<PAGE>


                   UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C. 20549
                                     FORM 10-KA/1

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 1996
                                          OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number 0-14183
------------------------------
                               ENERGY WEST INCORPORATED
                               ------------------------
                (Exact name of registrant as specified in its charter)

                    Montana                            81-0141785
                    ---------------------------------------------
                 (State or other jurisdiction of    (I.R.S. Employer
                incorporation or organization)     Identification No.)

                    1 First Avenue South, Great Falls, Mt.   59401
                    ----------------------------------------------
                  (Address of principal executive         (Zip Code)
                                       offices)
          Registrant's telephone number, including area code  (406)-791-7500
             Securities registered pursuant to Section 12(b) of the Act:
            Title of each class      Name of Exchange on which registered
                  Common Stock - Par Value $.15               NASDAQ
                  -----------------------------               ------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act  of 1934
during the preceding 12 months (or for such shorter period that  the  registrant
was required to file such reports),  and (2)  has been subject to such filing
requirements for the past 90 days.  Yes [X] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.45 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [X].

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 20,  1996:   Common Stock, $.15 Par Value -
$11,997,032
The number of shares outstanding of the issuer's classes of common stock as of
September 20, 1996: Common Stock, $.15 Par Value - 2,336,245 shares

                         DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders' report for the year ended June 30, 1996 are
incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual shareholders meeting held
November 21, 1996 are incorporated by reference into Part III.


                                          1

<PAGE>


PART I
Item 1. - Business

    ENERGY WEST INCORPORATED ("the Company") is a regulated public utility,
with certain non-utility operations conducted through its subsidiaries.  The
Company's regulated  utility operations primarily involve the distribution and
sale of natural gas to the public in the Great Falls, Montana and Cody, Wyoming
areas.  Since January 1993, the Company's regulated utility operations have also
included the distribution of propane to the public through an underground
propane vapor system in the Payson, Arizona area, and since 1995, the
distribution of natural gas through an underground system in West Yellowstone,
Montana, that is supplied by liquified natural gas ("LNG").

    The Company conducts certain non-regulated non-utility operations through
its three wholly-owned subsidiaries, Rocky Mountain Fuels, Inc. ("RMF"), Energy
West Resources, Inc. ("EWR"), [formerly Vesta, Inc.] and Montana Sun, Inc.
("Montana Sun").  RMF is engaged in the distribution of bulk propane in
Northwestern Wyoming, the Payson, Arizona area and the Cascade, Montana area.
EWR is involved in gas storage, a small amount of oil and gas development and
the marketing of gas in Montana and Wyoming.  Montana Sun owns two real estate
properties in Great Falls, Montana.

UTILITY OPERATIONS

    The Company's primary business is the distribution and sale of natural gas
and propane to residential, commercial and industrial customers.  The natural
gas distribution operations consist of two divisions, the Great Falls division
and the Cody division.  The Cody division is also involved in the transportation
of natural gas.  In addition, since January 1993 the Company has been involved
in the regulated distribution of propane in Arizona through the Broken Bow
division.  Generally, residential customers use natural gas and propane for
space heating and water heating, commercial customers use natural gas and
propane for space heating and cooking, and industrial customers use natural gas
as a fuel in industrial processing and space heating.  The Company's revenues
from utility operations are generated under tariffs regulated by the respective
state utility commissions.

GREAT FALLS DIVISION

              The Great Falls division provides natural gas service to Great
Falls, Montana and much of suburban Great Falls within approximately 11 miles of
the city limits.  The service area has a population base of approximately
65,000.  The Company has a franchise to distribute natural gas within the city
of Great Falls.  The franchise was renewed for 50 years by the city of Great
Falls in 1971.  As of June 30, 1996, the Great Falls division provided service
to over 25,000 customers, including approximately 22,000 residential customers,
approximately 3,000 commercial customers, an oil refinery through a
transportation agreement and Malmstrom Air Force Base ("Malmstrom").


                                          2
<PAGE>

The following table shows the Great Falls division's revenues by  customer class
for the year ended June 30, 1996 and the past two fiscal years:

                                      Gas Revenues
                                     (in thousands)

                                   Years Ended June 30,
                                   --------------------
                              1996      1995     1994
                              ----      ----     ----

Residential.................  $8,648    $8,996    $9,016
Commercial..................   6,146     6,350     6,360
Malmstrom...................       0     1,393     1,437
Transportation..............     468        73        88
                                -----     -----     -----

    Total...............     $15,262   $16,812   $16,901
                             -------   -------   -------
                             -------   -------   -------

    The following table shows the volumes of natural gas, expressed in millions
of cubic feet ("MMcf") at 13.28 P.S.I.A., sold by the Great Falls division for
the year ended June 30, 1996 and the past two fiscal years:

                                     Gas Volumes
                                        (MMcf)
                                 Years Ended June 30,
                                 --------------------
                             1996      1995      1994
                             ----      ----      ----

Residential................  2,540     2,297     2,315
Commercial.................  1,822     1,646     1,655
Malmstrom...................     0       464       478
                             -----     -----     -----

    Total Gas Sales.......   4,362     4,407     4,448
                             -----     -----     -----
                             -----     -----     -----

Transportation               1,294       714       521
                             -----     -----     -----
                             -----     -----     -----

    Malmstrom, the Great Falls division's largest customer, accounted for
approximately 3% of the revenues of the division.  Including revenues received
by EWR, Malmstrom accounted for approximately 5% of the consolidated revenues of
the Company in fiscal 1996. On July 1, 1995, Malmstrom became a transport
customer of the Great Falls division, purchasing its gas load from EWR, a
wholly-owned subsidiary of ENERGY WEST INCORPORATED.  The Great Falls division
will experience  no loss of margin as a result of this new contract. Malmstrom
purchases gas for space heating and water heating for buildings and residential
housing, to supplement its coal-fired central heating system.  Malmstrom, which
is located near Great Falls, is an air force base with intercontinental nuclear
missiles and KC-135 refueling tankers.  The base employed approximately 4,400
military personnel and 550 civilian personnel as of June 30, 1996.  As of this
date, a current realignment plan by the federal government, calls for the base
to receive additional Minuteman III missiles from North Dakota, and the
refueling unit to move to Florida.  The plan is now final and when both changes
take place, the base is expected to lose approximately 700 jobs.


                                          3
<PAGE>

    Beginning in three years, Malmstrom has been selected as the site where 13
of 15 test flight of NASA's X-33 space shuttle will land during 1999. No
assurance can be given as to the future level of activity at Malmstrom.

    The Great Falls division's other transport customer is an oil refinery
located in the city.  The Company provides gas to the customer for processing
use in its refining business.  In fiscal 1996, the refinery accounted for less
than 1% of the consolidated revenues of the Company.  Historically, this
customer's gas load has remained relatively constant during the year because the
gas is used in the customer's business and is therefore not weather-sensitive.
On June 1, 1993, the refinery became a transport customer of the Great Falls
division, purchasing its gas load from EWR, a wholly-owned subsidiary of ENERGY
WEST INCORPORATED.  The Great Falls division has not experienced a loss of
margin as a result of this new contract.

    In July, 1996 it was announced that a $20 million pasta plant will be built
in Great Falls. Construction is expected to begin in the fall of 1996 and is
estimated to use approximately 60,000 Mcf/year of natural gas annually.

    The Great Falls division's gas distribution operations are subject to
regulation by the Montana Public Service Commission ("MPSC").  The MPSC
regulates rates, adequacy of service, accounting, issuance of securities and
other matters.

    In November, 1994, the Company filed for a rate increase to recover the
cost of increased operating expenses, increases in financing expenses due to
additional investments in utility plant, and other costs of doing business.
Included with the filing was a new surcharge to recover costs associated with
the environmental assessment and remediation of its service center, which was
formerly a manufactured gas plant site.  The Montana Consumer Counsel ("MCC")
intervened in the rate case and in January, 1995, the Company and the MCC filed
a Joint Motion for Suspension of the Procedural Order, in order to allow both
parties to negotiate toward a stipulated settlement.  On May 30, 1995, the MPSC
approved the revenue requirement stipulation executed between the Company and
the MCC as filed in March, 1995, which reduced base rates by $250,000 and
allowed a new surcharge associated with the manufactured gas plant site with an
initial balance of approximately $183,000, with the surcharge calculated on a
two-year recovery of the average annual basis.  The effective date of the rate
decrease and surcharge was the beginning of fiscal 1996 or July 1, 1995.  The
rate decrease reduces earnings per share by approximately 1.8 cents on
normalized volumes.


                                          4
<PAGE>

    In June, 1996, the Great Falls division filed a rate adjustment application
with the MPSC of approximately $386,000, to recover increased gas supply costs,
as part of an annual filing made by the Great Falls division to balance gas
supply costs against gas revenues.  This filing does not increase the Great
Falls division's margins.

    On July 8, 1996, the Great Falls division filed a general rate increase
with the MPSC, which reflects increased operating, maintenance and depreciation
costs as well as a change in the cost of capital.  The Great Falls division has
applied for and expects interim relief no later than November, 1996. The Rate
Hearing will be held in late fiscal 1997 and no assurance can be given as to the
amount of rate relief that will be granted to the Company.

    Historically, the Great Falls division has purchased all of its gas from
Montana Power Company ("MPC"), a publicly owned electric and gas utility serving
much of Montana.  In 1991 the MPSC ordered MPC to become an open access
transporter of natural gas over a phase-in period ending on August 31, 1993.
Since the 1991 order, the Company has been able to purchase gas from sources
other than MPC and transport supplies on MPC's system.  The Company has
increased its gas purchases from suppliers other than MPC, as open access
transportation has been phased in.  The Great Falls division, as of June 30,
1996,  purchases approximately forty percent of its gas from a Canadian producer
under a long-term contract expiring in 2007, and approximately twenty percent of
its gas from two Montana producers under long-term contracts expiring between
1998 and 2005 and fifteen percent of its gas from short-term contracts with
Montana producers.  The division also makes spot market purchases from time to
time to fill its storage capacity in the spring and summer.

    The price of gas under the contract with the Canadian producer is
negotiated annually between the parties.  The prices of gas under the contracts
with the two independent producers can be negotiated bi-annually by either
party.  Gas purchased from the division's suppliers is transported through
pipelines owned by MPC and is delivered to the division's distribution system at
two city gates.  The Company pays transportation tariffs to MPC at rates
approved by the MPSC.

    Open access for the division's customers was negotiated between the
division, MPC and the MPSC during 1991, which called for a three year phase-in
of open access gas supplies, with gas costs tracking filings every six months.
The three year phase-in period began in November, 1991, with two-thirds of
supply purchased from MPC under the "Firm Utility Gas Cost" ("FUGC") rate and
one-third directly from other gas suppliers.  The regulatory mechanism used to
track the phase-in resulted in additional costs in 1994 that offset an increase
in gross margins associated with the change in contract terms with the refinery
customer, which changed from a gas supply contract to a transportation contract.
On September 1, 1993, the Great Falls division became a full open access
customer of MPC.


                                          5
<PAGE>

    The division secured the balance of its long-term gas supplies, to replace
gas which was previously being supplied by MPC, on terms satisfactory to the
Company.

    The Great Falls division contracts for gas storage from MPC in MPC-owned
gas storage areas and pays storage tariffs at rates approved by the MPSC.  The
division uses this storage capacity to provide for seasonal peaking needs and to
take advantage of lower priced gas generally available during the summer months.

    During 1996, the Company was a party to gas financial swap agreements for
its regulated operations, including the Great Falls and Cody divisions.  Under
these agreements, the Company is required to pay the counterparty (an entity
making a market in gas futures) a cash settlement equal to the excess of the
stated index price over an agreed upon fixed price for gas purchases.  The
Company receives cash from the counterparty when the stated index price falls
below the fixed price.  These swap agreements are made to minimize exposure to
gas price fluctuations.  Any cash settlements or receipts are included in gas
purchased.

CODY DIVISION

    The Cody division provides natural gas service in Northwestern Wyoming to
the city of Cody and the towns of Meeteetse and Ralston and the surrounding
areas.  The service area has a population base of approximately 12,000.  The
Cody division has a franchise granted by the Wyoming Public Service Commission
(the "WPSC") for gas purchasing, transportation and distribution covering the
west side of the Big Horn Basin, which stretches approximately 70 miles north
and south and 40 miles east and west from Cody.  The franchise is effective
until 2002.  As of June 30, 1996, the Cody division provided service to
approximately 5,200 customers, including 4,500 residential customers, 700
commercial customers and one industrial customer.  The division also provides
transportation service to two customers.

    The following table shows the Cody division's revenues by  customer class
for the year ended June 30, 1996 and the past two fiscal years:

                                     Gas Revenues
                                    (in thousands)

                                 Years Ended June 30,
                                 --------------------
                              1996      1995      1994
                              ----      ----      ----

Residential................. $2,353    $2,176    $2,219
Commercial.................. $1,922    $1,887    $2,034
Industrial.................. $1,360    $1,375    $1,331
Transportation.............. $  305    $  172    $  228
                             ------    ------    ------

    Total.................   $5,940    $5,610    $5,812
                             ------    ------    ------
                             ------    ------    ------


                                          6
<PAGE>

    The following table shows the volumes of natural gas, expressed in millions
of cubic feet ("MMcf") at 13.28 P.S.I.A., sold by the Cody division for the year
ended June 30, 1996 and the past two fiscal years:

                                     Gas Volumes
                                        (MMcf)

                                 Years Ended June 30,
                                 --------------------
                             1996      1995      1994
                             ----      ----      ----

Residential.................  536       486       474
Commercial..................  565       539       559
Industrial..................  552       517       473
                              ---       ---       ---

    Total Gas Sales.......  1,653     1,542     1,506
                            -----     -----     -----
                            -----     -----     -----
Transportation                642     1,484     2,533
                             ----     -----     -----
                             ----     -----     -----

    The industrial sale in the Cody division is to Celotex, a manufacturer of
gypsum wallboard, under a long-term contract expiring in 2000.  Sales to the
customer are made pursuant to a special industrial customer tariff which
fluctuates with the cost of gas.  In fiscal 1996 this customer accounted for
approximately 23% of the revenues of the division and approximately 4% of the
consolidated revenues of the Company.  The division's sales to Celotex, whose
business is cyclical and dependent on the level of national housing starts,
increased by 7% over previous year's volumes.  Celotex and its parent company
Jim Walters Corporation, have been operating under Chapter 11 bankruptcy since
October, 1990.  The bankruptcy stems from potential asbestos claims.
Approximately $132,000 was due the Cody division prior to the bankruptcy filing.
During 1995 the division increased its allowance for uncollectible accounts to
$52,000.  Celotex has filed a plan for reorganization.  On July 12, 1996, a
joint Plan of Reorganization was filed by Celotex.  The Bankruptcy Court has
also scheduled a confirmation hearing on the Plans to begin October 7, 1996.  If
the Plan is confirmed, the distribution will equal between 94% and 95% of the
principal amount of the claim and distribution could be made prior to the end of
1996.

    No assurance can be given that Celotex will continue to be a significant
customer of the Cody division.

    The Cody division's primary transportation customer is Interenergy
Corporation, a regional aggregator, producer and marketer of gas and the
division's primary supplier of natural gas.  The parameters of the
transportation tariff (currently between $.08 and $.30 per Mcf) are established
by the WPSC.  Agreements between the Company and the customer are negotiated
periodically within the parameters.


                                          7
<PAGE>



    The division's revenues are generated under regulated tariffs that are
designed to recover a base cost of gas, administrative and operating expenses
and provide sufficient return to cover interest and profit.  The division also
services customers under separate contract rates that were individually approved
by the WPSC.  The division's tariffs include a purchased gas adjustment clause
which allows an adjustment of rates charged to customers in order to recover
changes in gas costs from base gas costs.  A Wyoming statute permits the WPSC to
allow gas utilities to retain 10% of its cost of gas savings over a base period
level.  In fiscal 1996 this gas cost incentive improved gross margin for the
division by approximately $139,000.  The amount of gas cost incentive if any,
fluctuates with the market price of natural gas.

    The Cody division's last general rate order was effective in 1989.  The
Company does not contemplate filing an application for a general rate increase
for the division in the foreseeable future.  The division's allowed return on
common equity on normalized earnings, calculated in accordance with the WPSC
order, has been 13.01% since the last general rate order.

    The Cody division has a five-year agreement with Interenergy Corporation, a
regional aggregator, producer and marketer of gas, to supply natural gas to the
division.  The contract has been renewed and renegotiated annually since 1989.
The contract requires Interenergy to deliver gas to various points on the
division's transmission system.  Most of the gas purchased by the division is
transported on the division's own transportation system and the balance is
transported on Interenergy's transportation system.  The division also has
several small supply contracts with small producers in the Cody transportation
network.  (The division's service area is located in a gas producing region.)
In addition, the division has a backup contract to purchase natural gas from
Coastal Gas Marketing, but has never purchased gas under this contract.

    The Cody division does not own storage facilities, however has contracted
with a gas supply company in fiscal 1996 for storage capacity of approximately
500,000 Mcf of natural gas to allow more flexibility in the timing of its gas
purchases.  Historically, the division has been able to purchase gas from its
suppliers to meet peak demands.

    During 1996, the Company was a party to gas financial swap agreements for
its regulated operations, including the Great Falls and Cody divisions (see
detail explanation under the Great Falls division).

BROKEN BOW DIVISION

    The Broken Bow division is involved in the regulated distribution of
propane in the Payson, Arizona area.  The division was formed following the
Company's acquisition of Broken Bow Gas's underground propane vapor distribution
system in January 1993.  The acquisition was effective as of November 1, 1992.
The service area of the Broken Bow division includes approximately 575 square
miles and has a population base of approximately 30,000.  As of June 30, 1996,
the Broken Bow division provided service to approximately 4,000 customers,
including approximately 3,500 residential customers and approximately 500
commercial customers.


                                          8
<PAGE>

    The Broken Bow division's operations are subject to regulation by the
Arizona Corporation Commission, which regulates rates, adequacy of service,
issuance of securities and other matters.  The Broken Bow division's properties
include approximately 90 miles of underground distribution pipeline, propane
storage facilities and an office building leased from Petrogas, an affiliated
bulk propane distributor in the Payson area.  The division purchases its propane
supplies from Petrogas under terms reviewed periodically by the Arizona
Corporation Commission.

    In September, 1996, the Broken Bow division will file a general rate
increase with the Arizona Corporation Commission, which reflects increased
operating, maintenance and depreciation costs as well as a change in the cost of
capital.  The Arizona Corporation Commission does not provide interim rate
relief and the earliest the rate case would be heard is one year from the
filing, in Fiscal 1998 or in September, 1997.

NON-UTILITY OPERATIONS

    The Company conducts its non-utility operations through its three
wholly-owned subsidiaries:  RMF, EWR (formerly Vesta)  and Montana Sun.   RMF
is engaged in the bulk sale of propane through its three divisions:  Wyo L-P,
which serves Northwestern Wyoming and Cooke City, Montana,  Petrogas, which
serves the Payson, Arizona area and Missouri River Propane, which sells bulk
propane in the Cascade area, immediately southwest of Great Falls, Montana.  RMF
acquired assets and operations comprising its Wyo L-P divisions through
acquisitions of existing propane distribution businesses in August 1991 and May
1992.  RMF acquired the assets and operations of its Petrogas division through
an acquisition of an existing propane distribution business in January 1993.
The aggregate purchase price for RMF's acquisitions were approximately $2.79
million.  RMF had approximately 3,500 customers as of June 30, 1996, of which
the Wyo L-P division had approximately 2,500 customers and the Petrogas division
and Missouri River Propane had approximately 1,000  customers.  RMF purchases
propane from various suppliers under short-term contracts and on the spot
market, and sells propane to residential and commercial customers, primarily for
use in space heating and cooking.  Petrogas also supplies propane to the Broken
Bow division, while Missouri River Propane supplies propane to Cascade Gas, an
underground propane-vapor system serving the city of Cascade, Montana. For the
twelve months ended June 30, 1996, RMF's revenues (excluding approximately
$1,112,000 sales by Petrogas to the Broken Bow division and approximately
$101,000 sales by Missouri River Propane to Cascade Gas Company, an operating
district of the Great Falls division) were approximately $3,139,000, of which
approximately $2,404,000 was attributable to the Wyo L-P division, $650,000 was
attributable to the Petrogas division and the balance attributable to the
Missouri River Propane division.


                                          9
<PAGE>

    On June 28, 1996, Petrogas sold real property, consisting of land and
office and warehouse building, for $525,000 in cash resulting in a gain of
$236,000.  The gain will be amortized ratably into income over the initial
ten-year lease term.  Concurrent with the sale, the Company leased the property
back for a period of ten years at an annual rental of $51,975.  Petrogas
sub-leases the property to the Broken Bow division.

    On July 1, 1996, the Company entered into a take or pay propane contract
which expires June 30, 1997.  The contract generally requires the Company to
purchase all propane quantities produced by a propane producer in Wyoming
(approximately 182,500 gallons per month) tied to the Billings, Montana spot
price.

    Beginning on September 1, 1996, the Company is a party to two gas swap
agreements, for its nonregulated operations, to hedge 4,400 MMBTU of its daily
gas purchases.  This contract represents approximately 92% of the supply
received for the Company's customers who have selected fixed price service.  The
hedges were made to minimize the Company's exposure to price fluctuations and to
secure a known margin for the purchase and resale of gas in marketing
activities.

    RMF faces competition from other propane distributors and suppliers of the
same fuels that compete with natural gas.  Competition is based primarily on
price and there is a high degree of competition with other propane distributors
in the service areas.

    EWR is involved in a small amount of oil and gas development and the
marketing of gas in Montana and Wyoming.  EWR currently has varying working
interests in four oil and nine gas producing properties.  Volumes of oil and gas
produced are not significant and did not result in significant net income in
fiscal 1996.  The Company believes that the ordering of MPC to provide open
access on its gas transportation system in Montana presents an opportunity for
EWR to do business as a broker of natural gas using the MPC and other systems.
EWR presently has eight customers for those services, plus the State of Montana,
which includes several units of the State of Montana.  EWR also purchased an
underground storage facility near Havre, Montana and leased additional storage
capacity from Montana Power Company, to allow more flexibility in the timing of
its gas purchases.

    Montana Sun owns a commercial real estate property and a parcel of
undeveloped land in Great Falls, Montana.  Montana Sun leases the commercial
property to a federal governmental agency.  The Company is presently seeking to
sell the commercial property, but is otherwise inactive at this time.

    Additional information with respect to the nonutility operation of the 
company is set forth in notes 1, 6, 9 and 10 to the company's consolidated 
financial statements.


                                          10

<PAGE>

CAPITAL EXPENDITURES

    The Company generally conducts a continuing construction program and has
completed expansion of its gas pipeline in areas around metropolitan Great Falls
as well as an underground propane-vapor system in the town of Cascade, Montana,
southwest of Great Falls.  In the Cody division, expansion of the gas system in
that area was completed and in the Broken Bow division, construction is still
being completed, as a result of growth.  The Company has completed construction
of a natural gas system in West Yellowstone, Montana started in May of 1994.
West Yellowstone Gas Company transports liquefied natural gas from southwestern
Wyoming for revaporization into the system; operations started in May of 1995.
The Great Falls division has also added an underground propane vapor system to
service customers in the Hardy area, 30 miles southwest of Great Falls, Montana.
In fiscal years 1996, 1995 and 1994, total capital expenditures were $4,590,608,
$4,705,868 and $2,626,221 respectively.

OTHER BUSINESS INFORMATION

    The principal competition faced by the Company in its distribution of
natural gas is from other suppliers of competitive fuels, including electricity,
oil, propane and coal.  The principal competition faced by the Company in its
distribution and sales of propane is from other propane distributors and
suppliers of the same energy sources that compete with natural gas and
electricity.  Competition is based primarily on price and there is a high degree
of competition with other propane distributors in the service areas.  The
principal considerations affecting a customer's selection of utility gas service
over competing energy sources include service, price, equipment costs,
reliability and ease of delivery.  In addition, the type of equipment already
installed in businesses and residences significantly affects the customer's
choice of energy.  However, where previously installed equipment is not an
issue, households in recent years have consistently preferred the installation
of gas heat.  The Great Falls division's statistics indicate that approximately
95% of the houses and businesses in the service area use natural gas for space
heating fuel, approximately 91% use gas for water heating and approximately 99%
of the new homes built on or near the Great Falls division's service mains in
recent years have selected natural gas as their energy source.  The Cody
division believes that approximately 95% of the houses and businesses in the
service area use natural gas for space heating fuel, approximately 90% use gas
for water heating, and approximately 99% of the new homes built on or near the
division's service mains in recent years have selected gas as their energy
source.  The Broken Bow division believes that approximately 59% of the houses
and businesses adjacent to the division's distribution pipeline use the
division's propane for space heating or water heating.


                                          11

<PAGE>

    The Company had approximately 141 employees as of June 30, 1996, of which
125 were full-time.  Twenty-six of the employees were with the Cody division, 22
employees were with RMF and 15 were with the Broken Bow division.  The other 78
employees were with the Great Falls division, including Cascade Gas and West
Yellowstone Gas and at corporate headquarters.  Approximately 13 full-time and 3
seasonal hourly employees in the Great Falls division are represented by two
collective bargaining units, the United Association of Journeymen and
Apprentices of the Plumbing and Pipefitting Industry of the USA and the
Construction and General Laborer's Union.  The Company's two labor contracts
were renegotiated through April 30, 1997.  The Company considers its
relationship with its employees to be satisfactory.

    The Company has instituted an extensive customer-related energy 
conservation program which encourages the efficient use of energy through 
proper conservation measures.  The Company provides inspection services to 
homeowners and businesses and recommends appropriate conservation projects.  
The Company also is concentrating on increasing load in existing residential 
structures by the addition of gas appliances and conversion of homes with all 
electric appliances. The Company has started a natural gas and propane 
appliance showroom to market gas appliances in the Great Falls and Cody 
divisions with future plans to market appliances in the propane offices of 
the Company.

    In addition, the Company encourages converting commercial food service
equipment to natural gas through a developed commercial equipment efficiency
program, both in Great Falls and Cody.  The Company's field marketing personnel
are paid through an incentive plan geared to how much load they add to the
system.


                                          12

<PAGE>


    The Company has management and employee incentive programs tied to
bottom-line performance of the corporation.  Officers and management, down to
first-line supervisors, participate in a pay-for-performance program.  If the
Company meets a minimum earnings per share for the consolidated corporation for
25% and a minimum rank on the comparison of utilities published by Edward D.
Jones & Co. for an additional  25% funding and individual divisions meet their
allocated consolidated earnings per share for the other 50%, or in the case of
senior officers and corporate staff the corporation meets a minimum rank on the
comparison of utilities published by Edward D. Jones & Co. for the other 50%;
then the incentive pool is triggered; then whether  the incentive is actually
earned depends on whether the individuals in the program achieve individual
specific performance objectives set at the beginning of the year.  Incentives
vary from .8% on up of base wages.  All officers and eligible employees
participate in the Company's Employee Stock Ownership Plan, in which payout is
based on pre-tax earnings of the Company and approved by the Board each year.

    The Company has implemented a deferred compensation plan for directors,
which provides a deferral of directors' fees and incentive awards until such
time as the director ceases to be a director of the Company by retirement or
otherwise.  The plan provides an incentive compensation based on the total fees
earned by each Director for that year multiplied by the highest percentage
incentive award for that year to any employee under the Company's management
incentive compensation plan, which In fiscal 1996 was 38.91%.  Fees (either cash
or stock) and incentive compensation (stock only) can be received either
currently, as they are earned, or on a deferred basis.  Elections to defer
receipts are subject to timing requirements.  The deferred compensation plan for
directors is subject to approval of the shareholders at the Annual Shareholders
Meeting of Energy West, Incorporated November 21, 1996.


                                          13

<PAGE>

PART I

ENVIRONMENTAL MATTERS

The Company owns property on which it operated a manufactured gas plant from 
1909 to 1928.  The site is currently used as a service center for the 
Company where certain equipment and materials owned by the Company are 
stored. The coal gasification process utilized in the plant resulted in the 
production of certain by-products which have been classified by the federal 
government and the State of Montana as hazardous to the environment.  Several 
years ago the Company initiated an assessment of the site to determine if 
remediation of the site was required.  That assessment resulted in a 
submission of a report to the Montana Department of Environmental Quality 
(MDEQ) in 1994.  The Company has worked with the MDEQ since that time  
obtain the data that would lead to a remediation acceptable to MDEQ.  The 
Company's environmental consultant advises the Company that it expects to 
have a report, which will include remediation recommendations, filed with 
the MDEQ by approximately mid-summer of 1997.  MDEQ would then provide an 
opportunity for public comment on the remediation plan.  Once the comment 
period has ended and due consideration of any comments occurs, the plan can 
be finalized. Assuming acceptance of the plan, remediation could be underway 
by the fall of 1998.

At June 30, 1996 the Company's costs incurred in evaluating this site have 
totalled approximately $320,000.  On May 30, 1995 the Company received an 
order from the Montana Public Service Commission allowing for a surcharge on 
customer bills in conntection with the costs associated with evalution of the 
site. As of June 30, 1996 the surcharge had generated approximately $214,000. 
The Commission's order calls for ongoing review by the Commission of the costs
incurred for this matter by periodic approvals of the costs incurred for this
matter.


                                          14

<PAGE>

Item 3. - LEGAL PROCEEDINGS

From time to time the Company is involved in litigation relating to claims 
arising from its operations in the normal course of business.  Neither the 
Company nor any of its subsidiaries is a party to any legal proceedings, 
other than as described below, the adverse outcome of which individually or 
in the aggregate, in the Company's view, would have a material adverse effect 
on the Company's results of operations, financial position or liquidity.

On December 20, 1996, an action was filed against the Company by Randy Hynes 
and Melissa Hynes in Federal District Court in Wyoming.  The action arises 
from a natural gas explosion involving a four-plex apartment building which 
was damaged after natural gas from a gas line leaked into the building on 
February 3, 1996 (which was not serviced by natural gas).  The plaintiffs, who 
were tenants in the building, sustained burns and other injuries as well as 
property damage.  The plaintiffs allege that the Company was negligent in 
that in failed to maintain the natural gas line consistent with its duty to 
do so and failed to properly odorize the gas which caused the explosion. The 
action also asserts claims of product liability, willful and wanton conduct 
and breach of warranty.  The plaintiffs are seeking damages for personal 
injury, pain and suffering, emotional distress, loss of earnings, medical 
expenses, physical disability and property damage as well as punitive 
damages.  A dollar amount has not been set forth in the pleadings.  The 
Company denies responsibility for the damages and is vigorously contesting 
the matter.  The Company believes the gas leak resulted from damage caused to 
the pipeline by an unknown third party.  Discovery is proceeding at this 
time.  A trial has been scheduled for the fall of 1997.

A similar lawsuit involving the same explosion was filed by five other 
plaintiffs Wyoming District court, Park County, Wyoming on April 3, 1997.  
The allegations are substantially the same as the allegations in the Federal 
District Court case, the Company has filed an answer denying liability and is 
contesting the matter vigorously.  Only limited discovery has occurred to 
date.  The plaintiffs, Heidl Woodward, at al., were also tenants in the 
apartment building.

On October 24, 1996, an action was filed against the Company by Colten and Julie
White and their three children in Superior Court in Gila County, Arizona.  The
action arises from an explosion that occurred on May 3, 1995 in the plaintiffs'
new home which was serviced by the Company's propane business.  The explosion
occurred in the course of the plaintiffs' attempt to light their appliances for
the first time.  The plaintiffs sustained injuries and property damage in the
explosion and the fire that occurred after the explosion.  The claims are for
personal injury, mental suffering and anguish, medical expenses, lost income,
property damages and punitive damages.  Plaintiffs' claims are based on a strict
liability claim that the propane was defective, breach of warranty in that the
propane was not fit for the purpose fro which it was intended and negligence for
failure to assure that the propane was properly odorized.  The dollar value of
the claims has not been set forth in the pleadings of the plaintiffs.

The Company carries commercial general liability insurance for bodily injury and
property damages of $1,000,000 per occurrence and $5,000,000 in the aggregate,
and has an additional $30,000,000 umbrella policy for excess claims.  The
Company's general liability carrier has assumed the defense of both Wyoming
actions and the Arizona action.  The Company believes it has insurance coverage
for these matters.  However, no assurance can be given that insurance will cover
these matters in the event that the company is held liable.  In the event of an
adverse result for the Company, and if the Company's insurance does not cover
the matters or is not sufficient to cover the matters, such result could have a
material adverse effect on the Company's results of operations, financial
position and liquidity (depending on the amount of the judgment or judgments).

Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None



                                          15

<PAGE>

EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY

The following table sets forth the names and ages of, and the positions and
offices within the Company presently held by, all directors and executive
officers of the Company:

    Name                Age                              Position
    ----                ---                              --------

Larry D. Geske           57                         President and Director
                                                    since 1978; appointed Chief
                                                    Executive Officer in 1979

Edward J. Bernica        46                         Vice-President and Chief
                                                    Financial Officer since
                                                    October, 1994

William J. Quast         57                         Vice-President,
                                                    Treasurer, Controller and
                                                    Assistant Secretary since
                                                    1988, has been
                                                    Vice-President, Secretary
                                                    and Treasurer since 1987,
                                                    Assistant Vice-President, 
                                                    Secretary Controller and 
                                                    Assistant Treasurer since
                                                    1983, Secretary since 1982 
                                                    and an Assistant Treasurer 
                                                    of the Company since 1979

Tim A. Good               51                        Vice-President and
                                                    Manager of the CGD since
                                                    1988; General Manager of
                                                    Cody Gas Company, a
                                                    Division of the Coastal
                                                    Corporation, for five
                                                    years prior to the
                                                    acquisition of CGD by the
                                                    Company

Sheila M. Rice           49                         Vice-President and
                                                    Division Manager of the
                                                    Great Falls division
                                                    since April, 1993;
                                                    Vice-President Marketing
                                                    and Consumer Services 
                                                    since 1988 and has been
                                                    Vice-President, Marketing
                                                    and Consumer Relations 
                                                    since 1987; was Assistant
                                                    Vice-President for 
                                                    Marketing and Customer
                                                    Relations 1983-1987


                                          16
<PAGE>

    Name                     Age                              Position
    ----                     ---                              --------

John C. Allen                 45                    Vice-President of Human
                                                    Resources and Corporate
                                                    Counsel and Secretary
                                                    since 1992; Corporate
                                                    Counsel and Secretary
                                                    since 1988; Counsel and
                                                    Assistant Secretary from
                                                    November 1986 to 1988 and
                                                    Corporate Attorney to the
                                                    Company from March 1986
                                                    to November 1986

Lynn F. Hardin                48                    Assistant Vice-President
                                                    of Gas Supply for the
                                                    Great Falls division
                                                    since June 1, 1993;
                                                    Assistant Vice-President
                                                    of Division Administration 
                                                    since 1989; was manager of
                                                    Accounting and
                                                    Administration or Cody
                                                    Gas Company, a Division
                                                    of The Coastal
                                                    Corporation, for five
                                                    years prior to acquisition
                                                    of CGD by the Company

Earl L. Terwilliger, Jr.      48                     Assistant Vice-President
                                                    for Market Development
                                                    for the Great Falls
                                                    division since 1990; has
                                                    been Assistant
                                                    Vice-President of
                                                    Customer Accounting and
                                                    Credit since 1988

Ian B. Davidson               64                    Director since 1969

Timothy J. Moylan (deceased)  40                    Director since 1991

Thomas N. McGowen, Jr.        70                    Director since 1978

G. Montgomery Mitchell        68                    Director since 1984

John Reichel                  70                    Director since 1984

David A. Flitner              63                    Director since 1988


                                          17

<PAGE>

Larry D. Geske has been employed by the Company since 1975 and became President
and Director of the Company in 1978.  In 1979, Mr. Geske was appointed to the
position of Chief Executive Officer.  In addition, Mr. Geske is a past Director
of First Interstate Bank of Great Falls (parent Company is First Interstate Bank
Corporation) and is a Director of the Great Falls Capital Corporation and the
Great Falls Dodgers Baseball Club.  He is also a Director of the American Gas
Association's Board.  Mr. Geske, prior to service with the Company, was a Field
Engineer "A" with NIGAS in Aurora, Illinois and a Senior Consultant with Stone
and Webster Management Consultants, Inc. in New York.

Mr. Edward J. Bernica has been employed by the Company since October 1994 and
became Vice-President and Chief Financial Officer in November, 1994.  Mr.
Bernica, prior to service with the Company, was Director of Finance at U. S.
West in Englewood, Colorado and prior to that, was employed by ENRON Corporation
in Omaha, Nebraska as Director-Financial Analysis and Planning

William J. Quast has been Vice-President, Treasurer, Controller and Assistant
Secretary since 1988.  He has served as Vice-President, Secretary and Treasurer
since 1987 and as Assistant Vice-President, Secretary, Controller and Assistant
Treasurer since 1983.  He has served as Secretary of the Company since 1982 and
as Assistant Treasurer of the Company since 1979.  Mr. Quast was re-elected in
1993 and served as Trustee for the Great Falls Public School system for most of
fiscal 1996.  Mr. Quast, prior to service with the Company, was an accounting
manager for Wyton Oil and Gas Company, a multi-state propane distributor
headquartered in Denver, Colorado and was Treasurer for D. A. Davidson & Co. in
Great Falls, Montana.

Tim A. Good has been Vice-President and Division Manager of the CGD since 1988.
He served as General Manager of Cody Gas Company, a Division of The Coastal
Corporation for five years prior to the acquisition of the Cody Gas Company by
EWST in 1988.

Sheila M. Rice has been Vice-President and Division Manager of the Great Falls
division since April, 1993.  Prior to that, she was Vice-President of Marketing
and Consumer Services since 1988.  She served as Vice-President, Marketing and
Consumer Relations from 1987 to 1988, Assistant Vice-President for
Marketing/Customer Relations from 1983 to 1987 and as Consumer Service
Representative/Conservation Specialist for the Company from 1979 to 1983.

John C. Allen has been Vice-President of Human Resources and Corporate Counsel
since 1992 and previously served as Corporate Counsel and Secretary of the
Company since 1988.  He served as Corporate Counsel and Assistant Secretary from
November 1986 until 1988 and as Corporate Attorney of the Company (March,
1986-November 1986).  From 1979 to 1986, Mr. Allen was employed as a staff
attorney with the Montana Consumer Counsel.

                                          18

<PAGE>

Lynn F. Hardin has been Assistant Vice-President of Gas Supply since June 1,
1993.  Prior to that, he was Assistant Vice-President of Division Administration
since 1989.  He was Manager of Accounting and Administration of Cody Gas
Company, a Division of The Coastal Corporation for five years prior to the
acquisition of the Cody Gas Company by the Company in 1988.

Earl L. Terwilliger, Jr. has been Assistant Vice-President for Market
Development since 1990.  He served as Assistant Vice-President of Customer
Accounting and Credit from 1988 to 1990 and Manager of Customer Accounting and
Credit for the previous four years.  Prior to that time, Mr. Terwilliger was
office manager.

Ian B. Davidson has been a Director of the Company since 1969.  Mr. Davidson has
been Chairman and Chief Executive Officer of D. A. Davidson & Co. since October,
1970.  Mr. Davidson also is a Director of Plum Creek Management Company, a
member of the 1996 Nominating Committee for District 3 of the National
Association of Securities Dealers and a member of the C. M. Russell Museum
Advisory Board.

Timothy J. Moylan (deceased) was a Director of the Company since 1991.  On
August 1, 1996, Mr. Moylan became deceased, due to a drowning accident, while
vacationing in Mexico. Mr. Moylan was President of the BelRad Group, South
Pacific, Inc., and Natural Resources Group, Inc.  Mr. Dean South, a former
Vice-President of Western Operation of Heritage Propane Corporation, was
appointed to fill the unexpired term of Mr. Moylan on August 29, 1996.

Thomas N. McGowen, Jr. has been a Director of the Company since 1978.  Mr.
McGowen is past President and Chairman of the Board of Pabst Brewing Company.
Mr. McGowen is a Director of Federal Signal Corporation and Ribi Immunochem
Corporation.

G. Montgomery Mitchell has been a Director of the Company since 1984.  Mr.
Mitchell was a Senior Vice-President and Director of Stone and Webster
Management Consultants, Inc. until his retirement in 1993.  Mr. Mitchell was
responsible for Stone and Webster's services provided to natural gas utility and
pipeline companies and managed their Houston, Texas office.  He is presently
retained by Stone and Webster for advisory and senior consulting services.  Mr.
Mitchell also is a Director of Mobile Gas Service Corporation (Alabama).

John Reichel has been a Director of the Company since 1984.  Prior to his
retirement he was Managing Director of the Montana Region of First Bank System,
Inc.  From 1983 to 1985, Mr. Reichel was Managing Director of the Western
Montana Region of First Bank System, Inc. and from 1975 to 1983 served as
President of First Bank Great Falls.  Mr. Reichel retired from First Bank
System, Inc. in 1987.  Mr. Reichel has elected not to run for re-election as a
Director in November, 1996.

David A. Flitner has been a Director of the Company since 1988.  Mr. Flitner is
owner of the Flitner Ranch and Dave Flitner Packing and Outfitting (Wyoming
Companies) and Hideout Adventures, Inc., a recreational enterprise.


                                          19

<PAGE>


                                       PART II

Item 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Common Stock Prices and Dividend Comparison - Fiscal 1995 and Shares of the
Company's Class A Common Stock are traded in the over-the-counter market on the
NASDAQ (National Association of Securities Dealers Automated Quotation)
system-symbol: EWST.  The over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent the actual transactions.  Prices are shown as a result
of a 2-for-1 stock split, effective June 24, 1994.

Price Range - Fiscal 1996                   High           Low
-------------------------                   ----           ---

First Quarter                               8 1/4          7 3/4
Second Quarter                              9 1/2          7 3/4
Third Quarter                               9 3/4          8 3/4
Fourth Quarter                              9 3/8          8
Year                                        9 3/8          7 3/4

Price Range - Fiscal 1995                   High           Low
-------------------------                   ----           ---

First Quarter                               9 1/4          8 1/2
Second Quarter                              9 1/4          8
Third Quarter                               8 1/2          7 1/2
Fourth Quarter                              8 1/4          7 1/2
Year                                        9 1/4          7 1/2


                                          20

<PAGE>


Item 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS
         OF FINANCIAL CONDITION AND RESULTS OF CONSOLIDATED OPERATIONS

RESULTS OF CONSOLIDATED OPERATIONS

Fiscal 1996 Compared to Fiscal 1995

Net Income
    The Company's net income for fiscal 1996 was $1,267,000 compared to
$1,513,000 in fiscal 1995, a decrease of $246,000 or 16%.  The following summary
describes the components of the change between years.

Revenue
    Operating revenues increased approximately 3%.  Regulated revenues
decreased 3% compared to the prior year  due to a rate decrease in the Great
Falls division, effective July 1, 1995.  This decrease in rates was partially
offset by colder weather this year than one year ago in the Great Falls and Cody
utility divisions, increased transport revenues in the Cody division and the
recognition of West Yellowstone revenues in this start-up operation.
Nonregulated revenues increased approximately 6%, from increased bulk propane
sales in the areas served by Wyo L-P gas in Wyoming, Missouri River Propane in
Montana and Petrogas in Arizona.  Both Missouri River Propane and Petrogas sell
propane to related regulated utilities Cascade Gas Company and  Broken Bow Gas
Company, respectively.  Operating revenues in Energy West Resources decreased by
20%; however, gas trading revenues increased by 34% due to customer growth and
an increase in volumes.

Gross Margin
    Gross margins (operating revenues less cost of gas purchased and cost of
gas trading) increased approximately $664,000 in 1996.  Regulatory gross margins
increased approximately $740,000 because of higher margins from natural gas
sales in the Great Falls and Cody divisions.  Margins were tempered by the
effects of a rate reduction in the Great Falls division of approximately
$260,000 annually, ordered by the Montana Public Service Commission, which went
into effect on July 1, 1995.  In addition, margins of West Yellowstone, a new
operation in Montana, are reflected in this fiscal year.  Nonregulated gross
margins decreased approximately $84,000, primarily due to smaller margins in
Energy West Resources' gas marketing operations.

Regulated Revenues
    Regulated revenues decreased from $24,363,000 in fiscal 1995 to $23,672,000
in fiscal 1996 or 3%, primarily due to a decrease in the revenues of the Great
Falls division of approximately $1,550,000, due to a $260,000 rate decrease
ordered by the Montana Public Service Commission, a reduction in gas costs
reducing rates by approximately $290,000 and the shift of Malmstrom Air Force
Base revenues to a transportation customer, which further reduced revenues by
approximately $1,000,000.  This was offset by the inclusion of West Yellowstone
revenues of approximately $300,000 and increased Cody division revenues of
approximately $330,000, due to increased volumes sold due to customer growth,
colder weather, higher transportation revenues and increases in Propane sales in
the Broken Bow and Cascade divisions, due to customer growth.  Gas purchased
decreased from $15,077,500 in fiscal 1995 to $13,646,200 in fiscal 1996 or 10%,
primarily due to a reduction in natural gas costs.


                                          21

<PAGE>

Regulated Operating Income
    Regulated operating income increased approximately $65,000 in fiscal 1996
or 3%, primarily due to increased gross margins of approximately $740,000, due
to customer growth, colder weather, higher transportation sales and the
inclusion of West Yellowstone margins.  This was offset by increases in
distribution, general, administrative and general expenses of approximately
$490,000, due to operations growth and inflation, increases in depreciation and
amortization expenses of approximately $153,000, due to additional utility plant
and increases in taxes other than income of approximately $29,000, due to higher
property taxes in all three states served by Energy West.

Nonregulated Operating Income
    Nonregulated operating income decreased approximately $190,000 in fiscal
1996 or 20%, due to smaller margins in Energy West Resources' gas marketing
operations of approximately $151,000 and higher operating and maintenance
expenses of approximately $156,000 due to inflation and growth of nonregulated
operations, offset partially by lower depreciation and amortization costs.

Other Expenses
    Operating expenses (excluding cost of gas sales) increased approximately
$790,000 or 9% in 1996.  The primary reason for this increase  was due to
normal inflationary trends and lower capitalized payroll since the completion of
the West Yellowstone system, as well as the addition of West Yellowstone's
utility operating expenses this fiscal year.
    As a result of the above changes, operating income decreased 4% from
$3,092,000 in 1995 to $2,965,000 in 1996.  Total interest expense for the
Company was $1,243,000 for fiscal 1996, up from $939,000 in fiscal 1995, due to
higher short-term borrowing used in expansion of the Company's  utility systems.
 Other additions to or deductions from operating income in determining net
income remained comparable between the two years.

 Fiscal 1995 Compared to Fiscal 1994

 Net Income
    The Company's net income for fiscal 1995 was $1,513,000 compared to
$1,351,000 in fiscal 1994, an increase of $162,000 or 12% over 1994.  However
fiscal 1994 net income included an accounting change of $92,000 due to the
cumulative effect on prior years of the change in accounting for income taxes.
Before the effect of the accounting change, net income increased $254,000 or
20% in 1995 over 1994.  The notes to the financial statements further describe
this accounting change. The following summary describes the components of the
change between years.

 Revenue
    Operating revenues increased approximately 4%, primarily due to gas trading
 revenues; regulated utility revenues declined slightly as compared to the prior
year, representing 76% of total revenues in 1995 versus 80% in fiscal 1994.
Nonregulated revenues increased slightly due to growth in the nonregulated
Arizona customer base, served by the Petrogas division.

 Gross Margin
    Gross margins (operating revenues less cost of gas purchased and cost of
gas trading) increased approximately $994,000 in 1995.  Regulatory gross
margins increased approximately $530,000, due to the Great Falls and Broken
Bow divisions.  The Great Falls division realized higher margins due to a
timing difference in purchased gas costs.  The Broken Bow gross margin
increased due to customer growth in the Payson, Arizona area.  The Cody gross
margins remained relatively unchanged, even though sales were down.
Nonregulated gross margins increased approximately $464,000, primarily due to
additional gas trading activity.


                                          22

<PAGE>


 Regulated Revenues
    Regulated revenues decreased minimally from approximately $24,421,000 in
fiscal 1994 to $24,363,000 in fiscal 1995, primarily due to a decrease in the
revenues of the Great Falls division of approximately $56,000, due primarily
to 1% warmer weather in fiscal 1995, reducing sales of natural gas.  Gas
purchases decreased from approximately $15,667,000 in fiscal 1994 to
$15,077,000 in fiscal 1995 or 4%, primarily due to a timing difference in
purchased gas costs booked in the Great Falls division.

 Regulated Operating Income
    Regulated operating income increased approximately $100,000 in fiscal 
1995 or 5%, primarily due to increased gross margins of approximately 
$532,000, due to customer growth and higher margins in the Great Falls 
division due to a timing difference in purchased gas costs booked.  This was 
offset by increases in distribution, general and administrative and general 
expenses of approximately $296,000, due to operations growth and inflation, 
increases in depreciation and amortization expenses of approximately $72,000, 
due to additional utility plant and increases in taxes other than income of 
approximately $64,000, due to higher property taxes in all three states 
served by Energy West.

 Nonregulated Operating Income
    Nonregulated operating income increased approximately $387,000 in fiscal
1995 from fiscal 1994 or 70%, due primarily to increased margins in Energy
West Resources' gas marketing operations of approximately $440,000, partially
offset by higher operating and maintenance expenses of approximately $48,000
due to inflation and growth of nonregulated operations and higher depreciation
and amortization costs.

 Other Expenses
    Operating expenses (excluding cost of gas sales) increased approximately
$538,000 in 1995.  The primary reason for this increase was increased
depreciation and amortization of approximately $95,000 reflecting the addition
or acquisition of property, plant and equipment, while the remaining increase
was due to inflation and additional personnel required in the growing
operations of the Company.

    As a result of the above changes in gross margins and offsetting increases
in   operation expenses, depreciation and amortization, operating income
increased 17% from $2,636,000 in 1994 to $3,092,000 in 1995.  Total interest
expense for the Company was approximately $939,000 for fiscal 1995, down
slightly from $962,000 in fiscal 1994.  Other additions to or deductions from
operating income in determining net income remained comparable between the two
years.


                                          23

<PAGE>

OPERATING RESULTS OF THE COMPANY'S UTILITY OPERATIONS

                                            Years Ended June 30
                                            -------------------
                                          1996        1995        1994
                                          ----        ----        ----
                                                 (IN THOUSANDS)
Operating revenues:
    Great Falls division               $15,737      $16,812     $16,900
    Cody division                        5,940        5,609       5,813
    Broken Bow division                  1,995        1,942       1,708
                                       -------      -------     -------

Total operating revenues                23,672       24,363      24,421
Gas purchased                           13,646       15,077      15,667
                                       -------      -------     -------
Gross Margin                            10,026        9,286       8,754
Operating expenses                       7,810        7,136       6,673
Interest charges [SEE NOTE BELOW]        1,145          908         895
Other utility (income) expense-net        (118)        (126)       (106)
Federal and state income taxes             385          454         410
                                       -------      -------     -------

Net utility income                     $   804      $   914     $   882
                                       -------      -------     -------
                                       -------      -------     -------
    [INTEREST CHARGES FOR UTILITY AND NON-UTILITY OPERATIONS DO NOT EQUAL TOTAL
INTEREST CHARGES FOR THE COMPANY, DUE TO ELIMINATING ENTRIES BETWEEN ENTITIES.]


                                          24

<PAGE>

   Fiscal 1996 Compared to Fiscal 1995

 Revenues and Gross Margins
    Utility operating revenues in fiscal 1996 were approximately $23,672,000
compared to $24,363,000 in fiscal 1995.  Gross margin, which is defined as
operating revenues less gas purchased, was approximately $10,026,000 for
fiscal 1996 compared to approximately $9,286,000 in fiscal 1995.
    Overall revenues decreased from fiscal 1995 due primarily to a $250,000
rate decrease in the Great Falls division in Montana, effective July 1, 1995. In
addition, Malmstrom AFB became a transport customer of the Great Falls
division in fiscal 1996, further reducing operating revenues. Energy West
Resources sold natural gas to Malmstrom AFB in fiscal 1996. This decrease in
rates and the Malmstrom change to transport was tempered by colder weather this
year than one year ago in all utility divisions and recognition of West
Yellowstone revenues this year in this start-up operation.  While utility
revenues decreased from fiscal 1995, margins increased approximately 8% for
fiscal 1996, primarily due to higher margins from natural gas sales in the
Great Falls and Cody divisions and propane sales in the Broken Bow division
because of customer growth and colder weather than one year ago in the Great
Falls and Cody divisions and the addition of West Yellowstone's margins in
  Fiscal 1996, in this new start-up operation. The winter heating season in the
  Great Falls division in fiscal 1996 was approximately 10% colder than fiscal
  1995 and 8% colder than "normal" (i.e., the average temperature during the
  preceding 30 years). The winter heating season in the Cody division was
  approximately 5% colder than fiscal 1995, and very


                                          25
<PAGE>

 Fiscal 1995 Compared to Fiscal 1994

 Revenues and Gross Margins
    Utility operating revenues in fiscal 1995 were $24,363,000 compared to
$24,421,000 in fiscal 1994.  Gross margin, which is defined as operating
revenues less gas purchased, was $9,286,000 for fiscal 1995 compared to
$8,754,000 in fiscal 1994.
    Although utility revenues remained unchanged from fiscal 1994, margins
increased 6% for fiscal 1995, primarily due to higher margins experienced by
the Great Falls division when compared to margins experienced in fiscal 1994
as a result of a timing difference in purchased gas costs booked, as well
as higher margins in the Broken Bow division as a result of growth in
the Payson, Arizona area.  The winter heating season in the Great Falls division
in fiscal 1995 was approximately 1% warmer than fiscal 1994 and 1% warmer than
"normal" (i.e., the average temperature during the preceding 30 years).  The
winter heating season in the Cody division was approximately 1% warmer than
fiscal 1994 and 5% warmer than normal. The Broken Bow division experienced a
14% increase in revenues and a 24% increase in margins, as a result of growth
in the Payson, Arizona area.

 Operating Expenses
    Utility operating expenses, exclusive of the cost of gas purchased and
federal and state income taxes, were $7,136,000 for fiscal 1995, as compared
to $6,673,000 for fiscal 1994.  The 7% increase in the period is due to
increased depreciation and amortization, reflecting the addition or
acquisition of property, plant and equipment, while the remaining increase
was due to inflation and additional personnel required in the growing
utility operations of the Company.

 Interest Charges
    Interest charges allocable to the Company's utility divisions were $908,000
in fiscal 1995, as compared to $895,000 in fiscal 1994.  Short-term interest
charges increased as a result of higher interest rates compared to a year ago,
however this was offset by lower interest payments on long-term debt, due to
repayment of principle.

 Income Taxes
    State and federal income taxes of the Company's utility divisions was
$454,000 in  fiscal 1995, as compared to $410,000 in fiscal 1994.  The 11%
increase was primarily attributable to a $76,000 increase in pre-tax income of
the utility divisions.


                                          26
<PAGE>


OPERATING RESULTS OF EACH OF THE COMPANY'S NON-UTILITY SUBSIDIARIES

                                                        Years Ended June 30
                                                        -------------------
                                                     1996      1995      1994
                                                     ----      ----      ----
                                                          (IN THOUSANDS)
                                                    
ROCKY MOUNTAIN FUELS (RMF)                          
     Operating revenues                             $4,352    $3,902    $3,759
     Cost of propane                                 2,540     2,171     2,050
     Operating expenses                              1,548     1,484     1,399
     Other (income) expense-net                        (64)      (33)      (67)
     Interest expense [SEE NOTE BELOW]                 112        87       113
     Federal and state income taxes                     85        71        85
     Cumulative effect on prior years               
     of change in accounting for                    
     income taxes                                                            4
                                                   -------   -------   -------
Net income                                          $  131    $  122    $  183
                                                   -------   -------   -------
                                                   -------   -------   -------

ENERGY WEST RESOURCES (Formerly Vesta-Transenergy)
     Operating revenues                             $   61    $   76    $   77
     Gas trading revenue                             4,348     3,239     1,965
     Operating expenses                                201       172       170
     Cost of gas trading                             3,773     2,500     1,667
     Other (income) expense-net                        (20)      (43)      (44)
     Federal and state income taxes                    169       259        94
     Cumulative effect on prior years               
     of change in accounting for                      
     income taxes                                                           42
                                                   -------   -------   -------
Net income                                          $  286    $  427    $  197
                                                   -------   -------   -------
                                                   -------   -------   -------





MONTANA SUN
     Operating revenues                             $   97      $ 99     $ 100
     Operating expenses                                 48        47        61
     Other (income) expense-net                        (24)      (16)      (24)
     Interest expense [SEE NOTE BELOW]                   0       (14)       (4)
     Federal and state income taxes                     27        31        26
     Cumulative effect on prior years                
     of change in accounting for                     
     income taxes                                                           46
                                                    ------      ----      ----
                                                   
Net income                                          $   46      $ 51      $ 87
                                                    ------      ----      ----
                                                    ------      ----      ----
                                                     
Total Non-Utility Net Income                        $  463      $600      $467
                                                    ------      ----      ----
                                                    ------      ----      ----
                                                     
    [INTEREST CHARGES FOR UTILITY AND NON-UTILITY OPERATIONS DO NOT EQUAL TOTAL
INTEREST CHARGES FOR THE COMPANY, DUE TO ELIMINATING ENTRIES BETWEEN ENTITIES.]


                                          27
<PAGE>

Non-Utility Operations

Rocky Mountain Fuels
    For the fiscal year ended June 30, 1996, Rocky Mountain Fuels (RMF)
generated net income of approximately $131,000 compared to $122,000 for fiscal
1995. Earnings improved by approximately $76,000, due to decreasing depreciation
expense in all of RMF's operating divisions as a result of changing the
estimated useful lives for certain propane properties from twelve and fifteen
years to twenty years, to better reflect its useful lives. Missouri River
Propane and Big Horn Answering Service had a loss for the fiscal year.

    For the fiscal year ended June 30, 1995, RMF generated net income of
$122,000 compared to $183,000 for fiscal 1994.  Approximately $68,000 of RMF's
net income for fiscal 1995 was attributable to the Wyo L-P division and
approximately $63,000 was attributable to the Petrogas division.  RMF income
decreased because of higher overheads, due to reallocation from the utility
operation and normal inflationary trends along with higher depreciation.
Missouri River Propane and Big Horn Answering Service account for the balance,
which had a net loss for fiscal 1995.


Energy West Resources (Formerly Vesta - Transenergy)
    For fiscal 1996, Energy West Resources' (EWR) net income was approximately
$285,000 compared to $427,000 for fiscal 1995, primarily due to lower margins
experienced by its gas marketing operations.  Although margins were lower than
1995, EWR's average margin is outstanding and sales volumes have increased 34%.
EWR expenses were also higher than 1995 because of power marketing
investigations, salary and expenses for an EWR specific employee, increased
direct charges and overheads allocated to EWR from EWST management in connection
with efforts to enhance EWR operations.

    For fiscal 1995, EWR net income was $427,000 compared to $198,000 for
fiscal 1994, primarily due to increased gas marketing margins. In fiscal 1995,
Energy West Resources' gross marketing margin in gas trading activities
increased approximately 148% to approximately $738,000 from $298,000 in fiscal
1994.  This increase in margins was partially offset by the effect of a $42,000
increase to net income in fiscal 1994 as a result from adoption of SFAS No.109.

Montana Sun
    For fiscal 1996, Montana Sun's net income was approximately $47,000 as
compared to $51,000 for fiscal 1995.
    For fiscal 1995, Montana Sun's net income was $51,000 as compared to
$87,000 for fiscal 1994 which had the effect of an accounting change, from
adoption of SFAS No. 109.



                                          28
<PAGE>

Liquidity and Capital Resources
    The Company's operating capital needs, as well as dividend payments and
capital expenditures, are generally funded through cash flow from operating
activities, short-term borrowing and liquidation of temporary cash investments.
Historically, to the extent cash flow has not been sufficient to fund capital
expenditures, the Company has borrowed short-term or issued equity securities to
fund capital expansion projects or reduce short-term borrowing.

    The Company's short-term borrowing requirements vary according to the
seasonal nature of its sales and expense activity.  The Company has greater need
for short-term borrowing during periods when internally generated funds are not
sufficient to cover all capital and operating requirements, including costs of
gas purchases and capital expenditures.  In general, the Company's short-term
borrowing needs for purchases of gas inventory and capital expenditures are
greatest during the summer months and the Company's short-term borrowing needs
for financing of customer accounts receivable are greatest during the winter
months.  In addition during the past two years, the Company has used short-term
borrowing to finance the acquisition of propane operations and LNG for West
Yellowstone Gas.  Short-term borrowing utilized for construction or property
acquisitions generally has been on an interim basis and converted to long-term
debt and equity when it becomes economical and feasible to do so.

    At June 30, 1996, the Company had a $11,000,000 bank line of credit, of
which $7,175,000 had been borrowed under the credit agreement.  The short-term
borrowings bear interest at the rate of 8% per annum as of June 30, 1996.

    The Company generated net cash from operating activities for fiscal 1996 of
approximately $606,000 as compared to $3,605,000 for fiscal 1995.  This change
from fiscal 1995 is attributed to a $246,000 decrease in net income, a reduction
in accounts payable of approximately $1,000,000, an increase in recoverable
costs of gas purchases and prepaid gas of approximately $1,627,000 and other
miscellaneous working capital changes of approximately $1,170,000 offset by
approximately $491,000 increase in deferred income taxes, an increase in gas
inventory of approximately $470,000 and an increase in accounts receivable of
approximately $80,000.  Cash used in investing activities was approximately
$3,989,000 for fiscal 1996, as compared to $4,274,000 for fiscal 1995.  Capital
expenditures for fiscal 1996 was approximately $4,591,000, primarily due to
system expansion in Payson, Arizona and all other areas and continued expansion
of the West Yellowstone system.  Partially offsetting these capital expenditures
were proceeds received from a sale lease back in Payson, Arizona of
approximately $525,000, proceeds from the sale of property, plant and equipment
of $27,000 and proceeds from contributions in aid of construction of
approximately $63,000.


                                          29
<PAGE>

    The Company generated net cash from operating activities for fiscal 1995 of
approximately $3,605,000 as compared to $2,837,000 for fiscal 1994.  This change
from fiscal 1994 is attributed to a $162,000 increase in net income, $249,000
increase in depreciation and amortization, $92,000 cumulative effect of an
accounting change and other miscellaneous working capital changes, offset by
approximately $302,000 decrease in deferred income taxes.  Cash used in
investing activities was approximately $4,274,000 for fiscal 1995, as compared
to $1,817,000 for fiscal 1994.  Capital expenditures for fiscal 1995 was
approximately $4,700,000, primarily due to system expansion in all areas and
construction of the West Yellowstone system.  Partially offsetting these capital
expenditures were proceeds received from a restricted deposit from the Series
1992A bonds deposited in a construction fund, drawn for specific capital
projects in the Great Falls division of approximately $205,000, proceeds from
the sale of property, plant and equipment of $80,000, proceeds from collection
of long-term notes receivable of $79,000 and proceeds from contributions in aid
of construction of $81,000.

    Capital expenditures of the Company are primarily for expansion and
improvement of its gas utility properties.  To a lesser extent, funds are also
expended to meet the equipment needs of the Company's operating subsidiaries and
to meet the Company's administrative needs.  The Company's capital expenditures
were approximately $4.6 million in fiscal 1996 and approximately $4.7 million
for fiscal 1995 and $2.6 million in fiscal 1994, including RMF's expenditures
for the acquisition of propane operations.  During fiscal 1996, approximately
$1.3 million has been expended for the construction of the natural gas system in
West Yellowstone, Montana and approximately $1 million had been expended for gas
system expansion projects for new subdivisions in the Broken Bow division's
service area and approximately $350,000 for additions to the office and the east
storage site of Petrogas in Payson, Arizona.  Capital expenditures are expected
to be approximately $3.6 million  in fiscal 1997, including approximately $1.4
million for continued expansion  for the Broken Bow division, with the balance
for maintenance and other special system expansion projects in the Great Falls
and Cody divisions.  The Company continues to evaluate opportunities to expand
its existing businesses from time to time.

    The major factors which will affect the Company's future results include
general and regional economic conditions, weather, customer retention and
growth, the ability to meet competitive pressures and to contain costs, changes
in the competitive environment in the Company's non-regulated segment, the
adequacy and timeliness of rate relief, cost recovery and necessary regulatory
approvals, and continued access to capital markets.

    The regulatory structure which has historically embraced the gas industry
has been in the process of transition.  Legislative and regulatory initiatives,
at both the federal and state levels, are designed to promote competition and
will continue to impose additional pressure on the Company's ability to retain
customers and to maintain current rate levels.  The changes in the gas industry
have allowed commercial and industrial customers to negotiate their own gas
purchases directly with producers or brokers.  To date, the changes in the gas
industry have not had a negative impact on earnings or cash flow of the
Company's regulated segment.


                                          30
<PAGE>

    The accounts and rates of the Company's regulated segment are subject, in
certain respects, to the requirements of the Montana, Wyoming and Arizona public
utilities commissions.  As a result, the Company's regulated segment maintains
its accounts in accordance with the requirements of those regulators.  The
application of generally accepted accounting principles by the Company's
regulated segments differ in certain respects from application by the
non-regulated segment and other non-regulated businesses.  The regulated segment
prepares its financial statements in accordance with Statement of Accounting
Standards No. 71 --"Accounting for the Effects of Certain Types of Regulation"
(SFAS 71).  In general, SFAS 71 recognizes that accounting for rate-regulated
enterprises should reflect the relationship of costs and revenues.  As a result,
a regulated utility may defer recognition of cost (a regulatory asset) or
recognize an obligation (a regulatory liability) if it is probable that, through
the rate-making process, there will be a corresponding increase or decrease in
revenues.  Accordingly, the Company has deferred certain costs, which will be
amortized over various periods of time.  The costs deferred are further
described in the Company's financial statements and the notes thereto.  To the
extent that collection of such costs or payment of liabilities is no longer
probable as a result of changes in regulation and/or the Company's competitive
position, the associated regulatory asset or liability will be reversed with a
charge or credit to income.  If the Company's regulated segment were to
discontinue the application of SFAS 71, the accounting impact would be an
extraordinary, non-cash charge to operations that could be material to the
financial position and results of operation of the Company.  However, the
Company is unaware of any circumstances or events in the foreseeable future that
would cause it to discontinue the application of SFAS 71.

    Information on the sources and uses of cash for the Company is included in
the Consolidated Statements of Cash Flows on page 22 of the Company's 1996
Annual Report.

SEC Ratio of Earnings to Fixed Charges
    For the twelve months ended June 30, 1996, 1995 and 1994, the Company's
ratio of earnings to fixed charges was 2.42, 2.93 and 2.64 times, respectively.
Fixed charges include interest related to long-term debt, short-term borrowing,
certain lease obligations and other current liabilities.

Inflation
    Capital intensive businesses, such as the Company's natural gas operations,
are significantly affected by long-term inflation.  Neither depreciation charges
against earnings nor the rate-making process reflect the replacement cost of
utility plant. However, based on past practices of regulators, these businesses
will be allowed to recover and earn on the actual cost of their investment in
the replacement or upgrade of plant.  Although prices for natural gas may
fluctuate, earnings are not impacted because gas cost tracking procedures
semi-annually balance gas costs collected from customers with the costs of
supplying natural gas. The Company believes that the effects of inflation, at
currently anticipated levels, will not significantly affect results of
operations.


                                          31
<PAGE>

Accounting for Income Taxes
    In February 1992 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards "SFAS") No. 109, "Accounting for
Income Taxes." SFAS No.109 retains the current requirement to record deferred
income taxes for temporary differences that are reported in different years for
financial reporting and tax purposes; however, the methodology for calculating
and recording deferred income taxes has changed.  Under the liability method
adopted by SFAS No. 109, deferred tax liabilities or assets are computed using
the tax rate that will be in effect when the temporary differences reverse.
However, the changes in tax rates applied to accumulated deferred income taxes
may not be immediately recognized in operating results by regulated companies
because of rate-making treatment and provisions in the Tax Reform Act of 1986.
Effective July 1, 1993, the Company changed its method of accounting for income
taxes from the deferred method to the liability method required by SFAS No. 109.
As permitted under the new rules, prior year's financial statements have not
been restated.  For regulated operations, the cumulative effect of this change
in accounting method on July 1, 1993 resulted in the recording of a regulatory
asset of approximately $601,000 and a regulatory liability of approximately
$205,000.  For nonregulated operations, the cumulative effect of this change in
accounting method on July 1, 1993 was to increase net income by approximately
$92,000.

Postretirement Benefits Other Than Pensions
    The Company adopted, effective July 1, 1993, SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."  This standard
requires that the projected future cost of providing postretirement benefits be
recognized as an expense as employees render service rather than when paid.
Effective for fiscal year 1994, the Company modified its plan for these benefits
and has elected to pay eligible retirees (post 65 years of age) $125 per month
in lieu of contracting for health and life insurance benefits.  The amount of
this payment is fixed and will not increase with medical trends or inflation.
The Company made a change to the plan, effective July 1, 1996 allowing pre-65
retirees and their spouses to remain on the same medical plan as active
employees by contributing 125% of the current COBRA rate to retain this
coverage.  The increased liability from this change is $269,200.  The Company
expects regulators in Montana and Wyoming to allow recovery of the additional
costs associated with the plan change. The adoption of SFAS No. 106 did not have
a significant effect upon results of operations.  See Note 4 to the Consolidated
Financial Statement for additional information.



                                          32
<PAGE>

Environmental Issues
    The Company owns property on which it operated a manufactured gas plant 
from 1909 to 1928.  The site is currently used as a service center for the 
Company where certain equipment and materials owned by the Company are 
stored. The coal gasification process utilized in the plant resulted in the 
production of certain by-products which have been classified by the federal 
government and the State of Montana as hazardous to the environment.  Several 
years ago the Company initiated an assessment of the site to determine if 
remediation of the site was required.  That assessment resulted in a 
submission of a report to the Montana Department of Environmental Quality 
(MDEQ) in 1994.  The Company has worked with the MDEQ since that time  obtain 
the data that would lead to a remediation acceptable to MDEQ.  The Company's 
environmental consultant advises the Company that it expects to have a 
report, which will include remediation recommendations, filed with the MDEQ 
by approximately mid-summer of 1997.  MDEQ would then provide an opportunity 
for public comment on the remediation plan.  Once the comment period has 
ended and due consideration of any comments occurs, the plan can be 
finalized. Assuming acceptance of the plan, remediation could be underway by 
the fall of 1998.

    At June 30, 1996 the Company's costs incurred in evaluating this site 
have totalled approximately $320,000.  On May 30, 1995 the Company received 
an order from the Montana Public Service Commission allowing for a surcharge 
on customer bills in conntection with the costs associated with evalution of 
the site. As of June 30, 1996 the surcharge had generated approximately 
$214,000. The Commission's order calls for ongoing review by the Commission 
of the costs incurred for this matter by periodic approvals of the costs 
incurred for this matter.

Subsequent Event
    In August, 1995, the Company announced that it had signed a letter of
intent and a definitive agreement to purchase the assets of Jackson Vangas in
Jackson, Wyoming, for approximately $1,000,000, from Quantum Chemical (Suburban
Propane Division) of Whippany, New Jersey.  Jackson Vangas operates a propane
vapor system which serves approximately 500 customers in and around Jackson,
Wyoming, a city of approximately 5,000 people.  In December, 1995, the Wyoming
Public Service Commission granted a natural gas franchise to a competing
utility, which now serves electricity in the Jackson Hole area. Since the
definitive agreement is contingent upon the approval of the Wyoming Public
Service Commission to grant ENERGY WEST a natural gas franchise to serve the
Jackson Hole area, that agreement has now become nullified.  The costs of the
Jackson project were written off through March 31, 1996 of approximately
$113,000, which reduced earnings by approximately $.03 per share.

    In June, 1996, the Great Falls division filed a rate adjustment application
with the Montana Public Service Commission of approximately $386,000, to recover
increased gas supply costs, as part of an annual filing made by the Great Falls
division to balance gas supply costs against gas revenues.  This filing does not
increase the Great Falls division's margins.

    In July, 1996, the Great Falls division file a general rate increase with
the Montana Public Service Commission for approximately $963,000, which reflects
increased operating, maintenance and depreciation costs as well as a change in
the cost of capital.  The Great Falls division has applied for interim rate
relief of approximately $530,000 and the division expects interim relief no
later than November, 1996.  If the Montana Public Service Commission approves
the Great Falls division's rate filing, the impact of rate relief would increase
earnings per share on an annual basis of approximately $.26 per share and would
increase fiscal 1997 earnings by approximately $.07 per share. The Rate Hearing
will be held in late fiscal 1997.

                                          33
<PAGE>

Item 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                       Report of Independent Auditors

The Board of Directors
Energy West Incorporated

We have audited the accompanying consolidated balance sheets of Energy West
Incorporated and Subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 1996.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Energy West
Incorporated and subsidiaries at June 30, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles.

As described in Notes 4 and 5 to the consolidated financial statements, the
Company changed its method of accounting for postretirement benefits other than
pensions and for income taxes, respectively, in 1994.

As described in Note 1 to the consolidated financial statements, the Company has
restated its fiscal 1996 consolidated financial statements to reflect the
deferral of the gain on sale-leaseback  of assets totalling $140,000 net of tax.
                                                       \s\ ERNST & YOUNG  LLP

Denver, Colorado
August 15, 1996

                                       34
<PAGE>

                    Energy West Incorporated and Subsidiaries

                           Consolidated Balance Sheets


                                                            JUNE 30
                                                      1996           1995
                                                  -------------------------
                                                    [RESTATED]
 ASSETS
 Current assets:
   Cash and cash equivalents                      $  721,093     $  356,200

   Temporary cash investments (at cost which
     approximates market)                                  -         59,556
    Marketable equity securities                     172,208        151,250

   Accounts receivable, less allowances for
     uncollectible accounts of $208,106 ($191,168
     at June 30, 1995)                             3,486,328      3,042,603
   Natural gas and propane inventory               2,200,778      1,686,704
   Materials and supplies                            543,316        458,596
   Prepayments and other                             602,427         59,761
   Refundable income tax payments                    412,662        241,798
   Recoverable costs of gas purchases                953,392        125,410
   Deferred income taxes--current                          -         81,398
                                                  -------------------------
Total current assets                               9,092,204      6,263,276

Investments                                           12,476         12,476

Notes receivable due after one year                    9,190         15,984

Property, plant and equipment                     43,919,358     39,697,080
Less accumulated depreciation and amortization    17,829,528     16,146,743
                                                  -------------------------
Net property, plant and equipment                 26,089,830     23,550,337

Deferred charges:
   Net unamortized debt issue costs                  974,876      1,042,155
   Regulatory assets for income taxes                443,918        519,484
   Unrecognized postretirement obligation            332,800        352,380
   Other                                             539,379        618,689
                                                  -------------------------
Total deferred charges                             2,290,973      2,532,708






                                                  -------------------------
     Total assets                                $37,494,673    $32,374,781
                                                  -------------------------
                                                  -------------------------

                                       35
<PAGE>

                    Energy West Incorporated and Subsidiaries

                           Consolidated Balance Sheets





                                                            JUNE 30
                                                       1996           1995
                                                    ---------------------------
                                                    [RESTATED]
     CAPITALIZATION AND LIABILITIES
     Current liabilities:
     Long-term debt due within one year                $  348,044    $  365,833
     Notes payable                                      7,175,000     2,620,000
     Accounts payable--gas purchases                    1,226,508     1,535,736
     Accounts payable--other                              826,885       735,810

     Payable to employee benefit plans                    508,890       443,430
     Accrued vacation                                     327,897       267,350
     Other current liabilities                            420,954       817,834
     Deferred income taxes--current                       253,385             -
                                                    ---------------------------
     Total current liabilities                         11,087,563     6,785,993

     Other:
     Deferred Income Taxes                              2,700,184     2,674,928
     Deferred investment tax credits                      502,841       523,903
     Contributions in aid of construction                 834,917       771,702
     Accumulated postretirement obligation                507,386       467,274
     Regulatory liability for income taxes                162,121       176,530
     Deferred gain on sale-leaseback of assets            236,291             -
     Other                                                 17,799         6,736
                                                    ---------------------------
     Total other                                        4,961,539     4,621,073

     Long-term debt (less amounts due
     within one year)                                  10,045,714    10,434,957

     Commitments and contingencies (NOTE 10)

     Stockholders' equity:
   Preferred stock - $.15 par value:
     Authorized - 1,500,000 shares;
      Outstanding - none                                        -             -

   Common stock - $.15 par value:
     Authorized - 3,500,000 shares; Outstanding
     - 2,321,314 shares (2,254,138 shares at
     June 30, 1995)                                       348,198       338,121
     Capital in excess of par value                     2,635,540     2,117,730
     Retained earnings                                  8,416,119     8,076,907
                                                    ---------------------------
Total stockholders' equity                             11,399,857    10,532,758
                                                    ---------------------------
              Total Capitalization                     21,445,571    20,967,715
                                                    ---------------------------
              Total capitalization and liabilities    $37,494,673   $32,374,781
                                                    ---------------------------
                                                    ---------------------------


     SEE ACCOMPANYING NOTES.

                                       36
<PAGE>

                    Energy West Incorporated and Subsidiaries

                        Consolidated Statements of Income




                                               YEAR ENDED JUNE 30
                                           1996           1995       1994
                                       ----------------------------------------
                                        [RESTATED]
   Operating revenue:

     Regulated utilities                $23,672,186   $24,363,446   $24,421,153
     Nonregulated operations              3,297,583     2,946,114     2,961,433
     Gas trading                          4,348,239     3,238,839     1,964,866
                                       ----------------------------------------
   Total operating revenue               31,318,008    30,548,399    29,347,452

   Operating expenses:
     Gas purchased                       14,972,454    16,116,688    16,742,903
     Cost of gas trading                  3,751,053     2,500,363     1,667,182
     Distribution, general and
      administrative                      6,924,391     6,379,651     5,979,621
     Maintenance                            408,590       306,077       330,762
     Depreciation and amortization        1,667,256     1,558,755     1,464,078
     Taxes other than income                629,428       594,569       527,142
                                       ----------------------------------------
   Total operating expenses              28,353,172    27,456,103    26,711,688
                                       ----------------------------------------
   Operating income                       2,964,836     3,092,296     2,635,764

   Other income, net                        214,902       174,878       199,014
                                       ----------------------------------------
   Income before interest charges and
     income taxes                         3,179,738     3,267,174     2,834,778

   Interest charges:
     Long-term debt                         709,872       735,813       741,866
     Short-term and other                   532,866       202,770       220,317
                                       ----------------------------------------
   Total interest charges                 1,242,738       938,583       962,183
                                       ----------------------------------------

   Income before income taxes             1,937,000     2,328,591     1,872,595
   Provision for income taxes               670,025       815,688       613,964
                                       ----------------------------------------
   Income before cumulative effect of
     change in accounting principle       1,266,975     1,512,903     1,258,631
   Cumulative effect on prior years of
     change in accounting for income
      taxes                                       -             -        92,365
                                       ----------------------------------------
   Net income                            $1,266,975  $  1,512,903  $  1,350,996
                                       ----------------------------------------
                                       ----------------------------------------

   Income per share of common
     equivalent stock:
       Income before cumulative effect
         of change in accounting
         principle                             $.55          $.68          $.57
       Cumulative effect of change in
         accounting for income taxes              -             -           .04
                                       ----------------------------------------
   Net income per common share                 $.55          $.68          $.61
                                       ----------------------------------------
                                       ----------------------------------------


SEE ACCOMPANYING NOTES.

                                       37
<PAGE>

                    Energy West Incorporated and Subsidiaries

                 Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>

                                                                               Capital in
                                                                    Common     Excess of     Retained
                                                                    Stock      Par Value     Earnings        Total
                                                                   -----------------------------------------------
<S>                                                                <C>        <C>          <C>         <C>
   Balance at June 30, 1993                                        $163,456   $1,720,240   $6,849,793   $8,733,489
     Exercise of stock options into 3,800 shares of
       common stock at $7.13 to $8.19 per share                         285       14,977            -       15,262
     Sale of 8,293 shares of common stock at $8.87
       per share under the Company's dividend
       reinvestment plan                                              1,244       72,313            -       73,557
     Net income for the year ended June 30, 1994                          -            -    1,350,996    1,350,996
     Common stock dividend, 2-for-1 stock split                     163,737     (163,737)           -            -
     Cash dividends on common stock--$.36 per share                       -            -     (780,342)    (780,342)
                                                                    ----------------------------------------------
   Balance at June 30, 1994                                         328,722    1,643,793    7,420,447    9,392,962
     Exercise of stock options into 14,410 shares of
       common stock at $4.94 to $8.75 per share                       2,161       78,318            -       80,479
     Sale of 36,720 shares of common stock at $7.50
       to $9.00 per share under the Company's
       dividend reinvestment plan                                     5,508      293,529            -      299,037
     Issuance of 11,535 shares of common stock to
       ESOP at estimated fair value of $9.00 per share                1,730      102,090            -      103,820
     Net income for the year ended June 30, 1995                          -            -    1,512,903    1,512,903
     Cash dividends on common stock--$.385 per
       share                                                              -            -     (856,443)    (856,443)
                                                                    ----------------------------------------------
   Balance at June 30, 1995                                         338,121    2,117,730    8,076,907   10,532,758
     Exercise of stock options into 13,680 shares of
       common stock at $4.875 to $7.125 per share                     2,052       72,918            -       74,970
     Sale of 37,611 shares of common stock at $8.00
       to $9.50 per share under the Company's
       dividend reinvestment plan                                     5,642      320,158            -      325,800
     Issuance of 15,889 shares of common stock to
       ESOP at estimated fair value of $8.00 per share                2,383      124,734            -      127,117
     Net income for the year ended June 30, 1996                          -            -    1,266,975    1,266,975
     Cash dividends on common stock-- $.405 per
       share                                                              -            -     (927,763)    (927,763)
                                                                    ----------------------------------------------
   Balance at June 30, 1996                                        $348,198   $2,635,540   $8,416,119  $11,399,857
                                                                    ----------------------------------------------
                                                                    ----------------------------------------------

</TABLE>

SEE ACCOMPANYING NOTES.

                                       38
<PAGE>

                    Energy West Incorporated and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                         YEAR ENDED JUNE 30
                                                                    1996         1995        1994
                                                                 ------------------------------------
                                                                 [RESTATED]
<S>                                                              <C>         <C>          <C>
OPERATING ACTIVITIES
Net income                                                       $1,266,975  $ 1,512,903  $ 1,350,996
Adjustments to reconcile net income
   to cash flow from operations:
     Depreciation and amortization                                1,833,511    1,777,559    1,529,310

     (Gain) on sale of assets                                       (11,406)      (4,174)     (25,276)
     Investment tax credit                                          (21,062)     (21,062)     (21,062)
     Deferred income taxes                                          399,205        4,197      306,026
     Cumulative effect of change in
      accounting method                                                   -            -       92,365
     Changes in operating assets and
      liabilities:
        Accounts receivable                                        (443,725)    (415,072)      92,638
        Natural gas and propane
         inventory                                                 (514,074)    (987,081)     506,099
        Accounts payable                                           (218,153)     778,999     (616,316)
        Recoverable costs of gas
         purchases                                                 (827,982)     275,556     (134,502)
        Prepaid gas                                                (523,212)           -            -
        Other assets and liabilities                               (333,878)     682,896     (243,278)
                                                                 ------------------------------------  
Net cash provided by operating activities                           606,199    3,604,721    2,837,000

INVESTING ACTIVITIES
Construction expenditures                                        (4,590,609)  (4,705,868)  (2,626,221)
Restricted deposit                                                        -      204,550      619,367
Increase in marketable equity
   securities                                                       (20,958)     (12,171)      (7,911)
Proceeds from sale of assets                                        552,160       79,749       64,820
Collection of long-term notes
   receivable                                                         6,794       78,737       36,526
Proceeds from contributions in aid
   of construction                                                   63,215       81,177       88,276
                                                             ----------------------------------------
Net cash used in investing activities                            (3,989,398)  (4,273,826)  (1,825,143)


</TABLE>

                                                                 39
<PAGE>

                                  Energy West Incorporated and Subsidiaries

                              Consolidated Statements of Cash Flows (continued)

<TABLE>
<CAPTION>
                                                                            YEAR ENDED JUNE 30
                                                                      1996         1995            1994
                                                               -------------------------------------------
                                                                   [RESTATED]
<S>                                                            <C>             <C>               <C>
   FINANCING ACTIVITIES
   Proceeds from long-term debt                                 $          -   $    117,808      $  20,000
   Debt issuance and reacquisition costs                                   -              -        (65,000)
   Payment of long-term debt                                        (407,032)      (335,000)      (333,872)
   Proceeds from notes payable                                    20,965,000     19,926,854     17,428,000
   Repayment of notes payable                                    (16,410,000)   (18,625,000)   (17,491,000)
   Sale of common stock                                               74,970         80,479         15,262
   Dividends paid                                                   (474,846)      (453,586)      (706,785)
                                                                 -----------------------------------------
   Net cash provided by (used in)
     financing activities                                          3,748,092        711,555     (1,133,395)
                                                                 -----------------------------------------

   Net increase (decrease) in cash and
     cash equivalents                                                364,893         42,450       (121,538)
   Cash and cash equivalents at
     beginning of year                                               356,200        313,750        435,288
                                                                 -----------------------------------------
   Cash and cash equivalents at
     end of year                                                 $   721,093     $  356,200     $  313,750
                                                                 -----------------------------------------
                                                                 -----------------------------------------

   Supplemental disclosures of cash
     flow information:
       Cash paid for:
        Interest                                                 $ 1,242,035    $   942,221     $  932,159
        Income taxes                                                 498,461        870,327        369,000

     Noncash financing activities:
        Dividend reinvestment plan                                   325,800        299,037         73,557
        ESOP shares issued                                           127,117        103,820              -


SEE ACCOMPANYING NOTES.

</TABLE>

                                       40

<PAGE>

                    Energy West Incorporated and Subsidiaries

                   Notes to Consolidated Financial Statements

                                  June 30, 1996


1. PRINCIPAL ACCOUNTING POLICIES

GENERAL

Energy West Incorporated ("the Company") operates principally in a single
business segment as a distributor of natural gas and propane to residential and
commercial customers.  Natural gas and propane vapor distribution operations
(regulated utilities) are regulated by the Montana Public Service Commission
("MPSC"), the Wyoming Public Service Commission ("WPSC") and the Arizona
Corporation Commission.  Accordingly, most of the Company's accounting policies
are subject to the requirements set forth in the Federal Energy Regulatory
Commission's Uniform System of Accounts.  In some cases, because of the rate
making process, these accounting policies differ from those used by nonregulated
operations.  Bulk propane distribution is a nonregulated operation.

CONSOLIDATED SUBSIDIARIES

The Company's wholly-owned nonregulated subsidiaries, Energy West Resources,
Inc. ("EWR") (formerly Vesta, Inc.), Montana Sun, Inc. ("Montana Sun") and Rocky
Mountain Fuels, Inc. ("RMF"), are included in the consolidated financial
statements.  The results of operations of these subsidiaries constitute all of
the Company's nonregulated operations. All significant intercompany accounts and
transactions have been eliminated in consolidation.

EWR's activities include a gas marketing operation and oil and gas exploration
and development.  Its principal assets are capitalized oil and gas development
costs, storage field costs and equipment, and inventory.  EWR currently markets
gas to large industrial customers (businesses using over 60,000 Mcf of natural
gas annually).

Montana Sun's operating activities consist of commercial real estate
development.  Its significant assets consist of real estate held for future
sale.

RMF began operations in fiscal 1992 following the Company's acquisition of the
assets and operations of six Wyoming propane distribution entities.  In fiscal
1993 these operations were expanded through the acquisition of an Arizona
propane distribution entity.  Principal assets of RMF include bulk storage and
customer tanks, delivery trucks and related equipment.

                                       41

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

NATURAL GAS AND PROPANE INVENTORY

Natural gas inventory and propane inventory are stated at the lower of weighted
average cost or net realizable value.

RECOVERABLE COSTS OF GAS PURCHASES

Differences between the costs of gas approved by regulators in the Company's
rate structure and actual gas costs are accounted for as a current asset or
liability, as applicable.  These differences are recovered or refunded, as
applicable, in future periods by adjustment of the Company's rates.

PROPERTY, PLANT AND EQUIPMENT

Additions to property, plant and equipment are recorded at original cost when
placed in service.  Depreciation and amortization are recorded on a
straight-line basis over estimated useful lives or the units-of-production
method, as applicable, at various rates averaging approximately 3.93%, 4.15% and
4.32% during the years ended June 30, 1996, 1995 and 1994, respectively. During
the fourth quarter of 1996, the estimated useful lives for certain propane
properties were increased from twelve and fifteen years to twenty years to
better reflect their estimated useful lives.  This change in estimate reduced
depreciation expense by approximately $83,000 in 1996.

OIL AND GAS ACTIVITIES

Oil and gas operations are accounted for under the successful efforts method.
Exploratory drilling costs are capitalized pending determination of proved
reserves; all other exploration costs are expensed.  All development and lease
acquisition costs are capitalized.  Provision for depreciation and amortization,
including estimated future

                                       42

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

dismantlement and restoration costs, is determined on a field-by-field basis
using the units-of-production method.  When properties are sold, the asset cost
and related accumulated depreciation and amortization are eliminated, with any
gain or loss reflected in income.

MARKETABLE EQUITY SECURITIES

Marketable equity securities are classified as available for sale securities.

GAS TRADING

The Company's business activities include the buying and selling of natural gas.
The Company recognizes revenue and costs on gas trading transactions when gas is
delivered to the purchaser.

DEBT ISSUANCE AND REACQUISITION COSTS

Debt premium, discount and issuance expenses are amortized over the life of each
issue. Debt reacquisition costs for refinanced debt are amortized over the
remaining life of the new debt.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For purposes of these statements, all highly liquid investments with original
maturities of three months or less are considered to be cash equivalents.

FINANCIAL INSTRUMENTS

All of the Company's financial instruments requiring fair value disclosure were
recognized in the consolidated balance sheet as of June 30, 1996.  Except for
long-term debt, their carrying values approximate the estimated fair values.
Descriptions of the methods and assumptions used to reach this conclusion are as
follows:

          Cash, temporary cash investments, accounts receivable, accounts
     payable, and payable to employee benefit plans:  These financial
     instruments have short maturities, or are invested in financial
     instruments with short maturities.

                                      43

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)



1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

     Notes receivable:  These notes generally relate to energy conservation
     incentive programs, some of which bear favorable interest rates
     compared to market for similar risks.  However, due to the relatively
     small balances of these notes, any differences between carrying value
     and fair value are immaterial.

     Notes payable:  Represent lines of credit, with maturities of a year
     or less, bearing interest at current market rates.

The fair value of the Company's long-term debt, based on quoted market prices
for the same or similar issues, is approximately 99% of the carrying value.

EARNINGS PER SHARE

Earnings per common share were computed based on the weighted average number of
common shares outstanding and common stock equivalents, if dilutive.

The weighted average number of such shares at June 30 was 2,298,734 in 1996,
2,235,413 in 1995, and 2,205,050 in 1994.

NEW ACCOUNTING STANDARDS

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, effective for
financial statements for fiscal years beginning after December 15, 1995.  SFAS
No. 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable, and long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less cost
to sell.  SFAS No. 121 also establishes the procedures for review of
recoverability, and measurement of impairment if necessary, of long-lived assets
and certain identifiable intangibles to be held and used by an entity.  The
financial effects of adopting the new standard are not expected to be material
to the Company's financial position or operations.

                                      44

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, was issued in October
1995. This standard addresses the timing and measurement of stock-based
compensation expense. The Company has elected to retain the approach of
Accounting Principles Board Opinion ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES (the intrinsic value method), for recognizing stock-based expense
in the consolidated financial statements. The Company will adopt SFAS No. 123 in
1997 with respect to the disclosure requirements set forth therein for companies
retaining the intrinsic value approach of APB No. 25.

EFFECTS OF REGULATION

The regulatory structure which has historically embraced the gas industry has
been in the process of transition.  Legislative and regulatory initiatives, at
both the federal and state levels, are designed to promote competition and will
continue to impose additional pressure on the Company's ability to retain
customers and to maintain current rate levels.  The changes in the gas industry
have allowed commercial and industrial customers to negotiate their own gas
purchases directly with producers or brokers.  To date, the changes in the gas
industry have not had a negative impact on earnings or cash flow of the
Company's regulated segment.

The accounts and rates of the Company's regulated segment are subject, in
certain respects, to the requirements of the Montana, Wyoming and Arizona public
utilities commissions.  As a result, the Company's regulated segment maintains
its accounts in accordance with the requirements of those regulators.  The
application of generally accepted accounting principles by the Company's
regulated segments differ in certain respects from application by the
non-regulated segment and other non-regulated businesses.  The regulated segment
prepares its financial statements in accordance with Statement of Accounting
Standards No. 71 -- "Accounting for the Effects of Certain Types of Regulation"
(SFAS 71).  In general, SFAS 71 recognizes that accounting for rate-regulated
enterprises should reflect the relationship of costs and revenues.  As a result,
a regulated utility may defer recognition of cost (a regulatory asset) or
recognize an obligation (a regulatory liability) if it is probable that, through
the rate-making process, there will be a corresponding increase or decrease in
revenues.  Accordingly, the Company has deferred certain costs, which will be
amortized over various periods of time.  The costs deferred are further
described in the Company's financial statements and the notes thereto.  To the
extent that collection of such costs or payment of liabilities is no longer
probable as a result of changes in regulation and/or the Company's competitive
position, the associated regulatory asset or liability will be reversed with a
charge or credit to income.  If the Company's regulated segment were to
discontinue the application of SFAS 71, the accounting impact would be an
extraordinary, non-cash charge to operations that could be material to the
financial position and results of operation of the Company.

                                      45

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

EFFECTS OF REGULATION (CONTINUED)

However, the Company is unaware of any circumstances or events in the
foreseeable future that would cause it to discontinue the application of SFAS
71.

All  regulatory assets have been formally approved by the applicable regulator,
although other than environmental cleanup costs, no return on assets is allowed
by the regulators.

The Company uses the lives for depreciation as defined by the regulators which
approximates the economic lives for GAAP.

PRIOR PERIOD ADJUSTMENT

The Company has restated its previously issued fiscal 1996 financial statements
to reflect the deferral of the gain on sale-leaseback of assets totalling
$236,000 (see Note 9).  The gain will be amortized ratably into income over the
initial ten-year lease term.  The effect on previously reported retained
earnings as of June 30, 1996 and results of operations for the year ended June
30, 1996, are as follows:

Net income:
     As previously reported             $1,407,366
     As restated                        $1,266,975

Net income per  common share:
     As previously reported             $.61
     As restated                        $.55

Retained earnings:
     As previously reported             $8,556,510
     As restated                        $8,416,119


                                      46

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)


1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATIONS

Certain reclassifications have been made to the fiscal 1995 and 1994
consolidated financial statements to conform to the fiscal 1996 presentation.

2. NOTES PAYABLE

At June 30, 1996, the Company maintained a line of credit totaling $11,000,000
with interest calculated at prime less 1/4 percent.  A total of $7,175,000,
$2,620,000 and $1,275,000 had been borrowed under line of credit agreements at
June 30, 1996, 1995, and 1994, respectively.  Borrowings on lines of credit,
based upon daily loan balances, averaged $6,166,380, $2,397,175 and $2,369,671
during the years ended June 30, 1996, 1995 and 1994, respectively.  The maximum
borrowings outstanding on this line at any month end were $9,415,000, $4,983,000
and $4,267,000 during these same periods.  The daily weighted average interest
rate was 8.5%, 8.2% and 6.4% for the years ended June 30, 1996, 1995 and 1994,
respectively.  This line of credit expires January 15, 1997.   Management
expects this line of credit to be renewed for another year.

                                      47

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




3. LONG-TERM DEBT OBLIGATIONS

Long-term debt consists of the following:

                                                              JUNE 30
                                                       1996             1995
                                                  -----------------------------

Series 1993 notes payable                          $ 7,800,000      $ 7,800,000
     Industrial development revenue obligations:
          Series 1992A                                 935,000        1,200,000
          Series 1992B                               1,635,000        1,690,000
     Other                                              23,758          110,790
                                                  -----------------------------
     Total long-term obligations                    10,393,758       10,800,790
     Less portion due within one year                  348,044          365,833
                                                  -----------------------------
     Long-term obligations due after one year      $10,045,714      $10,434,957
                                                  -----------------------------
                                                  -----------------------------

SERIES 1993 NOTES PAYABLE

On June 24, 1993, the Company issued $7,800,000 of Series 1993 unsecured notes
bearing interest at rates ranging from 6.20% to 7.60% (6.20% at June 30, 1996),
payable semiannually on June 1 and December 1 of each year, commencing on
December 1, 1993.  Maturity dates begin in 1999 and extend to 2013.  At the
Company's option, beginning June 1, 2003, notes maturing subsequent to 2003 may
be redeemed prior to maturity, in whole or part, at redemption prices declining
from 104% to 100% of face value, plus accrued interest.

INDUSTRIAL DEVELOPMENT REVENUE OBLIGATIONS

On September 15, 1992, Cascade County, Montana (the County) issued two
Industrial Development Revenue Obligations, the Series 1992A Bonds for
$1,700,000 and Series 1992B Bonds for $1,800,000.  The Series 1992A and Series
1992B Bonds are unsecured; however, loan agreements are maintained with the
Company in the same amounts.  Both the Series 1992A and Series 1992B Bonds
require annual principal payments on October 1 and semiannual interest payments
on April 1 and October 1 of each year beginning in 1993.  The Series 1992A Bonds
have a final maturity in 1999 and bear interest at rates ranging from 3.25% to
5.30%.  The Series 1992B bonds have a final maturity in 2012 and bear interest
at rates ranging from 3.35% to 6.50%.

                                      48

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




3. LONG-TERM DEBT OBLIGATIONS (CONTINUED)

AGGREGATE ANNUAL MATURITIES

<TABLE>
<CAPTION>

                                                                    IDR OBLIGATIONS                                         
        FISCAL                          SERIES                ---------------------------                                  TOTAL
      YEAR ENDING                        1993                 SERIES               SERIES                                LONG-TERM
        JUNE 30                          NOTES                 1992A               1992B            OTHER               OBLIGATIONS
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                   <C>                <C>              <C>                   <C>
     1997                               $        -            $280,000           $  60,000        $  8,044              $  348,044
     1998                                        -             295,000              60,000           6,959                 361,959
     1999                                  165,000             175,000              65,000           8,032                 413,032
     2000                                  175,000             185,000              70,000             723                 430,723
     2001                                  370,000                   -              75,000               -                 445,000
     Thereafter                          7,090,000                   -           1,305,000               -               8,395,000
                                        -------------------------------------------------------------------------------------------
                                         7,800,000             935,000           1,635,000          23,758              10,393,758
     Less current portion                        -             280,000              60,000           8,044                 348,044
                                        -------------------------------------------------------------------------------------------
                                        $7,800,000            $655,000          $1,575,000         $15,714             $10,045,714
                                        -------------------------------------------------------------------------------------------
                                        -------------------------------------------------------------------------------------------
</TABLE>


The Company's long-term debt obligation agreements contain various covenants
including:  limiting total dividends and distributions made in the immediately
preceding 60-month period to aggregate consolidated net income for such period,
restricting senior indebtedness, limiting asset sales, and maintaining certain
financial debt and interest ratios.

4. RETIREMENT PLANS

The Company has a defined contribution pension plan (the Plan) which covers
substantially all of the Company's employees.  Under the Plan, the Company
contributes 10% of each participant's eligible compensation.  Total
contributions to the Plan for the years ended June 30, 1996, 1995 and 1994 were
$383,018, $336,589 and $279,668, respectively.

The Company adopted, effective July 1, 1993, SFAS No. 106, EMPLOYERS' ACCOUNTING
FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS.  This standard requires that
the projected future cost of providing postretirement benefits be recognized as
an expense as employees render service rather than when paid.  Effective for
fiscal year 1994, the Company modified its plan for these benefits and has
elected to pay eligible retirees (post-65 years of age) $125 per month in lieu
of contracting for health and life insurance benefits.  The amount of this
payment is fixed and will not increase with medical trends or inflation.  The
Company's transition obligation at June 30, 1996 and 1995 was

                                      49

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)



4. RETIREMENT PLANS (CONTINUED)

$332,800 and $352,380, respectively, of which $288,600 in 1996 and $327,400 in
1995 related to the regulated utility operations.  The transition obligation was
accrued as a deferred charge and will be amortized over 20 years.  Substantially
all of the transition obligation is for the future cost of benefits to active
employees.

The incremental annual increases in consolidated expenses due to adoption of
SFAS No. 106 were $70,900 and $71,200 in fiscal years 1996 and 1995,
respectively.  Included in these amounts were $58,100 in 1996 and $62,600 in
1995 relating to regulatory operations.  The MPSC allowed recovery of these
costs beginning on July 1, 1995 for the utility operations in Montana.
Management believes it is probable that its regulators in Wyoming will allow
recovery of these costs based upon recent industry rate decisions addressing
this issue.  The Company has established a VEBA trust fund and is contributing
to that trust the annual expense of the plan.  The balance in that trust after
benefit payments in fiscal year 1996 is $61,750.

The Company made a change to the plan, effective July 1, 1996, allowing pre-65
retirees  and their spouses to remain on the same medical plan as active
employees by contributing 125% of the current COBRA rate to retain this
coverage.  The increased liability from this change is $269,200 and has been
reflected in the 1996 financial statements.  The Company expects regulators in
Montana and Wyoming to allow recovery of the additional costs associated with
the plan change.

                                      50

<PAGE>
                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




4. RETIREMENT PLANS (CONTINUED)

The following table presents the amounts recognized at June 30, 1996 and 1995 in
the consolidated financial statements.

                                                        1996       1995
                                                       ------------------
      Accumulated postretirement benefit obligation:
        Retirees                                       $128,500  $154,400
        Fully eligible active plan participants          80,500    53,700
        Other active plan participants                  522,900   259,174
                                                       ------------------
                                                       $731,900  $467,274
                                                       ------------------
                                                       ------------------

      Net periodic postretirement benefit cost:
        Service cost                                   $ 19,300  $ 19,400
        Interest cost                                    32,000    32,200
        Actual return on plan assets                     (1,500)        -
        Amortization of transition obligation            19,600    19,600
                                                       ------------------
      Net periodic postretirement benefit cost         $ 69,400  $ 71,200
                                                       ------------------
                                                       ------------------

The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation at June 30, 1996 was 7.5 percent.  The
weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 11.0 percent for the
1996-97 fiscal year and is assumed to decrease gradually to 5.5 percent after 6
years and remain at that level thereafter.  At June 30, 1995, the
weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent.  The weighted-average health
care cost trend rate was 12.5 percent for the 1995-96 fiscal year and was
assumed to decrease gradually to 6.5 percent after 7 years and remain at that
level thereafter.

The health care cost trend rate assumption has a significant effect on the
amounts reported.  For example, increasing the assumed health care cost trend
rate by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of June 30, 1996 by $45,700.  The aggregate
of interest and service cost for the year ended June 30, 1996 is not affected by
this increase due to the minimal number of retirees receiving benefits that are
not fixed and the large number of retirees receiving benefits that were not
affected by the trend rate during the 1995-96 fiscal year.

                                      51

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




5. INCOME TAX EXPENSE

Effective July 1, 1993, the Company changed its method of accounting for income
taxes from the deferred method to the liability method required by FASB
Statement No. 109, ACCOUNTING FOR INCOME TAXES.  As permitted under the new
rules, prior years' financial statements have not been restated.

The cumulative effect of adopting Statement No. 109 as of July 1, 1993 was to
increase net income by $92,365 for nonregulated operations and create a
regulatory asset of $600,867 and regulatory liability of $204,620 for regulated
operations.  The regulatory assets and liabilities represent the anticipated
effects on regulated rates charged to customers which will result from the
adoption of Statement No. 109.  For the year ended June 30, 1996, amortization
of certain liabilities resulted in a decrease in regulatory assets of $75,566
and in regulatory liabilities of $14,409 for regulated entities, resulting in
ending balances of $443,918 and $162,121, respectively.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

Significant components of the Company's deferred tax assets and liabilities as
of June 30, 1996 and 1995 are as follows:

                                                  1996            1995
                                                -------------------------
     Deferred tax assets:
       Allowance for doubtful accounts          $  54,065      $  55,987
       Unamortized investment tax credit          162,343        175,983
       Contributions in aid of construction       115,876        102,458
       Other nondeductible accruals               189,935        156,096
       Deferred gain on sale of assets             95,900              -
       Other                                       47,093         42,318
                                                -------------------------
     Total deferred tax assets                    665,212        532,842

                                      52

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

5. INCOME TAX EXPENSE (CONTINUED)

                                                           1996          1995
                                                        ------------------------
   Deferred tax liabilities:
     Customer refunds payable                           $  399,255     $  84,525
     Property, plant and equipment                       2,908,836     2,615,597
     Unamortized debt issue costs                          201,635       215,827
     Unamortized environmental study costs                       -       101,330
     Covenant not to compete                                89,041        93,283
     Other                                                  20,014        15,810
                                                        ------------------------
   Total deferred tax liabilities                        3,618,781     3,126,372
                                                        ------------------------
   Net deferred tax liabilities                         $2,953,569    $2,593,530
                                                        ------------------------
                                                        ------------------------

Income tax expense consists of the following:

                                                  YEAR ENDED JUNE 30
                                              1996           1995         1994
                                          -------------------------------------
   Current income taxes:
     Federal                              $244,777       $705,420     $490,698
     State                                  21,819        120,074       12,331
                                          -------------------------------------
   Total current income taxes              266,596        825,494      503,029
   Deferred income taxes (benefits):
     Tax depreciation in excess of book    341,217        179,794      139,564
     Book amortization in excess of tax    (35,958)       (56,981)     (73,435)
     Recoverable cost of gas purchases     322,479        (98,479)      86,341
     Environmental study cleanup costs           -         20,539       81,442
     Regulatory surcharges                 (44,830)             -            -
     Deferred Gain on sale of assets       (95,900)
     Other                                 (25,362)        17,813      (62,016)
                                          -------------------------------------
   Total deferred income taxes             461,646         62,686      171,896
   Investment tax credit, net              (21,062)       (21,062)     (21,062)
                                          -------------------------------------
   Total income taxes                     $707,180       $867,118     $653,863
                                          -------------------------------------
                                          -------------------------------------
   Income taxes--operations               $670,025       $815,688     $613,964
   Income taxes--other income               37,155         51,430       39,899
                                          -------------------------------------
   Total income taxes                     $707,180       $867,118     $653,863
                                          -------------------------------------
                                          -------------------------------------


                                      53

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)




5. INCOME TAX EXPENSE (CONTINUED)

Income tax expense from operations differs from the amount computed by applying
the federal statutory rate to pre-tax income for the following reasons:

                                              1996           1995         1994
                                          -------------------------------------
   Tax expense at statutory rate - 34%    $666,930       $799,582     $607,394
   State income tax, net of federal tax
    benefit                                 44,710         77,377       38,693
   Amortization of deferred investment
    tax credits                            (21,062)       (21,062)     (21,062)
   Other                                    16,602         11,221       28,838
                                          -------------------------------------
   Total income taxes                     $707,180       $867,118     $653,863
                                          -------------------------------------
                                          -------------------------------------
6. REGULATED AND NONREGULATED OPERATIONS

Summarized financial information for the Company's regulated utility and
nonregulated nonutility operations (before intercompany eliminations between

regulated and nonregulated primarily consisting of gas sales from nonregulated
to regulated entities, intercompany accounts receivable, accounts payable,
equity, and subsidiary investment) is as follows:

                                      54


<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

6. REGULATED AND NONREGULATED OPERATIONS (CONTINUED)


<TABLE>
<CAPTION>
                                                                                       JUNE 30, 1996
                                                                                       -------------
                                                                     REG.           NONREG.       ADJ.        CONSOL.
                                                                 --------------------------------------------------------
<S>                                                              <C>              <C>             <C>        <C>
CAPITAL EXPENDITURES                                             $3,910,000       $680,609                   $4,590,609
                                                                 --------------------------------------------------------
                                                                 --------------------------------------------------------


PROPERTY,PLANT AND EQUIPMENT, NET
       REGULATED UTILITIES                                      $22,362,130                                 $22,362,130
       NONREGULATED PROPANE                                                      2,971,174                    2,971,174
       OIL AND GAS OPERATIONS                                                      274,352                      274,352
       REAL ESTATE HELD FOR INVESTMENT                                             482,173             1        482,174
                                                                 --------------------------------------------------------
TOTAL P P & E                                                    22,362,130      3,727,699             1     26,089,830

CURRENT ASSETS                                                    7,663,566      2,385,186      (956,548)     9,092,204
OTHER ASSETS                                                      3,669,404        590,542    (1,947,307)     2,312,639
                                                                ---------------------------------------------------------


TOTAL ASSETS                                                    $33,695,100     $6,703,427   ($2,903,854)   $37,494,673
                                                                ---------------------------------------------------------
                                                                ---------------------------------------------------------

EQUITY                                                           $9,303,596     $3,168,260   $(1,071,999)   $11,399,857
LONG-TERM DEBT                                                    8,257,090      1,788,624                   10,045,714
CURRENT LIABILITIES                                              10,452,787      1,192,271      (557,495)    11,087,563
DEFERRED INCOME TAXES                                             3,207,968        270,816      (778,600)     2,700,184
OTHER LIABILITIES                                                 2,473,659        283,456      (495,760)     2,261,355
                                                                ---------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES                            $33,695,100     $6,703,427   ($2,903,854)   $37,494,673
                                                                ---------------------------------------------------------
                                                                ---------------------------------------------------------

                                                                                             JUNE 30,1995
                                                                                             ------------
                                                                    REG.          NONREG.        ADJ.         CONSOL.
                                                                ---------------------------------------------------------

CAPITAL EXPENDITURES                                             $3,933,828       $772,040                   $4,705,868
                                                                ---------------------------------------------------------
                                                                ---------------------------------------------------------

PROPERTY,PLANT AND EQUIPMENT, NET
       REGULATED UTILITIES                                      $19,907,237                                 $19,907,237
       NONREGULATED PROPANE                                                      2,811,913                    2,811,913
       OIL AND GAS OPERATIONS                                                      334,704                      334,704
       REAL ESTATE HELD FOR INVESTMENT                                             496,483                      496,483
                                                                ---------------------------------------------------------

TOTAL P P & E                                                    19,907,237      3,643,100                   23,550,337

CURRENT ASSETS                                                    4,458,594      2,420,839      (616,157)     6,263,276
OTHER ASSETS                                                      3,884,006        496,360    (1,819,198)     2,561,168
                                                                ---------------------------------------------------------

TOTAL ASSETS                                                    $28,249,837     $6,560,299   ($2,435,355)   $32,374,781
                                                                ---------------------------------------------------------
                                                                ---------------------------------------------------------

EQUITY                                                           $8,903,740     $2,701,018   $(1,072,000)   $10,532,758
LONG-TERM DEBT                                                    8,533,074      1,901,883                   10,434,957
CURRENT LIABILITIES                                               6,304,063      1,493,087    (1,011,157)     6,785,993
DEFERRED INCOME TAXES                                             2,727,782        299,343      (352,197)     2,674,928
OTHER LIABILITIES                                                 1,781,178        164,968            (1)     1,946,145
                                                                ---------------------------------------------------------


TOTAL CAPITALIZATION AND LIABILITIES                            $28,249,837     $6,560,299   ($2,435,355)   $32,374,781
                                                                ---------------------------------------------------------
                                                                ---------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                                                                          1996

                                                                    REG.          NONREG.        ADJ.         CONSOL.
                                                                ---------------------------------------------------------
<S>                                                            <C>             <C>          <C>            <C>

OPERATING REVENUE                                               $23,672,186     $4,510,942   ($1,213,359)   $26,969,769

GAS TRADING REVENUE                                                              4,348,239                    4,348,239
                                                                 --------------------------------------------------------
TOTAL OPERATING REVENUE                                          23,672,186      8,859,181    (1,213,359)    31,318,008

GAS PURCHASED                                                    13,646,178      2,539,635    (1,213,359)    14,972,454

COST OF GAS TRADING                                                              3,751,053                    3,751,053
DISTRIBUTION, GENERAL & ADMIN                                     5,578,188      1,346,203                    6,924,391
MAINTENANCE                                                         348,123         60,467                      408,590
DEPRECIATION AND AMORTIZATION                                     1,359,339        307,917                    1,667,256

TAXES OTHER THAN INCOME                                             523,768        105,660                      629,428
                                                                 --------------------------------------------------------

OPERATING INCOME                                                 $2,216,590       $748,246             $0    $2,964,836
                                                                 --------------------------------------------------------
                                                                 --------------------------------------------------------


                                                                                          1995

                                                                        REG.        NONREG.           ADJ.        CONSOL.
                                                                 --------------------------------------------------------
OPERATING REVENUE                                               $24,363,446     $4,077,768   ($1,131,655)    $27,309,559


GAS TRADING REVENUE                                                              3,238,839                     3,238,839
                                                                 --------------------------------------------------------

TOTAL OPERATING REVENUE                                          24,363,446      7,316,607    (1,131,655)     30,548,398

GAS PURCHASED                                                    15,077,466      2,170,877    (1,131,655)     16,116,688

COST OF GAS TRADING                                                              2,500,363                     2,500,363
DISTRIBUTION, GENERAL & ADMIN                                     5,130,220      1,249,431                     6,379,651
MAINTENANCE                                                         304,677          1,400                       306,077
DEPRECIATION AND AMORTIZATION                                     1,205,758        352,997                     1,558,755
TAXES OTHER THAN INCOME                                             494,338        100,230                       594,568
                                                                 --------------------------------------------------------
OPERATING INCOME                                                 $2,150,987       $941,309             $0     $3,092,296
                                                                 --------------------------------------------------------
                                                                 --------------------------------------------------------


                                                                                          1994

                                                                    REG.          NONREG.        ADJ.         CONSOL.
                                                                 --------------------------------------------------------

OPERATING REVENUE                                               $24,421,153     $3,935,760     ($974,327)    $27,382,586

GAS TRADING REVENUE                                                              1,964,866                     1,964,866
                                                                 --------------------------------------------------------

TOTAL OPERATING REVENUE                                          24,421,153      5,900,626      (974,327)     29,347,452

GAS PURCHASED                                                    15,666,853      2,050,377      (974,327)     16,742,903


COST OF GAS TRADING                                                              1,667,182                     1,667,182
DISTRIBUTION, GENERAL & ADMIN                                     4,792,531      1,187,090                     5,979,621
MAINTENANCE                                                         315,409         15,353                       330,762
DEPRECIATION AND AMORTIZATION                                     1,134,150        329,928                     1,464,078
TAXES OTHER THAN INCOME                                             430,446         96,696                       527,142
                                                                 --------------------------------------------------------

OPERATING INCOME                                                 $2,081,764       $554,000             $0    $2,635,764
                                                                 --------------------------------------------------------
                                                                 --------------------------------------------------------

</TABLE>


                                      55

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

7. Stock Options and Ownership Plans

Stock Options

There are two Incentive Stock Option Plans which provide for granting options to
purchase up to 200,000 shares of the Company's common stock to key employees.
The option price may not be less than 100% of the common stock fair market value
on the date of grant (110% of the fair market value if the employee owns more
than 10% of the Company's outstanding common stock).  These options may not have
a term exceeding five years.

A summary of the activity under the plans is as follows:

                                        Number of      Price Per
                                        Shares         Share
                                        ----------------------------
     Fiscal 1996
     Outstanding at July 1, 1995          90,588       $4.875-9.125
     Granted                                   -
     Exercised                          (13,680)       $4.875-7.125
     Expired                             (1,200)              $6.50
                                        ---------
     Outstanding at June 30, 1996         75,708       $6.375-9.125
                                        ---------
                                        ---------

     At June 30, 1996
     Exercisable                          75,708
     Available for grant                   6,052

     Fiscal 1995
     Outstanding at July 1, 1994         106,948        $4.875-8.75
     Granted                               5,000             $9.125
     Exercised                          (14,410)        $4.938-8.75
     Expired                             (6,950)       $4.875-7.125
                                        ---------
     Outstanding at June 30, 1995         90,588
                                        ---------
                                        ---------

     At June 30, 1995
     Exercisable                          90,588
     Available for grant                  29,652

     Fiscal 1994
     Outstanding at July 1, 1993         105,048       $3.188-7.125
     Granted                               7,000        $7.375-8.75
     Exercised                           (3,800)       $3.188-7.125
     Expired                             (1,300)             $3.188
                                        ---------
     Outstanding at June 30, 1994        106,948        $4.875-8.75
                                        ---------
                                        ---------

     At June 30, 1994
     Exercisable                         106,948
     Available for grant                  27,702


                                      56

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

7. Stock Options and Ownership Plans (continued)

Employee Stock Ownership Plan

In 1984, the Company established an Employee Stock Ownership Plan ("ESOP") 
which covers most of the Company's employees. The unleveraged ESOP receives 
cash contributions from the Company each year as determined by the Board of 
Directors and will buy shares of the Company's common stock from either the 
Company or the open market at the then current price per share.  The ESOP has 
no allocated shares, committed-to-be-released shares or suspense shares at 
the balance sheet dates.  In addition, there are no unearned shares and there 
is no repurchase obligation.  The Company has contributed and recognized as 
expense $121,400, $129,367 and $103,820 for the years ended June 30, 1996, 
1995 and 1994, respectively.   During the years ended June 30, 1996, 1995 and 
1994, the ESOP acquired 15,889 shares at $8.00 per share, 11,535 shares at 
$9.00 per share and 11,772 shares at $9.08 per share, respectively.

8. Operating Lease

The Company leases a building in Cody, Wyoming.  The lease expires on June 30,
2005.  Future minimum rental payments will be approximately $72,000 per year
from fiscal 1996 through fiscal 2005 for total future minimum lease payments of
$648,000.  Rental expenses related to this lease were $73,808, $70,133 and
$73,933 in fiscal years 1996, 1995 and 1994, respectively.

9. Gain on Sale-Leaseback of Assets

On June 28, 1996, one of the Company's nonregulated subsidiaries sold real
property, consisting of land and office and warehouse buildings, for $525,000 in
cash.  Concurrent with the sale, the Company leased the property back for a
period of ten years at an annual rental of $51,975.  The initial ten-year term

of the lease is extended for two successive five-year periods unless the Company
provides at least six months notice prior to the end of either the initial term
or the first successive five-year term.

The Company does not have an option to repurchase the real property.  However,
should the lessor have a bona fide third-party offer, the Company has the right
of first refusal to buy the land and buildings under the same terms and
conditions.  As a result, the transaction has been recorded as a sale, resulting
in a deferred gain of $236,000, which will be amortized ratably into income over
the initial lease term.  The land, buildings and related accounts are no longer
recognized in the accompanying financial statements.

                                      57
<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

9. Gain on Sale-Leaseback of Assets (continued)

The future minimum lease payments under the terms of the related lease agreement
require the payment of $51,975 per year from fiscal 1997 through fiscal 2006 for
total future minimum lease payments of $519,750.

10. Commitments and Contingencies

Commitments

The Company has entered into long-term, take or pay natural gas supply contracts
which expire beginning in 1997 and ending in 2005.  The contracts generally
require the Company to purchase specified minimum volumes of natural gas at a
fixed price which is subject to renegotiation every two years.  Current prices
per Mcf for these contracts range from $1.17 to $1.85.  Based on current prices,
the minimum take or pay obligation at June 30, 1996 for each of the next five
years and in total is as follows:

                         Fiscal Year
                         -----------
                         1997           $1,931,088
                         1998            1,320,018
                         1999            1,099,218
                         2000              832,018
                         2001              832,018
                         Thereafter      1,809,672
                                        ----------
                         Total          $7,824,032
                                        ----------
                                        ----------

Natural gas purchases under these contracts for the years ended June 30, 
1996, 1995 and 1994 approximated $5,520,000, $6,203,000, and $6,091,000, 
respectively.

On July 1, 1996, the Company entered into a take or pay propane contract which
expires June 30, 1997.  The contract generally requires the Company to purchase
all propane quantities produced by a propane producer in Wyoming (approximately
182,500 gallons per month) tied to the Billings, Montana spot price.

                                      58

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

10. Commitments and Contingencies (continued)

ENVIRONMENTAL MATTERS

The Company owns property on which it operated a manufactured gas plant from 
1909 to 1928.  The site is currently used as a service center for the 
Company where certain equipment and materials owned by the Company are 
stored. The coal gasification process utilized in the plant resulted in the 
production of certain by-products which have been classified by the federal 
government and the State of Montana as hazardous to the environment.  Several 
years ago the Company initiated an assessment of the site to determine if 
remediation of the site was required.  That assessment resulted in a 
submission of a report to the Montana Department of Environmental Quality 
(MDEQ) in 1994.  The Company has worked with the MDEQ since that time  
obtain the data that would lead to a remediation acceptable to MDEQ.  The 
Company's environmental consultant advises the Company that it expects to 
have a report, which will include remediation recommendations, filed with 
the MDEQ by approximately mid-summer of 1997.  MDEQ would then provide an 
opportunity for public comment on the remediation plan.  Once the comment 
period has ended and due consideration of any comments occurs, the plan can 
be finalized. Assuming acceptance of the plan, remediation could be underway 
by the fall of 1998.

At June 30, 1996 the Company's costs incurred in evaluating this site have 
totalled approximately $320,000.  On May 30, 1995 the Company received an 
order from the Montana Public Service Commission allowing for a surcharge on 
customer bills in conntection with the costs associated with evalution of the 
site. As of June 30, 1996 the surcharge had generated approximately $214,000. 
The Commission's order calls for ongoing review by the Commission of the costs
incurred for this matter by periodic approvals of the costs incurred for this
matter.

11. Regulatory Matters

On July 8, 1996, the Company filed a general rate case with the MPSC requesting
a revenue increase for its Great Falls Gas operations.  The revenue request is
the result of increased cost of service primarily due to inflation and higher
capital investment for utility operations.  The Company intends to file for a
rate increase for Broken Bow (a regulated utility subsidiary in Payson, Arizona)
in the fall of 1996.


                                      59

<PAGE>

                    Energy West Incorporated and Subsidiaries

             Notes to Consolidated Financial Statements (continued)

12. Financial Instruments and Risk Management

For fiscal years ending June 30, 1995 and 1996, the Company was a party to 
gas financial swap agreements for its regulated operations.  Under these 
agreements, the Company is required to pay the counterparty (an entity making 
a market in gas futures) a cash settlement equal to the excess of the stated 
index price over an agreed upon fixed price for gas purchases.  The Company 
receives cash from the counterparty when the stated index price falls below 
the fixed price.  These swap agreements are made to minimize exposure to gas 
price fluctuations.  This price differential had no impact on earnings, 
because the effect of the difference is included in gas costs and adjusted to 
recoverable cost of gas purchases for any idfferences between the cost of gas 
allowed by the regulators and the actual prices paid including any financial 
swap agreements.

<TABLE>
<CAPTION>
                                                                                                          Fair
                                                               Index Price                                Value of
               Volume                                           Range for      Contract        Index      Remaining
               (MMBTU     Effective    Termination   Contract    Fiscal         Value          Price      Contract
Fiscal Year    per Day)   Date         Date          Price       Year         at June 30    at June 30    At June 30
--------------------------------------------------------------------------------------------------------------------
<S>            <C>       <C>           <C>           <C>       <C>            <C>           <C>           <C>
1995
-----------
Swap #1        4,000      5/1/95       4/30/96       $1.57     $.98 to $1.14  $2,059,840     $0.98        $1,285,760

1996
-----------
Swap #1        5,000     11/1/95       10/31/96      $1.35     $.89 to $1.22   $830,250      $0.89         $547,350
</TABLE>

Beginning on September 1, 1996, the Company is a party to two gas swap 
agreements, for its nonregulated operations, to hedge 4,400 MMBTU of its 
daily gas purchases.  This contract represents approximately 92% of the 
supply required for the Company's customers who have selected fixed price 
service.  The hedges were made to minimize the Company's exposure to price 
fluctuations and to secure a known margin for the purchase and resale of gas 
in marketing activities.


                                      60

<PAGE>

                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS

                                ENERGY WEST INC.

                                  June 30, 1996


                         Balance At     Charged        Write-Offs      Balance
                         Beginning      to Costs       Net of         at End of
Description              of Period      & Expenses     Recoveries      Period
-----------              ----------     ----------     ----------     ---------
ALLOWANCE FOR
UNCOLLECTIBLE ACCOUNTS


Year Ended June 30, 1994  $169,500       $141,590      ($121,799)     $189,291



Year Ended June 30, 1995  $189,291        $81,327       ($79,450)     $191,168



Year Ended June 30, 1996  $191,168        $64,509       ($47,571)     $208,106



                                      61


<PAGE>

Consolidated Quarterly Financial Data on page 17 of the 1996 Annual Report to
Shareholders is incorporated herein by reference.

Item 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable


                                          62
<PAGE>

                                       PART III

Item 10. - DIRECTORS AND EXECUTIVE OFFICER OF THE REGISTRANT

Information concerning the directors and executive officers is included in Part
I, on pages 16 through 19.  The information contained under the heading
"Election of Directors" in the Proxy Statement is incorporated herein by
reference in response to this item.

Item 11. - EXECUTIVE COMPENSATION

The information contained under heading "Executive Compensation" in the Proxy
Statement is incorporated herein by reference in response to this item.

Item 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is incorporated herein
by reference in response to this item.

Item 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained under the heading "Certain Transactions" in the Proxy
Statement is incorporated herein by reference in response to this item.


                                          63
<PAGE>

                                       PART IV

Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K

(a) 3.  Exhibits (See Exhibit Index on Page E-1)

(b)  Reports on Form 8-K
          None


                                          64
<PAGE>

                                      SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                               ENERGY WEST INCORPORATED

/s/  Larry D. Geske                              /s/  William J. Quast
-------------------                              ---------------------
Larry D. Geske, President and                    William J. Quast
Chief Executive Officer                          Vice-President, Treasurer,
and Chairman of the Board                        Controller and Assistant
                                                 Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

/s/  Larry D. Geske                                        7/8/97
-------------------                                        -------
Larry D. Geske          President and Chief Executive      Date
                        Officer and Acting Chairman of the Board

/s/ Ian B. Davidson                                        7/8/97
-------------------                                        -------
Ian B. Davidson              Director                      Date

/s/ Thomas N. Mcgowen, Jr.                                 7/8/97
--------------------------                                 -------
Thomas N. McGowen, Jr.       Director                      Date

/s/ G. Montgomery Mitchell                                 7/8/97
--------------------------                                 -------
G. Montgomery Mitchell       Director                      Date

/s/ John Reichel                                           7/8/97
----------------                                           -------
John Reichel                 Director                      Date

/s/ David A. Flitner                                       7/8/97
--------------------                                       -------
David A. Flitner             Director                      Date


                                          65
<PAGE>

                                    EXHIBIT INDEX

Exhibits
--------
3.1  Restated Articles of Incorporation of the Company, as amended to date
     (filed herewith).

3.2  Bylaws of the Company, as amended to date (filed herewith).

4.1  Form of Indenture (including form of Note) relating to the Company's
     Series 1993 Notes (incorporated by reference to Exhibit 4.1 to the
     Company's Registration Statement on Form S-2, File No. 33-62680).

4.2  Loan Agreement, dated as of September 1, 1992, relating to the Company's
     Series 1992A and Series 1992B Industrial Development Revenue Bonds
     (incorporated by reference to Exhibit 4.2 to the Company's Registration
     Statement on Form S-2, File No. 33-62680).

10.1  Credit Agreement dated as of January 18, 1995, by and between the Company
      and Norwest Bank Great Falls, National Association (filed herewith).

10.2  Amendment dated April 17, 1996 to Credit Agreement dated as of January
      18, 1995, by and between the Company and Norwest Bank Montana, National
      Association (filed herewith).

10.3  Amendment dated November 7, 1996 to Credit Agreement dated as of January
      18, 1995, the Company and Norwest Bank Montana, National Association
      (filed herewith).

10.4  Promissory Note dated November 7, 1996, issued to Norwest Bank Montana,
      National Association (filed herewith).

10.5  Credit Agreement dated as of February 12, 1997, by and between the
      Company and First Bank Montana, National Association (filed herewith).

10.6  Delivered Gas Purchase Contract dated February 23, 1997, as amended by
      that Letter Amendment Amending Gas Purchase Contract dated March 9, 1982;
      that Amendment to Delivered Gas Purchase Contract applicable as of March
      20, 1986; that Letter Agreement dated December 18, 1986; that Letter
      Agreement dated April 12, 1988; that Letter Agreement dated April 28,
      1992; that Letter Agreement dated March 14, 1996; that Letter Agreement
      dated April 15, 1996; a second Letter Agreement dated April 15, 1996;
      that Letter dated February 18, 1997; and that Letter dated April 1, 1997,
      transmitting a Notice of Assignment effective February 26, 1993 (filed
      herewith).

10.7  Delivered Gas Purchase Contract dated December 1, 1985, as amended by
      that Letter Agreement dated July 1, 1986; that Letter Agreement dated
      November 19, 1987; that Letter Agreement dated December 1, 1988; that
      Letter Agreement dated July 30, 1992; that Assignment Conveyance and Bill
      of Sale effective as of January 1, 1993; that Letter Agreement dated
      March 8,, 1993; that Letter Agreement dated October 21, 1993; that Letter
      Agreement dated October 18, 1994; that Letter Agreement dated January 30,
      1995; that Letter Agreement dated August 30, 1995; that Letter Agreement
      dated October 3, 1995; that Letter Agreement dated October 31, 1995; that
      Letter Agreement dated December 21, 1995; that Letter Agreement dated
      April 25, 1996; that Letter Agreement dated January 29, 1997; and that
      Letter dated April 11, 1997 (filed herewith).


                                         E-1

<PAGE>

10.8  Natural Gas Sale and Purchase Agreement dated July 20, 1992 between Shell
      Canada Limited and the Company, as amended by that Letter Agreement dated
      August 23, 1993; that Amending Agreement effective as of November 1,
      1994; and that Schedule A Incorporated Into and  Forming a Part of
      That Natural Gas Sale and Purchase Agreement, effective as of November 1,
      1996 (filed herewith).

10.9  Employee Stock Ownership Plan Trust Agreement (incorporated by reference
      to Exhibit 10.2 to Registrant's Registration Statement on Form S-1, File
      No. 33-1672).

10.10 1992 Stock Option Plan (filed herewith).

10.11 Form of Incentive Stock Option under the 1992 Stock Option Plan (filed
      herewith).

10.12 Management Incentive Plan (filed herewith).

13.1  Portions of the Company's 1996 Annual Report to Shareholders (previously
      filed).

21.1  Subsidiaries of the Company (filed herewith).

23.1  Consent of Independent Auditors (filed herewith).

27.1  Financial Data Schedule (filed herewith).


                                         E-1