THE LACLEDE GROUP, INC.

This management's discussion analyzes the financial condition and results of operations of The Laclede Group, Inc. (Laclede Group or the Company) and its subsidiaries. It includes management's view of factors that affect its business, explanations of past financial results including changes in earnings and costs from the prior year periods, and their effects on overall financial condition and liquidity.

Certain matters discussed in this report, excluding historical information, include forward-looking statements. Certain words, such as "may," "anticipate," "believe," "estimate," "expect," "intend," "plan," "seek," and similar words and expressions identify forward-looking statements that involve uncertainties and risks. Future developments may not be in accordance with our expectations or beliefs and the effect of future developments may not be those anticipated. Among the factors that may cause results to differ materially from those contemplated in any forward-looking statement are:

• weather conditions and catastrophic events, particularly severe weather in the natural gas producing areas of the country;
• volatility in gas prices, particularly sudden and sustained changes in natural gas prices, including the related impact on margin deposits associated with the use of natural gas derivative instruments;
• the impact of higher natural gas prices on our competitive position in relation to suppliers of alternative heating sources, such as electricity;
• changes in gas supply and pipeline availability; particularly those changes that impact supply for and access to our market area;
• legislative, regulatory and judicial mandates and decisions, some of which may be retroactive, including those affecting
• allowed rates of return
• incentive regulation
• industry structure
• purchased gas adjustment provisions
• rate design structure and implementation
• franchise renewals
• environmental or safety matters
• taxes
• pension and other postretirement benefit liabilities and funding obligations
• accounting standards;
• the results of litigation;
• retention of, ability to attract, ability to collect from, and conservation efforts of, customers;
• capital and energy commodity market conditions, including the ability to obtain funds with reasonable terms for necessary capital expenditures and general operations and the terms and conditions imposed for obtaining sufficient gas supply;
• discovery of material weakness in internal controls; and
• employee workforce issues.

Readers are urged to consider the risks, uncertainties, and other factors that could affect our business as described in this report. All forward-looking statements made in this report rely upon the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement in light of future events.

The Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto.

THE LACLEDE GROUP, INC.

RESULTS OF OPERATIONS

Laclede Group's earnings are primarily derived from the regulated activities of its largest subsidiary, Laclede Gas Company (Laclede Gas or the Utility), Missouri's largest natural gas distribution company. Laclede Gas is regulated by the Missouri Public Service Commission (MoPSC or Commission) and serves the City of St. Louis and parts of ten other counties in eastern Missouri. Laclede Gas delivers natural gas to retail customers at rates and in accordance with tariffs authorized by the MoPSC. The Utility's earnings are primarily generated by the sale of heating energy. The Utility's weather mitigation rate design lessens the impact of weather volatility on Laclede Gas customers during cold winters and stabilizes the Utility's earnings by recovering fixed costs more evenly during the heating season. Due to the seasonal nature of the business of Laclede Gas, Laclede Group's earnings are seasonal in nature and are typically concentrated in the November through April period, which generally corresponds with the heating season.

On March 31, 2008, the Company completed the sale of 100% of its interest in its wholly-owned subsidiary SM&P Utility Resources, Inc. (SM&P) to Stripe Acquisition, Inc. (an affiliate of Kohlberg Management VI, LLC) for $85 million in cash, subject to certain closing and post-closing adjustments. SM&P is an underground facilities locating and marking business that formerly comprised Laclede Group's Non-Regulated Services operating segment. The sales agreement included representations, warranties, and indemnification provisions customary for such transactions and was filed as an exhibit to the March 31, 2008 Form 10-Q. In accordance with generally accepted accounting principles, the results of operations for SM&P are reported as discontinued operations in the Consolidated Statements of Income.

Laclede Energy Resources, Inc. (LER) is engaged in the marketing of natural gas and related activities on a non-regulated basis. LER markets natural gas to both on-system Utility transportation customers and customers outside of Laclede Gas' traditional service territory, including large retail and wholesale customers. As such, LER's operations and customer base are subject to fluctuations in market conditions.

Other subsidiaries provide less than 10% of consolidated revenues.

Laclede Group's strategy continues to include efforts to improve the performance of its core Utility, while developing non-regulated businesses and taking a measured approach in the pursuit of additional growth opportunities that complement the Utility business.

As for the Utility, mitigating the impact of weather fluctuations on Laclede Gas customers while improving the ability to recover its authorized distribution costs and return continues to be a fundamental component of Laclede Group's strategy. The Utility's distribution costs are the essential, primarily fixed expenditures it must incur to operate and maintain a more than 16,000 mile natural gas distribution system and related storage facilities. With regard to the storage facilities owned by Laclede Gas, management is currently undertaking an evaluation of the Utility's natural gas storage field, which was developed more than 50 years ago, to assess the field's current and future capabilities. In addition, Laclede Gas is working continually to improve its ability to provide reliable natural gas service at a reasonable cost, while maintaining and building a secure and dependable infrastructure. The settlement of the Utility's 2007 rate case resulted in enhancements to the Utility's weather mitigation rate design that better ensures the recovery of its fixed costs and margins despite variations in sales volumes due to the impacts of weather and other factors that affect customer usage. The Utility's income from off-system sales remains subject to fluctuations in market conditions. Effective October 1, 2007, the Utility is allowed to retain 15% to 25% of the first $6 million in annual income earned (depending on the level of income earned) and 30% of income exceeding $6 million annually. Some of the factors impacting the level of off-system sales include the availability and cost of the Utility's natural gas supply, the weather in its service area, and the weather in other markets. When Laclede Gas' service area experiences warmer-than-normal weather while other markets experience colder weather or supply constraints, some of the Utility's natural gas supply is available for off-system sales and there may be a demand for such supply in other markets.

Laclede Gas continues to work actively to reduce the impact of higher costs associated with wholesale natural gas prices by strategically structuring its natural gas supply portfolio and through the use of derivative instruments. Nevertheless, the overall cost of purchased gas remains subject to fluctuations in market conditions. The Utility's Purchased Gas Adjustment (PGA) Clause allows Laclede Gas to flow through to customers, subject to prudence review, the cost of purchased gas supplies, including costs, cost reductions, and related carrying costs associated with the use of derivative instruments to hedge the purchase price of natural gas, as well as gas inventory carrying costs. The Utility believes it will continue to be able to obtain sufficient gas supply. High natural gas prices and other economic conditions may affect sales volumes (due to the conservation efforts of customers) and cash flows (associated with the timing of collection of gas costs and related accounts receivable from customers).

LER continues to focus on growing its markets on a long-term and sustainable basis by providing both on-system Utility transportation customers and customers outside of Laclede Gas' traditional service area with another choice in non-regulated natural gas suppliers. LER is working to assemble the team, technology, and resources necessary to expand its geographic service area and the range of services that it now provides. Nevertheless, income from LER's operations is subject to fluctuations in market conditions.

Quarter Ended March 31, 2009

Earnings

Overview - Net Income (Loss) by Operating Segment          Quarter Ended
                                                             March 31,
(Millions, after-tax)                                     2009         2008

Regulated Gas Distribution                              $ 22.2       $ 25.3
Non-Regulated Gas Marketing                                8.5          4.9
Other                                                      0.1         (0.1 )
Income from Continuing Operations                         30.8         30.1
Income from Discontinued Operations                          -         21.3
Net Income                                              $ 30.8       $ 51.4

Laclede Group's consolidated net income was $30.8 million for the quarter ended March 31, 2009, compared with $51.4 million for the quarter ended March 31, 2008. Basic and diluted earnings per share for the quarter ended March 31, 2009 were $1.41 and $1.40, respectively, compared with basic and diluted earnings per share of $2.38 and $2.37, respectively, reported for the same quarter last year. The decrease was primarily due to the effect of the one-time gain realized on the sale of SM&P on March 31, 2008. Basic and diluted earnings per share for the quarter ended March 31, 2008 included $0.99 and $0.98, respectively, attributable to the sale and operations of SM&P. This effect was partially offset by higher year-over-year income from continuing operations.

Income from Continuing Operations

Laclede Group's income from continuing operations was $30.8 million for the quarter ended March 31, 2009, compared with $30.1 million for the quarter ended March 31, 2008. Basic and diluted earnings per share from continuing operations were $1.41 and $1.40, respectively, for the quarter ended March 31, 2009, compared with basic and diluted earnings per share of $1.39 for the quarter ended March 31, 2008. Earnings per share increased compared to last year primarily due to improved results reported by Laclede Group's Non-Regulated Gas Marketing segment, partially offset by lower earnings recorded by Laclede Group's Regulated Gas Distribution segment. Variations in income from continuing operations were primarily attributable to the factors described below.

Regulated Gas Distribution net income decreased by $3.1 million for the quarter ended March 31, 2009, compared with the quarter ended March 31, 2008. The decrease in net income was primarily due to the following factors, quantified on a pre-tax basis:

• increases in operation and maintenance expenses, excluding the provision for uncollectible accounts, totaling $4.0 million; and,
• the effect of the recognition of previously unrecognized tax benefits and the reversal of related expenses recorded during the quarter ended March 31, 2008, totaling $1.1 million.

These factors were partially offset by:

• a lower provision for uncollectible accounts totaling $1.3 million;
• higher income from off-system sales and capacity release totaling $1.0 million; and,
• higher Infrastructure System Replacement Surcharge (ISRS) revenues totaling $0.9 million.

The Non-Regulated Gas Marketing segment reported an increase in earnings of $3.6 million compared with the same period last year. This increase was primarily due to LER's higher margins on sales of natural gas, which resulted partly from depressed supply prices in the Mid-continent due to increased shale gas supply production and pipeline constraints, and increased sales volumes, primarily attributable to significantly increased firm pipeline transportation capacity. These factors were partially offset by the effect of a benefit from the reversal of certain tax-related expenses totaling $1.4 million during the quarter ended March 31, 2008.

Regulated Gas Distribution Operating Revenues

Laclede Gas passes on to Utility customers (subject to prudence review) increases and decreases in the wholesale cost of natural gas in accordance with its PGA Clause. The volatility of the wholesale natural gas market results in fluctuations from period to period in the recorded levels of, among other items, revenues and natural gas cost expense. Nevertheless, increases and decreases in the cost of gas associated with system gas sales volumes have no direct effect on net revenues and net income.

Regulated Gas Distribution Operating Revenues for the quarter ended March 31, 2009 were $440.5 million, or $66.6 million less than the same period last year. Temperatures experienced in the Utility's service area during the quarter were 9.3% warmer than the same quarter last year and 6.2% warmer than normal. Total system therms sold and transported were 0.40 billion for the quarter ended March 31, 2009 compared with 0.45 billion for the same period last year. Total off-system therms sold and transported were 0.08 billion for the quarter ended March 31, 2009 compared with 0.06 billion for the same period last year. The decrease in Regulated Gas Distribution Operating Revenues was primarily attributable to the following factors:

(Millions)
Lower system sales volumes and other variations             $ (43.8 )
Lower prices charged for off-system sales                     (38.3 )
Higher off-system sales volumes                                24.5
Lower wholesale gas costs passed on to Utility customers
(subject to prudence review by the MoPSC)                      (9.9 )
Higher ISRS revenues                                            0.9
Total Variation                                             $ (66.6 )

Regulated Gas Distribution Operating Expenses

Regulated Gas Distribution Operating Expenses for the quarter ended March 31, 2009 decreased $61.9 million from the same quarter last year. Natural and propane gas expense decreased $64.0 million, or 17.0%, from last year's level, primarily attributable to decreased volumes purchased for sendout, lower rates charged by our suppliers, and lower off-system gas expense. Other operation and maintenance expenses increased $2.7 million, or 6.0%, primarily due to higher maintenance charges, increases in compensation expenses, and higher group insurance charges, partially offset by a lower provision for uncollectible accounts. Taxes, other than income taxes, decreased $1.0 million, or 3.6%, primarily due to decreased gross receipts taxes (attributable to lower revenues).

Non-Regulated Gas Marketing Operating Revenues and Operating Expenses

Non-Regulated Gas Marketing Operating Revenues decreased $21.8 million primarily due to decreased per unit gas sales prices by LER, partially offset by 53.5% higher sales volumes. The decrease in Non-Regulated Gas Marketing Operating Expenses totaling $29.5 million was primarily associated with lower prices charged by suppliers, partially offset by increased volumes purchased.

Other Income and (Income Deductions) - Net

Other Income and (Income Deductions) - Net decreased $0.8 million primarily due to the effect of a benefit from the reversal of certain tax-related expenses, pursuant to Financial Accounting Standards Board Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes," during the quarter ended March 31, 2008 and lower interest income, partially offset by higher net investment income.

Interest Charges

The $0.3 million increase in interest charges was primarily due to higher interest on long-term debt, primarily attributable to the issuance of $80.0 million principal amount of 6.35% First Mortgage Bonds on September 23, 2008. This increase was largely offset by lower interest on short-term debt. Average short-term interest rates were 1.0% for the quarter ended March 31, 2009 compared with 4.1% for the quarter ended March 31, 2008. Average short-term borrowings were $256.7 million for the quarter ended March 31, 2009 compared with $217.5 million for the quarter ended March 31, 2008.

Income Taxes

The $1.5 million increase in income taxes was primarily due to higher pre-tax
income and the recognition of previously unrecognized tax benefits recorded
during the quarter ended March 31, 2008, pursuant to FIN 48.


Six Months Ended March 31, 2009

Earnings

Overview - Net Income by Operating Segment          Six Months Ended
                                                       March 31,
(Millions, after-tax)                               2009           2008

Regulated Gas Distribution                       $   38.4        $ 41.1
Non-Regulated Gas Marketing                          23.2          10.5
Other                                                 0.5             -
Income from Continuing Operations                    62.1          51.6
Income from Discontinued Operations                     -          20.7
Net Income                                       $   62.1        $ 72.3

Laclede Group's consolidated net income was $62.1 million for the six months ended March 31, 2009, compared with $72.3 million for the six months ended March 31, 2008. Basic and diluted earnings per share were $2.84 and $2.82, respectively, for the six months ended March 31, 2009 compared with basic and diluted earnings per share of $3.35 and $3.34, respectively, reported for the same period last year. Earnings per share decreased due to the effect of the gain on sale and operations of SM&P totaling $0.96 per share (basic and diluted), for the six months ended March 31, 2008. This effect was partially offset by increased income from continuing operations.

Income from Continuing Operations

Laclede Group's income from continuing operations was $62.1 million for the six months ended March 31, 2009, compared with $51.6 million for the six months ended March 31, 2008. Basic and diluted earnings per share from continuing operations were $2.84 and $2.82, respectively, for the six months ended March 31, 2009, compared with basic and diluted earnings per share of $2.39 and $2.38, respectively, for the six months ended March 31, 2008. Earnings per share increased compared to last year primarily due to improved results reported by Laclede Group's Non-Regulated Gas Marketing segment, partially offset by lower earnings recorded by Laclede Group's Regulated Gas Distribution segment. Variations in income from continuing operations were primarily attributable to the factors described below.

Regulated Gas Distribution net income decreased by $2.7 million for the six months ended March 31, 2009, compared with the six months ended March 31, 2008. The decrease in net income was primarily due to the following factors, quantified on a pre-tax basis:

• increases in operation and maintenance expenses, excluding the provision for uncollectible accounts, totaling $5.2 million; and,
• the effect of the recognition of previously unrecognized tax benefits and the reversal of related expenses recorded during the six months ended March 31, 2008, totaling $1.1 million.

These factors were partially offset by:

• higher ISRS revenues totaling $1.7 million;
• higher income from off-system sales and capacity release totaling $1.2 million; and,
• a lower provision for uncollectible accounts totaling $1.1 million.

The Non-Regulated Gas Marketing segment reported an increase in earnings of $12.7 million compared with the same period last year. This increase was primarily due to LER's increased sales volumes primarily attributable to significantly increased firm pipeline transportation capacity and higher margins on sales of natural gas, which resulted partly from depressed supply prices in the Mid-continent due to increased shale gas supply production and pipeline constraints. These factors were partially offset by the effect of a benefit from the reversal of certain tax-related expenses totaling $1.4 million during the six months ended March 31, 2008.

Regulated Gas Distribution Operating Revenues

Regulated Gas Distribution Operating Revenues for the six months ended March 31, 2009 were $798.6 million, or $29.4 million less than the same period last year. Temperatures experienced in the Utility's service area during the six months ended March 31, 2009 were 0.8% warmer than the same period last year and 1.7% warmer than normal. Total system therms sold and transported were 0.71 billion for the six months ended March 31, 2009 compared with 0.72 billion for the same period last year. Total off-system therms sold and transported were 0.12 billion for the six months ended March 31, 2009 compared with 0.11 billion for the same period last year. The decrease in Regulated Gas Distribution Operating Revenues was primarily attributable to the following factors:

(Millions)
Lower prices charged for off-system sales                   $ (36.5 )
Higher off-system sales volumes                                12.8
Lower system sales volumes and other variations                (5.8 )
Higher ISRS revenues                                            1.7
Lower wholesale gas costs passed on to Utility customers            )
(subject to prudence review by the MoPSC)                      (1.6
Total Variation                                             $ (29.4 )

Regulated Gas Distribution Operating Expenses

Regulated Gas Distribution Operating Expenses for the six months ended March 31, 2009 decreased $26.4 million from the same period last year. Natural and propane gas expense decreased $32.0 million, or 5.3%, from last year's level, primarily attributable to lower off-system gas expense, decreased volumes purchased for sendout, and lower rates charged by our suppliers. Other operation and maintenance expenses increased $4.1 million, or 4.7%, primarily due to higher maintenance charges, increases in compensation expenses, and higher group insurance charges, partially offset by a lower provision for uncollectible accounts.

Non-Regulated Gas Marketing Operating Revenues and Operating Expenses

Non-Regulated Gas Marketing Operating Revenues increased $111.4 million primarily due to 68.8% higher sales volumes, partially offset by decreased per unit gas sales prices by LER. The increase in Non-Regulated Gas Marketing Operating Expenses totaling $89.2 million was primarily associated with increased volumes purchased, partially offset by lower prices charged by suppliers.

Other Income and (Income Deductions) - Net

Other Income and (Income Deductions) - Net decreased $2.7 million primarily due to lower interest income, higher net investment losses, and the effect of benefits recognized during the six months ended March 31, 2008 from the reversal of certain tax-related expenses, pursuant to FIN 48, and proceeds received related to the Company's interest, as a policyholder, in the sale of a mutual insurance company.

Interest Charges

The $0.3 million decrease in interest charges was primarily due to lower interest on short-term debt, largely offset by an increase in interest on long-term debt primarily attributable to the issuance of $80.0 million principal amount of 6.35% First Mortgage Bonds on September 23, 2008. Average short-term interest rates were 2.1% for the six months ended March 31, 2009 compared with 4.7% for the six months ended March 31, 2008. Average short-term borrowings were $259.7 million for the six months ended March 31, 2009 compared with $236.4 million for the six months ended March 31, 2008.

Income Taxes

The $6.9 million increase in income taxes was primarily due to higher pre-tax income and the effect of the recognition of previously unrecognized tax benefits recorded during the six months ended March 31, 2008 (pursuant to FIN 48), partially offset by the effects of various property-related items and a benefit associated with an amended return.

Labor Agreement

The Missouri Natural Division of Laclede Gas has a labor agreement with Local 884 of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied-Industrial and Service Workers International Union, which represents approximately 5% of Laclede Gas' employees. On April 15, 2009, a new four-year labor agreement was reached replacing the prior agreement which expired on that same date. The new agreement, which expires at midnight on April 14, 2013, includes revisions to the defined benefit pension plan formula, changes in wage rates and work rules, and other modifications that enable the Utility to provide high quality service to its customers and control operating costs while continuing to provide competitive wages, pension, and healthcare benefits to its employees.

REGULATORY MATTERS

During fiscal 2006, the MoPSC approved permanent modifications to the Cold Weather Rule affecting the disconnection and reconnection practices of utilities during the winter heating season. Those modifications included provisions to allow the Utility to obtain accounting authorizations and defer for future recovery certain costs incurred with the modifications. During fiscal 2007, the Utility deferred for future recovery $2.7 million of costs associated with the fiscal 2007 heating season. On October 31, 2007, the Utility filed for determination and subsequent recovery of the deferred amount. On November 16, 2007, the MoPSC directed the MoPSC Staff and the Missouri Office of Public Counsel (Public Counsel) to submit their positions regarding the Utility's filing by February 28, 2008. On February 28, 2008, the Utility and the MoPSC Staff filed a Non-Unanimous Stipulation & Agreement in which these parties agreed to a recovery of $2.5 million of costs. The Non-Unanimous Stipulation & Agreement was opposed by Public Counsel, and a hearing in this matter was held before the Commission on March 31, 2008. On April 17, 2008, the Commission issued its Report and Order approving the $2.5 million cost recovery recommended by the Utility and the MoPSC Staff. Consistent with the approved amount, the Utility recorded a reduction in its deferral totaling $0.2 million during the quarter ended March 31, 2008. On May 29, 2008, Public Counsel appealed the MoPSC's April 17 Order to the Cole County, Missouri Circuit Court. On January 6, 2009, the Court issued its judgment affirming the Commission's order approving the Cold Weather Rule compliance cost amount that the Utility and Staff had recommended over Public Counsel's objection. On February 9, 2009, Public Counsel appealed the Circuit Court's affirmation of the MoPSC's . . .