INSURANCE AGREEMENT

EXHIBIT 10(b)

INSURANCE AGREEMENT

THIS INSURANCE AGREEMENT, dated as of January 25, 2005, is entered into by and between AMBAC ASSURANCE CORPORATION, a Wisconsin-domiciled stock insurance company ("Ambac"), and THE PEOPLES GAS LIGHT AND COKE COMPANY, a corporation duly organized under the laws of the State of Illinois (the "Company").

WHEREAS, pursuant to the Indenture of Trust dated as of January 1, 2005, (the "Indenture") by and between the Illinois Finance Authority (the "Authority") and The Bank of New York Trust Company, N.A., as trustee (the "Indenture Trustee"), the Authority will issue $50,000,000 in aggregate principal amount of its Gas Supply Refunding Revenue Bonds, Series 2005A (the "Bonds");

WHEREAS, the Company has entered into a Loan Agreement dated as of January 1, 2005 with the Authority (the "Loan Agreement") whereby the Authority will loan to the Company the proceeds of the Bonds and the Company will issue a First Mortgage Bond (as defined in the Loan Agreement) to the Authority to evidence such Loan;

WHEREAS, Ambac will issue, subject to the provisions of this Agreement, its Financial Guaranty Insurance Policy in the form attached hereto as Annex A (the "Policy") which insures the scheduled payments of principal of and interest on the Bonds, as specified in the Policy; and

WHEREAS, the Company understands that Ambac expressly requires the delivery of this Agreement as part of the consideration for the delivery by Ambac of the Policy;

NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of the execution and delivery of the Policy, the Company and Ambac agree as follows.

ARTICLE I

DEFINITIONS; PREMIUM AND EXPENSES

Section 1.01. Definitions. Except as otherwise expressly provided herein or unless the context otherwise requires, the terms which are capitalized herein shall have the meanings specified in Annex B hereto.

Section 1.02. Forward Commitment Fee and Premium. Ambac agrees to issue the Policy on the Settlement Date (as defined in the Contract of Purchase between the Company and the underwriters of the Bonds dated January 19, 2005) and in consideration of Ambac's agreement to issue the Policy hereunder, the Company hereby agrees to pay a Forward Commitment Fee in the amount of

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$8,861.53, which shall be payable as a lump sum on the Closing Date and a Premium in the amount of $363,831.00, which shall be payable as a lump sum upon delivery of the Policy.

Section 1.03. Certain Other Expenses. The Company will pay all reasonable fees and disbursements of Ambac's counsel related to any modification of this Agreement requested by the Company.

ARTICLE II

REIMBURSEMENT OBLIGATION; COVENANTS OF THE COMPANY

Section 2.01. Reimbursement Obligation. (a) The Company agrees to reimburse Ambac, from any available funds, immediately and unconditionally upon demand, for all amounts advanced by Ambac under the Policy. To the extent that any such payment due hereunder is not paid when due, interest shall accrue on such unpaid amounts at a rate equal to the Effective Interest Rate.

                        (b) The Company also agrees to reimburse Ambac immediately and unconditionally upon demand for (i) all reasonable expenses incurred by Ambac in connection with each Policy Payment and (ii) all reasonable expenses incurred by Ambac in connection with the enforcement by Ambac of the Company's obligations under this Agreement, together with interest on all such expenses from and including the date which is 30 days from the date a statement for such expenses is received by the Company to the date of payment at the Effective Interest Rate.

Section 2.02. Unconditional Obligation. The obligations of the Company under this Article II are absolute and unconditional and will be paid or performed strictly in accordance with this Agreement, irrespective of:

            (a)        any lack of validity or enforceability of, or any amendment or other modification of, or waiver with respect to the Bonds, the Indenture or this Agreement;

            (b)        any exchange, release or nonperfection of any security interest in property securing the Bonds, the Indenture or this Agreement or any obligations hereunder;

            (c)        any circumstances which might otherwise constitute a defense available to, or discharge of, the Company under this Agreement, the Indenture or otherwise with respect to the Bonds; or

            (d)        whether or not the Company's obligations under this Agreement or the Indenture, or the obligations represented by the Bonds, are contingent or matured, disputed or undisputed, liquidated or unliquidated.

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ARTICLE III

REORGANIZATION; ALLOCATION OF DEBT

Section 3.01. Reorganization; Allocation of Debt. The Company hereby agrees that, in the event of a Reorganization, unless otherwise consented to by Ambac, the obligations of the Company under, and in respect of, the Bonds, the Indenture, the Loan Agreement and this Agreement shall be assumed by, and shall become direct and primary obligations of, a Regulated Utility Company.

ARTICLE IV

EVENTS OF DEFAULT; REMEDIES

Section 4.01. Events of Default. The following events shall constitute Events of Default hereunder:

            (a)        The Company shall fail to pay to Ambac any amount payable under Sections 1.02, 1.03 and 2.01 hereof and such failure shall have continued for a period in excess of ten days after receipt by the Company of written notice thereof;

            (b)        Any material representation or warranty made by the Company hereunder or any statement in the application for the Policy or any report, certificate, financial statement or other instrument provided in connection with the Policy or herewith shall have been materially false at the time when made; provided that if such misrepresentation or breached warranty is capable of being cured, such misrepresentation or breached warranty is not cured within sixty (60) days after receipt by the Company of written notice of such event;

            (c)        Except as otherwise provided in this