocate or delegate to them such powers, rights and duties as the Committee may consider necessary or advisable to properly carry out the administration of the Plan, including maintaining the accounts of Participants, provided that such allocation or delegation, and the acceptance thereof by such agents, attorneys, accountants, actuaries or other persons, shall be in writing.

     9.2 Information Required by Committee. The Company shall furnish the Committee with such data and information as the Committee may deem necessary or desirable in order to administer the Plan. The records of the Company as to an employee’s or Participant’s period or periods of employment, separation from Service and the reason therefore, reemployment and Compensation will be conclusive on all persons unless determined to the Committee’s satisfaction to be incorrect. Participants and other persons entitled to benefits under the Plan also shall furnish the Committee with such evidence, data or information as the Committee considers necessary or desirable to administer the Plan.

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     9.3 Committee Decision Final. Subject to applicable law, and the provisions of Section 9.4, any interpretation of the provisions of the Plan and any decision on any matter within the discretion of the Committee made by the Committee in good faith shall be binding on all persons. To the extent not inconsistent with the Plan, all definitions, terms and provisions set forth in the NiSource Pension Plan, including with respect to the administrative powers and duties of the Committee, the expenses of administration, and the procedures for filing claims, also shall be applicable with respect to the Plan.

     9.4 Claims Procedure. Claims for benefits under the Plan shall be made in writing to the Committee. If the Committee wholly or partially denies a claim for benefits, the Committee shall, within a reasonable period of time, but no later than 90 days after receiving the claim, notify the claimant in writing of the denial of the claim. If the Committee fails to notify the claimant in writing of the denial of the claim within 90 days after the Committee receives it, the claim shall be deemed denied. A notice of denial shall be written in a manner calculated to be understood by the claimant, and shall contain:

(a)	the specific reason or reasons for denial of the claim;
(b)	a specific reference to the pertinent Plan provisions upon which the denial is based;
(c)	a description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why such material or information is necessary; and
(d)	an explanation of the Plan’s review procedure.

     Within 60 days of the receipt by the claimant of the written notice of denial of the claim, or within 60 days after the claim is deemed denied as set forth above, if applicable, the claimant may file a written request with the Committee that it conduct a full and fair review of the denial of the claimant’s claim for benefits, including the conducting of a hearing, if the Committee deems one necessary. In connection with the claimant’s appeal of the denial of his or her benefit, the claimant may review pertinent documents and may submit issues and comments in writing. The Committee shall render a decision on the claim appeal promptly, but not later than 60 days after receiving the claimant’s request for review, unless, in the discretion of the Committee, special circumstances (such as the need to hold a hearing) require an extension of time for processing, in which case the 60-day period may be extended to 120 days. The Committee shall notify the claimant in writing of any such extension. The decision upon review shall (1) include specific reasons for the decision, (2) be written in a manner calculated to be understood by the claimant, and (3) contain specific references to the pertinent Plan provisions upon which the decision is based.

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     IN WITNESS WHEREOF, the Company has caused this amendment and restatement of the Plan to be executed in its name by its duly authorized officer this 28 day of October 2008, effective as of the 1st day of January 2008.

NISOURCE INC.
By:	/s/ Robert Campbell

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EX-10.5

Exhibit 10.5

PENSION RESTORATION PLAN

FOR NISOURCE INC. AND AFFILIATES

As Amended and Restated Effective January 1, 2008

TABLE OF CONTENTS

	Page
ARTICLE I PURPOSE		1
ARTICLE II DEFINITIONS		1
2.1 Affiliated Company		1
2.2 Basic Plans		2
2.3 Code		2
2.4 Committee		2
2.5 Company		2
2.6 DCP		2
2.7 Disability		2
2.8 Employee		2
2.9 Employer		2
2.10 ERISA		2
2.11 Limits		2
2.12 Participant		2
2.13 Plan		2
ARTICLE III PARTICIPATION IN THE PLAN		3
ARTICLE IV AMOUNT OF BENEFIT		3
4.1 Participants Before January 1, 2004		3
4.2 Participants On or After January 1, 2004		3
ARTICLE V TIME AND METHOD OF PAYMENT OF BENEFIT		4
5.1 Method of Payment		4
5.2 Timing of Payment		5
5.3 Changes to the Form of Payment		5
5.4 Specified Employees		5
5.5 Interest and Mortality Assumptions		6
ARTICLE VI ADMINISTRATION OF PLAN		6
ARTICLE VII COMPANY’S RIGHT TO AMEND OR TERMINATE PLAN		6
ARTICLE VIII MISCELLANEOUS PROVISIONS		7
8.1 Definitions		7
8.2 Unsecured General Creditor		7
8.3 Income Tax Payout		7
8.4 General Conditions		7
8.5 No Guaranty of Benefits		7
8.6 No Enlargement of Employee Rights		7

i

	Page
8.7 Spendthrift Provision		8
8.8 Applicable Law		8
8.9 Incapacity of Recipient		8
8.10 Unclaimed Benefit		8
8.11 Limitations on Liability		8
8.12 Claims Procedure		9
Schedule 1		1

ii

PENSION RESTORATION PLAN
FOR NISOURCE INC. AND AFFILIATES

As Amended and Restated Effective January 1, 2008

ARTICLE I

PURPOSE

     The Columbia Gas System, Inc. adopted The Pension Restoration Plan for The Columbia Gas System, Inc., as amended and restated effective March 1, 1997. The Plan was amended and restated, effective January 1, 2002, by Columbia Energy Group, successor to Columbia Gas System, Inc., and renamed the Pension Restoration Plan for the Columbia Energy Group. Effective January 1, 2004, NiSource Inc., the parent company of Columbia Energy Group, assumed sponsorship of the Pension Restoration Plan for Columbia Energy Group, renamed the Plan the Pension Restoration Plan for NiSource Inc. and Affiliates, and broadened the Plan to include all employees of NiSource Inc. and Affiliated Companies. The Plan was amended and restated, effective January 1, 2005, to comply with Internal Revenue Code Section 409A with respect to benefits earned under the Plan.

     The Plan is now further amended and restated, effective January 1, 2008, to revise certain election procedures.

     The purpose of the Plan is to provide for the payment of pension restoration benefits to employees of NiSource Inc. and Affiliated Companies, whose benefits under the Basic Plans are subject to the Limits, or affected by deferrals into the DCP, so that the total pension plan benefits of such employees will be determined on the same basis as is applicable to all other employees of the Company. The Plan is adopted solely (1) for the purpose of providing benefits to Participants in the Plan and their Beneficiaries in excess of the Limits imposed on qualified plans by Code Sections 415 and 401(a)(17), and any other Code Sections, by restoring benefits to such Plan Participants and Beneficiaries that are no longer available under the Basic Plans as a result of the Limits, and (2) for the purpose of restoring benefits to Plan Participants and Beneficiaries that are no longer available under the Basic Plans as a result of the Participant’s deferrals into the DCP. The provisions of the Plan apply only to Participants who actively participate in the Plan on or after January 1, 2005. Any Participant who retired or otherwise terminated employment with the Company and Affiliated Companies prior to January 1, 2005 shall have his or her rights determined under the provision of the Plan, as it existed when his or her employment relationship terminated.

ARTICLE II

DEFINITIONS

     2.1 Affiliated Company. “Affiliated Company” means an affiliate of NiSource Inc.

     2.2 Basic Plans. “Basic Plan(s)” means the tax qualified retirement plan(s) maintained by the Company and Affiliated Companies listed on Schedule A, attached hereto.

     2.3 Code. “Code” means the Internal Revenue Code of 1986, as amended.

     2.4 Committee. “Committee” means the NiSource Inc. and Affiliates Retirement Plan Administrative and Investment Committee.

     2.5 Company. “Company” means NiSource Inc.

     2.6 DCP. “DCP” means the Columbia Energy Group Deferred Compensation Plan, on or prior to December 31, 2003, and, thereafter, the NiSource Inc. Executive Deferred Compensation Plan.

     2.7 Disability. “Disability” means a condition that (a) causes a Participant to be unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, (b) causes a Participant, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, to receive income replacement benefits for a period of not less than three months under an accident and health plan covering Employees of the Company or an Affiliated Company or (c) causes a Participant to be eligible to receive Social Security disability payments.

     2.8 Employee. “Employee” means any individual who is employed by an Employer on a basis that involves payment of salary, wages or commissions.

     2.9 Employer. “Employer” means the Company or an Affiliated Company whose Employees participate in the Plan.

     2.10 ERISA. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     2.11 Limits. “Limits” means the limits imposed on tax qualified retirement plans by Code Sections 415 and 401(a)(17) and any other Code Sections.

     2.12 Participant. “Participant” means any Employee who is participating in the Plan in accordance with its provisions.

     2.13 Plan. “Plan” means the Pension Restoration Plan for NiSource Inc. and Affiliates (formerly known as the Pension Restoration Plan for the Columbia Energy Group, and before that as the Pension Restoration Plan for The Columbia Gas System, Inc.), as set forth herein.

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ARTICLE III

PARTICIPATION IN THE PLAN

     Each Employee of an Employer shall be a Participant in the Plan if his or her benefits under a Basic Plan are affected by the Limits or by his or her deferrals under the DCP.

ARTICLE IV

AMOUNT OF BENEFIT

     4.1 Participants Before January 1, 2004. The benefit payable under the Plan to a Participant who was participating in the Plan prior to January 1, 2004, or to his or her Beneficiary under a Basic Plan, shall be equal to the excess (if any) of the benefit determined under subsection (a) below over the benefit determined under subsection (b) below:

(a)	The benefit that would have been payable under a Basic Plan to a Participant, or to his or her Beneficiary determined under a Basic Plan, which benefit shall be determined (i) without regard to the Limits and (ii) without regard to the Participant’s deferrals into the DCP, if any.
(b)	The benefit actually payable to the Participant, or to his or her Beneficiary determined under a Basic Plan, which benefit shall be determined after applying the Limits and considering deferrals into the DCP, if any.

     4.2 Participants On or After January 1, 2004.

(a) The benefit payable under the Plan to a Participant who first becomes a Participant on or after January 1, 2004, and whose Accrued Benefit under a Basic Plan is a Final Average Pay Option Benefit, or to his or her Beneficiary under the Basic Plan, shall be equal to the excess (if any) of the benefit determined under paragraph (1) below over the benefit determined under paragraph (2) below:

(1)

The benefit that would have been payable under a Basic Plan to a Participant, or to his or her Beneficiary determined under a Basic Plan, calculated based upon the Participant’s Credited Service and Compensation from and after the date the Participant first becomes eligible to participate in the Plan, which benefit shall be determined (i) without regard to the Limits and (ii) without regard to the Participant’s deferrals into the DCP, if any.

(2)

The benefit actually payable to the Participant, or to his or her Beneficiary determined under a Basic Plan, calculated based upon the Participant’s Credited Service and Compensation from and after the date the Participant first becomes eligible to participate in the Plan, which benefit shall be

3

determined after applying the Limits and considering deferrals into the DCP, if any.

A Participant’s service used under the Basic Plan for purposes of determining eligibility for any retirement benefit shall also be used for similar purposes hereunder.

(b)

The benefit payable under the Plan to a Participant who first becomes a Participant on or after January 1, 2004, and whose Accrued Benefit under a Basic Plan is an Account Balance Option Benefit, or to his or her Beneficiary under a Basic Plan, shall be equal to the excess (if any) of the benefit determined under paragraph (1) below over the benefit determined under paragraph (2) below, determined as if the Participant’s Opening Account Balance is $0 as of January 1, 2004:

(1)	The benefit that would have been payable under a Basic Plan to a Participant or his or her Beneficiary, which benefit shall be determined (i) without regard to the Limits and (ii) without regard to the Participant’s deferrals into the DCP, if any.
(2)	The benefit actually payable to the Participant, or to his or her Beneficiary determined under a Basic Plan, which benefit shall be determined after applying the Limits and considering deferrals into the DCP, if any.

ARTICLE V

TIME AND METHOD OF PAYMENT OF BENEFIT

     5.1 Method of Payment.

(a)

The benefit earned under the Plan shall be payable to a Participant in a form available under the Basic Plan, as elected by the Participant by notice delivered to the Committee on or before December 31, 2005. Notwithstanding the preceding sentence, in the case of an Employee who becomes a Participant on or after January 1, 2005, the aforementioned election with respect to a benefit shall be made no later than January 31 of the calendar year after the calendar year in which the Participant first becomes eligible to participate in the Plan, and such election shall be effective with respect to Compensation related to services to be performed subsequent to the election; provided, however, that a Participant shall not be considered first eligible if, on the date he or she becomes a Participant, he or she participates in any other nonqualified plan of the same category that is subject to Code Section 409A, maintained by the Company or an Affiliated Company.

(b)

If payment in the form of an annuity is elected, the annuity type shall be elected by the Participant at the time he or she makes the election described in the first or second sentence of subsection (a) above from among those annuities available at

4

that time under the Basic Plan. If a benefit hereunder is paid in an annuity form other than a straight life annuity, the amount of the benefit under the Plan shall be reduced by the Basic Plan’s factors in effect at the time of such election for payment in a form other than a straight life annuity. If payment in the form of a lump sum is elected, the lump sum amount payable will be calculated in the same manner and according to the same interest rates and mortality tables as under the Basic Plan at the time of such election.

     (c)  If the Participant fails to elect a form of payment as required under subsections (a) and (b) above, the Participant’s benefit shall be payable in a lump sum.

     5.2 Timing of Payment. A benefit payable in accordance with Section 5.1 will commence within 45 days after: (i) if the Participant qualifies for Early Retirement under a Basic Plan, when the Participant separates from service, or (ii) if the Participant does not qualify for Early Retirement under a Basic Plan, the later of when the Participant separates from service or attains (or would have attained) age 65, or, if later, within such timeframe permitted under Code Section 409A, and guidance and regulations thereunder.

     5.3 Changes to the Form of Payment. A Participant cannot change the form of payment of a benefit elected under Section 5.1 or this Section 5.3 unless (i) such election does not take effect until at least 12 months after the date on which the election is made, (ii) in the case of an election related to a payment not due to the Participant’s Disability or death, the first payment with respect to which such new election is effective is deferred for a period of not less than five years from the date such payment would otherwise have been made, and (iii) any election related to a payment based upon a specific time or pursuant to a fixed schedule may not be made less than 12 months prior to the date of the first scheduled payment; provided, however, that an election to change from one type of annuity payment to a different, actuarially equivalent, type of annuity payment shall not be considered a change to the form of payment for purposes of applying the restrictions in clauses (i), (ii) and (iii).

     Notwithstanding the preceding paragraphs of this Section 5.3, a Participant may change an election with respect to the form of payment of a benefit, without regard to the restrictions imposed under the preceding paragraph, on or before December 31, 2006; provided that such election (i) applies only to amounts that would not otherwise be payable in calendar year 2006, and (ii) shall not cause an amount to be paid in calendar year 2006 that would not otherwise be payable in such year.

     5.4 Specified Employees. Notwithstanding any other provision of the Plan, in no event can a payment of a benefit to a Participant who is a Specified Employee of the Company or an Affiliated Company, at a time during which the Company’s capital stock or capital stock of an Affiliated Company is publicly traded on an established securities market, in the calendar year of his or her separation from service, be made before the date that is six months after the date of the Participant’s separation from service with the Company and all Affiliated Companies, unless such separation is due to his or her death or Disability.

5

     A Participant shall be deemed to be a Specified Employee for purposes of this Section 5.4 if he or she is in a job category C2 or above with respect to the Company or Affiliated Company that employs him or her; provided if at any time the total number of Employees in job category C2 and above is less than 50, a Specified Employee shall include any person who meets the definition of Key Employee set forth in Code Section 416(i) without reference to paragraph (5). A Participant shall be deemed to be a Specified Employee with respect to a calendar year if he or she is a Specified Employee on September 30th of the preceding calendar year. If a Specified Employee will receive payments hereunder in the form of installments or an annuity, the first payment made as of the date six months after the date of the Participant’s separation from service with the Company and all Affiliated Companies shall be a lump sum, paid as soon as practicable after the end of such six-month period, that includes all payments that would otherwise have been made during such six-month period. From and after the end of such six month period, any such installment or annuity payments shall be made pursuant to the terms of the applicable installment or annuity form of payment.

     5.5 Interest and Mortality Assumptions. Determinations under the Plan shall be based on the interest and mortality assumptions used in the applicable Basic Plan on the date of such determination.

ARTICLE VI

ADMINISTRATION OF PLAN

     The Plan shall be administered by the Committee.

ARTICLE VII

COMPANY’S RIGHT TO AMEND OR TERMINATE PLAN

     While the Company intends to maintain the Plan in conjunction with the Basic Plans, the Company, or the Officer Nomination and Compensation Committee of the Board of Directors of the Company, reserves the right to amend the Plan at any time and from time to time, or to terminate it at any time for any reason; provided, however, that no amendment or termination of the Plan shall impair or alter such right to a benefit that would have arisen under the Plan as it read before the effective date of such amendment or termination to or with respect to any employee who has become a Participant in the Plan before the effective date of such amendment or termination or with respect to his or her Beneficiary. Upon termination of the Plan, distribution of Plan benefits shall be made to Participants and Beneficiaries in the manner and at the time described in Article V of the Plan. No additional benefits shall be earned after termination of the Plan.

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ARTICLE VIII

MISCELLANEOUS PROVISIONS

     8.1 Definitions. The terms used in the Plan that are defined in the Basic Plans shall have the meanings assigned to them in the Basic Plans, unless otherwise defined in the Plan.

     8.2 Unsecured General Creditor. Participants and Beneficiaries shall be unsecured general creditors, with no secured or preferential right to any assets of the Company, any other Employer, or any other party for payment of benefits under the Plan. Obligations of the Company and each other Employer under the Plan shall be an unfunded and unsecured promise to pay money in the future.

     8.3 Income Tax Payout. In the event that the Internal Revenue Service prevails in its claim that that any amount of a Participant’s benefit payable pursuant to the Plan and held in the general assets of the Company or any other Employer constitutes taxable income under Code Section 409A, and guidance and regulations thereunder, to a Participant or his or her Beneficiary for any taxable year prior to the taxable year in which such amount is distributed to him or her, or in the event that legal counsel satisfactory to the Company and the applicable Participant or his or her Beneficiary renders an opinion that the Internal Revenue Service would likely prevail in such a claim, the amount of such benefit held in the general assets of the Company or any other Employer, to the extent constituting such taxable income, shall be immediately distributed to the Participant or his or her Beneficiary. For purposes of this Section, the Internal Revenue Service shall be deemed to have prevailed in a claim if such claim is upheld by a court of final jurisdiction, or if the Participant or Beneficiary, based upon an opinion of legal counsel satisfactory to the Company and the Participant or his or her Beneficiary, fails to appeal a decision of the Internal Revenue Service, or a court of applicable jurisdiction, with respect to such claim, to an appropriate Internal Revenue Service appeals authority or to a court of higher jurisdiction within the appropriate time period.

     8.4 General Conditions. Except as otherwise expressly provided herein, all terms and conditions of a Basic Plan applicable to a Basic Plan benefit shall also be applicable to a benefit payable hereunder. Any Basic Plan benefit shall be paid solely in accordance with the terms and conditions of the applicable Basic Plan and nothing in the Plan shall operate or be construed in any way to modify, amend or affect the terms and provisions of the Basic Plan.

     8.5 No Guaranty of Benefits. Nothing contained in the Plan shall constitute a guaranty by the Company or any other Employer or any other entity or person that the assets of the Company or any other Employer will be sufficient to pay any benefit hereunder.

     8.6 No Enlargement of Employee Rights. No Participant or Beneficiary shall have any right to a benefit under the Plan except in accordance with the terms of the Plan. Establishment of the Plan shall not be construed to give any Participant or Beneficiary the right to be retained in the service of the Company or any Affiliated Company.

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     8.7 Spendthrift Provision. No interest of any person or entity in, or right to receive a benefit under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a benefit be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance, and claims in bankruptcy proceedings.

     Notwithstanding the preceding paragraph, the benefit of any Participant shall be subject to and payable in the amount determined in accordance with any qualified domestic relations order, as that term is defined in ERISA Section 206(d)(3). The Committee shall provide for payment of such benefit to an alternate payee (as defined in ERISA Section 206(d)(3)) as soon as administratively possible following receipt of such order. Any federal, state or local income tax associated with such payment shall be the responsibility of the alternate payee. The benefit that is subject to any qualified domestic relations order shall be reduced by the amount of any payment made pursuant to such order.

     8.8 Applicable Law. The Plan shall be construed and administered under the laws of the State of Indiana, except to the extent preempted by applicable federal law.

     8.9 Incapacity of Recipient. If any person entitled to a benefit payment under the Plan is deemed by the Committee to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefore shall have been made by a duly appointed guardian or other legal representative of such person, the Committee may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company, any other Employer, the Committee and the Plan therefore.

     8.10 Unclaimed Benefit. Each Participant shall keep the Committee informed of his or her current address and the current address of his or her Beneficiaries. The Committee shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Committee within three years after the date on which payment of the Participant’s benefit may first be made, payment may be made as though the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed, or, within three years after the actual death of a Participant, the Committee is unable to locate any Beneficiary of the Participant, then the Committee shall have no further obligation to pay any benefit hereunder to such Participant, Beneficiary, or any other person and such benefit shall be irrevocably forfeited.

     8.11 Limitations on Liability. Notwithstanding any of the preceding provisions of the Plan, none of the Company, any other Employer, or any individual acting as an employee, or agent at the direction of the Company or any other Employer, or any member of the Committee, shall be liable to any Participant, former Participant, Beneficiary, or any other person for any claim, loss, liability or expense incurred in connection with the Plan.

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     8.12 Claims Procedure. Claims for benefits under the Plan shall be made in writing to the Committee. If the Committee wholly or partially denies a claim for benefits, the Committee shall, within a reasonable period of time, but no later than 90 days after receiving the claim, notify the claimant in writing of the denial of the claim. If the Committee fails to notify the claimant in writing of the denial of the claim within 90 days after the Committee receives it, the claim shall be deemed denied. A notice of denial shall be written in a manner calculated to be understood by the claimant, and shall contain:

(a)	the specific reason or reasons for denial of the claim;
(b)	a specific reference to the pertinent Plan provisions upon which the denial is based;
(c)	a description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why such material or information is necessary; and
(d)	an explanation of the Plan’s review procedure.

Within 60 days of the receipt by the claimant of the written notice of denial of the claim, or within 60 days after the claim is deemed denied as set forth above, if applicable, the claimant may file a written request with the Committee that it conduct a full and fair review of the denial of the claimant’s claim for benefits, including the conducting of a hearing, if the Committee deems one necessary. In connection with the claimant’s appeal of the denial of his or her benefit, the claimant may review pertinent documents and may submit issues and comments in writing. The Committee shall render a decision on the claim appeal promptly, but not later than 60 days after receiving the claimant’s request for review, unless, in the discretion of the Committee, special circumstances (such as the need to hold a hearing) require an extension of time for processing, in which case the 60-day period may be extended to 120 days. The Committee shall notify the claimant in writing of any such extension. The decision upon review shall (i) include specific reasons for the decision, (ii) be written in a manner calculated to be understood by the claimant, and (iii) contain specific references to the pertinent Plan provisions upon which the decision is based.

     IN WITNESS WHEREOF, NiSource Inc. has caused this amended and restated Plan to be executed in its name, by its duly authorized officer, on this 28 day of October, 2008, effective as of January 1, 2008.

		NISOURCE INC.
Date:	10/28/2008	By:	/s/ Robert Campbell
		ATTEST:
Date:		By:

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SCHEDULE A

NiSource Inc. and Northern Indiana Public Service Company Pension Plan Provisions Pertaining to Salaried and Non-Exempt Employees

NiSource Subsidiary Pension Plan

Retirement Plan of Columbia Energy Group Companies

Bay State Gas Company Pension Plan

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EX-10.6

Exhibit 10.6

SAVINGS RESTORATION PLAN

FOR NISOURCE INC. AND AFFILIATES

As Amended and Restated Effective January 1, 2008

TABLE OF CONTENTS

	Page
ARTICLE I PURPOSE		1
ARTICLE II DEFINITIONS		1
2.1 Affiliated Company		2
2.2 Annual Addition		2
2.3 Basic Plan		2
2.4 Code		2
2.5 Committee		2
2.6 Company		2
2.7 DCP		2
2.8 Disability		2
2.9 Employee		2
2.10 Employer		2
2.11 ERISA		2
2.12 Interest		3
2.13 Limits		3
2.14 Participant		3
2.15 Plan		3
2.16 Plan Year		3
2.17 Post-2004 Benefit		3
2.18 Pre-2005 Benefit		3
2.19 Supplemental Savings Account		3
2.20 Unforeseeable Emergency		3
ARTICLE III ELIGIBILITY		4
3.1 Eligibility		4
3.2 Notice of Eligibility to Participants		4
3.3 Method of Becoming a Participant		4
3.4 Continuation of Participation		5
ARTICLE IV SUPPLEMENTAL SAVINGS ACCOUNT		5
4.1 Supplemental Savings Account		5
4.2 Employer Credits		5
4.3 Special Employer Credits		5
4.4 Participant Credits		6
4.5 Interest Credits		6

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	Page
ARTICLE V IN-SERVICE WITHDRAWALS		7
5.1 Pre-2005 Benefit		7
5.2 Post-2004 Benefit		7
5.3 Limitations on In-Service Withdrawals		7
ARTICLE VI TERMINATION OF PARTICIPATION AND PAYMENT OF BENEFITS		8
6.1 Termination of Participation		8
6.2 Benefits at Termination of Participation		8
6.3 Method and Time of Payment		8
ARTICLE VII ADMINISTRATION OF PLAN		11
ARTICLE VIII COMPANY’S RIGHTS TO AMEND OR TERMINATE PLAN		11
ARTICLE IX MISCELLANEOUS PROVISIONS		11
9.1 Definitions		11
9.2 Unsecured General Creditor		11
9.3 Income Tax Payout		12
9.4 General Conditions		12
9.5 No Guaranty of Benefits		13
9.6 No Enlargement of Employee Rights		13
9.7 Spendthrift Provision		13
9.8 Applicable Law		13
9.9 Incapacity of Recipient		13
9.10 Unclaimed Benefit		13
9.11 Limitations on Liability		14
9.12 Claims Procedure		14

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SAVINGS RESTORATION PLAN
FOR NISOURCE INC. AND AFFILIATES

As Amended and Restated Effective January 1, 2008

ARTICLE I

PURPOSE

     Prior to January 1, 2004, Columbia Energy Group sponsored the Savings Restoration Plan for Columbia Energy Group for eligible executives of Columbia Energy Group and certain affiliated companies. Effective January 1, 2004, NiSource Inc., the parent company of Columbia Energy Group, assumed sponsorship of the Savings Restoration Plan for Columbia Energy Group, renamed the Plan the Savings Restoration Plan for NiSource Inc. and Affiliates, and broadened the Plan to include all employees of NiSource Inc. and Affiliated Companies.

     The purpose of the Plan is to provide for the payment of savings restoration benefits to employees of NiSource Inc. and Affiliated Companies, whose benefits under the Basic Plan are subject to the Limits or affected by deferrals into the DCP, so that the total savings plan benefits of such employees shall be determined on the same basis as is applicable to all other employees of the Company. The Plan is adopted solely (1) for the purpose of providing benefits to Participants in the Plan and their Beneficiaries in excess of the Limits imposed on qualified plans by Code Section 401(a)(17) and any other Code Sections, by restoring benefits to such Plan Participants and Beneficiaries that are no longer available under the Basic Plan as a result of the Limits, and (2) for the purpose of restoring benefits to Plan Participants and Beneficiaries that are no longer available under the Basic Plan as a result of the Participant’s deferrals into the DCP. The Plan was amended and restated effective January 1, 2004, and amended effective January 1, 2005. The Plan was then amended and restated again effective January 1, 2005, to comply with Code Section 409A, and guidance and regulations thereunder, with respect to benefits earned under the Plan from and after January 1, 2005. Benefits under the Plan earned and vested prior to January 1, 2005 shall be administered without giving effect to Code Section 409A, and guidance and regulations thereunder. The provisions of the Plan as set forth herein apply only to Participants who actively participate in the Plan on or after January 1, 2005. Any Participant who retired or otherwise terminated employment with the Company and all Affiliated Companies prior to January 1, 2005 shall have his or her rights determined under the provision of the Plan as it existed when his or her employment relationship terminated. The Plan is now further amended and restated, effective January 1, 2008, to provide for mandatory lump sum payments of small account balances in accordance with Code Section 409A.

ARTICLE II

DEFINITIONS

     2.1 Affiliated Company. “Affiliated Company” means an affiliate of NiSource Inc.

     2.2 Annual Addition. “Annual Addition” for any Participant means the sum, in any Plan Year, of:

(a)	the Company’s, or any Affiliated Company’s, matching or profit sharing contributions to the Basic Plan on behalf of the Participant; plus
(b)	all Participant deposits to the Basic Plan, including before-tax and after-tax deposits.

     For purposes of the Plan, the determination of a Participant’s Annual Addition shall be made without regard to the Limits.

     2.3 Basic Plan. “‘Basic Plan” means the NiSource Inc. Retirement Savings Plan, as amended and restated effective January 1, 2002, and as further amended from time to time.

     2.4 Code. “Code” means the Internal Revenue Code of 1986, as amended.

     2.5 Committee. “Committee” means the NiSource Inc. and Affiliates Retirement Plan Administrative and Investment Committee.

     2.6 Company. “Company” means NiSource Inc.

     2.7 DCP. “DCP” means the Columbia Energy Group Deferred Compensation Plan on or prior to December 31, 2003, and, thereafter, the NiSource Inc. Executive Deferred Compensation Plan.

     2.8 Disability. “Disability” means a condition that (a) causes a Participant to be unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, (b) causes a Participant, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, to receive income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company or an Affiliated Company or (c) causes a Participant to be eligible to receive Social Security disability payments.

     2.9 Employee. “Employee” means any individual who is employed by an Employer on a basis that involves payment of salary, wages or commissions.

     2.10 Employer. “Employer” means the Company or an Affiliated Company whose Employees participate in the Plan.

     2.11 ERISA. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

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     2.12 Interest. “Interest” means the average of the prime rates of interest charged as of the last business day of a month, determined under procedures established by the Committee.

     2.13 Limits. “Limits” means the limits imposed on tax qualified retirement plans by Code Sections 415 and 401(a)(17) and any other Code Sections.

     2.14 Participant. “Participant” means any Employee who is participating in the Plan in accordance with its provisions.

     2.15 Plan. “Plan” means the Savings Restoration Plan for NiSource Inc. and Affiliates (formerly known as the Savings Restoration Plan for the Columbia Energy Group, and before that as the Thrift Restoration Plan for the Columbia Energy Group), as set forth herein.

     2.16 Plan Year. “Plan Year” means the 12-month period commencing each January 1 and ending the following December 31.

     2.17 Post-2004 Benefit. “Post-2004 Benefit” means the portion of a Participant’s Supplemental Savings Account equal to the excess of (1) the balance of the Participant’s Supplemental Savings Account determined as of a Participant’s date of separation from service with the Company and all Affiliated Companies after December 31, 2004 over (2) the Pre-2005 Benefit, to which the Participant would be entitled under the Plan if he voluntarily separated from service without cause as of such date and received a full payment of benefits from the Plan on the earliest possible date allowed under the Plan following his separation from service.

     2.18 Pre-2005 Benefit. “Pre-2005 Benefit” means the portion of a Participant’s Savings Account determined as of December 31, 2004, adjusted to reflect Interest credited to such balance from and after such date.

     2.19 Supplemental Savings Account. “Supplemental Savings Account” means the sum of credits accrued under Article IV on behalf of a Participant, adjusted to reflect Interest credited to the Account, and reduced by any withdrawals under Article V.

     2.20 Unforeseeable Emergency. “Unforeseeable Emergency” means a severe financial hardship to a Participant resulting from an illness or accident of the Participant, the Participant’s spouse or a dependent (as defined in Code Section 152(a)), of the Participant, loss of the Participant’s property due to casualty or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The amount distributed with respect to an Unforeseeable Emergency shall not exceed the amount necessary to satisfy the Emergency, plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise, or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).

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ARTICLE III

ELIGIBILITY

     3.1 Eligibility. Any Employee who is not a Participant in the Plan on December 31, 2004, who is participating in the Basic Plan and (i) whose Compensation in a Plan Year will exceed the Limits, or (ii) who has deferrals in the DCP excluded for purposes of benefit allocations in the Basic Plan, shall be eligible to become a Participant in the Plan as of January 1 of such Plan Year. Any Participant in the Plan on December 31, 2004 shall continue as a Participant after that date. If an Employee who was not expected to be eligible to become a Participant in a given Plan Year subsequently qualifies because his or her Compensation exceeds the Limits for that Plan Year, or because he or she becomes eligible for, or begins to participate in, the DCP, such Employee shall be eligible to participate in the Plan as soon as practicable after this determination has been made or deferrals begin.

     3.2 Notice of Eligibility to Participants. The Committee shall inform each Employee of his or her eligibility to participate in the Plan as soon as practicable but before the earliest date such Employee’s participation could become effective.

     3.3 Method of Becoming a Participant. In order to become a Participant, each eligible Employee must sign a written agreement with his or her Employer providing for a reduction of his or her Compensation and a corresponding direction of Employer contributions or Participant Pre-tax Contributions that would normally be made to the Basic Plan, except for the Limits or deferrals into the DCP, to be credited to his or her Supplemental Savings Account under the Plan, to the extent necessary to satisfy the Limits with respect to the Basic Plan or deferrals into the DCP.

     A Participant in the Plan as of December 31, 2004 who remains a Participant in the Plan as of January 1, 2005 shall deliver to the Committee the written agreement referenced in the preceding paragraph with respect to his or her Compensation earned from and after January 1, 2006 no later than December 31, 2005. An Employee who becomes a Participant on or after January 1, 2005 shall deliver the aforementioned written agreement to the Committee within 30 days after the date the Participant first becomes eligible to participate, and such agreement shall be effective with respect to Compensation related to services to be performed subsequent to the election; provided that such a Participant shall not be considered first eligible if, on the date he or she becomes a Participant, he or she participates in any other nonqualified account balance plan that is subject to Code Section 409A, maintained by the Company or an Affiliated Company. If an Employee referred to in the preceding sentence does not deliver the aforementioned written agreement to the Committee within such 30-day period, he or she shall be entitled to deliver to the Committee a written agreement of the type referenced in the preceding paragraph with respect to his or her Compensation earned from and after the first day of the Plan Year next following the Plan Year in which the written agreement is delivered. Any election made pursuant to a written agreement, delivered pursuant to the preceding sentences of this paragraph, shall continue in effect until revoked by a Participant by notice delivered to the

4

Committee no later than the last day of the Plan Year immediately preceding the first day of the Plan Year in which such election is to become effective.

        3.4 Continuation of Participation. A Participant shall remain a Participant so long as his or her Supplemental Savings Account has not been fully distributed to him or her.

ARTICLE IV

SUPPLEMENTAL SAVINGS ACCOUNT

        4.1 Supplemental Savings Account. A Supplemental Savings Account shall be established for each Participant. The amounts to be credited to a Participant’s Supplemental Savings Account shall be determined under procedures established by the Committee and shall consist of:

(a)	Employer credits, as described in Sections 4.2 and 4.3; plus
(b)	Participant credits, as described in Section 4.4; plus
(c)	Interest credits under Section 4.5.

        A Participant’s Supplemental Savings Account shall be reduced by any withdrawals made under Article V.

        4.2 Employer Credits. The amount of Employer credits for a Participant shall equal (a) minus (b) below:

(a)	The total amount of Matching Contributions that would otherwise have been contributed to the Basic Plan for the Participant without regard to the Limits or deferrals into the DCP;
(b)	The actual amount of Matching Contributions contributed to the Basic Plan for the Participant.

        4.3 Special Employer Credits. Any Participant who (1) during the 2003 and/or 2004 Plan Years had a Matching Contribution allocated to his Matching Contribution Account under the Basic Plan that was less than the maximum Matching Contribution available under the Basic Plan, (2) authorized After-tax Contributions and/or Pre-tax Contributions under the Basic Plan equal to at least 6% of his Compensation for such Plan Year(s), (3) commenced employment with an Employer prior to January 1, 2002 and was still employed by an Employer on January 1, 2005 and (4) participated in the Account Balance Option of the NiSource Inc. and Northern Indiana Public Service Company Pension Plan Provisions Pertaining to Salaried and Non-Exempt Employees, the NiSource Subsidiary Pension Plan or the Bay State Gas Company Pension Plan, as applicable, shall be eligible for an additional Employer credit hereunder. The additional Employer credit shall be calculated as the difference between (i) the Matching

5

Contributions that would have been allocated to the Participant’s Matching Contribution Account under the Basic Plan during the 2003 and/or 2004 Plan Year(s) if his or her total After-tax Contributions, if any, and Pre-tax Contributions under the Basic Plan for such Plan Year(s) had been contributed evenly over each pay period throughout the Plan Year(s) and (ii) the Matching Contribution actually allocated to the Participant’s Matching Contribution Account under the Basic Plan for such Plan Year(s).

     The additional Employer credit, plus interest (calculated using a rate equal to 4.5% from January 1, 2005 to the date the additional Employer credit is credited to his or her Supplemental Savings Account as provided herein) shall be credited to the Participant’s Supplemental Savings Account in accordance with Section 4.1. The additional Employer credit shall be credited to his or her Supplemental Savings Account as soon as administratively practicable after September 1, 2005, but in any event no later than December 31, 2005.

     Except where inconsistent with this Section 4.3, the additional Employer credit shall be subject to all provisions of the Plan applicable to Employer credits.

        4.4 Participant Credits. The amount of Participant credits for a Participant shall equal (a) minus (b) below:

(a)	The total amount of Pre-tax Contributions that would otherwise have been contributed to the Basic Plan for the Participant without regard to the Limits or deferrals into the DCP;
(b)	The actual amount of Pre-tax Contributions contributed to the Basic Plan for the Participant.

        4.5 Interest Credits.

(a)	Interest credits to a Participant’s Supplemental Savings Account, if applicable, shall be considered made on a monthly basis.
(b)	All credits shall accrue Interest starting with the first full calendar month in which they are deemed to be a part of the applicable Supplemental Savings Account and ending with the last full calendar month in which credits are still deemed to be part of the Supplemental Savings Account.
(c)	Interest shall be based on the balance of the value of the Participant’s Supplemental Savings Account as of the first working day of the calendar month and credited as of the last working day of the calendar month.
(d)	In the event there is a withdrawal by a Participant from his or her Supplemental Savings Account, the value of such Supplemental Savings Account, prior to the withdrawal, shall be credited with Interest to the end of the calendar month in

6

	which the withdrawal is actually made. The amount of the withdrawal shall then be subtracted from the balance so determined.
(e)	Interest shall be earned only on monies held under reserve by an Employer. If the Committee has invested any portion of a Participant’s Supplemental Savings Account, Interest shall not be earned on such portion, but such Account shall be adjusted for actual earnings, gains, and losses on such investment.

ARTICLE V

IN-SERVICE WITHDRAWALS

        5.1 Pre-2005 Benefit. This section applies only to a Pre-2005 Benefit.

(a)	In-Service Withdrawals. Subject to the limitations of Section 5.3, a Participant, by filing a written request with the Committee, may, while employed by an Employer or an Affiliated Company, elect to withdraw 33%, 67% or 100% of his or her Pre-2005 Benefit.
(b)	Limitation on In-Service Withdrawals. Any In-Service withdrawal under paragraph (a) of this Section 5.1 shall be subject to a 10% early distribution penalty.
(c)	Unforeseeable Emergency. At the written request of a Participant, and in the written discretion of the Committee, up to 100% of the balance of a Participant’s Pre-2005 Benefit, determined as of the last day of the calendar month prior to the date of distribution may be distributed to a Participant in a lump sum in the case of an Unforeseeable Emergency.

        5.2 Post-2004 Benefit. A Participant shall be entitled to withdraw all or any portion of his or her Post-2004 Benefit, as he or she may request in a direction delivered to the Committee, in the case of an Unforeseeable Emergency.

        5.3 Limitations on In-Service Withdrawals. Any In-Service Withdrawal under this Article V shall be subject to the following provisions:

(a)	Only one In-Service Withdrawal shall be permitted in any 12-month period.
(b)	In-Service Withdrawals under this Article V shall require suspension of Employer credits and Participant credits (but not Interest credits) under the Plan for a period of time varying with the percentage of the value of the Participant’s Supplemental Savings Account which is withdrawn, according to the following schedule:

Percentage	Suspension
Up to 33%	2 months
34 - 67%	4 months

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Percentage	Suspension
68 - 100%	6 months

     This suspension shall not affect a Participant’s participation in the Basic Plan nor the basis for determining the Employer contributions or Participant Pre-tax Contributions under the Basic Plan.

ARTICLE VI

TERMINATION OF PARTICIPATION
AND PAYMENT OF BENEFITS

        6.1 Termination of Participation. A Participant’s participation in the Plan shall terminate at separation from service with the Company and all Affiliated Companies for any reason, including Disability or death.

        6.2 Benefits at Termination of Participation. Upon his or her separation from service, a Participant, his or her spouse, or his or her Beneficiary or legal representative shall be entitled to 100% of the Participant’s Supplemental Savings Account credited with Interest, if applicable, through the calendar month preceding the date payment is made to the Participant (or to his or her spouse, legal representative or Beneficiary in the case of his or her incapacity or death).

        6.3 Method and Time of Payment.

(a) Pre-2005 Benefit.

(i)

The Pre-2005 Benefit payable under the Plan to a Participant or his or her spouse, Beneficiary, or legal representative shall be paid in the same form under which the Basic Plan benefit is payable to the Participant or his or her spouse, Beneficiary, or legal representative. The Participant’s election under the Basic Plan of any optional form of payment of his or her Basic Plan benefit (with the valid consent of his or her surviving spouse where required under the Basic Plan) shall also be applicable to the payment of his or her Pre-2005 Benefit under the Plan.

(ii)

Payment of the Pre-2005 Benefit under the Plan to a Participant or his or her spouse, Beneficiary, or legal representative under the Plan shall commence on the same date as payment of the benefit to the Participant or his or her spouse, Beneficiary, or legal representative under the Basic Plan commences. Any election under the Basic Plan made by the Participant with respect to the commencement of payment of his or her benefit under the Basic Plan shall also be applicable with respect to the commencement of payment of his or her Pre-2005 Benefit under the Plan.

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(iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, an election made by the Participant under the Basic Plan with respect to the form of payment of his or her Pre-2005 Benefit thereunder (with the valid consent of his or her surviving spouse where required under the Basic Plan), or the date for commencement of payment thereof, shall not be effective with respect to the form of payment or date for commencement of payment of his or her Pre-2005 Benefit under the Plan unless such election is expressly approved in writing by the Committee. If the Committee shall not approve such election in writing, then the form of payment or date for commencement of payment of the Participant’s Pre-2005 Benefit under the Plan shall be selected by the Committee at its sole discretion.

(b) Post-2004 Benefit.

(i)	Payment of a Post-2004 Benefit in accordance with this Section 6.3 shall commence within 45 days after the Participant’s date of separation from service with the Company and all Affiliated Companies, or, if later, within such timeframe permitted under Code Section 409A, and guidance and regulations thereunder.
(ii)	The Post-2004 Benefit shall be payable in a form elected by a Participant no later than December 31, 2005. Notwithstanding the preceding sentence, in the case of an Employee who becomes a Participant on or after January 1, 2005, the aforementioned election with respect to the form of payment of a Post-2004 Benefit shall be made within 30 days after the date the Participant first becomes eligible to participate, and such election shall be effective with respect to Compensation related to services to be performed subsequent to the election; provided that such a Participant shall not be considered first eligible if on the date he becomes a Participant he participates in any other nonqualified account balance plan that is subject to Code Section 409A, maintained by the Company or an Affiliated Company. The form of payment shall be elected by the Participant at the time he makes the election described in the first or second sentence of this paragraph (iii) from among those forms of payment available at that time under the Basic Plan. If a timely payment election is not made by a Participant, payment shall be made in a lump sum.
(iii)	A Participant cannot change the time or form of payment of a Post-2004 Benefit under this Section 6.3(b) unless (A) such election does not take effect until at least 12 months after the date the election is made, (B) in the case of an election related to a payment not related to the Participant’s Disability or death, the first payment with respect to which such new election is effective is deferred for a period of not less than five years from

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	the date such payment would otherwise have been made, and (C) any election related to a payment based upon a specific time or pursuant to a fixed schedule may not be made less than 12 months prior to the date of the first scheduled payment.
(iv)	Notwithstanding any preceding provision of this Section 6.3(b), a Participant may change an election with respect to the time and form of payment of a Post-2004 Benefit, without regard to the restrictions imposed under paragraph (iii) next above, on or before December 31, 2006; provided that such election (A) applies only to amounts that would not otherwise be payable in calendar year 2006, and (B) shall not cause an amount to be paid in calendar year 2006 that would not otherwise be payable in such year.
(v)	Notwithstanding any other provision of the Plan, in no event can a payment of a Post-2004 Benefit to a Participant who is a Specified Employee of the Company or an Affiliated Company, at a time during which the Company’s capital stock or capital stock of an Affiliated Company is publicly traded on an established securities market, in the calendar year of his or her separation from service be made before the date that is six months after the date of the Participant’s separation from service with the Company and all Affiliated Companies, unless such separation is due to death or Disability.
	A Participant shall be deemed to be a Specified Employee for purposes of this subparagraph (iv) if he or she is in job category C2 or above with respect to the Company or the Affiliated Company that employs him or her; provided that if at any time the total number of Employees in job category C2 and above is less than 50, a Specified Employee shall include any person who meets the definition of a Key Employee set forth in Code Section 416(i) without reference to paragraph (5). A Participant shall be deemed to be a Specified Employee with respect to a calendar year if he is a Specified Employee on September 30th of the preceding calendar year. If a Specified Employee will receive payments hereunder in the form of installments or an annuity, the first payment made as of the date six months after the date of the Participant’s separation from service with the Company and all Affiliated Companies shall be a lump sum, paid as soon as practicable after the end of such six-month period, that includes all payments that would otherwise have been made during such six-month period. From and after the end of such six month period, any such installment or annuity payments shall be made pursuant to the terms of the applicable installment or annuity form of payment.
(c)	Mandatory Lump Sum Payments.

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Notwithstanding any other provision in this Section 6.3, if (1) the sum of the Participant’s Pre-2005 Benefit and Post-2004 Benefit does not exceed the applicable dollar limit under code Section 402(g)(1)(B) and (2) this sum is the entirety of the Participant’s interest in the Plan and all other arrangements with respect to which deferrals of compensation are treated as having been deferred under a single nonqualified deferred compensation plan under Code Section 409A and applicable guidance thereunder, then the form of payment of both the Pre-2005 Benefit and Post-2004 Benefit shall be a single lump sum.

ARTICLE VII

ADMINISTRATION OF PLAN

     The Plan shall be administered by the Committee.

ARTICLE VIII

COMPANY’S RIGHTS TO AMEND OR TERMINATE PLAN

     While the Company intends to maintain the Plan in conjunction with the Basic Plan, the Company, or the Officer Nomination and Compensation Committee of the Board of Directors of the Company, reserves the right to amend the Plan at any time and from time to time, or to terminate it at any time for any reason; provided, however, that no amendment or termination of the Plan shall impair or alter such right to a benefit that would have arisen under the Plan as it read before the effective date of such amendment or termination to or with respect to any Employee who has become a Participant in the Plan before the effective date of such amendment or termination or with respect to his or her Beneficiary. Upon termination of the Plan, distribution of Plan benefits shall be made to Participants, surviving spouses and beneficiaries in the manner and at the time described in Article VI of the Plan. No additional benefits shall be earned after termination of the Plan other than the crediting of Interest until the date of distribution of a Participant’s Supplemental Savings Account.

ARTICLE IX

MISCELLANEOUS PROVISIONS

     9.1 Definitions. The terms used in the Plan that are defined in the Basic Plan shall have the meanings assigned to them in the Basic Plan unless otherwise defined in the Plan.

     9.2 Unsecured General Creditor. Participants and Beneficiaries shall be unsecured general creditors, with no secured or preferential right to any assets of the Company, any other Employer, or any other party for payment of benefits under the Plan. Obligations of the Company and each other Employer under the Plan shall be an unfunded and unsecured promise to pay money in the future.

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        9.3 Income Tax Payout.

(a)

Notwithstanding anything to the contrary contained herein, (1) in the event that the Internal Revenue Service prevails in its claim that any amount of a Pre-2005 Benefit, payable pursuant to the Plan and held in the general assets of the Company or any other Employer, constitutes taxable income to a Participant or his or her Beneficiary for a taxable year prior to the taxable year in which such amount is distributed to him or her, or (2) in the event that legal counsel satisfactory to the Company, and the applicable Participant or his or her Beneficiary, renders an opinion that the Internal Revenue Service would likely prevail in such a claim, the amount of such Benefit held in the general assets of the Company or any other Employer, to the extent constituting taxable income, shall be immediately distributed to the Participant or his or her Beneficiary. For purposes of this Section, the Internal Revenue Service shall be deemed to have prevailed in a claim if such claim is upheld by a court of final jurisdiction, or if the Participant or Beneficiary, based upon an opinion of legal counsel satisfactory to the Company and the Participant or his or her Beneficiary, fails to appeal a decision of the Internal Revenue Service, or a court of applicable jurisdiction, with respect to such claim, to an appropriate Internal Revenue Service appeals authority or to a court of higher jurisdiction within the appropriate time period.

(b)

Notwithstanding anything to the contrary contained herein, (1) in the event that the Internal Revenue Service prevails in its claim that any amount of a Post-2004 Benefit, payable pursuant to the Plan and held in the general assets of the Company or any other Employer, constitutes taxable income under Code Section 409A, and guidance and regulations thereunder, to a Participant or his or her Beneficiary for a taxable year prior to the taxable year in which such amount is distributed to him or her, or (2) in the event that legal counsel satisfactory to the Company, and the applicable Participant or his or her Beneficiary, renders an opinion that the Internal Revenue Service would likely prevail in such a claim, the amount of such Benefit held in the general assets of the Company or any other Employer, to the extent constituting such taxable income, shall be immediately distributed to the Participant or his or her Beneficiary. For purposes of this Section, the Internal Revenue Service shall be deemed to have prevailed in a claim if such claim is upheld by a court of final jurisdiction, or if the Participant or Beneficiary, based upon an opinion of legal counsel satisfactory to the Company and the Participant or his or her Beneficiary, fails to appeal a decision of the Internal Revenue Service, or a court of applicable jurisdiction, with respect to such claim, to an appropriate Internal Revenue Service appeals authority or to a court of higher jurisdiction within the appropriate time period.

        9.4 General Conditions. Except as otherwise expressly provided herein, all terms and conditions of the Basic Plan applicable to a Basic Plan benefit shall also be applicable to a benefit payable hereunder. Any Basic Plan benefit shall be paid solely in accordance with the

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terms and conditions of the Basic Plan and nothing in the Plan shall operate or be construed in any way to modify, amend or affect the terms and provisions of the Basic Plan.

     9.5 No Guaranty of Benefits. Nothing contained in the Plan shall constitute a guaranty by the Company or any other Employer or any other entity or person that the assets of the Company or any other Employer shall be sufficient to pay any benefit hereunder.

     9.6 No Enlargement of Employee Rights. No Participant or Beneficiary shall have any right to a benefit under the Plan except in accordance with the terms of the Plan. Establishment of the Plan shall not be construed to give any Participant or Beneficiary the right to be retained in the service of the Company or any other Employer.

     9.7 Spendthrift Provision. No interest of any person or entity in, or right to receive a benefit under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a benefit be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance, and claims in bankruptcy proceedings. Notwithstanding the preceding sentence, the Supplemental Savings Account of any Participant shall be subject to and payable in the amount determined in accordance with any qualified domestic relations order, as that term is defined in Section 206(d)(3) of ERISA. The Committee shall provide for payment of such portion of a Supplemental Savings Account to an alternate payee (as defined in Section 206(d)(3) of ERISA) as soon as administratively possible following receipt of such order. Any federal, state or local income tax associated with such payment shall be the responsibility of the alternate payee. The balance of any Supplemental Savings Account that is subject to any qualified domestic relations order shall be reduced by the amount of any payment made pursuant to such order.

     9.8 Applicable Law. The Plan shall be construed and administered under the laws of the State of Indiana, except to the extent preempted by applicable federal law.

     9.9 Incapacity of Recipient. If any person entitled to a benefit payment under the Plan is deemed by the Committee to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefor shall have been made by a duly appointed guardian or other legal representative of such person, the Committee may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company, any other Employer, the Committee and the Plan therefor.

     9.10 Unclaimed Benefit. Each Participant shall keep the Committee informed of his or her current address and the current address of his or her Beneficiaries. The Committee shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Committee within three years after the date on which payment of the Participant’s benefit may first be made, payment may be made as though the Participant had died

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at the end of the three-year period. If, within one additional year after such three-year period has elapsed or within three years after the actual death of a Participant, the Committee is unable to locate any Beneficiary of the Participant, then the Committee shall have no further obligation to pay any benefit hereunder to such Participant, Beneficiary, or any other person and such benefit shall be irrevocably forfeited.

     9.11 Limitations on Liability. Notwithstanding any of the preceding provisions of the Plan, none of the Company, any other Employer, or any individual acting as an employee, or agent at the direction of the Company or any other Employer, or any member of the Committee, shall be liable to any Participant, former Participant, Beneficiary, or any other person for any claim, loss, liability or expense incurred in connection with the Plan.

     9.12 Claims Procedure. Claims for benefits under the Plan shall be made in writing to the Committee. If the Committee wholly or partially denies a claim for benefits, the Committee shall, within a reasonable period of time, but no later than 90 days after receiving the claim, notify the claimant in writing of the denial of the claim. If the Committee fails to notify the claimant in writing of the denial of the claim within 90 days after the Committee receives it, the claim shall be deemed denied. A notice of denial shall be written in a manner calculated to be understood by the claimant, and shall contain:

(a)	the specific reason or reasons for denial of the claim;
(b)	a specific reference to the pertinent Plan provisions upon which the denial is based;
(c)	a description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why such material or information is necessary; and
(d)	an explanation of the Plan’s review procedure.

     Within 60 days of the receipt by the claimant of the written notice of denial of the claim, or within 60 days after the claim is deemed denied as set forth above, if applicable, the claimant may file a written request with the Committee that it conduct a full and fair review of the denial of the claimant’s claim for benefits, including the conducting of a hearing, if the Committee deems one necessary. In connection with the claimant’s appeal of the denial of his or her benefit, the claimant may review pertinent documents and may submit issues and comments in writing. The Committee shall render a decision on the claim appeal promptly, but not later than 60 days after receiving the claimant’s request for review, unless, in the discretion of the Committee, special circumstances (such as the need to hold a hearing) require an extension of time for processing, in which case the 60-day period may be extended to 120 days. The Committee shall notify the claimant in writing of any such extension. The decision upon review shall (1) include specific reasons for the decision, (2) be written in a manner calculated to be understood by the claimant, and (3) contain specific references to the pertinent Plan provisions upon which the decision is based.

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     IN WITNESS WHEREOF, NiSource Inc. has caused this amended and restated Plan to be executed in its name, by its duly authorized officer, on this 28 day of October, 2008, effective as of January 1, 2008.

NISOURCE INC.
By:	/s/ Robert Campbell

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EX-10.7

Exhibit 10.7

NISOURCE INC.
FORM OF
CHANGE IN CONTROL AND TERMINATION AGREEMENT

     NiSource Inc., a Delaware corporation (“Employer”), which as used herein shall mean NiSource Inc. and all of its Affiliates, and                                          (“Executive”) hereby enter into a Change in Control and Termination Agreement as of                                         , (the “Effective Date”), which Agreement is hereinafter set forth (“Agreement”).

WITNESSETH

     WHEREAS, Employer considers the ability to attract and retain talented management to be part of its corporate strategy and necessary in protecting and enhancing the interests of the Employer and its shareholders. As part of this strategy, Employer desires to retain Executive in its employment notwithstanding any actual or threatened Change in Control; and

     WHEREAS, Executive and Employer desire to enter into this Agreement pertaining to the terms of Executive’s employment in the event of any actual or threatened 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. This Agreement shall begin on the Effective Date and shall continue in effect until the date which is 24 months after the date on which either Employer or Executive has given written notice to the other party of its or his election to have this Agreement terminate (“Term”).

     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.

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          (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 NiSource Inc. Corporate Incentive Plan or such other incentive bonus compensation plan then maintained by Employer (“Annual Incentive Plan”); provided, however, that such target annual incentive bonus compensation shall in no event be less than the highest target annual incentive bonus compensation of Executive under any such Annual Incentive 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 NiSource Inc. entitled to exercise more than 30% of the outstanding voting power of all capital stock of NiSource Inc. entitled to vote in elections of directors (“Voting Power”);

     (2) The effective time of (i) a merger or consolidation of NiSource Inc. with one or more other corporations unless the holders of the outstanding Voting Power of NiSource Inc. immediately prior to such merger or consolidation (other than the surviving or resulting corporation or any Affiliate or Associate thereof) hold at least 50% of the Voting Power of the surviving or resulting corporation (in substantially the same proportion as the Voting Power of NiSource Inc. immediately prior to such merger or consolidation), or (ii) a transfer of a

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Substantial Portion of the Property, of NiSource Inc. other than to an entity of which NiSource Inc. owns at least 50% of the Voting Power; or

     (3) The election to the Board of Directors of NiSource Inc. (the “Board”) of candidates who were not recommended for election by the Board, if such candidates constitute a majority of those elected in that particular election (for this purpose, recommended directors will not include any candidate who becomes a member of the Board as a result of an actual or threatened election contest or proxy or consent solicitation on behalf of anyone other than the Board or as a result of any appointment, nomination, or other agreement intended to avoid or settle a contest or solicitation). 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 NiSource Inc. and, after such acquisition, Executive holds an equity interest in the entity that has acquired NiSource Inc.

          (f) “Good Cause” shall be deemed to exist if, and only if Employer notifies Executive, in writing, within 60 days of its knowledge that one of the following events occurred:

     (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

     (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 diminution 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 and his opportunity to earn a bonus under an incentive bonus compensation plan maintained by Employer or his benefits; or

     (3) Employer changes by 50 miles or more the principal location at which Executive is required to perform services as of the date of a Change in Control.

          (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”).

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          (i) “Retirement Plan” shall mean any qualified or nonqualified 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 24¹ months thereafter.

          (k) “Substantial Portion of the Property of NiSource Inc.” shall mean 50% of the aggregate book value of the assets of NiSource Inc. and its Affiliates and Associates as set forth on the most recent balance sheet of NiSource Inc., 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 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. In addition, the following provisions also will apply if (i) a Change in Control occurs during the Term, (ii) Employer has terminated Executive’s employment other than for Good Cause during the year prior to the Change in Control but after a third party and/or Employer had taken steps reasonably calculated to effect a Change in Control and (iii) it is reasonably demonstrated by Executive that such termination of employment was in connection with or in anticipation of a Change in Control.

     (1) Employer shall pay Executive an amount equal to 24² times the sum of (a) Executive’s Base Salary plus (b) one-twelfth of his Bonus. Such amount shall be paid to Executive in a lump sum within 60 days following Executive’s

1	With respect to the agreement with Mr. Skaggs, the Severance Period will end 36 months following termination.
2	With respect to the agreement with Mr. Skaggs, the agreement provides that Mr. Skaggs would receive a payment equal to 36 times his times the sum of (a) his Base Salary plus (b) one-twelfth of his Bonus.

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termination of employment.

     (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 under the Annual Incentive 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 bonus amount shall be paid to Executive in a lump sum within 30 days after his date of termination of employment.

     (3) Executive shall receive any and all benefits accrued through the date of termination of employment under any Retirement Plan, Welfare Plan or other plan or program in which he participates at the date of termination of employment. The amount, form and time of payment of such benefits will be determined by the terms of such Retirement Plan, Welfare Plan and other plan or program. Further, Executive’s employment shall be deemed to have terminated by reason of retirement 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 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) 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 (but not longer than the regularly scheduled term of such options). Any restrictions on stock of Employer owned by Executive on the date of termination of his employment will lapse on such date.

     (5) In lieu of a contribution by Employer to, or a reimbursement to Executive for, any coverage premiums and any other expenses payable by Executive during the Severance Period under 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, Employer will pay to

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Executive an amount equal to 130% of such coverage premiums and expenses otherwise payable during the Severance Period. Such amount shall be paid to Executive in a lump sum within 60 days following Executive’s termination of employment.

     (6) Executive shall receive outplacement services for a period commencing on the date of termination of employment and continuing until the earlier to occur of the Executive accepting other employment or 12 months after the date of termination, in an amount not to exceed $25,000.

     (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.

          (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 Executive’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 30 days prior written notice specifying in detail the Good Reason conditions. If Employer cures such conditions, any subsequent termination of employment by Executive will not be considered to be made for Good Reason.

          (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

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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 (“Excise Tax”), or any successor section thereof, Executive shall be entitled to receive from Employer, in addition to any 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) above. Notwithstanding the foregoing provisions of this Section 4(a), if it shall be determined that Executive is entitled to the Gross-Up Payment, but that the Total Payments do not exceed 110% of the greatest amount that could be paid to Executive such that the receipt of the Total Payments will not give rise to any Excise Tax (the “Reduced Amount”), then no Gross-Up Payment shall be made to Executive and the Total Payments shall be reduced to the Reduced Amount. In the event that the Total Payments would be reduced as provided in the previous sentence, then such reduction shall be determined in a manner which has the least economic cost to Executive and, to the extent the economic cost is equivalent, the Total Payments will be reduced in the inverse order of when the Total Payments would have been made to Executive until the reduction specified is achieved.

          (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

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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.

          (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. Any payment by Employer or reimbursement made by Executive pursuant to this Section 4(c) shall be paid or reimbursed by the end of the taxable year next following the taxable year in which the payment or reimbursement of taxes is made or received, as the case may be.

     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.

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

     8. Confidentiality. Executive acknowledges that preservation of a continuing business

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relationship between Employer and their respective customers, representatives, and employees is of critical importance to the continued business success of Employer and that it is the active policy of Employer to guard as confidential certain information not available to the public and relating to the business affairs of Employer. 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. 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 significant 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, 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. 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

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creditor of Employer.

     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.

     13. Litigation Expenses. Following the occurrence of Change in Control, 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 the event Executive is successful in one material claim in such litigation. Such reimbursement shall occur by March 15 of the calendar year after the calendar year in which such reimbursement obligation was finally determined.

     14. Continuing Indemnification and Advancement of Expenses. Following the occurrence of a Change in Control, to the full extent permitted by law, Employer shall indemnify Executive against any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative, arising by reason of Executive’s status as a director, officer, employee and/or agent of Employer. In addition, to the extent permitted by law, Employer shall advance or reimburse any expenses, including reasonable attorney’s fees, Executive incurs in investigating and defending any actual or threatened action, suit or proceeding for which Executive may be entitled to indemnification under this Section 14. Executive agrees to repay any expenses paid or reimbursed by Employer if it is ultimately determined that Executive is not legally entitled to be indemnified by Employer.

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

     16. 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. For the avoidance of doubt, if Executive becomes entitled to the benefits under this Agreement, Executive shall not be eligible for any duplicative benefits under any other agreement, offer letter, plan, program or policy. 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.

     17. No Employment Contract. Nothing contained in this Agreement shall be construed to

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be an employment contract between Executive and Employer or provide Executive with the right to continued Employment with Employer.

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

     19. 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.

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

     21. 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.

     22. 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:	NiSource Inc.
	801 E. 86th Avenue
	Merrillville, Indiana 46410
	Attention: Robert D. Campbell
If to Executive:

     23. 409A Savings Clause. Employer and Executive intend that this Agreement be interpreted in a manner that is compliant with Code Section 409A so that Executive does not incur additional taxes or penalties under Code Section 409A. If and to the extent that any payment or benefit under this Agreement is determined by Employer to constitute “non-qualified deferred compensation” subject to Code Section 409A and is payable to Executive by reason of Executive’s termination of employment, then (a) such payment or benefit shall be made or provided to Executive only upon a “separation from service” as defined for purposes of Code Section 409A under applicable regulations and (b) if Executive is a “specified employee” (within

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the meaning of Code Section 409A and as determined by Employer), such payment or benefit shall not be made or provided before the date that is six months after the date of Executive’s separation from service (or Executive’s earlier death). Any amount not paid in respect of the six month period specified in the preceding sentence will be paid to Executive in a lump sum after the expiration of such six month period. Any such payment or benefit shall be treated as a separate payment for purposes of Section Code 409A to the extent Code Section 409A applies to such payments.

     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 ____, 20___.

	NISOURCE INC.
By: Title:
	EXECUTIVE

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EX-31.1

Exhibit 31.1

Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert C. Skaggs, Jr., certify that:

1.	I have reviewed this Quarterly Report of NiSource Inc. on Form 10-Q for the quarter ended September 30, 2008;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2008	By:	/s/ Robert C. Skaggs, Jr.
		Robert C. Skaggs, Jr.
		Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Stephen P. Smith, certify that:

1.	I have reviewed this Quarterly Report of NiSource Inc. on Form 10-Q for the quarter ended September 30, 2008;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2008	By:	/s/ Stephen P. Smith
		Stephen P. Smith
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of NiSource Inc. (the “Company”) on Form 10-Q for the quarter ending September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert C. Skaggs, Jr., Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Robert C. Skaggs, Jr.  

Robert C. Skaggs, Jr. 

Chief Executive Officer 

Date: November 4, 2008

EX-32.2

Exhibit 32.2

Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of NiSource Inc. (the “Company”) on Form 10-Q for the quarter ending September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen P. Smith, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Stephen P. Smith  

Stephen P. Smith 

Executive Vice President and Chief Financial Officer 

Date: November 4, 2008