##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-K
 ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2006
 or
 o
    
    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
  Montana
    
    81-0141785(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 (Address of principal executive offices) (Zip Code)
   Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon, par value $.15 per share
    
    Nasdaq National Market
  o þ
 o þ
 þ o
 o
  o o þ
 o þ




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##### 



TABLE OF CONTENTS
 PagePart I
    
    
    1Item 1.     Business
    
    
    1Item 1A.  Risk Factors
    
    
    7Item 1B.  Unresolved Staff Comments
    
    
    11Item 2.     Properties
    
    
    11Item 3.     Legal Proceedings
    
    
    12Item 4.     Submission of Matters to a Vote of Security Holders
    
    
    12Part II
    
    
    13Item 5.     Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    13Item 6.     Selected Financial Data
    
    
    14Item 7.     Managements Discussion and Analysis of Financial Condition and
Results of Consolidated Operations
    
    
    15Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 8.     Financial Statements and Supplementary Data
    
    
    30Item 9.     Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
    
    
    30Item 9A.  Controls and Procedures
    
    
    30Item 9B.  Other Information
    
    
    31Part III
    
    
    31Item 10.  Directors and Executive Officers of the Registrant
    
    
    31Item 11.  Executive Compensation
    
    
    31Item 12.  Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    
    31Item 13.  Certain Relationships and Related Transactions
    
    
    31Item 14.  Principal Accountant Fees and Services
    
    
    31Part IV
    
    
    32Item 15.  Exhibits and Financial Statement Schedules
    
    
    32Signatures
    
    
    33EX-21EX-23.1EX-23.2EX-31EX-32
  Forward-Looking Statements
   i




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PART I
 
 Item 1. Business.
 Overview
  
    
    Natural Gas Operations
    
    Distributes approximately
6.4 billion cubic feet of
natural gas to approximately
34,000 customers through
regulated utilities
operating in and around
Great Falls and West
Yellowstone, Montana, and
Cody, Wyoming. The
approximate population of
the service territories is
94,000.
    
    Propane Operations
    
    Distributes approximately
5.4 million gallons of
propane to approximately
8,000 customers through
utilities operating
underground vapor systems in
and around Payson, Pine, and
Strawberry, Arizona and
retail distribution of bulk
propane to approximately
2,300 customers in the same
Arizona communities. The
approximate population of
the service territories is
50,000. We are in the
process of selling the
Arizona assets of these
operations. See page 4.
    
    Energy West Resources, Inc.
(EWR)
    
    Markets approximately 2.5
billion cubic feet of
natural gas to commercial
and industrial customers in
Montana and Wyoming and
manages midstream supply and
production assets for
transportation customers and
utilities. EWR also has an
ownership interest in 163
natural gas producing wells
and gas gathering assets.
    
    Pipeline Operations
    
    Owns the Shoshone interstate
and the Glacier gathering
natural gas pipelines
located in Montana and
Wyoming. Certain natural gas
producing wells owned by our
Pipeline Operations
subsidiary are being managed
and reported under the
operations of EWR.
 See Note 10 to our Consolidated Financial Statements for financial information for each of our
segments.
 Natural Gas Operations
  Natural Gas  Montana Division
   1




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Gas Revenue
 Years Ended June 30,2006
    
    
    2005
    
    
    2004Residential
    
    $
    22,155
    
    
    $
    18,116
    
    
    $
    16,427Commercial
    
    
    14,233
    
    
    
    11,437
    
    
    
    9,918Transportation
    
    
    1,961
    
    
    
    1,939
    
    
    
    1,856Total
    
    $
    38,349
    
    
    $
    31,492
    
    
    $
    28,201
   Gas Volumes
 Years Ended June 30,2006
    
    
    2005
    
    
    2004Residential
    
    
    1,978
    
    
    
    2,136
    
    
    
    2,206Commercial
    
    
    1,210
    
    
    
    1,267
    
    
    
    1,317Transportation
    
    
    1,524
    
    
    
    1,493
    
    
    
    1,443Total Gas Sales
    
    
    4,712
    
    
    
    4,896
    
    
    
    4,966
     2




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##### Table of Contents



Natural Gas  Wyoming Division
    Gas Revenue
 Years Ended June 30,2006
    
    
    2005
    
    
    2004Residential
    
    $
    5,883
    
    
    $
    4,805
    
    
    $
    4,149Commercial
    
    
    5,771
    
    
    
    4,434
    
    
    
    3,606Industrial
    
    
    5,741
    
    
    
    4,059
    
    
    
    3,107Total
    
    $
    17,395
    
    
    $
    13,298
    
    
    $
    10,862
  3




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##### Table of Contents



Gas Volumes
 Years Ended June 30,2006
    
    
    2005
    
    
    2004Residential
    
    
    478
    
    
    
    519
    
    
    
    515Commercial
    
    
    684
    
    
    
    582
    
    
    
    540Industrial
    
    
    567
    
    
    
    643
    
    
    
    568Total Gas Sales
    
    
    1,729
    
    
    
    1,744
    
    
    
    1,623
    Propane Operations
    4




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Propane Revenue
 Years Ended June 30,2006
    
    
    2005
    
    
    2004Residential
    
    $
    6,986
    
    
    $
    6,509
    
    
    $
    5,456Commercial
    
    
    2,597
    
    
    
    2,310
    
    
    
    2,280Total
    
    $
    9,583
    
    
    $
    8,819
    
    
    $
    7,736
 Propane Volume
 Years Ended June 30,2006
    
    
    2005
    
    
    2004Residential
    
    
    3,783
    
    
    
    4,115
    
    
    
    3,735Commercial
    
    
    1,577
    
    
    
    1,513
    
    
    
    2,095Total
    
    
    5,360
    
    
    
    5,628
    
    
    
    5,830
 Energy West Resources
   5




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Pipeline Operations
   Competition
    6




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Governmental Regulation
  Seasonality
  Environmental Matters
     Employees
  
 Item 1A. Risk Factors.
  7




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Our
results of operations could fluctuate due to a variety of factors outside of our control,
including the following:
 
    
    Fluctuating energy commodity prices;
    
    The possibility that regulators may not permit us to pass through all of our increased
costs to our customers;
    
    Fluctuations in wholesale margins due to uncertainty in the wholesale propane markets;
    
    Changes in general economic conditions in the United States and changes in the
industries in which we conduct business;
    
    Our business and that of our subsidiaries in all segments is temperature-sensitive. In
any given period, sales volumes reflect the impact of weather, in addition to other
factors;
    
    Changes in federal or state laws and regulations to which we are subject, including tax,
environmental, and employment laws and regulations;
    
    The impact of the FERC and state public service commission statutes, regulations, and
actions, including allowed rates of return, and the resolution of other regulatory matters;
    
    Our ability to obtain governmental and regulatory approval of various expansion or other projects;
    
    The costs and effects of legal and administrative claims and proceedings against us or our subsidiaries;
    
    Conditions of the capital markets we utilize to access capital;
    
    The ability to raise capital in a cost-effective way;
    
    The ability to meet financial covenants imposed by lenders;
    
    The effect of changes in accounting policies, if any;
    
    The ability to manage our growth;
    
    The ability to control costs;
    
    The ability of each business unit to successfully implement key systems, such as service
delivery systems;
    
    Our ability to develop expanded markets and product offerings and our ability to
maintain existing markets;
    
    The ability of customers of the energy marketing and trading business to obtain
financing for various projects;
    
    The ability of customers of the energy marketing and trading business to obtain
governmental and regulatory approval of various projects;
    
    Future utilization of pipeline capacity, which can depend on energy prices, competition
from alternative fuels, the general level of natural gas and propane demand, decisions by
customers not to renew expiring natural gas or propane contracts, and weather conditions;
    
    Global and domestic economic repercussions from terrorist activities and the
governments response thereto; and
    
    Disruptions to natural gas or propane supplies or prices caused by man-made or natural
disasters, such as tropical storms or hurricanes.
 We are subject to comprehensive regulation by several federal, state, and local regulatory
agencies, which significantly influence our operating environment and may affect our ability to
recover costs from utility customers.
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Events in the energy markets that are beyond our control may have negative impacts on our
business.
 Our business and that of our subsidiaries in all segments is temperature-sensitive.
 The use of derivative contracts in the normal course of our business and changing interest
rates and market conditions could result in financial losses that negatively impact our results of
operations.
  We are subject to numerous environmental laws and regulations that may increase our cost of
operations, impact our business plans, or expose us to environmental liabilities.
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We will face a variety of risks associated with acquiring and integrating new business
operations.
 
    
    identify suitable acquisition candidates or opportunities,
    
    acquire assets or business operations on commercially acceptable terms,
    
    effectively integrate the operations of any acquired assets or businesses with our existing operations,
    
    manage effectively the combined operations of the acquired businesses,
    
    achieve our operating and growth strategies with respect to the acquired assets or businesses, or
    
    reduce our overall selling, general, and administrative expenses associated with the
acquired assets or businesses.
  Our performance depends substantially on the performance of our executive officers and other
key personnel.
 Failure to achieve and maintain effective internal controls in accordance with Section 404 of
the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
  10




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Our Shareholder Rights Plan, as well as, certain provisions in our charter, may prevent or
delay a change of control of our company.
 Our actual results of operations could differ from estimates used to prepare our financial
statements.
  
    
    Regulatory Accounting  Regulatory accounting allows for the actions of regulators to be
reflected in the financial statements. Their actions may cause us to capitalize costs that
would otherwise be included as an expense in the current period by unregulated companies.
If future recovery of costs ceases to be probable, the assets will be written off as a
charge in current period earnings.
    
    Derivative Accounting  Derivative accounting requires evaluation of rules that are
complex and subject to varying interpretations. Our evaluation of these rules, as they
apply to our contracts, will determine whether we use accrual accounting or fair value
(mark-to-market) accounting. Mark-to-market accounting requires us to record changes in
fair value in earnings or, if certain hedge accounting criteria are met, in common stock
equity (as a component of other comprehensive income (loss)).
    
    Mark-to-Market Accounting  The market value of our derivative contracts is not always
readily determinable. In some cases, we use models and other valuation techniques to
determine fair value. The use of these models and valuation techniques sometimes requires
subjective and complex judgment. Actual results could differ from the results estimated
through application of these methods.
 11




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##### Table of Contents



Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
 Montana 
  Wyoming 
  Arizona 
 
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  12




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities.
 Our Common Stock
  Fiscal Year 2006
    
    High
    
    
    LowFirst Quarter
    
    $
    13.89
    
    
    $
    8.20Second Quarter
    
    $
    11.60
    
    
    $
    8.59Third Quarter
    
    $
    11.00
    
    
    $
    8.57Fourth Quarter
    
    $
    11.00
    
    
    $
    8.70
 Fiscal Year 2005
    
    High
    
    
    LowFirst Quarter
    
    $
    7.10
    
    
    $
    6.10Second Quarter
    
    $
    6.52
    
    
    $
    5.41Third Quarter
    
    $
    7.82
    
    
    $
    6.05Fourth Quarter
    
    $
    12.97
    
    
    $
    6.20
 Holders of Record
  Dividend Policy
  October 28, 2005
    
    $
    0.04January 31, 2006
    
    $
    0.05May 31, 2006
    
    $
    0.08August 28, 2006
    
    $
    0.10
 Recent Sales of Unregistered Securities
  Purchases of Equity Securities by Our Company and Affiliated Purchasers
  13




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Item 6. Selected Financial Data.
  2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Operating resultsOperating revenue
    
    $
    84,278
    
    
    $
    76,709
    
    
    $
    73,291
    
    
    $
    77,898
    
    
    $
    89,240Operating expensesGas and electric purchases
    
    
    66,369
    
    
    
    58,332
    
    
    
    57,911
    
    
    
    62,520
    
    
    
    74,590General and administrative
    
    
    8,218
    
    
    
    9,448
    
    
    
    10,170
    
    
    
    11,669
    
    
    
    8,790Maintenance
    
    
    624
    
    
    
    596
    
    
    
    480
    
    
    
    497
    
    
    
    466Depreciation and amortization
    
    
    2,184
    
    
    
    2,313
    
    
    
    2,332
    
    
    
    2,393
    
    
    
    2,059Taxes other than income (1)
    
    
    1,615
    
    
    
    1,654
    
    
    
    1,210
    
    
    
    888
    
    
    
    946Total operating expenses
    
    
    79,010
    
    
    
    72,343
    
    
    
    72,103
    
    
    
    77,967
    
    
    
    86,851Operating income (loss)
    
    
    5,268
    
    
    
    4,366
    
    
    
    1,188
    
    
    
    (69
    )
    
    
    2,389Other income-net
    
    
    504
    
    
    
    445
    
    
    
    385
    
    
    
    302
    
    
    
    658Total interest charges (2)
    
    
    2,080
    
    
    
    2,677
    
    
    
    2,498
    
    
    
    1,633
    
    
    
    1,704Income (loss) before taxes
    
    
    3,692
    
    
    
    2,134
    
    
    
    (925
    )
    
    
    (1,400
    )
    
    
    1,343Income tax expense (benefit)
    
    
    1,375
    
    
    
    753
    
    
    
    (369
    )
    
    
    (543
    )
    
    
    516Net Income (Loss)
    
    $
    2,317
    
    
    $
    1,381
    
    
    $
    (556
    )
    
    $
    (857
    )
    
    $
    827Basic earnings (loss) per common share
    
    $
    0.79
    
    
    $
    0.53
    
    
    $
    (0.21
    )
    
    $
    (0.33
    )
    
    $
    0.32Diluted earnings (loss) per common share
    
    $
    0.79
    
    
    $
    0.53
    
    
    $
    (0.21
    )
    
    $
    (0.33
    )
    
    $
    0.32Dividends per common share (3)
    
    $
    0.17
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.41
    
    
    $
    0.52Weighted average common sharesOutstanding
 diluted
    
    
    2,948,046
    
    
    
    2,630,679
    
    
    
    2,596,454
    
    
    
    2,586,487
    
    
    
    2,558,782At year end:Current assets
    
    $
    14,455
    
    
    $
    15,423
    
    
    $
    16,739
    
    
    $
    15,790
    
    
    $
    18,517Total assets
    
    $
    57,931
    
    
    $
    59,433
    
    
    $
    61,445
    
    
    $
    60,027
    
    
    $
    57,295Current liabilities
    
    $
    10,143
    
    
    $
    11,525
    
    
    $
    16,725
    
    
    $
    21,833
    
    
    $
    19,899Total long-term obligations
    
    $
    17,605
    
    
    $
    18,677
    
    
    $
    21,697
    
    
    $
    14,834
    
    
    $
    15,367Total stockholders equity
    
    $
    19,165
    
    
    $
    17,187
    
    
    $
    13,401
    
    
    $
    13,957
    
    
    $
    15,699Total capitalization
    
    $
    36,770
    
    
    $
    35,864
    
    
    $
    35,098
    
    
    $
    28,791
    
    
    $
    31,066
 
 (1)
    
    Taxes other than income include approximately $290,000 in each of fiscal 2006,
2005, and 2004 for additional personal property taxes assessed by the Montana Department of
Revenue.(2)
    
    Total interest charges reflect the costs associated with the addition of $6,000,000
of long-term debt and a $2,000,000 bridge loan incurred in March 2004. In May 2005, we paid
off the $2,000,000 bridge loan and during fiscal 2006 we reduced the line of credit
significantly, thus reducing interest in fiscal 2006.(3)
    
    There were no cash dividends paid between April 2003 and September
2005. 14




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Consolidated Operations.
  Executive Overview
     Strategy
  
    
    Focus on the natural gas distribution and related businesses.
    
    Acquire additional gas production, gathering, and pipeline assets or operations,
which provide higher operating margins than our regulated business operations.
    
    Pursue appropriate regulatory treatment of higher commodity prices.
    
    Seek cost-effective expansion of our customer base by prudently managing capital
expenditures and ensuring that new customers provide sufficient margins for an
appropriate return on the additional resources and investment required to serve the
customers.
    
    Continue to focus on operational efficiencies.
    
    Manage cash flow to reduce our existing debt or avoid additional debt financing.
    
    Maintain and improve our positive reputation with regulators and customers.
    
    Refine our corporate infrastructure to be able to provide a platform for additional
projects with limited incremental expenses.
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Opportunities and Challenges
  
    
    Our company possesses many competitive strengths, including:
  Geographic proximity of our regulated natural gas business to gas
production and our pipelines to active drilling. Investment grade financial strength and resources of our natural gas and propane suppliers. Our positive reputation with regulators and customers. Our corporate infrastructure, which provides a platform for
additional projects with limited incremental expenses.
 
    
    Prospects for continuing our residential and commercial customer growth are
excellent. The pace of new home and commercial construction remains steady in the
communities we serve. We believe demand for natural gas or propane will remain strong
because it provides a clean, easy to use, and efficient source of fuel for heating and
cooking.
 
    
    We carefully analyze the economics of our spending to support growth. When
justified under our tariffs, we work with developers, business owners, and residents
to share certain construction costs to assure a fair return to our company.
Non-revenue-generating spending is also managed to assure that we use the most
economically attractive solutions, while providing for a safe and reliable system.
 
    
    We are analyzing drilling opportunities within our gas production property located
in north central Montana and drilling activities in other gas producing areas near our
pipeline properties located in southeast Montana and northwest Wyoming to increase
revenues and margins.
  
    
    Our primary markets in Montana and Wyoming historically have not experienced the
rapid population growth rates experienced by other areas in the United States in
recent years.
    
    Our relatively small size makes us vulnerable to earnings variations as a result of
a variety of factors, including the following:
  loss of one of our natural gas or propane suppliers; loss of key personnel; or significant litigation or other one-time expenses.
 
    
    Our overall revenues and margins are negatively affected by higher efficiency in
new homes and commercial buildings, higher efficiency in gas-burning equipment, and
customer measures to reduce energy usage. The increasing cost of energy in recent
years, including the wholesale cost of natural gas and propane, continues to encourage
such measures.
    
    We earn approximately 28% of our operating margin by providing gas marketing
services to unregulated commercial and industrial gas customers. The loss of a
major customer, or unfavorable conditions affecting an industry segment, could have a
detrimental impact on our earnings. Many external factors over which we have no
control can significantly impact the amount of gas consumed by industrial and
commercial customers and, consequently, affect the margins we earn. To mitigate
 16




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these risks, we endeavor to enter into sales agreements through which we can match
estimated demand with a supply that provides an acceptable margin.
 
    
    Revenues and margins from our residential and small commercial customers are highly
weather-sensitive. In a cold year, our earnings are increased by the effects of the
weather. Conversely, in a warm year, our earnings are lower. Peak requirements also
drive the need to reinforce our systems to increase capacity, which in turn, increases
costs.
  Critical Accounting Policies and Estimates
  Regulatory Accounting
    Accumulated Provisions for Doubtful Accounts
  17




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Unbilled Revenues and Gas Costs
  Recoverable/Refundable Costs of Gas and Propane Purchases
  Derivatives
  
    
    There is variability in mark-to-market earnings due to changes in the commodity price
for gas. Our portfolio is valued based on current and expected future gas prices. Changes
in these prices can cause fluctuations in earnings.
    
    We discount derivative assets and liabilities using risk-free interest rates adjusted
for credit standing in accordance with SFAS No. 133, which is more fully described in
Statement of Financial Accounting Concepts No. 7, Using Cash Flow Information and Present
Value in Accounting Measurement.
  Results of Consolidated Operations
  Fiscal Year Ended June 30, 2006 Compared to Fiscal Year Ended June 30, 2005
 Net Income
 Revenues
 18




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Gross Margin
 Expenses Other Than Costs of Gas and Electricity and Costs of Goods Sold
 Other Income
 Interest Expense
 Income Tax Expense
 Fiscal Year Ended June 30, 2005 Compared to Fiscal Year Ended June 30, 2004
 Net Income (Loss)
 Revenues
 Gross Margin
 19




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Expenses Other Than Costs of Gas and Electricity and Costs of Goods Sold
    Certain Expenses Incurred During Fiscal Years 2005 and 2004
 2005
    
    
    2004
    
    
    TotalProxy Contest Expenses
    
    
    
    
    
    $
    570,000
    
    
    $
    570,000Debt Issuance Expenses
    
    $
    336,000
    
    
    
    663,000
    
    
    $
    999,000Shareholder Rights Plan
    
    
    
    
    
    
    227,000
    
    
    $
    227,000Accounting and legal restatement costs
    
    
    388,000
    
    
    
    
    
    
    $
    388,000Total
    
    $
    724,000
    
    
    $
    1,460,000
    
    
    $
    2,184,000
 Other Income
 Interest Expense
 Income Tax Benefit (Expense)
 20




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Operating Results of our Natural Gas Operations
 Years Ended June 302006
    
    
    2005
    
    
    2004(in thousands)Natural Gas OperationsOperating revenues
    
    $
    55,745
    
    
    $
    44,792
    
    
    $
    39,063Gas Purchased
    
    
    43,453
    
    
    
    32,796
    
    
    
    27,883Gross Margin
    
    
    12,292
    
    
    
    11,996
    
    
    
    11,180Operating expenses
    
    
    9,160
    
    
    
    9,666
    
    
    
    9,843Operating income
    
    
    3,132
    
    
    
    2,330
    
    
    
    1,337Other (income)
    
    
    (358
    )
    
    
    (166
    )
    
    
    (97
    )Income before interest and taxes
    
    
    3,490
    
    
    
    2,496
    
    
    
    1,434Interest expense
    
    
    1,425
    
    
    
    1,775
    
    
    
    1,623Income (loss) before income taxes
    
    
    2,065
    
    
    
    721
    
    
    
    (189
    )Income tax benefit (expense)
    
    
    (741
    )
    
    
    (216
    )
    
    
    26Net income (loss)
    
    $
    1,324
    
    
    $
    505
    
    
    $
    (163
    )
 Fiscal Year Ended June 30, 2006 Compared to Fiscal Year Ended June 30, 2005
 Natural Gas Revenues and Gross Margins
   Natural Gas Operating Expenses
 Natural Gas Other Income
 Natural Gas Interest Expense
 Natural Gas Income Tax Benefit (Expense)
 Fiscal Year Ended June 30, 2005 Compared to Fiscal Year Ended June 30, 2004
 Natural Gas Revenues and Gross Margins
  21




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##### Table of Contents



Natural Gas Operating Expenses
 Natural Gas Other Income
 Natural Gas Interest Expense
 Natural Gas Income Tax Benefit (Expense)
 Operating Results of our Propane Operations
 Years Ended June 302006
    
    
    2005
    
    
    2004(in thousands)Propane OperationsOperating revenues
    
    $
    9,583
    
    
    $
    8,820
    
    
    $
    7,736Gas Purchased
    
    
    5,927
    
    
    
    4,777
    
    
    
    4,000Gross Margin
    
    
    3,656
    
    
    
    4,043
    
    
    
    3,736Operating expenses
    
    
    2,677
    
    
    
    2,969
    
    
    
    3,039Operating income
    
    
    979
    
    
    
    1,074
    
    
    
    697Other (income)
    
    
    (113
    )
    
    
    (210
    )
    
    
    (181
    )Income before interest and taxes
    
    
    1,092
    
    
    
    1,284
    
    
    
    878Interest expense
    
    
    435
    
    
    
    571
    
    
    
    573Income before income taxes
    
    
    657
    
    
    
    713
    
    
    
    305Income tax (expense)
    
    
    (260
    )
    
    
    (271
    )
    
    
    (2
    )Net income
    
    $
    397
    
    
    $
    442
    
    
    $
    303
 Fiscal Year Ended June 30, 2006 Compared to Fiscal Year Ended June 30, 2005
 Propane Revenue and Gross Margins
 Propane Operating Expenses
 22




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##### Table of Contents



Propane Other Income
 Propane Interest Expense
 Propane Income Tax Benefit (Expense)
 Fiscal Year Ended June 30, 2005 Compared to Fiscal Year Ended June 30, 2004
 Propane Revenue and Gross Margins
 Propane Operating Expenses
 Propane Other Income
 Propane Interest Expense
 Propane Income Tax Expense
 23




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##### Table of Contents



Operating Results of our EWR Operations
 Years Ended June 302006
    
    2005
    
    2004(in thousands)Energy West Resources (EWR)Operating revenues
    
    
    $
    18,540
    
    
    
    $
    22,674
    
    
    
    $
    26,091Gas Purchased
    
    
    
    16,990
    
    
    
    
    20,760
    
    
    
    
    26,028Gross Margin
    
    
    
    1,550
    
    
    
    
    1,914
    
    
    
    
    63Operating expenses
    
    
    
    657
    
    
    
    
    1,173
    
    
    
    
    1,096Operating income
    
    
    
    893
    
    
    
    
    741
    
    
    
    
    (1,033
    )Other (income) loss
    
    
    
    (33
    )
    
    
    
    (67
    )
    
    
    
    13Income before interest and taxes
    
    
    
    926
    
    
    
    
    808
    
    
    
    
    (1,046
    )Interest expense
    
    
    
    178
    
    
    
    
    275
    
    
    
    
    253Income (loss) before income taxes
    
    
    
    748
    
    
    
    
    533
    
    
    
    
    (1,299
    )Income tax benefit (expense)
    
    
    
    (289
    )
    
    
    
    (211
    )
    
    
    
    444Net income (loss)
    
    
    $
    459
    
    
    
    $
    322
    
    
    
    $
    (855
    )
 Fiscal Year Ended June 30, 2006 Compared to Fiscal Year Ended June 30, 2005
 EWR Revenues and Gross Margins
  EWR Operating Expenses
 EWR Other Income
 EWR Interest Expense
 EWR Income Tax Expense
 Fiscal Year Ended June 30, 2005 Compared to Fiscal Year Ended June 30, 2004
 EWR Revenues and Gross Margins
 24




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##### Table of Contents



EWR Operating Expenses
 EWR Other Income (Expense)
 EWR Interest Expense
 EWR Income Tax Benefit (Expense)
 Operating Results of our Pipeline Operations
 Years Ended June 302006
    
    
    2005
    
    
    2004(in thousands)Pipeline OperationsOperating revenues
    
    $
    411
    
    
    $
    424
    
    
    $
    401Gas Purchased
    
    
    0
    
    
    
    0
    
    
    
    0Gross Margin
    
    
    411
    
    
    
    424
    
    
    
    401Operating expenses
    
    
    149
    
    
    
    202
    
    
    
    214Operating income
    
    
    262
    
    
    
    222
    
    
    
    187Other (income)
    
    
    0
    
    
    
    (2
    )
    
    
    (121
    )Income before interest and taxes
    
    
    262
    
    
    
    224
    
    
    
    308Interest expense
    
    
    41
    
    
    
    56
    
    
    
    50Income before income taxes
    
    
    221
    
    
    
    168
    
    
    
    258Income tax (expense)
    
    
    (85
    )
    
    
    (55
    )
    
    
    (99
    )Net income
    
    $
    136
    
    
    $
    113
    
    
    $
    159
 Fiscal Year Ended June 30, 2006 Compared to Fiscal Year Ended June 30, 2005
 Pipeline Revenues and Gross Margins
 Pipeline Operating Expenses
 Pipeline Other Income
 Pipeline Interest Expense
 25




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##### Table of Contents



Pipeline Income Tax Benefit (Expense)
 Fiscal Year Ended June 30, 2005 Compared to Fiscal Year Ended June 30, 2004
 Pipeline Revenues and Gross Margins
 Pipeline Operating Expenses
 Pipeline Other Income
 Pipeline Interest Expense
 Pipeline Income Tax Benefit (Expense)
 Consolidated Cash Flow Analysis
 Sources and Uses of Cash
      26




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##### Table of Contents



Years Ended June 30,2006
    
    
    2005
    
    
    2004Cash provided by (used in) operating activities
    
    $
    9,158,000
    
    
    $
    1,344,000
    
    
    $
    (5,872,000
    )Cash used in investing activities
    
    
    (2,212,000
    )

    
    
    (2,466,000
    )
    
    
    (1,146,000
    )Cash (used in) provided by financing activities
    
    
    (5,401,000
    )
    
    
    (107,000
    )
    
    
    6,402,000Increase (decrease) in cash
    
    $
    1,545,000
    
    
    $
    (1,229,000
    )
    
    $
    (616,000
    )
    Governmental Regulation
  Liquidity and Capital Resources
   27




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##### Table of Contents



First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterYear Ended June 30, 2006Minimum borrowing
    
    $
    3,100,000
    
    
    $
    5,200,000
    
    
    $
    0
    
    
    $
    0Maximum borrowing
    
    $
    5,200,000
    
    
    $
    12,250,000
    
    
    $
    12,050,000
    
    
    $
    0Average borrowing
    
    $
    4,167,000
    
    
    $
    9,489,000
    
    
    $
    5,619,000
    
    
    $
    0Year Ended June 30, 2005Minimum borrowing
    
    $
    7,729,000
    
    
    $
    12,688,000
    
    
    $
    3,500,000
    
    
    $
    2,700,000Maximum borrowing
    
    $
    13,129,000
    
    
    $
    14,629,000
    
    
    $
    13,929,000
    
    
    $
    3,900,000Average borrowing
    
    $
    10,196,000
    
    
    $
    13,982,000
    
    
    $
    8,110,000
    
    
    $
    3,167,000Year Ended June 30, 2004Minimum borrowing
    
    $
    6,105,000
    
    
    $
    12,102,000
    
    
    $
    9,229,000
    
    
    $
    4,729,000Maximum borrowing
    
    $
    8,602,000
    
    
    $
    12,629,000
    
    
    $
    13,229,000
    
    
    $
    6,729,000Average borrowing
    
    $
    7,482,000
    
    
    $
    12,277,000
    
    
    $
    10,563,000
    
    
    $
    5,563,000
      28




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##### Table of Contents



Contractual Obligations
  29




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##### Table of Contents



1 year
    
    
    
    
    
    
    
    
    
    
    AfterContractual Obligations
    
    Total
    
    
    or less
    
    
    2-3 years
    
    
    4-5 years
    
    
    5 yearsInterest payments (a)
    
    $
    6,798,806
    
    
    $
    1,397,415
    
    
    $
    2,438,654
    
    
    $
    1,793,162
    
    
    $
    1,169,575Long Term Debt (b)
    
    
    18,663,214
    
    
    
    1,058,214
    
    
    
    5,515,000
    
    
    
    260,000
    
    
    
    11,830,000Operating Lease Obligations
    
    
    457,848
    
    
    
    144,624
    
    
    
    205,224
    
    
    
    108,000
    
    
    
    Transportation and Storage Obligation (c)
    
    $
    15,724,771
    
    
    
    4,367,715
    
    
    
    8,517,792
    
    
    
    2,839,264
    
    
    
    Total Obligations
    
    $
    41,644,639
    
    
    $
    6,967,968
    
    
    $
    16,676,670
    
    
    $
    5,000,426
    
    
    $
    12,999,575
 
 (a)
    
    Our long-term debt, notes payable and customers deposits all require interest
payments. Interest payments are projected based on actual interest payments incurred in
fiscal 2006 until the underlying debts mature.(b)
    
    See Note 7 of the Notes to Consolidated Financial Statements for a description of
this debt. The cash obligations represent the maximum annual amount of redemptions to be made to
certain holders or their beneficiaries through the debt maturity date.(c)
    
    Transportation and storage obligations represent annual commitments with
suppliers for periods extending up to four years. These costs are recoverable in customer rates.  Capital Expenditures
   EstimatedFuture CashActual
    
    
    Requirements2006
    
    
    2007(In thousands)Natural Gas Operations
    
    $
    1,744
    
    
    $
    1,867Propane Operations
    
    
    607
    
    
    
    851Energy West Resources
    
    
    115
    
    
    
    0Pipeline Operations
    
    
    7
    
    
    
    0Total capital expenditures
    
    $
    2,473
    
    
    $
    2,718
 New Accounting Pronouncements
 Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative Instruments and
Hedging Activities Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities
 30




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##### Table of Contents



Accounting for Servicing of Financial Assetsan
amendment to FASB Statement No. 140
 Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 (FIN 48).
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  Commodity Price Risk
  Interest Rate Risk
  Credit Risk
  31




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
    
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
  
 Item 11. Executive Compensation.
  32




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accounting Fees and Services.
  33




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 Financial Statements:
 PageReport of
Independent Registered Public Accounting Firm 
Hein & Associates LLP
    
    
    F-2Report of Independent Registered Public Accounting
Firm  Deloitte and Touche LLP
    
    
    F-3Consolidated Balance Sheets
    
    
    F-4Consolidated Statements of Operations
    
    
    F-5Consolidated Statements of Stockholders Equity
    
    
    F-6Consolidated Statements of Cash Flows
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9Schedule II  Valuation and Qualifying Accounts
 Exhibits.
 Financial Statement Schedules:
 Schedule II
 Valuation and Qualifying Accounts
Energy West, Incorporated
June 30, 2006
 Balance at
    
    Charged to
    
    Write-Offs
    
    BalanceBeginning
    
    Costs &
    
    Net of
    
    at End ofDescription
    
    of Period
    
    Expenses
    
    Recoveries
    
    PeriodAllowance for bad debtsYear Ended June 30, 2004
    
    $
    213,013
    
    
    $
    163,041
    
    
    
    ($75,240
    )
    
    $
    300,814Year Ended June 30, 2005
    
    $
    300,814
    
    
    $
    168,369
    
    
    
    ($174,537
    )
    
    $
    294,646Year Ended June 30, 2006
    
    $
    294,646
    
    
    $
    281,156
    
    
    
    ($433,430
    )
    
    $
    142,372
  34




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##### Table of Contents



SIGNATURES
  ENERGY WEST, INCORPORATED/s/ David A. CerotzkeDavid A. CerotzkePresident and Chief Executive Officer(principal executive officer)
    /s/ David A. Cerotzke

David A. Cerotzke
    
    President, Chief Executive Officer,
and Director (principal executive
officer)
    
    September 28, 2006/s/ Wade F. Brooksby
    
    Chief Financial Officer (principal
financial officer and principal
accounting officer)
    
    September 28, 2006Wade F. Brooksby/s/ W.E. Argo
    
    Director
    
    September 28, 2006W.E. Argo/s/ Mark D. Grossi
    
    Director
    
    September 28, 2006Mark D. Grossi/s/ Richard M. Osborne
    
    Director
    
    September 28, 2006Richard M. Osborne/s/ Terry M. Palmer
    
    Director
    
    September 28, 2006Terry M. Palmer/s/ Richard J. Schulte
    
    Director
    
    September 28, 2006Richard J. Schulte/s/ Thomas J. Smith
    
    Director
    
    September 28, 2006Thomas Smith
 35




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##### Table of Contents



CONSOLIDATED FINANCIAL STATEMENTS
OF
ENERGY WEST, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
 PageReport of Independent Registered Public Accounting FirmHein & Associates LLP
    
    
    F-2Report of Independent Registered Public Accounting Firm Deloitte and Touche LLP
    
    
    F-3Consolidated Balance Sheets as of June 30, 2006 and 2005
    
    
    F-4Consolidated Statements of Operations for the Years Ended June 30, 2006, 2005, and 2004
    
    
    F-5Consolidated Statements of Changes in Stockholders Equity for the Years Ended June 30, 2006,
2005, and 2004
    
    
    F-6Consolidated Statements of Cash Flows for the Years Ended June 30, 2006, 2005, and 2004
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
 F-2




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/




---



##### Table of Contents



ENERGY WEST INCORPORATED AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS, JUNE 30, 2006 AND 2005
 2006
    
    
    2005ASSETSCurrent Assets:Cash
    
    $
    1,639,578
    
    
    $
    93,606Accounts receivable
less $142,372 and $294,646 respectively, allowance for bad debt
    
    
    4,162,851
    
    
    
    5,791,888Unbilled gas
    
    
    1,020,540
    
    
    
    1,092,320Derivative assets
    
    
    137,865
    
    
    
    119,069Natural gas and propane inventories
    
    
    5,424,778
    
    
    
    3,711,033Materials and supplies
    
    
    455,228
    
    
    
    440,959Prepayment and other
    
    
    290,860
    
    
    
    386,306Income tax receivable
    
    
    
    
    
    
    1,924,648Recoverable cost of gas purchases
    
    
    1,323,442
    
    
    
    1,863,475Total current assets
    
    
    14,455,142
    
    
    
    15,423,304Property, Plant and Equipment, Net
    
    
    39,104,060
    
    
    
    38,942,123Note Receivable
    
    
    
    
    
    
    174,561Deferred Charges
    
    
    4,214,178
    
    
    
    4,725,924Other Assets
    
    
    157,365
    
    
    
    167,481TOTAL ASSETS
    
    $
    57,930,745
    
    
    $
    59,433,393LIABILITIES AND CAPITALIZATIONCurrent Liabilities:Current portion of long-term debt
    
    $
    1,058,213
    
    
    $
    1,013,089Line of credit
    
    
    
    
    
    
    3,900,000Accounts payable
    
    
    3,592,260
    
    
    
    2,651,047Derivative liabilities
    
    
    42,664
    
    
    
    114,237Accrued income taxes
    
    
    1,320,431
    
    
    
    Deferred income taxes
    
    
    269,163
    
    
    
    96,214Accrued and other current liabilities
    
    
    3,860,302
    
    
    
    3,750,177Total current liabilities
    
    
    10,143,033
    
    
    
    11,524,764Other Obligations:Deferred income taxes
    
    
    5,835,886
    
    
    
    6,267,858Deferred investment tax credits
    
    
    292,220
    
    
    
    313,282Other long-term liabilities
    
    
    4,889,493
    
    
    
    5,463,667Total
    
    
    11,017,599
    
    
    
    12,044,807Long-Term Debt
    
    
    17,605,000
    
    
    
    18,677,197Commitments and Contingencies (note 12)Stockholders Equity:Preferred stock; $.15 par value, 1,500,000 shares authorized,
no shares outstandingCommon stock; $.15 par value, 5,000,000 shares authorized,
2,934,177 and 2,912,564 shares outstanding at June 30, 2006
and 2005, respectively
    
    
    440,127
    
    
    
    436,892Capital in excess of par value
    
    
    7,634,337
    
    
    
    7,435,309Retained earnings
    
    
    11,090,649
    
    
    
    9,314,424Total stockholders equity
    
    
    19,165,113
    
    
    
    17,186,625TOTAL CAPITALIZATION
    
    
    36,770,113
    
    
    
    35,863,822TOTAL LIABILITIES AND CAPITALIZATION
    
    $
    57,930,745
    
    
    $
    59,433,393
  F-4




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##### Table of Contents



ENERGY WEST INCORPORATED AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2006, 2005, AND 2004
 2006
    
    
    2005
    
    
    2004REVENUES:Natural gas operations
    
    $
    55,744,531
    
    
    $
    44,791,564
    
    
    $
    39,062,689Propane operations
    
    
    9,582,600
    
    
    
    8,819,980
    
    
    
    7,736,379Gas and electricwholesale
    
    
    18,539,793
    
    
    
    22,673,382
    
    
    
    26,090,845Pipeline operations
    
    
    411,237
    
    
    
    424,038
    
    
    
    401,269Total revenues
    
    
    84,278,161
    
    
    
    76,708,964
    
    
    
    73,291,182EXPENSES:Gas purchased
    
    
    49,379,651
    
    
    
    37,572,841
    
    
    
    31,883,566Gas and electricwholesale
cost of goods sold
    
    
    16,989,654
    
    
    
    20,759,637
    
    
    
    26,027,876Distribution, general, and administrative
    
    
    8,219,283
    
    
    
    9,446,567
    
    
    
    10,169,560Maintenance
    
    
    624,085
    
    
    
    596,312
    
    
    
    480,086Depreciation and amortization
    
    
    2,183,740
    
    
    
    2,313,238
    
    
    
    2,332,073Taxes other than income
    
    
    1,614,684
    
    
    
    1,653,936
    
    
    
    1,209,916Total expenses
    
    
    79,011,097
    
    
    
    72,342,531
    
    
    
    72,103,077OPERATING INCOME
    
    
    5,267,064
    
    
    
    4,366,433
    
    
    
    1,188,105NON-OPERATING INCOME
    
    
    504,342
    
    
    
    445,207
    
    
    
    385,277INTEREST EXPENSE
    
    
    (2,080,030
    )
    
    
    (2,677,298
    )
    
    
    (2,498,623
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    3,691,376
    
    
    
    2,134,342
    
    
    
    (925,241
    )INCOME TAX (EXPENSE) BENEFIT
    
    
    (1,374,706
    )
    
    
    (752,873
    )
    
    
    368,921NET INCOME (LOSS)
    
    $
    2,316,670
    
    
    $
    1,381,469
    
    
    $
    (556,320
    )EARNINGS (LOSS) PER COMMON SHARE:Basic
    
    $
    0.79
    
    
    $
    0.53
    
    
    $
    (0.21
    )Diluted
    
    $
    0.79
    
    
    $
    0.53
    
    
    $
    (0.21
    )WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:Basic
    
    
    2,924,512
    
    
    
    2,630,679
    
    
    
    2,596,454Diluted
    
    
    2,948,046
    
    
    
    2,630,679
    
    
    
    2,596,454
   F-5




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##### Table of Contents





ENERGY WEST INCORPORATED AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE YEARS ENDED JUNE 30, 2006, 2005, AND 2004


Capital inCommon
    
    
    Common
    
    
    Excess of
    
    
    RetainedShares
    
    
    Stock
    
    
    Par Value
    
    
    Earnings
    
    
    TotalBALANCE AT JUNE 30, 2003
    
    
    2,595,250
    
    
    $
    389,295
    
    
    $
    5,056,425
    
    
    $
    8,511,025
    
    
    $
    13,956,745Sales of common stock at $5.95 to $7.25
per share under the Companys dividend
reinvestment plan
    
    
    3,256
    
    
    
    488
    
    
    
    21,262
    
    
    
    
    
    
    
    21,750Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (556,320
    )
    
    
    (556,320
    )401k stock match
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,750
    )
    
    
    (21,750
    )BALANCE AT JUNE 30, 2004
    
    
    2,598,506
    
    
    
    389,783
    
    
    
    5,077,687
    
    
    
    7,932,955
    
    
    
    13,400,425Stock contributions to 401 (k) plan and deferred board
stock compensation at $6.10 to $8.58 per share
    
    
    26,558
    
    
    
    3,984
    
    
    
    197,791
    
    
    
    
    
    
    
    201,775Sale of common stock at $8.00 per share, net of issuance costs
    
    
    287,500
    
    
    
    43,125
    
    
    
    2,159,831
    
    
    
    
    
    
    
    2,202,956Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,381,469
    
    
    
    1,381,469BALANCE AT JUNE 30, 2005
    
    
    2,912,564
    
    
    
    436,892
    
    
    
    7,435,309
    
    
    
    9,314,424
    
    
    
    17,186,625Sales of common stock at $9.05 to $11.51
per share under the Companys dividend
reinvestment plan
    
    
    640
    
    
    
    96
    
    
    
    6,068
    
    
    
    (10,780
    )
    
    
    (4,616
    )Stock contributions at $9.05 to $11.51 to
the 401 (k) plan
    
    
    1,943
    
    
    
    284
    
    
    
    39,337
    
    
    
    (39,621
    )
    
    
    Stock Compensation
    
    
    16,530
    
    
    
    2,480
    
    
    
    132,770
    
    
    
    
    
    
    
    135,250Sale of stock @ $8.49
    
    
    2,500
    
    
    
    375
    
    
    
    20,853
    
    
    
    
    
    
    
    21,228Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,316,670
    
    
    
    2,316,670Dividends @ $.17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (490,044
    )
    
    
    (490,044
    )BALANCE AT JUNE 30, 2006
    
    
    2,934,177
    
    
    $
    440,127
    
    
    $
    7,634,337
    
    
    $
    11,090,649
    
    
    $
    19,165,113




F-6




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##### Table of Contents



ENERGY WEST INCORPORATED AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2006, 2005, AND 2004
 2006
    
    
    2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    2,316,670
    
    
    $
    1,381,469
    
    
    $
    (556,320
    )Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:Depreciation and amortization, including deferred
charges and financing costs
    
    
    2,880,957
    
    
    
    3,016,716
    
    
    
    3,467,774Derivative assets
    
    
    (18,796
    )
    
    
    80,179
    
    
    
    424,387Derivative liabilities
    
    
    (71,573
    )
    
    
    (331,674
    )
    
    
    819,747Deferred gain
    
    
    (643,280
    )
    
    
    (269,903
    )
    
    
    Gain on sale of assets
    
    
    
    
    
    
    (9,201
    )
    
    
    (333,987
    )Investment tax credit
    
    
    (21,062
    )
    
    
    (21,062
    )
    
    
    (21,062
    )Deferred gain on sale of assets
    
    
    (23,639
    )
    
    
    (23,628
    )
    
    
    (23,628
    )Deferred income taxes
    
    
    330,034
    
    
    
    1,772,533
    
    
    
    209,612Changes in assets and liabilities:Accounts and notes receivable
    
    
    2,545,161
    
    
    
    77,789
    
    
    
    1,090,118Natural gas and propane inventories
    
    
    (1,713,745
    )
    
    
    1,472,013
    
    
    
    (4,144,356
    )Accounts payable
    
    
    481,399
    
    
    
    (500,217
    )
    
    
    (5,230,702
    )Recoverable/refundable cost of gas purchases
    
    
    540,033
    
    
    
    (1,075,068
    )
    
    
    278,702Prepayments and other
    
    
    95,445
    
    
    
    (15,926
    )
    
    
    (17,397
    )Other assets
    
    
    1,380,640
    
    
    
    (21,924
    )
    
    
    539,349Other liabilities
    
    
    1,080,149
    
    
    
    (4,187,677
    )
    
    
    (2,374,106
    )Net cash provided by (used in) operating activities
    
    
    9,158,393
    
    
    
    1,344,419
    
    
    
    (5,871,869
    )CASH FLOWS FROM INVESTING ACTIVITIES:Construction expenditures
    
    
    (2,472,972
    )
    
    
    (2,795,565
    )
    
    
    (2,316,695
    )Acquisition of producing natural gas properties
    
    
    174,561
    
    
    
    
    
    
    
    Proceeds from sale of assets
    
    
    
    
    
    
    32,605
    
    
    
    946,233Customer advances received for construction
    
    
    106,406
    
    
    
    74,348
    
    
    
    65,579Increase (decrease) from contributions in aid of
construction
    
    
    (19,911
    )
    
    
    221,909
    
    
    
    158,735Net cash (used in) investing activities
    
    
    (2,211,916
    )
    
    
    (2,466,703
    )
    
    
    (1,146,148
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayments of long-term debt
    
    
    (1,027,073
    )
    
    
    (2,979,706
    )
    
    
    (696,831
    )Proceeds from lines of credit
    
    
    14,850,000
    
    
    
    10,100,000
    
    
    
    32,932,346Repayments of lines of credit
    
    
    (18,750,000
    )
    
    
    (12,930,062
    )
    
    
    (32,307,630
    )Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    8,000,000Proceeds from other short-term borrowing
    
    
    
    
    
    
    3,500,000
    
    
    
    Debt issuance cost
    
    
    
    
    
    
    
    
    
    
    (1,525,934
    )Sale of common stock
    
    
    21,228
    
    
    
    2,202,956
    
    
    
    Dividends paid
    
    
    (494,660
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (5,400,505
    )
    
    
    (106,812
    )
    
    
    6,401,951NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    1,545,972
    
    
    
    (1,229,096
    )
    
    
    (616,066
    )CASH AND CASH EQUIVALENTS:Beginning of year
    
    
    93,606
    
    
    
    1,322,702
    
    
    
    1,938,768End of year
    
    $
    1,639,578
    
    
    $
    93,606
    
    
    $
    1,322,702
 See notes to consolidated financial statements
    
    (Continued)
 F-7




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##### Table of Contents



ENERGY WEST INCORPORATED AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2006, 2005, AND 2004
 2006
    
    
    2005
    
    
    2004SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    1,047,633
    
    
    $
    2,290,133
    
    
    $
    1,858,023Cash paid during the period for income taxes
    
    
    8,000
    
    
    
    447,000
    
    
    
    SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:Assets sold for notes receivable issued
    
    
    
    
    
    
    
    
    
    
    620,333Shares issued to satisify deferred board compensation
    
    
    135,242
    
    
    
    201,775
    
    
    
    Reclass of derivative liability to deferred gain
    
    
    
    
    
    
    1,238,765
    
    
    
    Shares issued under the Companys 401k
reinvestment plan
    
    
    19,436
    
    
    
    20,185
    
    
    
    21,750Capitalized interest
    
    
    18,855
    
    
    
    34,160
    
    
    
    24,602
  F-8




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##### Table of Contents



ENERGY WEST, INCORPORATED AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 2006, 2005, and 2004
 1. Summary of Business and Significant Accounting Policies
 Nature of Business
  Basis of Presentation
 Principles of Consolidation
 Segments
 Use of Estimates in Preparing Financial Statements
 Natural Gas and Propane Inventories
 Recoverable/Refundable Costs of Gas and Propane Purchases
 F-9




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##### Table of Contents



Property, Plant, and Equipment
 Contributions in Aid and Advances Received for Construction
 Natural Gas Reserves
 Impairment of Long-Lived Assets
 Stock-Based Compensation Share-Based Payment
 Pro-Forma Disclosures Accounting for Stock Issued to
Employees Accounting for Stock-Based
Compensation, Accounting for Stock-Based Compensation  Transition and
Disclosure, an Amendment of SFAS No. 123.
 F-10




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Net income (loss), as reported for the year ended 2006
    
    $
    2,316,670
    
    
    $
    1,381,469
    
    
    $
    (556,320
    )Add: stock-based employee compensation expense
included in reported net income, net of related tax effects
    
    
    35,308
    
    
    
    0
    
    
    
    0Deduct: compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    (35,308
    )
    
    
    (51,450
    )
    
    
    (19,160
    )Pro forma net income (loss)
    
    $
    2,316,670
    
    
    $
    1,330,019
    
    
    $
    (575,480
    )Earnings per share:Basicas reported
    
    $
    0.79
    
    
    $
    0.53
    
    
    $
    (0.21
    )Basicpro forma
    
    $
    0.79
    
    
    $
    0.51
    
    
    $
    (0.22
    )Dilutedas reported
    
    $
    0.79
    
    
    $
    0.53
    
    
    $
    (0.21
    )Dilutedpro forma
    
    $
    0.79
    
    
    $
    0.51
    
    
    $
    (0.22
    )
  2006
    
    2005
    
    2004Expected dividend rate
    
    
    2.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Risk free interest rate
    
    
    4.87
    
    
    
    3.90
    
    
    
    4.70Weighted average expected lives, in years
    
    
    3.40
    
    
    
    4.26
    
    
    
    3.40Price volatility
    
    
    39.00
    %
    
    
    54.00
    %
    
    
    54.00
    %Total intrinsic value of options exercised
    
    $
    4,087
    
    
    $
    0
    
    
    $
    0Total cash received from options exercised
    
    $
    21,228
    
    
    $
    0
    
    
    $
    0
 Comprehensive Income
 Revenue Recognition
 Derivatives
 F-11




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##### Table of Contents



Debt Issuance and Reacquisition Costs
 Cash and Cash Equivalents
 Earnings Per Share
 Credit Risk
 Effects of Regulation
 Income Taxes
 Financial Instruments
 Asset Retirement Obligations (ARO)
 F-12




---



##### Table of Contents



Balance  July 1, 2005
    
    $
    618,473Accretion
    
    
    32,244Balance  June 30, 2006
    
    $
    650,717
 New Accounting Pronouncements Accounting for Certain Hybrid Financial Instruments Accounting for Derivative Instruments and Hedging Activities Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 Accounting for Servicing of Financial Assetsan
amendment to FASB Statement No. 140
 Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109 (FIN 48).
  2. Natural Gas Wells
   F-13




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##### Table of Contents



3. Property, Plant and Equipment
  2006
    
    
    2005Gas transmission and distribution facilities
    
    $
    56,122,235
    
    
    $
    53,943,812Land
    
    
    325,770
    
    
    
    332,506Buildings and leasehold improvements
    
    
    3,250,007
    
    
    
    3,250,007Transportation equipment
    
    
    2,376,065
    
    
    
    2,237,542Computer equipment
    
    
    4,969,189
    
    
    
    4,939,845Other equipment
    
    
    4,574,667
    
    
    
    4,643,354Construction work-in-progress
    
    
    137,881
    
    
    
    188,048Producing natural gas properties
    
    
    2,082,903
    
    
    
    2,046,35273,838,717
    
    
    
    71,581,466Accumulated depreciation, depletion,
and amortization
    
    
    (34,734,657
    )
    
    
    (32,639,343
    )Total
    
    $
    39,104,060
    
    
    $
    38,942,123
 F-14




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##### Table of Contents



4. Deferred Charges
  2006
    
    
    2005Regulatory asset for property tax
    
    $
    2,303,015
    
    
    $
    2,561,265Regulatory asset for income taxes
    
    
    458,753
    
    
    
    458,753Regulatory assets for deferred environmental remediation costs
    
    
    334,996
    
    
    
    413,218Other regulatory assets
    
    
    126,263
    
    
    
    52,198Unamortized debt issue costs
    
    
    991,151
    
    
    
    1,240,490Total
    
    $
    4,214,178
    
    
    $
    4,725,924
   5. Accrued and Other Current Liabilities
  2006
    
    
    2005Property tax settlementcurrent portion
    
    $
    243,000
    
    
    $
    243,000Payable to employee benefit plans
    
    
    275,377
    
    
    
    481,514Accrued vacation
    
    
    258,831
    
    
    
    267,859Customer deposits
    
    
    465,188
    
    
    
    418,148Accrued interest
    
    
    140,648
    
    
    
    97,987Accrued taxes other than income
    
    
    467,947
    
    
    
    507,288Deferred short-term gain
    
    
    243,519
    
    
    
    399,760Deferred payments from levelized billing
    
    
    844,344
    
    
    
    459,814Other
    
    
    921,448
    
    
    
    874,807Total
    
    $
    3,860,302
    
    
    $
    3,750,177
 F-15




---



##### Table of Contents



6. Other Long-Term Liabilities
  2006
    
    
    2005Asset retirement obligation
    
    $
    650,717
    
    
    $
    618,473Contribution in aid of construction
    
    
    1,954,980
    
    
    
    1,447,448Customer advances for construction
    
    
    277,845
    
    
    
    677,936Accumulated postretirement obligation
    
    
    139,200
    
    
    
    342,900Deferred gain on sale leaseback of assets
    
    
    
    
    
    
    23,639Deferred gain  long-term *
    
    
    325,582
    
    
    
    569,102Regulatory liability for income taxes
    
    
    83,161
    
    
    
    83,161Property tax settlement
    
    
    1,458,008
    
    
    
    1,701,008Total
    
    $
    4,889,493
    
    
    $
    5,463,667
 
 *
    
    In January 2005, two long-term contracts were designated as normal purchases and sales. The
derivative liability as of January 2005 is being amortized over the remaining monthly volumes of
the contract at a rate of $1.21 per MMBtu. 7. Line of Credit and Long-Term Debt
 LaSalle Line of Credit
 Long-term Debt
 2006
    
    
    2005Series 1997 notes payable
    
    $
    7,840,000
    
    
    $
    7,853,984Series 1993 notes payable
    
    
    4,840,000
    
    
    
    5,355,000Series 1992B industrial development
revenue obligations
    
    
    880,000
    
    
    
    975,000Term loan
    
    
    5,100,000
    
    
    
    5,500,000Capital lease
    
    
    3,213
    
    
    
    6,302Total long-term debt
    
    
    18,663,213
    
    
    
    19,690,286Less current portion of long-term debt
    
    
    (1,058,213
    )
    
    
    (1,013,089
    )Long-term debt
    
    $
    17,605,000
    
    
    $
    18,677,197
  Series 1997 Notes Payable
 F-16




---



##### Table of Contents



Series 1993 Notes Payable
 Series 1992B Industrial Development Revenue Obligations
 Term Loan
 Aggregate Annual Maturities
 TotalTerm
    
    
    Series
    
    
    Series
    
    
    Series
    
    
    Capital
    
    
    Long-TermLoan
    
    
    1997
    
    
    1993
    
    
    1992B
    
    
    Lease
    
    
    DebtYear ending June 30:2007
    
    $
    400,000
    
    
    $
    
    
    
    $
    550,000
    
    
    $
    105,000
    
    
    $
    3,213
    
    
    $
    1,058,2132008
    
    
    400,000
    
    
    
    
    
    
    
    590,000
    
    
    
    110,000
    
    
    
    
    
    
    
    1,100,0002009
    
    
    400,000
    
    
    
    
    
    
    
    
    
    
    
    115,000
    
    
    
    
    
    
    
    515,0002010
    
    
    3,900,000
    
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    
    
    
    
    
    4,025,0002011
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    135,000
    
    
    
    
    
    
    
    135,000Thereafter
    
    
    0
    
    
    
    7,840,000
    
    
    
    3,700,000
    
    
    
    290,000
    
    
    
    
    
    
    
    11,830,000Total
    
    $
    5,100,000
    
    
    $
    7,840,000
    
    
    $
    4,840,000
    
    
    $
    880,000
    
    
    $
    3,213
    
    
    $
    18,663,213
 F-17




---



##### Table of Contents



Debt Covenants
  8. Employee Benefit Plans
   F-18




---



##### Table of Contents



2006
    
    
    2005Change in benefit obligation:Projected benefit obligation
Benefit obligation at beginning of year
    
    $
    941,200
    
    
    $
    776,600Service costs
    
    
    41,800
    
    
    
    37,600Interest costs
    
    
    40,100
    
    
    
    45,600Actuarial (gains) losses
    
    
    (222,000
    )
    
    
    170,100Benefits paid
    
    
    (63,900
    )
    
    
    (88,700
    )Curtailments
    
    
    (395,700
    )
    
    
    Benefit obligation at end of year
    
    
    341,500
    
    
    
    941,200Change in plan assets:Fair value of plan assets at beginning of year
    
    
    359,900
    
    
    
    444,500Actual return on plan assets
    
    
    11,700
    
    
    
    4,100Benefits paid
    
    
    (63,900
    )
    
    
    (88,700
    )Fair value of plan assets at end of year
    
    
    307,700
    
    
    
    359,900Benefit obligation in excess of plan assets
    
    
    33,800
    
    
    
    581,300Unrecognized transition obligation
    
    
    
    
    
    
    (157,000
    )Unrecognized prior service cost
    
    
    
    
    
    
    (108,700
    )Unrecognized gains
    
    
    105,400
    
    
    
    27,300Net liability recognized
    
    $
    139,200
    
    
    $
    342,900
 2006
    
    
    2005
    
    
    2004Components of net periodic benefit cost:Service costs
    
    $
    41,800
    
    
    $
    37,600
    
    
    $
    33,200Interest costs
    
    
    40,100
    
    
    
    45,600
    
    
    
    41,300Expected return on plan assets
    
    
    (29,100
    )
    
    
    (36,400
    )
    
    
    (37,500
    )Amortization of transition obligation
    
    
    19,600
    
    
    
    19,600
    
    
    
    19,600Amortization of unrecognized prior service costs
    
    
    17,900
    
    
    
    17,900
    
    
    
    17,900Additional pension expense (income) due to curtailment/settlement
    
    
    (289,600
    )
    
    
    
    
    
    
    Actuarial gains
    
    
    (4,400
    )
    
    
    (10,500
    )
    
    
    (15,200
    )Postretirement benefit expense
    
    $
    (203,700
    )
    
    $
    73,800
    
    
    $
    59,300
  F-19




---



##### Table of Contents



2006
    
    2005Weighted-average assumptions as of June 30:Discount rate
    
    
    6.00
    %
    
    
    5.00
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %Health care inflation rate
    
    
    9.00
    %
    
    
    9.50
    %Grading to 5.5%
    
    Grading to 5.5%
   9. Income Taxes
  2006
    
    
    2005Current
    
    
    Long-Term
    
    
    Current
    
    
    Long-TermDeferred tax asset:Allowances for doubtful accounts
    
    $
    52,340
    
    
    $
    
    
    
    $
    119,181
    
    
    $
    Unamortized investment tax credit
    
    
    
    
    
    
    18,533
    
    
    
    
    
    
    
    23,351Contributions in aid of construction
    
    
    
    
    
    
    539,395
    
    
    
    
    
    
    
    359,936Other nondeductible accruals
    
    
    100,591
    
    
    
    
    
    
    
    160,411
    
    
    
    Deferred gain (loss) on sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,692Recoverable purchase gas costs
    
    
    322,428
    
    
    
    
    
    
    
    20,344
    
    
    
    Derivatives
    
    
    177,713
    
    
    
    
    
    
    
    395,253
    
    
    
    Deferred incentive and pension accrual
    
    
    
    
    
    
    65,420
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    326,870
    
    
    
    5,177
    
    
    
    437,112Total
    
    
    653,072
    
    
    
    950,218
    
    
    
    700,366
    
    
    
    830,091Deferred tax liabilities:Recoverable purchase gas costs
    
    
    912,969
    
    
    
    
    
    
    
    796,118
    
    
    
    Property, plant, and equipment
    
    
    
    
    
    
    6,281,038
    
    
    
    
    
    
    
    6,468,105Debt issue costs
    
    
    
    
    
    
    69,453
    
    
    
    
    
    
    
    88,769Deferred rate case costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,607Covenant not to compete
    
    
    
    
    
    
    46,616
    
    
    
    
    
    
    
    50,859Other
    
    
    9,266
    
    
    
    388,997
    
    
    
    462
    
    
    
    461,609Total
    
    
    922,235
    
    
    
    6,786,104
    
    
    
    796,580
    
    
    
    7,097,949Net deferred tax asset (liabilities)
    
    $
    (269,163
    )
    
    $
    (5,835,886
    )
    
    $
    (96,214
    )
    
    $
    (6,267,858
    )
 F-20




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004Current income taxes:Federal
    
    $
    1,273,148
    
    
    $
    (1,226,388
    )
    
    $
    (453,156
    )State
    
    
    142,514
    
    
    
    (361,267
    )
    
    
    (104,315
    )Total current income taxes
    
    
    1,415,662
    
    
    
    (1,587,655
    )
    
    
    (557,471
    )Deferred income taxes:Federal
    
    
    (17,891
    )
    
    
    1,938,492
    
    
    
    138,344State
    
    
    (2,003
    )
    
    
    423,098
    
    
    
    71,268Total deferred income taxes
    
    
    (19,894
    )
    
    
    2,361,590
    
    
    
    209,612Total income taxes before credits
    
    
    1,395,768
    
    
    
    773,935
    
    
    
    (347,859
    )Investment tax credit, net
    
    
    (21,062
    )
    
    
    (21,062
    )
    
    
    (21,062
    )Total income tax expense (benefit)
    
    $
    1,374,706
    
    
    $
    752,873
    
    
    $
    (368,921
    )
  2006
    
    
    2005
    
    
    2004Tax expense at statutory rate of 34%
    
    $
    1,255,067
    
    
    $
    743,846
    
    
    $
    (323,834
    )State income tax, net of federal tax benefit
    
    
    92,737
    
    
    
    97,575
    
    
    
    (41,266
    )Amortization of deferred investment tax credits
    
    
    (21,062
    )
    
    
    (21,062
    )
    
    
    (21,062
    )Other
    
    
    47,964
    
    
    
    (67,486
    )
    
    
    17,241Total
    
    $
    1,374,706
    
    
    $
    752,873
    
    
    $
    (368,921
    )
 F-21




---



##### Table of Contents



10. Segments of Operations
    F-22




---



##### Table of Contents



Natural Gas
    
    
    Propane
    
    
    
    
    
    
    PipelineYear Ended June 30, 2006
    
    Operations
    
    
    Operations
    
    
    EWR
    
    
    Operations
    
    
    Eliminations
    
    
    ConsolidatedOperating revenue:Natural gas operations
    
    $
    56,044,531
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (300,000
    )
    
    $
    55,744,531Propane operations
    
    
    
    
    
    
    9,874,736
    
    
    
    
    
    
    
    
    
    
    
    (292,136
    )
    
    
    9,582,600Marketing and wholesale
    
    
    
    
    
    
    
    
    
    
    32,587,643
    
    
    
    
    
    
    
    (14,047,850
    )
    
    
    18,539,793Pipeline operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    411,237
    
    
    
    
    
    
    
    411,237Total operating revenue
    
    
    56,044,531
    
    
    
    9,874,736
    
    
    
    32,587,643
    
    
    
    411,237
    
    
    
    (14,639,986
    )
    
    
    84,278,161Gas purchased
    
    
    43,752,966
    
    
    
    6,218,821
    
    
    
    
    
    
    
    
    
    
    
    (592,136
    )
    
    
    49,379,651Gas and electric  wholesale
    
    
    
    
    
    
    
    
    
    
    31,037,504
    
    
    
    
    
    
    
    (14,047,850
    )
    
    
    16,989,654Distribution, general, and
administrative
    
    
    5,830,719
    
    
    
    1,846,786
    
    
    
    456,708
    
    
    
    85,070
    
    
    
    
    
    
    
    8,219,283Maintenance
    
    
    504,473
    
    
    
    119,469
    
    
    
    143
    
    
    
    
    
    
    
    
    
    
    
    624,085Depreciation and amortization
    
    
    1,394,169
    
    
    
    537,687
    
    
    
    195,820
    
    
    
    56,064
    
    
    
    
    
    
    
    2,183,740Taxes other than income
    
    
    1,430,101
    
    
    
    173,127
    
    
    
    3,854
    
    
    
    7,602
    
    
    
    
    
    
    
    1,614,684Operating expenses
    
    
    52,912,428
    
    
    
    8,895,890
    
    
    
    31,694,029
    
    
    
    148,736
    
    
    
    (14,639,986
    )
    
    
    79,011,097Operating income
    
    
    3,132,103
    
    
    
    978,846
    
    
    
    893,614
    
    
    
    262,501
    
    
    
    
    
    
    
    5,267,064Other income
    
    
    358,213
    
    
    
    113,665
    
    
    
    32,464
    
    
    
    
    
    
    
    
    
    
    
    504,342Interest (expense)
    
    
    (1,425,186
    )
    
    
    (435,215
    )
    
    
    (178,339
    )
    
    
    (41,290
    )
    
    
    
    
    
    
    (2,080,030
    )Income before income taxes
    
    
    2,065,130
    
    
    
    657,296
    
    
    
    747,739
    
    
    
    221,211
    
    
    
    
    
    
    
    3,691,376Income taxes (expense)
    
    
    (740,624
    )
    
    
    (260,446
    )
    
    
    (288,556
    )
    
    
    (85,080
    )
    
    
    
    
    
    
    (1,374,706
    )Net income
    
    $
    1,324,506
    
    
    $
    396,850
    
    
    $
    459,183
    
    
    $
    136,131
    
    
    $
    
    
    
    $
    2,316,670Capital expenditures and
natural gas properties
    
    $
    1,744,046
    
    
    $
    607,378
    
    
    $
    114,747
    
    
    $
    6,801
    
    
    
    
    
    
    $
    2,472,972Total assets
    
    $
    38,877,712
    
    
    $
    12,354,813
    
    
    $
    5,269,075
    
    
    $
    1,044,213
    
    
    $
    384,932
    
    
    $
    57,930,745
 F-23




---



##### Table of Contents



Natural Gas
    
    
    Propane
    
    
    
    
    
    
    PipelineYear Ended June 30, 2005
    
    Operations
    
    
    Operations
    
    
    EWR
    
    
    Operations
    
    
    Eliminations
    
    
    ConsolidatedOperating revenue:Natural gas operations
    
    $
    45,091,564
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (300,000
    )
    
    $
    44,791,564Propane operations
    
    
    
    
    
    
    9,056,729
    
    
    
    
    
    
    
    
    
    
    
    (236,749
    )
    
    
    8,819,980Marketing and wholesale
    
    
    
    
    
    
    
    
    
    
    38,352,126
    
    
    
    
    
    
    
    (15,678,744
    )
    
    
    22,673,382Pipeline operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    424,038
    
    
    
    
    
    
    
    424,038Total operating revenue
    
    
    45,091,564
    
    
    
    9,056,729
    
    
    
    38,352,126
    
    
    
    424,038
    
    
    
    (16,215,493
    )
    
    
    76,708,964Gas purchased
    
    
    33,095,465
    
    
    
    5,014,125
    
    
    
    
    
    
    
    
    
    
    
    (536,749
    )
    
    
    37,572,841Gas and electric  wholesale
    
    
    
    
    
    
    
    
    
    
    36,438,381
    
    
    
    
    
    
    
    (15,678,744
    )
    
    
    20,759,637Distribution, general, and
administrative
    
    
    6,242,841
    
    
    
    2,152,870
    
    
    
    937,314
    
    
    
    113,542
    
    
    
    
    
    
    
    9,446,567Maintenance
    
    
    518,686
    
    
    
    77,430
    
    
    
    196
    
    
    
    
    
    
    
    
    
    
    
    596,312Depreciation and amortization
    
    
    1,488,353
    
    
    
    550,452
    
    
    
    220,845
    
    
    
    53,588
    
    
    
    
    
    
    
    2,313,238Taxes other than income
    
    
    1,416,037
    
    
    
    188,553
    
    
    
    14,711
    
    
    
    34,635
    
    
    
    
    
    
    
    1,653,936Operating expenses
    
    
    42,761,382
    
    
    
    7,983,430
    
    
    
    37,611,447
    
    
    
    201,765
    
    
    
    (16,215,493
    )
    
    
    72,342,531Operating income
    
    
    2,330,182
    
    
    
    1,073,299
    
    
    
    740,679
    
    
    
    222,273
    
    
    
    
    
    
    
    4,366,433Other income
    
    
    165,806
    
    
    
    210,477
    
    
    
    67,064
    
    
    
    1,860
    
    
    
    
    
    
    
    445,207Interest (expense)
    
    
    (1,774,989
    )
    
    
    (571,321
    )
    
    
    (274,885
    )
    
    
    (56,103
    )
    
    
    
    
    
    
    (2,677,298
    )Income before income taxes
    
    
    720,999
    
    
    
    712,455
    
    
    
    532,858
    
    
    
    168,030
    
    
    
    
    
    
    
    2,134,342Income taxes (expense)
    
    
    (216,073
    )
    
    
    (270,652
    )
    
    
    (210,712
    )
    
    
    (55,436
    )
    
    
    
    
    
    
    (752,873
    )Net income
    
    $
    504,926
    
    
    $
    441,803
    
    
    $
    322,146
    
    
    $
    112,594
    
    
    $
    
    
    
    $
    1,381,469Capital expenditures and
natural gas properties
    
    $
    1,945,601
    
    
    $
    613,447
    
    
    $
    193,881
    
    
    $
    42,636
    
    
    
    
    
    
    $
    2,795,565Total assets
    
    $
    39,628,060
    
    
    $
    12,026,924
    
    
    $
    6,965,714
    
    
    $
    1,136,303
    
    
    $
    (323,608
    )
    
    $
    59,433,393
 F-24




---



##### Table of Contents



Natural Gas
    
    
    Propane
    
    
    
    
    
    
    PipelineYear Ended June 30, 2004
    
    Operations
    
    
    Operations
    
    
    EWR
    
    
    Operations
    
    
    Eliminations
    
    
    ConsolidatedOperating revenue:Natural gas operations
    
    $
    39,362,689
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (300,000
    )
    
    $
    39,062,689Propane operations
    
    
    
    
    
    
    7,963,609
    
    
    
    
    
    
    
    
    
    
    
    (227,230
    )
    
    
    7,736,379Marketing and wholesale
    
    
    
    
    
    
    
    
    
    
    51,097,486
    
    
    
    
    
    
    
    (25,006,641
    )
    
    
    26,090,845Pipeline operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    401,269
    
    
    
    
    
    
    
    401,269Total operating revenue
    
    
    39,362,689
    
    
    
    7,963,609
    
    
    
    51,097,486
    
    
    
    401,269
    
    
    
    (25,533,871
    )
    
    
    73,291,182Gas purchased
    
    
    28,183,288
    
    
    
    4,227,508
    
    
    
    
    
    
    
    
    
    
    
    (527,230
    )
    
    
    31,883,566Gas and electric  wholesale
    
    
    
    
    
    
    
    
    
    
    51,034,517
    
    
    
    
    
    
    
    (25,006,641
    )
    
    
    26,027,876Distribution, general, and
administrative
    
    
    6,996,914
    
    
    
    2,165,617
    
    
    
    860,425
    
    
    
    146,604
    
    
    
    
    
    
    
    10,169,560Maintenance
    
    
    395,572
    
    
    
    84,514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    480,086Depreciation and amortization
    
    
    1,538,546
    
    
    
    547,234
    
    
    
    213,172
    
    
    
    33,121
    
    
    
    
    
    
    
    2,332,073Taxes other than income
    
    
    911,496
    
    
    
    241,379
    
    
    
    22,260
    
    
    
    34,781
    
    
    
    
    
    
    
    1,209,916Operating expenses
    
    
    38,025,816
    
    
    
    7,266,252
    
    
    
    52,130,374
    
    
    
    214,506
    
    
    
    (25,533,871
    )
    
    
    72,103,077Operating income (loss)
    
    
    1,336,873
    
    
    
    697,357
    
    
    
    (1,032,888
    )
    
    
    186,763
    
    
    
    
    
    
    
    1,188,105Other income
    
    
    96,354
    
    
    
    180,748
    
    
    
    (12,678
    )
    
    
    120,853
    
    
    
    
    
    
    
    385,277Interest (expense)
    
    
    (1,622,797
    )
    
    
    (572,522
    )
    
    
    (253,601
    )
    
    
    (49,703
    )
    
    
    
    
    
    
    (2,498,623
    )Income (loss) before income taxes
    
    
    (189,570
    )
    
    
    305,583
    
    
    
    (1,299,167
    )
    
    
    257,913
    
    
    
    
    
    
    
    (925,241
    )Income taxes benefit (expense)
    
    
    26,386
    
    
    
    (2,475
    )
    
    
    444,322
    
    
    
    (99,312
    )
    
    
    
    
    
    
    368,921Net income (loss)
    
    $
    (163,184
    )
    
    $
    303,108
    
    
    $
    (854,845
    )
    
    $
    158,601
    
    
    $
    
    
    
    $
    (556,320
    )Capital expenditures and
natural gas properties
    
    $
    1,631,549
    
    
    $
    515,213
    
    
    $
    74,634
    
    
    $
    95,299
    
    
    
    
    
    
    $
    2,316,695Total assets
    
    $
    47,260,442
    
    
    $
    12,434,754
    
    
    $
    8,880,950
    
    
    $
    1,117,398
    
    
    $
    (8,248,467
    )
    
    $
    61,445,077
 11. Stock Option and Shareholder Rights Plans
 2002 Stock Option Plan
 F-25




---



##### Table of Contents



SFAS No. 123 Disclosures Accounting for Stock-Based Compensation for Stock-Based CompensationTransition and Disclosure
 2006
    
    2005
    
    2004Expected dividend rate
    
    
    2.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Risk free interest rate
    
    
    4.87
    
    
    
    3.90
    
    
    
    4.70Weighted average expected lives, in years
    
    
    3.40
    
    
    
    4.26
    
    
    
    3.40Price volatility
    
    
    39.00
    %
    
    
    54.00
    %
    
    
    54.00
    %Total intrinsic value of options exercised
    
    $
    4,087
    
    
    $
    0
    
    
    $
    0Total cash received from options exercised
    
    $
    21,228
    
    
    $
    0
    
    
    $
    0
  Weighted
    
    
    AggregateNumber of
    
    
    Average
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    ValueOutstanding July 1, 2003
    
    
    130,420
    
    
    $
    8.62Granted
    
    
    Exercised
    
    
    Expired
    
    
    (53,420
    )
    
    $
    8.82Outstanding June 30, 2004
    
    
    77,000
    
    
    $
    8.49Granted
    
    
    70,000
    
    
    $
    7.02Exercised
    
    
    Expired
    
    
    (21,000
    )
    
    $
    8.49Outstanding June 30, 2005
    
    
    126,000
    
    
    $
    8.35Granted
    
    
    48,500
    
    
    $
    10.11Exercised
    
    
    (2,500
    )
    
    $
    8.49Expired
    
    
    (26,500
    )
    
    $
    8.37Outstanding June 30, 2006
    
    
    145,500
    
    
    $
    8.34
    
    
    $
    98,325Exerciseable June 30, 2006
    
    
    84,000
    
    
    $
    8.12
    
    
    $
    75,610
 F-26




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##### Table of Contents



WeightedAverageWeighted
    
    Remaining
    
    
    
    
    
    WeightedAverage
    
    Contractual
    
    
    
    
    
    AverageGrant
    
    Exercise
    
    Number
    
    Exercise
    
    Life
    
    Number
    
    ExerciseDate
    
    Price
    
    Outstanding
    
    Price
    
    (Years)
    
    Exercisable
    
    Price11/21/2002
    
    $
    8.49
    
    
    
    48,500
    
    
    $
    8.49
    
    
    
    1.4
    
    
    
    48,500
    
    
    $
    8.497/1/2004
    
    $
    6.47
    
    
    
    30,000
    
    
    $
    6.47
    
    
    
    8.0
    
    
    
    15,000
    
    
    $
    6.474/1/2005
    
    $
    6.62
    
    
    
    20,000
    
    
    $
    6.62
    
    
    
    8.8
    
    
    
    10,000
    
    
    $
    6.627/1/2005
    
    $
    9.85
    
    
    
    20,000
    
    
    $
    9.85
    
    
    
    9.0
    
    
    
    5,000
    
    
    $
    9.8510/4/2005
    
    $
    10.51
    
    
    
    22,000
    
    
    $
    10.51
    
    
    
    9.3
    
    
    
    5,500
    
    
    $
    10.511/6/2006
    
    $
    9.52
    
    
    
    5,000
    
    
    $
    9.52
    
    
    
    4.5
    
    
    
    0
    
    
    $
    9.52145,500
    
    
    $
    8.34
    
    
    
    
    
    
    
    84,000
    
    
    $
    8.12
  Shareholder Rights
 F-27




---



##### Table of Contents



12. Commitments and Contingencies
 Commitments
 Year ending June 30:2007
    
    $
    4,258,8962008
    
    
    4,258,8962009
    
    
    4,258,8962010
    
    
    2,839,2642011
    
    
    0Total
    
    $
    15,615,952
 Environmental Contingency
     Derivative Contingencies
 Litigation
  F-28




---



##### Table of Contents



Operating Leases
 Year ended June 30:2007
    
    $
    144,6242008
    
    
    144,6242009
    
    
    60,6002010
    
    
    54,0002011
    
    
    54,000Total
    
    $
    457,848
  13. Financial Instruments and Risk Management
 Management of Risks Related to Derivatives
     F-29




---



##### Table of Contents



Assets
    
    
    LiabilitiesContracts maturing during fiscal year 2007
    
    $
    42,494
    
    
    $
    42,664Contracts maturing during fiscal years 2008 and 2009
    
    
    95,371Contracts maturing during fiscal years 2010 and beyondTotal
    
    $
    137,865
    
    
    $
    42,664
 14. Subsequent Events
    15. Quarterly Information (Unaudited)
  F-30




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##### Table of Contents



First
    
    Second
    
    Third
    
    FourthYear Ended June 30, 2006
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterRevenues
    
    $
    10,291
    
    
    $
    28,929
    
    
    $
    32,156
    
    
    $
    12,902Operating income (loss)
    
    $
    (641
    )
    
    $
    2,178
    
    
    $
    3,126
    
    
    $
    605Net income (loss)
    
    $
    (622
    )
    
    $
    1,117
    
    
    $
    1,646
    
    
    $
    175Basic earnings (loss) per common share
    
    $
    (0.21
    )
    
    $
    0.38
    
    
    $
    0.56
    
    
    $
    0.06Diluted earnings (loss) per share
    
    $
    (0.21
    )
    
    $
    0.38
    
    
    $
    0.55
    
    
    $
    0.06
 First
    
    Second
    
    Third
    
    FourthYear Ended June 30, 2005
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterRevenues
    
    $
    11,867
    
    
    $
    23,116
    
    
    $
    27,438
    
    
    $
    14,116Operating income (loss)
    
    $
    (1,182
    )
    
    $
    1,536
    
    
    $
    4,082
    
    
    $
    (70
    )Net income (loss)
    
    $
    (1,122
    )
    
    $
    566
    
    
    $
    2,186
    
    
    $
    (249
    )Basic earnings (loss) per common share
    
    $
    (0.43
    )
    
    $
    0.22
    
    
    $
    0.84
    
    
    $
    (0.10
    )Diluted earnings (loss) per share
    
    $
    (0.43
    )
    
    $
    0.22
    
    
    $
    0.84
    
    
    $
    (0.10
    )
 F-31




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    Restated Articles of Incorporation. Exhibit 3.1 to
Amendment No. 1 to the Registrants Annual Report on Form
10-K/A for the year ended June 30, 1996, as filed on July
8, 1997, is incorporated herein by reference.3.2
    
    Amended and Restated Bylaws. Exhibit 3.2 to the
Registrants Current Report on Form 8-K as filed on March
5, 2004, is incorporated herein by reference.4.1
    
    Form of Indenture (including form of Note) relating to the
Series 1997 Notes. Exhibit 4.1 to the Registrants
Registration Statement on Form S-2 (File No. 333-31907), is
incorporated herein by reference.4.2
    
    Form of Indenture (including form of Note) relating to the
Series 1993 Notes. Exhibit 4.1 to the Registrants
Registration Statement on Form S-2 (File No. 33-62680), is
incorporated herein by reference.4.3
    
    Loan Agreement, dated as of September 1, 1992, relating to
the Series 1992A and Series 1992B Industrial Development
Revenue Bonds. Exhibit 4.2 to the Registrants Registration
Statement on Form S-2 (File No. 33-62680), is incorporated
herein by reference.4.4
    
    Preferred Stock Rights Agreement, dated as of June 3, 2004,
between Registrant and Computershare Trust Company, Inc.,
including the Terms of Series A Participating Preferred
Stock, the form of Rights Certificate and the Summary of
Rights attached thereto as Exhibits A, B and C,
respectively. Exhibit 4.1 to the Registrants Registration
Statement on Form 8-A as filed on June 3, 2004, is
incorporated herein by reference.10.1(a)
    
    Amended and Restated Credit Agreement, dated March 31,
2004, by and among Registrant, its subsidiaries and LaSalle
Bank National Association. Exhibit 10.1 to the Registrants
Current Report on Form 8-K as filed on April 1, 2004, is
incorporated herein by reference.10.1(b)
    
    Waiver and First Amendment to Credit Agreement dated as of
August 30, 2004 by and among the Registrant, its
subsidiaries and LaSalle. Exhibit 10.1 to the Registrants
Current Report on Form 8-K as filed on September 3, 2004,
is incorporated herein by reference.10.1(c)
    
    Second Amendment to Credit Agreement dated as of September
10, 2004 by and among the Registrant, its subsidiaries and
LaSalle. Exhibit 10.1 to the Registrants Current Report on
Form 8-K as filed on September 16, 2004, is incorporated
herein by reference.10.1(d)
    
    Letter Agreement to Credit Agreement entered into on
October 20, 2004, by and among the Registrant, its
subsidiaries and LaSalle. Exhibit 10.1 to the Registrants
Current Report on Form 8-K as filed on October 24, 2004, is
incorporated herein by reference.10.1(e)
    
    Letter Agreement to Credit Agreement entered into on
November 2, 2004, by and among the Registrant, its
subsidiaries and LaSalle. Exhibit 10.1 to the Registrants
Current Report on Form 8-K as filed on November 5, 2004, is
incorporated herein by reference.10.1(f)
    
    Third Amendment to Credit Agreement dated as of November 2,
2004, by and among the Registrant, its subsidiaries and
LaSalle. Exhibit 10.2 to the Registrants Current Report on
Form 8-K as filed on November 5, 2004 is incorporated
herein by reference.10.1(g)
    
    Fourth Amendment to Credit Agreement dated as of November
30, 2004, by and among the Registrant, its subsidiaries and
LaSalle. Exhibit 10.1 to the Registrants Current Report on
Form 8-K as filed on December 6, 2004, is incorporated
herein by reference.




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##### Table of Contents



10.1(h)
    
    Fifth Amended and Restated Credit Agreement dated December
14, 2005, by and among the Registrant, its subsidiaries,
and LaSalle Bank National Association. Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q for the quarter
ended December 31, 2005, is incorporated herein by
reference.10.2*
    
    Energy West, Incorporated 2002 Stock Option Plan. Appendix
A to the Registrants Proxy Statement on Schedule 14A as
filed on October 30, 2002, is incorporated herein by
reference.10.3*
    
    Employee Stock Ownership Plan Trust Agreement. Exhibit 10.2
to Registration Statement on Form S-1 (File No. 33-1672),
is incorporated herein by reference.10.4*
    
    Management Incentive Plan. Exhibit 10.12 to the
Registrants Annual Report on Form 10-K/A for the year
ended June 30, 1996, filed on July 8, 1997, is incorporated
herein by reference.10.5*
    
    Energy West Senior Management Incentive Plan. Exhibit 10.19
to the Registrants Annual Report on Form 10-K for the year
ended June 30, 2002, as filed on September 30, 2002, is
incorporated herein by reference.10.6*
    
    Energy West Incorporated Deferred Compensation Plan for
Directors. Exhibit 10.20 to the Registrants Annual Report
on Form 10-K for the year ended June 30, 2002, as filed on
September 30, 2002, is incorporated herein by reference.10.7*
    
    Amended and Restated Advisory Agreement, dated October 3,
2003, by and among Energy West, Incorporated, D.A. Davidson
& Co. and DAMG Capital LLC. Exhibit 10.11 to the
Registrants Annual Report on Form 10-K for the year ended
June 30, 2003, as filed on October 9, 2003, is incorporated
herein by reference.10.8*
    
    Letter Agreement dated June 5, 2003 between DAMG Capital
LLC and the Company. Exhibit 10.12 to the Registrants
Annual Report on Form 10-K for the year ended June 30,
2003, as filed on October 9, 2003, is incorporated herein
by reference.10.9*
    
    Letter Agreement dated June 5, 2003 between D.A. Davidson &
Co. and the Company. Exhibit 10.13 to the Registrants
Annual Report on Form 10-K for the year ended June 30,
2003, as filed on October 9, 2003, is incorporated herein
by reference.10.10*
    
    Agreement dated November 20, 2003 between and among J.
Michael Gorman, Lawrence P. Haren, Richard M. Osborne,
Thomas J. Smith, Turkey Vulture Fund XIII, Ltd., an Ohio
limited liability company and, Energy West, Incorporated.
Exhibit 10.1 to the Registrants Current Report on Form 8-K
as filed on November 21, 2003, is incorporated herein by
reference.10.11*
    
    Separation Agreement, Release and Waiver of Claims between
Energy West, Incorporated and Edward J. Bernica dated
October 24, 2003. Exhibit 10.1 to the Registrants Current
Report on Form 8-K as filed on October 27, 2003, is
incorporated herein by reference.10.12*
    
    Employment Agreement entered into as of June 23, 2004,
between the Company and David Cerotzke. Exhibit 10.16 to
the Registrants Annual Report on Form 10-K for the year
ended June 30, 2004, as filed on December 17, 2004, is
incorporated herein by reference.10.13*
    
    Employment Agreement entered into as of June 23, 2004,
between the Company and John Allen. Exhibit 10.17 to the
Registrants Annual Report on Form 10-K for the year ended
June 30, 2004, as filed on December 17, 2004, is
incorporated herein by reference.10.14*
    
    Form of the agreement used to grant options under the 2002
Stock Option Plan. Exhibit 10.17 to the Registrants Annual
Report on Form 10-K for the year ended June 30, 2005, as
filed on September 27, 2005, is incorporated herein by
reference.10.15
    
    Propane Supply Agreement dated April 1, 2005 between
SemStream, L.P. and Energy West Propane, Inc. Exhibit 10.18
to the Registrants Annual Report on Form 10-K for the year
ended June 30, 2005, as filed on September 27, 2005, is
incorporated herein by reference.




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##### Table of Contents



10.16*
    
    First Amendment to Employment Agreement between the Company
and David Cerotzke entered into as of January 5, 2006.
Exhibit 10.21 to the Registrants Annual Report on Form
10-Q for the quarter ended March 31, 2006, is incorporated
herein by reference.21**
    
    Company Subsidiaries23.1**
    
    Consent of Hein & Associates LLP23.2**
    
    Consent of Deloitte & Touche LLP31**
    
    Certifications pursuant to SEC Release No. 33-8238, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200232**
    
    Certifications pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
 
 *
    
    Indicates management contract or compensatory plan or
arrangement.**
    
    Filed herewith.