Company Name: Peoples Energy
Public Availability Date: October 19, 2004

Document Sections:

MeGuireWoods LLP
77 West Wacker Drive
Suite 4400
Chicago, IL 60601-1681
Phone: 312.849.8100
Fax: 312.849.3690
www.imcgulrewoods.com

Michael E. Kernan
mkernan@mcguirewoods.com
Direct: 312.849-8222
Direct Fax: 312.849-8223

October 19, 2004

VIA HAND DELIVERY

U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Exclusion of Shareholder Proposal from
James M. Gennett and Kathryn M. Gennett

Ladies and Gentlemen:

We are counsel to Peoples Energy Corporation, an Illinois corporation ("the "Company"). On behalf of the Company and pursuant to Rule 14a-8(j) promulgated under the Securities Exchange Act of 1934, as amended, we hereby notify the staff members of the Division of Corporation Finance (the "Staff') of the United States Securities and Exchange Commission (the "Commission") that the Company intends to exclude from its proxy materials for the Company's 2005 annual meeting of shareholders (the "2005 Annual Meeting") a proposal (the "Proposal") and supporting statement (the "Supporting Statement") submitted by James M. and Kathryn M. Gennett (collectively, the "Proponent") in reliance on certain provisions of Rule 14a-8. The Proposal and the Supporting Statement are attached hereto as Exhibit A.

Enclosed are six copies of this letter, which includes an explanation of why the Company believes it may exclude the Proposal, and six copies of the Proposal and Supporting Statement. A copy of this letter is also being sent to the Proponent as notice of the Company's intent to exclude the Proposal and Supporting Statement from the Company's proxy materials for the 2005 Annual Meeting.

I. PROPOSAL

The Proposal reads as follows:

Resolved: that the shareholders of People's Energy urge the Board of Directors to take the necessary steps to amend the Articles of Incorporation and By-Laws to provide that officers and directors shall not be indemnified from personal liability for acts or omissions involving gross negligence or reckless

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October 19, 2004
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neglect. This resolution shall be implemented so as not to cause breach of any existing contract or violation of any mandatory indemnification provision under Illinois law.

II. REASONS TO EXCLUDE THE PROPOSAL AND SUPPORTING STATEMENT FROM THE PROXY MATERIALS

We believe that the Proposal and Supporting Statement may properly be excluded from the Company's proxy materials for the 2005 Annual Meeting pursuant to the following rules:

1. Rule 14a-8(i)(3) because the Proposal and Supporting Statement are vague and indefinite in violation of Rule 14a-9.

2. To the extent it is a binding proposal, Rule 14a-8(i)(1), Rule 14a- 8(i)(2) and Rule 14a-8(i)(6) because it requires the Company to take action that is inconsistent with Illinois law and the Company's Articles of Incorporation and By-Laws, and is a Proposal that the Company does not have the power or authority to implement.

3. To the extent it is a binding proposal, Rule 14a-8(i)(I) because it removes from the Board of Directors its responsibility to establish the Company's indemnification policy under Illinois law and therefore is not a proper subject for action by shareholders.

4. Rule 14a-8(i)(4) because the Proposal advances a personal interest of the Proponent not held by other shareholders by virtue of one of the Proponent's (James Gennett's) status as an employee of a subsidiary of the Company and the President of a union with which a Company subsidiary has a collective bargaining agreement. The other Proponent is his wife.

III. THE PROPOSAL IS CONTRARY TO THE COMMISSION'S PROXY RULES BECAUSE IT IS VAGUE AND INDEFINITE.

The Proposal should be excluded because it offers a nonexistent, undefined "reckless neglect" standard for indemnification and fails to explain how the Company should implement it. Shareholders would be unsure of what they would be voting for, and, even if it was adopted, the Proposal is so vague the Company would be unable to apply it with any confidence that it had complied with the shareholders' wishes.

Under Rule 14a-8(i)(3), a proposal may be omitted if the proposal or its supporting statement is contrary to the proxy rules, including Rule 14a-9, which prohibits

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October 19, 2004
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materially false or misleading statements in proxy soliciting materials. The Staff has consistently taken the position that shareholder proposals that are vague and indefinite are excludable under Rule 14a-8(i)(3) as inherently misleading. See, e.g., General Electric Company (January 23, 2003) (permitting omission of a proposal regarding a cap on salaries and benefits of officers and directors because the proposal failed to define critical terms or otherwise provide guidance on how it should be implemented); Philadelphia Electric Company (July 30, 1992) (permitting omission of a proposal regarding the creation of a committee of share owners because "the proposal is so inherently vague and indefinite" that neither the share owners nor the company would be able to determine "exactly what actions or measures the proposal requires"); and Occidental Petroleum Corp. (February 1, 1991) (stating that a proposal is vague, indefinite and misleading if a company and its shareholders might interpret the proposal differently, such that any actions ultimately taken by the company upon implementation of the proposal could be significantly different from the actions envisioned by the shareholders voting on the proposal).

In a recently issued Staff Legal Bulletin, the Staff observed that exclusion of a shareholder proposal may be appropriatewhere "the resolution contained in the proposal is so inherently vague or indefinite that neither the stockholders voting on the proposal, nor the company in implementing the proposal (if adopted), would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires." Staff Legal Bulletin No. 14B (September 15, 2004). The Proposal falls squarely within the criteria for exclusion because it fails to define critical terms or provide guidance on how the Proposal should be implemented. Neither the shareholders voting on the Proposal nor the Company in implementing the Proposal would be able to determine what actions or measures the Proposal requires.

First, the Proposal seeks to prohibit indemnification of officers and directors "for acts or omissions involving gross negligence or reckless neglect." The "reckless neglect" standard is not defined in the Proposal. A canvass of Illinois jurisprudence did not uncover even a single case or example describing, defining or applying a "reckless neglect" standard of conduct. How can the Company be expected to apply an undefined or unrecognized standard when it decides whether or not to indemnify its officers and directors in a particular case? How can the Company or its shareholders expect the officers and directors to conduct themselves in accordance with a standard that does not exist under Illinois law?

Second, even if the proposed indemnification standard was defined or recognized, the Proposal would have that standard apply only to officers and directors, but not employees, What if an individual is both an officer and an employee? Would the standard in the Proposal apply or not? When presented with a question of whether or not to indemnify, how would the Company apply two different indemnification standards at the same time to officers and employees working side by side and confronted with the same facts?

Third, the Proposal does not explain how to address incidents that occur prior to a change in the Company's indemnification policy. What standard would the Company use to decide (after the new standard is in effect) whether or not to indemnify a director or officer

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October 9, 2004
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whose alleged conduct or liability dates from before the change in policy? Is the new standard in the Proposal only to be applied prospectively?

Finally, the Proposal is unclear on whether the new standard would be applied to former officers and directors who may in the future bring a claim for indemnification. Would the Company use the standard in effect while the director or officer held office? Would the Company be obliged to apply the new standard?

These questions and concerns demonstrate the fact that the Proposal is not clear. Its undefined tems and nonexistent manner of implementation do not allow shareholders to make an informed decision regarding the Proposal. Moreover, even if approved, the Proposal's vagueness could very well cause the Company to implement it in such a manner as to be contrary to that which the Proponent intended or the shareholders believed would occur. Accordingly, the Company asserts that the Proposal is so inherently vague and indefinite that it is excludable pursuant to Rule 14a-8(i)(3).

IV. TO THE EXTENT IT IS A BINDING PROPOSAL, IT WOULD VIOLATE ILLINOIS LAW, IT IS NOT A PROPER SUBJECT FOR ACTION BY A SHAREHOLDER UNDER THE LAWS OF THE STATE OF ILLINOIS, AND THE COMPANY DOES NOT HAVE THE POWER TO IMPLEMENT THE PROPOSAL

The Proposal is excludable from the Company's proxy materials on the basis of Rule 14a-8(i)(1), Rule 14a-8(i)(2), and Rule 14a-8(i)(6). Although the Proposal is veiled with some precatory language, the Proposal arguably could be interpreted as a binding proposal, in which case it violates Illinois law, it is not a proper subject for shareholder action, and the Company does not have the power to implement it.

The Proponent appears to expect that, if the Proposal is adopted by shareholders, the Company's Articles of Incorporation and By-Laws will be amended. The note to paragraph (i)(1) under Rule 14a-8 states, in pertinent part, that, "[d]epending upon the subject matter, some proposals are not considered proper under state law if they would be binding on the company if approved by shareholders. In our experience, most proposals that are cast as recommendations or requests that the board of directors take specified action are proper under state law." While the Proponent attempted to phrase the Proposal with precatory language, text in the Proposal and Supporting Statement suggests the Proposal is intended to be a binding proposal to the Board of Directors. See International Paper (March 1, 2004) (company may exclude shareholder proposal limiting compensation of officers and directors unless proposal recast as a recommendation or request to board of directors); El Paso Energy Corporation (March 8, 2001) (excluding proposal to cap officer salaries unless proposal was revised as a recommendation or request to the board of directors).

Several assertions in the Proposal and the Supporting Statement suggest the Board will be obligated to act on the Proposal. First, the Proposal states that it "shall be

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October 19, 2004
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implemented...," (emphasis added) connoting that the Board of Directors must affirmatively implement the limitation on indemnification if the shareholders approve the Proposal. Second, the Proponent contends in the Supporting Statement that "[o]ur resolution is designed to raise the standard for officers or directors before they may be shielded from liability for their actions." If the Proposal were solely designed to request that the Board of Directors take some action, then the resolution itself would not affect any standard with respect to officer and director indemnification. The Proponent does not recommend that the Board of Directors "raise the standard"; rather, he attempts to affect the Company's indemnification policy through shareholder ratification of the Proposal. Finally, the Proponent states: "Our proposal would continue to shield directors and officers from liability for ordinary negligence. Directors and officers would also be indemnified under Illinois law . ." Again, this language suggests that the Proposal, if ratified by shareholders, would itself amend the Company's Articles of Incorporation and By-Laws. Therefore, the Proposal may constitute a binding proposal, rather than a recommendation.

Under Illinois law, a binding Proposal would be an improper amendment to the Company's Articles of Incorporation. Article 10 of the Illinois Business Corporation Act provides a procedure by which an Illinois corporation's Articles of Incorporation may be amended. See 805 III. Comp. Stat, 5/10.05, et seq. Amendments like those in the Proposal may only be effected through joint action of the Board of Directors and shareholders. Id. Shareholders themselves may not amend the Company's Articles of Incorporation. When the Board of Directors does not take action on its own, it must consider and adopt a resolution with the proposed amendment and submit this resolution for ratification by a vote of the shareholders. Id. The Proposal would short-circuit this procedure by having the shareholders vote on the resolution to amend the Articles of Incorporation without the Board of Directors first considering and adopting the resolution.

Moreover, as a binding proposal, it would improperly amend the Company's By- Laws. Article VIII of the Company's By-Laws indicates that they may only "be added to, amended or repealed" at a Board of Directors' meeting by a majority vote of the directors.

Accordingly, as a binding proposal, the Proposal circumvents both Illinois law and the terms of the Company's By-Laws, and, therefore, is excludable under Rule 14a-8(i)(1). For the same reasons, the Proposal is excludable under Rule 14a-8(i)(2) and Rule 14a-8(i)(6).

V. TO THE EXTENT IT IS A BINDING PROPOSAL, IT IS NOT A PROPER SUBJECT FOR ACTION BY SHAREHOLDERS UNDER THE LAWS OF THE STATE OF ILLINOIS

As noted above, the Proposal may well be construed as a binding proposal. If so, it is an improper subject for shareholder action because it attempts to usurp the power of the board of directors to determine the Company's indemnification policy. The Illinois Business Corporation Act grants sole power to the board of directors to manage the business and affairs of

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October 19, 2004
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the Company. See 805 III. Comp. Stat. 5/8.05. This absolute managerial power is recognized by the Illinois courts. See Hall v. Woods, 325 111. 114, 137-38, 156 N.E.2d 258, 267 (1927) ("It is within the power and the duty of the board of directors to control the affairs of the corporation, to fix the duties of its officers and employees, to adopt by-laws, and to manage the corporate property and business for the benefit of all the stockholders"); see also Int '7 Bus, Mach. Corp. v. Martin Prop. & Cas. Ins. Agency, Inc., 281 III. App. 3d 854, 862, 666 N.E. 2d 866, 871 (st Dist. 1996) (the business and affairs of a corporation are managed by the board of directors). The Proposal, however, would transfer a portion of this managerial responsibility from the Board of Directors into the hands of the shareholders.

Under Illinois law, the determination of whether to indemnify an officer, director or employee in any given situation may be made: (i) by the majority vote of non-interested directors; (ii) by a designated committee of non-interested directors; (iii) if there are no non- interested directors, by independent legal counsel; or (iv) by the shareholders.' See 805 III. Comp. Stat. 5/8.75(d).

The Proposal, if binding, is designed to modify the Company's indemnification policy. Accordingly, it is an improper subject for shareholder action because director and officer indemnification standards are to be determined by the Board of Directors and not the Company's shareholders. By submitting the Proposal for shareholder approval, the Proponent attempts to circumvent the powers specifically granted to the Board of Directors by Illinois law and the Company's By-Laws. It is therefore excludable under Rule 14a-8(i)(1).

VI. THE PROPOSAL ADVANCES THE PERSONAL INTERESTS OF THE PROPONENT, AS AN EMPLOYEE, AND PRESIDENT OF A UNION, NOT HELD BY OTHER SHAREHOLDERS AT LARGE

The Proponent, James M. Gennett, is a current employee of The Peoples Gas Light and Coke Company ("Peoples Gas"), a wholly-owned subsidiary of the Company. He is also a member and the President of the Gas Workers' Union Local 18007, Utility Workers Union of America ("Local 18007"), with which Peoples Gas has a collective bargaining agreement. Because the Proposal would limit the indemnification provided to directors and officers (including, perhaps, officers who are employees), but not employees generally, the Proposal would result in an indirect, residual benefit to himself as an employee that is not shared by the other shareholders at large. Rule 14a-8(i)(4) provides that a proposal may be omitted when it "is designed to further a personal interest which is not held by the other shareholders at large." Accordingly, the Proposal is properly excludable.

1/ Although 805 III. Comp. Stat. 5/8.75(d) allows shareholders to make indemnification decisions in some circumstances, it is not practical for the Company, which has 37.6 million outstanding shares and approximately 21,000 shareholders to hold a special meeting of shareholders to determine indemnification of directors, officers and employees on a case-by-case basis.

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October 19, 2004
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The purpose of Rule 14a-8(i)(4) is to safeguard the shareholder proposal process as a means for shareholders to communicate with other shareholders on matters of mutual concern. Paragraph (i)(4) "ensure[s] that the security holder proposal process would not be abused by proponents attempting to achieve personal ends." SEC Release No. 34-20091 (August 16, 1983). Further, the Commission has observed that a proposal may be phrased so as to relate to the "general interest" of all shareholders, but still be designed to redress a personal grievance. SEC Release No. 34-19135 (October 14, 1982). The Staff has acknowledged that "such use of the security holder proposal procedures is an abuse of the security holder proposal process, and the cost and time involved in dealing with these situations do a disservice to the interests of the issuer and its security holders at large." Id.

Currently, the Company's Articles of Incorporation and By-Laws provide for the indemnification of officers, directors and employees. Because the Company's directors and officers rely on the advice and conduct of the employees in managing the Company's operations and making decisions, it is appropriate that directors, officers and employees be held to the same indemnification standards. Although not an officer of the Company, the Proponent's responsibilities as an employee and President of a union representing almost 1000 employees renders him a very important employee in the management process. The Proposal seeks "to provide that officers and directors shall not be indemnified from personal liability for acts or omissions involving gross negligence or reckless neglect" (emphasis added). Thus, the Proposal would raise the standard of conduct required to indemnify officers and directors, but not for employees, including the Proponent. As stated in Dresdner RCM Global Strategic Income Fund, Inc. (September 13, 2000), "a proposal may be excluded under subparagraph (i)(4) if the proponent would benefit from it in a manner not shared with the stockholders at large, nothwithstanding that it could indirectly benefit the stockholders at large." In this instance, the Proponent advances a Proposal which could be construed as providing some benefit to the shareholders as a whole; nevertheless, the Proposal affords the Proponent - an employee - a personal benefit not shared by the shareholders at large. Accordingly, the Proposal is excludable under Rule 14a-8(i)(4).

As an employee of Peoples Gas and the President of Local 18007, the Proposal has the effect of advancing the Proponent's personal interests, and is therefore properly excludable under Rule 14a-8(i)(4).

VII. CONCLUSION

Based on the foregoing, the Company respectfully requests the concurrence of the Staff that the Proposal may be excluded from the Company's proxy materials relating to the 2005 Annual Meeting. To the extent that any of the foregoing reasons for excluding the Proposal are based on matters of law, this letter shall constitute the opinion of counsel required by Rule 14a-8(j)(iii).

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October 19, 2004
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If for any reason the Staff does not agree with the Company's position, or has questions or requires additional information, we would appreciate an opportunity to confer with the Staffprior to the issuance of a formal response. Please call me at (312) 849-8222 if you have any questions or need additional information or as soon as the Staff response is available.

Kindly acknowledge receipt of this letter and the items enclosed by stamping a copy of this letter. Thank you for your time and consideration.

Very truly yours,

Michael E. Kernan

Enclosures

cc: James M. Gennett
Kathryn M. Gennett
319 Diana Court
Bensenville, IL 60106-3285