Fitch Comments on Peoples Energy Combination with WPS Resources.

CHICAGO -- Fitch plans no immediate rating action on Peoples Energy Corp. (PGL, senior unsecured debt rated 'A-', Rating Outlook Negative) and its subsidiaries, Peoples Gas Light and Coke Co. (PGLC, senior secured debt rated 'A+', Rating Outlook Negative) and North Shore Gas Co. (North Shore, senior secured debt rated 'A+', Rating Outlook Negative) following today's announcement that PGL signed a definitive merger agreement with WPS Resources Corp. (WPS). It is presently believed that PGL will become a subsidiary of WPS. E[acute accent]Fitch intends to meet with company management to review the transaction in greater detail. Factors that will influence the ultimate impact on ratings for PGL and it subsidiaries include ongoing capital management practices, operating strategies and the future business risk profile for non-regulated operations at the combined company, and the response of Illinois regulators to the merger and upcoming rate filings at PGLC and North Shore. E[acute accent]Under the terms of the agreement, each outstanding common share of PGL stock will be converted into 0.825 shares of WPS' common stock. Upon consummation of the merger, WPS' shareholders will be own approximately 57.6% of the combined company, with PGL shareholders owning the remaining 42.4%. The merger is subject to approval by shareholders of both companies, Hart-Scott-Rodino Act, as well as various state and federal regulatory authorities, including the Federal Regulatory Commission, the Illinois Commerce Commission and the Public Service Commission of Wisconsin. WPS and PGL intend to file for an expedited review in Illinois, with a targeted closing date in the first quarter of 2007. E[acute accent]The current Negative Rating Outlooks for PGL and its subsidiaries take into consideration the delay in the planned rate cases in a highly politicized regulatory environment in Illinois. PGLC and North Shore had originally intended to file for rate increases in early 2006, but was delayed by the gas charge reconciliation settlement. Fitch had expected the utilities to file in early summer 2006, but the company has announced that it will defer again to allow for clear focus by all parties on the merger filing. As the merger process proceeds, PGL management will continue to discuss and evaluate when the best time for these filings will be. As a result of this postponement, the utilities will not receive the benefit of the rate increases until late 2007, and therefore it is unlikely that credit metrics will improve until fiscal year 2008 or 2009. Furthermore, it remains uncertain whether the utilities will receive adequate rate increases to restore the companies' credit measures to their historically robust levels. E[acute accent]PGL is a diversified energy company whose core operations are two natural gas utilities, PGLC and North Shore. The gas utilities serve approximately one million customers in Chicago and northeastern Illinois. PGL's diversified businesses focus on oil and gas production, midstream services and retail energy services.

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