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NiSource reports higher earnings

MERRILLVILLE, Ind., Oct. 28, 2002 — NiSource Inc. on Monday reported net income for the third quarter of 2002 of $23.2 million, or 11 cents per share (all per share amounts are basic), versus a net loss of $21.0 million, or a loss of 10 cents per share, in the third quarter of 2001.

For the nine months ended Sept. 30, 2002, NiSource reported net income of $290.4 million, or $1.41 per share, compared to $149.3 million, or 73 cents per share, for the same period in 2001.

The third-quarter results are indicative of NiSource’s quarterly earnings pattern, with the bulk of the full-year’s earnings concentrated in the first and fourth quarters due to the seasonal nature of NiSource’s core natural gas operations.

“Our third-quarter financial results are consistent with achieving our 2002 plans and our focus on our regulated, asset-based businesses,” stated Gary L. Neale, NiSource chairman, president and chief executive officer. “We achieved a settlement in the Indiana electric rate investigation, continued our focus on expense control, and announced we are seeking a buyer for our exploration and production (E&P) assets to complement our planned fourth- quarter equity offering.

“Balancing our credit rating requirements with our shareholders’ expectations also remains a key priority,” Neale added. “As a result of our ongoing efforts, the company expects to meet current analysts’ consensus estimates for full-year 2002 earnings of $1.90 per share, excluding any impact of the sale of our E&P assets. The full-year earnings include approximately $29 million of net income for NiSource’s E&P operations. This forecast also assumes normal weather for the remainder of the year, our planned equity offering, and includes the expense of our reorganization initiatives that will be reflected in the fourth quarter.”

NiSource’s third-quarter results were favorably affected by warmer weather during the period when compared to the third quarter of 2001, increasing pre- tax earnings by approximately $9.8 million, or 3 cents per share, mainly due to increased electric sales.

As a result of debt reduction efforts and lower short-term interest rates during 2002, the company realized improvements in interest expense of $6.2 million, or 2 cents per share, for the third quarter compared with the same period a year ago.

Third-quarter results also included lower operation and maintenance expenses of $56.5 million and the elimination of $23.4 million of goodwill amortization as a result of a Financial Accounting Standards Board accounting standard that affected goodwill amortization beginning Jan. 1, 2002. These favorable factors were partially offset by credits to be issued to customers as a result of the Indiana Utility Regulatory Commission (IURC) electric rate review settlement that was approved by the IURC on Sept. 23, 2002.

For the first nine months of 2002, NiSource’s results reflected a reduction of $106.8 million in operation and maintenance expenses compared to the same period last year, and improvements in interest expense of $66.9 million, or 20 cents per share. The nine-month results also included the elimination of $69.0 million of goodwill amortization.

Through September, the effects of weather in 2002 versus 2001 reduced pre-tax income by $17.6 million, or 5 cents per share, overall, decreasing pre-tax income by $32.2 million during the heating season and increasing pre-tax income by $14.6 million during the cooling season. Also reducing pre-tax income for the nine-month period were credits to be issued to customers as a result of the IURC electric rate review settlement.

Through the third quarter, NiSource has paid down approximately $850 million of debt during 2002, after meeting working capital needs for gas storage purchases for the winter heating season and capital expenditures for seasonal construction projects as part of the normal business cycle. The company’s balance sheet at Sept. 30 is not comparable to the previous year due to the inclusion of $565 million of assets and related debt for four projects involving subsidiary Primary Energy, Inc., which were treated as off-balance- sheet leases prior to the second quarter of 2002.

Effective July 1, 2002, NiSource completed the sale of a substantial portion of its gas marketing portfolio. As a result of the sale, the company’s limited gas marketing operations primarily include natural gas sales to commercial and industrial customers.

NiSource Inc. is a Fortune 500 holding company with headquarters in Merrillville, Ind., whose core operating companies engage in natural gas transmission, storage and distribution, as well as electric generation, transmission and distribution. NiSource operating companies deliver energy to 3.7 million customers located within the high-demand energy corridor stretching from the Gulf Coast through the Midwest to New England. Information about NiSource and its subsidiaries is available via the Internet at www.nisource.com .