Report of Independent Auditors

The Board of Directors
Energy West Incorporated

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

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

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

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

                                             
                                              \s\ ERNST & YOUNG  LLP

Denver, Colorado
August 15, 1996

                                  F-1
******************************************************************************


               Energy West Incorporated and Subsidiaries

                     Consolidated Balance Sheets


      
                                                           June 30
                                                   1996               1995
                                              -------------------------------
Assets
Current assets:
  Cash and cash equivalents                   $   893,301         $   507,450
  Temporary cash investments (at cost which
   approximates market)                                 -              59,556
  Accounts receivable, less allowances for
   uncollectible accounts of $208,106
   ($191,168 at June 30, 1995)                  3,486,328           3,042,603
  Natural gas and propane inventory             2,200,778           1,686,704
  Materials and supplies                          543,316             458,596
  Prepayments and other                           602,427              59,761
  Refundable income tax payments                  412,662             241,798
  Recoverable costs of gas purchases              953,392             125,410
  Deferred income taxes current                         -              81,398
                                              -------------------------------
Total current assets                            9,092,204           6,263,276

Investments                                        12,476              12,476

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

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

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

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

                                  F-2
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                 Energy West Incorporated and Subsidiaries
                                      
                        Consolidated Balance Sheets

                                           
                                                           June 30
                                                   1996               1995
                                              -------------------------------
Capitalization and liabilities
Current liabilities: 
  Long-term debt due within one year          $    348,044       $    365,833
  Notes payable                                  7,175,000          2,620,000
  Accounts payable gas purchases                 1,226,508          1,535,736
  Accounts payable other                           826,885            735,810
  Payable to employee benefit plans                508,890            443,430
  Accrued vacation                                 327,897            267,350
  Other current liabilities                        420,954            817,834
  Deferred income taxes current                    253,385                  -
                                              -------------------------------
  Total current liabilities                     11,087,563          6,785,993
  
Other:
  Deferred Income Taxes                          2,796,084          2,674,928
  Deferred investment tax credits                  502,841            523,903
  Contributions in aid of construction             834,917            771,702
  Accumulated postretirement obligation            507,386            467,274
  Regulatory liability for income taxes            162,121            176,530
  Other                                             17,799              6,736
                                              -------------------------------
  Total other                                    4,821,148          4,621,073
  
  Long-term debt (less amounts due within
  one year)                                     10,045,714         10,434,957
  
  Commitments and contingencies (Note 10)
  
Stockholders' equity:
  Preferred stock - $.15 par value:
    Authorized - 1,500,000 shares; 
    Outstanding - none                                    -                 -
  
  Common stock - $.15 par value:
    Authorized - 3,500,000 shares; 
    Outstanding - 2,321,314 shares
    (2,254,138 shares at June 30, 1995)             348,198           338,121
  Capital in excess of par value                  2,635,540         2,117,730
  Retained earnings                               8,556,510         8,076,907
                                              -------------------------------
Total stockholders' equity                       11,540,248        10,532,758
                                              -------------------------------
         Total Capitalization                    21,585,962        20,967,715
                                              -------------------------------
         Total capitalization and liabilities   $37,494,673       $32,374,781
                                              ===============================
  
See accompanying notes.

 
                                  F-3
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               Energy West Incorporated and Subsidiaries
                                   
                   Consolidated Statements of Income
                                    
                                                Year ended June 30
                                         1996          1995         1994
                                     --------------------------------------- 
Operating revenue:
  Regulated utilities                $23,672,186   $24,363,446   $24,421,153
  Nonregulated operations              3,297,583     2,946,114     2,961,433
  Gas trading                          4,348,239     3,238,839     1,964,866
                                     ---------------------------------------
Total operating revenue               31,318,008    30,548,399    29,347,452
  
Operating expenses:
  Gas purchased                       14,972,454    16,116,688    16,742,903
  Cost of gas trading                  3,751,053     2,500,363     1,667,182
  Distribution, general and
    administrative                     6,924,391     6,379,651     5,979,621
  Maintenance                            408,590       306,077       330,762
  Depreciation and amortization        1,667,256     1,558,755     1,464,078
  Taxes other than income                629,428       594,569       527,142
                                     ---------------------------------------
Total operating expenses              28,353,172    27,456,103    26,711,688
                                     ---------------------------------------
Operating income                       2,964,836     3,092,296     2,635,764
  
Gain on sale of assets                   236,291             -             -
Other income, net                        214,902       174,878       199,014
                                     ---------------------------------------
Income before interest charges
  and income taxes                     3,416,029     3,267,174     2,834,778
  
Interest charges:
  Long-term debt                         709,872       735,813       741,866
  Short-term and other                   532,866       202,770       220,317
                                     ---------------------------------------
Total interest charges                 1,242,738       938,583       962,183
                                     ---------------------------------------

Income before income taxes             2,173,291     2,328,591     1,872,595
Provision for income taxes               765,925       815,688       613,964
                                     ---------------------------------------   
Income before cumulative effect
  of change in accounting principle    1,407,366     1,512,903     1,258,631
Cumulative effect on prior years
  of change in accounting for
  income taxes                                 -             -        92,365
                                     ---------------------------------------
Net income                           $ 1,407,366   $ 1,512,903   $ 1,350,996
                                     =======================================
  
Income per share of common 
  equivalent stock:
    Income before cumulative effect 
     of change in accounting principle      $.61          $.68          $.57
    Cumulative effect of change in
     accounting for income taxes               -             -           .04
                                     ---------------------------------------
Net income per common share                 $.61          $.68          $.61
                                     =======================================
  
See accompanying notes.


                                  F-4
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                   Energy West Incorporated and Subsidiaries
  
                Consolidated Statements of Stockholders' Equity
                                     
  
                                            Capital in
                                  Common     Excess of    Retained
                                   Stock     Par Value    Earnings    Total
                                ----------------------------------------------  
Balance at June 30, 1993          $163,456  $1,720,240  $6,849,793  $8,733,489
 Exercise of stock options into
  3,800 shares of common stock 
  at $7.13 to $8.19 per share          285      14,977           -      15,262
 Sale of 8,293 shares of common
  stock at $8.87 per share under 
  the Company's dividend
  reinvestment plan                  1,244      72,313           -      73,557
 Net income for the year ended 
  June 30, 1994                          -           -   1,350,996   1,350,996
 Common stock dividend, 2-for-1
  stock split                      163,737    (163,737)          -           -
 Cash dividends on common stock 
  - $.36 per share                       -            -   (780,342)   (780,342)
                                ----------------------------------------------
Balance at June 30, 1994           328,722    1,643,793  7,420,447   9,392,962
 Exercise of stock options into
  14,410 shares of common stock 
  at $4.94 to $8.75 per share        2,161       78,318          -      80,479
 Sale of 36,720 shares of common
  stock at $7.50 to $9.00 per 
  share under the Company's
  dividend reinvestment plan         5,508      293,529          -     299,037
 Issuance of 11,535 shares of
  common stock to ESOP at 
  estimated fair value of $9.00 
  per share                          1,730      102,090          -     103,820
 Net income for the year ended 
  June 30, 1995                          -            -  1,512,903   1,512,903
 Cash dividends on common stock 
  $.385 per share                        -            -   (856,443)   (856,443)
                                ----------------------------------------------
Balance at June 30, 1995           338,121    2,117,730  8,076,907  10,532,758
 Exercise of stock options into
  13,680 shares of common stock 
  at $4.875 to $7.125 per share      2,052       72,918          -      74,970
 Sale of 37,611 shares of common
  stock at $8.00 to $9.50 per 
  share under the Company's
  dividend reinvestment plan         5,642      320,158          -     325,800
 Issuance of 15,889 shares of
  common stock to ESOP at 
  estimated fair value of $8.00 
  per share                          2,383      124,734          -     127,117
 Net income for the year ended 
  June 30, 1996                          -            -  1,407,366   1,407,366
 Cash dividends on common stock 
  $.405 per share                        -            -   (927,763)   (927,763)
                                ----------------------------------------------
Balance at June 30, 1996          $348,198   $2,635,540 $8,556,510 $11,540,248
                                ==============================================
  
See accompanying notes.


                                  F-5
******************************************************************************
   

                    Energy West Incorporated and Subsidiaries
  
                      Consolidated Statements of Cash Flows
                                     
  
                                              Year ended June 30
                                      1996           1995           1994
                                  ------------------------------------------  
Operating activities
Net income                        $  1,407,366   $  1,512,903   $  1,350,996
Adjustments to reconcile net
 income to cash flow from 
 operations:
  Depreciation and amortization      1,833,511      1,777,559      1,529,310
  (Gain) on sale lease of
   assets                             (247,697)        (4,174)       (25,276)
  Investment tax credit                (21,062)       (21,062)       (21,062)
  Deferred income taxes                495,105          4,197        306,026
  Cumulative effect of change
   in accounting method                      -              -         92,365
  Changes in operating assets
   and liabilities:
    Accounts receivable               (443,725)      (415,072)        92,638
    Natural gas and propane
     inventory                        (514,074)      (987,081)       506,099
    Accounts payable                  (218,153)       778,999       (616,316)
    Recoverable costs of gas
     purchases                        (827,982)       275,556       (134,502)
    Prepaid gas                       (523,212)             -              -
    Other assets and liabilities      (333,878)       682,896       (243,278)
                                  ------------------------------------------
Net cash provided by operating 
 activities                            606,199      3,604,721      2,837,000
  
  
Investing activities
Construction expenditures           (4,590,609)    (4,705,868)    (2,626,221)
Restricted deposit                           -        204,550        619,367
Proceeds from sale of assets           552,160         79,749         64,820
Collection of long-term notes 
 receivable                              6,794         78,737         36,526
Proceeds from contributions in
 aid of construction                    63,215         81,177         88,276
                                  ------------------------------------------
Net cash used in investing 
 activities                         (3,968,440)    (4,261,655)    (1,817,232)
  

                                  F-6
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                    Energy West Incorporated and Subsidiaries
  
                Consolidated Statements of Cash Flows (continued)
                                     
  
                                              Year ended June 30
                                      1996           1995           1994
                                  ------------------------------------------  
Financing activities
Proceeds from long-term debt       $         -    $   117,808    $    20,000
Debt issuance and reacquisition
 costs                                       -              -        (65,000)
Payment of long-term debt             (407,032)      (335,000)      (333,872)
Proceeds from notes payable         20,965,000     19,926,854     17,428,000
Repayment of notes payable         (16,410,000)   (18,625,000)   (17,491,000)
Sale of common stock                    74,970         80,479         15,262
Dividends paid                        (474,846)      (453,586)      (706,785)
                                  ------------------------------------------
Net cash provided by (used in) 
 financing activities                3,748,092        711,555     (1,133,395)
                                  ------------------------------------------
  
Net increase (decrease) in cash
 and cash equivalents                  385,851         54,621       (113,627)
Cash and cash equivalents at
 beginning of year                     507,450        452,829        566,456
                                  ------------------------------------------
Cash and cash equivalents at
 end of year                      $    893,301    $   507,450    $   452,829
                                  ==========================================
  
Supplemental disclosures of cash
 flow information:
  Cash paid for:
   Interest                       $  1,242,035   $    942,221   $    932,159
   Income taxes                        498,461        870,327        369,000
  
  Noncash financing activities:
   Dividend reinvestment plan          325,800        299,037         73,557
   ESOP shares issued                  127,117        103,820              -
   
See accompanying notes.
    
    
                                  F-7
    
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
                    Notes to Consolidated Financial Statements
  
                                 June 30, 1996
                                  
  
1. Principal Accounting Policies
================================  

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

Consolidated Subsidiaries
-------------------------  
The Company's wholly-owned nonregulated subsidiaries, Energy West Resources,
Inc. ("EWR") (formerly Vesta, Inc.), Montana Sun, Inc. ("Montana Sun") and
Rocky Mountain Fuels, Inc. ("RMF"), are included in the consolidated financial
statements.  The results of operations of these subsidiaries constitute all
of the Company s nonregulated operations. All significant intercompany
accounts and transactions have been eliminated in consolidation.
  
EWR's activities include a gas marketing operation and oil and gas
exploration and development.  Its principal assets are capitalized oil and
gas development costs, storage field costs and equipment, and inventory.  EWR
currently markets gas to large industrial customers (businesses using over
60,000 Mcf of natural gas annually).
  
Montana Sun's operating activities consist of commercial real estate
development.  Its significant assets consist of real estate held for future
sale.
  
RMF began operations in fiscal 1992 following the Company's acquisition of
the assets and operations of six Wyoming propane distribution entities.  In
fiscal 1993 these operations were expanded through the acquisition of an
Arizona propane distribution entity.  Principal assets of RMF include bulk
storage and customer tanks, delivery trucks and related equipment.
  

                                  F-8
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                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)
  

1. Principal Accounting Policies (continued)
============================================  

Use of Estimates
----------------  
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes.  Actual results could differ from those estimates.
  
Natural Gas and Propane Inventory
---------------------------------  
Natural gas inventory and propane inventory are stated at the lower of
weighted average cost or net realizable value.
  
Recoverable Costs of Gas Purchases
----------------------------------  
Differences between the costs of gas approved by regulators in the
Company's rate structure and actual gas costs are accounted for as a
current asset or liability, as applicable.  These differences are recovered
or refunded, as applicable, in future periods by adjustment of the
Company's rates.
  
Property, Plant and Equipment
-----------------------------  
Additions to property, plant and equipment are recorded at original cost
when placed in service.  Depreciation and amortization are recorded on a
straight-line basis over estimated useful lives or the units-of-production
method, as applicable, at various rates averaging approximately 3.93%,
4.15% and 4.32% during the years ended June 30, 1996, 1995 and 1994,
respectively. During the fourth quarter of 1996, the estimated useful lives
for certain propane properties were increased from twelve and fifteen years
to twenty years to better reflect their estimated useful lives.  This
change in estimate reduced depreciation expense by approximately $83,000 in
1996. 
  
Oil and Gas Activities
----------------------  
Oil and gas operations are accounted for under the successful efforts method. 
Exploratory drilling costs are capitalized pending determination of proved
reserves; all other exploration costs are expensed.  All development and
lease acquisition costs are capitalized.  Provision for depreciation and
amortization, including estimated future 
    

                                  F-9
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                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)



1. Principal Accounting Policies (continued)
============================================  

dismantlement and restoration costs, is determined on a field-by-field basis
using the units-of-production method.  When properties are sold, the asset
cost and related accumulated depreciation and amortization are eliminated,
with any gain or loss reflected in income.
  
Gas Trading
-----------  
The Company's business activities include the buying and selling of natural
gas.  The Company recognizes revenue and costs on gas trading transactions
when gas is delivered to the purchaser.
  
Debt Issuance and Reacquisition Costs
-------------------------------------
Debt premium, discount and issuance expenses are amortized over the life of
each issue.  Debt reacquisition costs for refinanced debt are amortized over 
the remaining life of the new debt.
  
Consolidated Statements of Cash Flows
-------------------------------------  
For purposes of these statements, all highly liquid investments with original
maturities of three months or less are considered to be cash equivalents. 
  
Financial Instruments
---------------------  
All of the Company's financial instruments requiring fair value disclosure
were recognized in the consolidated balance sheet as of June 30, 1996. 
Except for long-term debt, their carrying values approximate the estimated
fair values.  Descriptions of the methods and assumptions used to reach this
conclusion are as follows:
  
   Cash, temporary cash investments, accounts receivable, accounts payable,
   and payable to employee benefit plans:  These financial instruments have
   short maturities, or are invested in financial instruments with short
   maturities.
    

                                  F-10
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                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)



1. Principal Accounting Policies (continued)
============================================   

   Notes receivable:  These notes generally relate to energy conservation
   incentive programs, some of which bear favorable interest rates compared
   to market for similar risks.  However, due to the relatively small
   balances of these notes, any differences between carrying value and fair
   value are immaterial.
   
   Notes payable:  Represent lines of credit, with maturities of a year or
   less, bearing interest at current market rates.
  
The fair value of the Company's long-term debt, based on quoted market prices
for the same or similar issues, is approximately 99% of the carrying value.
  
Earnings Per Share
------------------  
Earnings per common share were computed based on the weighted average number
of common shares outstanding and common stock equivalents, if dilutive.  
  
The weighted average number of such shares at June 30 was 2,298,734 in 1996,
2,235,413 in 1995, and 2,205,050 in 1994.
  
New Accounting Standards
------------------------  
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, effective
for financial statements for fiscal years beginning after December 15, 1995. 
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable, and long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell.  SFAS No. 121 also
establishes the procedures for review of recoverability, and measurement of
impairment if necessary, of long-lived assets and certain identifiable
intangibles to be held and used by an entity.  The financial effects of
adopting the new standard are not expected to be material to the Company's
financial position or operations.


                                  F-11
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)


1. Principal Accounting Policies (continued)
============================================  

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

     
Effects of Regulation
---------------------  
All  regulatory assets have been formally approved by the applicable
regulator, although other than environmental cleanup costs, no return on
assets is allowed by the regulators.
  
The Company uses the lives for depreciation as defined by the regulators
which approximates the economic lives for GAAP.  
      

Reclassifications
-----------------  
Certain reclassifications have been made to the fiscal 1995 and 1994
consolidated financial statements to conform to the fiscal 1996 presentation.
  
2. Notes Payable 
================  

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


                                  F-12
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)


3. Long-Term Debt Obligations
=============================
  
Long-term debt consists of the following:
                                                        June 30
                                                   1996           1995
                                               --------------------------  
  
  Series 1993 notes payable                    $ 7,800,000    $ 7,800,000
  Industrial development revenue obligations:
      Series 1992A                                 935,000      1,200,000
      Series 1992B                               1,635,000      1,690,000
  Other                                             23,758        110,790
                                               --------------------------
  Total long-term obligations                   10,393,758     10,800,790
  Less portion due within one year                 348,044        365,833
                                               --------------------------
  Long-term obligations due after one year     $10,045,714    $10,434,957
  
  
Series 1993 Notes Payable
-------------------------  
On June 24, 1993, the Company issued $7,800,000 of Series 1993 unsecured
notes bearing interest at rates ranging from 6.20% to 7.60% (6.20% at June
30, 1996), payable semiannually on June 1 and December 1 of each year,
commencing on December 1, 1993.  Maturity dates begin in 1999 and extend to
2013.  At the Company's option, beginning June 1, 2003, notes maturing
subsequent to 2003 may be redeemed prior to maturity, in whole or part, at
redemption prices declining from 104% to 100% of face value, plus accrued
interest.
  
Industrial Development Revenue Obligations
------------------------------------------  
On September 15, 1992, Cascade County, Montana (the County) issued two
Industrial Development Revenue Obligations, the Series 1992A Bonds for
$1,700,000 and Series 1992B Bonds for $1,800,000.  The Series 1992A and
Series 1992B Bonds are unsecured; however, loan agreements are maintained
with the Company in the same amounts.  Both the Series 1992A and Series 1992B
Bonds require annual principal payments on October 1 and semiannual interest
payments on April 1 and October 1 of each year beginning in 1993.  The Series
1992A Bonds have a final maturity in 1999 and bear interest at rates ranging
from 3.25% to 5.30%.  The Series 1992B bonds have a final maturity in 2012
and bear interest at rates ranging from 3.35% to 6.50%.
    

                                  F-13
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)


3. Long-Term Debt Obligations (continued)
=========================================  

Aggregate Annual Maturities
---------------------------  
                             --IDR Obligations--
Fiscal            Series     -------------------                   Total
Year Ending       1993       Series       Series                 Long-Term
June 30           Notes       1992A        1992B      Other     Obligations
---------------------------------------------------------------------------  
1997          $         -   $280,000   $    60,000   $ 8,044   $    348,044
1998                    -    295,000        60,000     6,959        361,959
1999              165,000    175,000        65,000     8,032        413,032
2000              175,000    185,000        70,000       723        430,723
2001              370,000          -        75,000         -        445,000
Thereafter      7,090,000          -     1,305,000         -      8,395,000
              -------------------------------------------------------------
                7,800,000    935,000     1,635,000    23,758     10,393,758
Less current
 portion                -    280,000        60,000     8,044        348,044
              -------------------------------------------------------------
              $ 7,800,000  $ 655,000   $ 1,575,000   $15,714   $ 10,045,714
              =============================================================
  
The Company's long-term debt obligation agreements contain various covenants
including:  limiting total dividends and distributions made in the
immediately preceding 60-month period to aggregate consolidated net income
for such period, restricting senior indebtedness, limiting asset sales, and
maintaining certain financial debt and interest ratios.
  
4. Retirement Plans
===================  

The Company has a defined contribution pension plan (the Plan) which covers
substantially all of the Company's employees.  Under the Plan, the Company
contributes 10% of each participant's eligible compensation.  Total
contributions to the Plan for the years ended June 30, 1996, 1995 and 1994
were $383,018, $336,589 and $279,668, respectively.
  
The Company adopted, effective July 1, 1993, SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions.  This standard
requires that the projected future cost of providing postretirement benefits
be recognized as an expense as employees render service rather than when
paid.  Effective for fiscal year 1994, the Company modified its plan for
these benefits and has elected to pay eligible retirees (post-65 years of
age) $125 per month in lieu of contracting for health and life insurance
benefits.  The amount of this payment is fixed and will not increase with
medical trends or inflation.  The Company's transition obligation at June 30,
1996 and 1995 was 
    
    
                                  F-14
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)
    
    
4. Retirement Plans (continued)
===============================  

$332,800 and $352,380, respectively, of which $288,600 in 1996 and $327,400
in 1995 related to the regulated utility operations.  The transition
obligation was accrued as a deferred charge and will be amortized over 20
years.  Substantially all of the transition obligation is for the future cost
of benefits to active employees.
  
The incremental annual increases in consolidated expenses due to adoption of
SFAS No. 106 were $70,900 and $71,200 in fiscal years 1996 and 1995,
respectively.  Included in these amounts were $58,100 in 1996 and $62,600 in
1995 relating to regulatory operations.  The MPSC allowed recovery of these
costs beginning on July 1, 1995 for the utility operations in Montana. 
Management believes it is probable that its regulators in Wyoming will allow
recovery of these costs based upon recent industry rate decisions addressing
this issue.  The Company has established a VEBA trust fund and is
contributing to that trust the annual expense of the plan.  The balance in
that trust after benefit payments in fiscal year 1996 is $61,750.  
  
The Company made a change to the plan, effective July 1, 1996, allowing pre-
65 retirees  and their spouses to remain on the same medical plan as active
employees by contributing 125% of the current COBRA rate to retain this
coverage.  The increased liability from this change is $269,200 and has been
reflected in the 1996 financial statements.  The Company expects regulators
in Montana and Wyoming to allow recovery of the additional costs associated
with the plan change.
    
    
                                  F-15
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)
    
    
4. Retirement Plans (continued)
===============================  

The following table presents the amounts recognized at June 30, 1996 and 1995
in the consolidated financial statements.
  
                                                          1996       1995
                                                        -------------------  
  Accumulated postretirement benefit obligation:
   Retirees                                             $128,500   $154,400
   Fully eligible active plan participants                80,500     53,700
   Other active plan participants                        522,900    259,174
                                                        -------------------
                                                        $731,900   $467,274
  
  Net periodic postretirement benefit cost:
   Service cost                                         $ 19,300   $ 19,400
   Interest cost                                          32,000     32,200
   Actual return on plan assets                           (1,500)         -
   Amortization of transition obligation                  19,600     19,600
                                                        -------------------
  Net periodic postretirement benefit cost              $ 69,400   $ 71,200
  
  
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation at June 30, 1996 was 7.5 percent.  The
weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 11.0 percent for the
1996-97 fiscal year and is assumed to decrease gradually to 5.5 percent after
6 years and remain at that level thereafter.  At June 30, 1995, the weighted-
average discount rate used in determining the accumulated postretirement
benefit obligation was 7.5 percent.  The weighted-average health care cost
trend rate was 12.5 percent for the 1995-96 fiscal year and was assumed to
decrease gradually to 6.5 percent after 7 years and remain at that level
thereafter.
  
The health care cost trend rate assumption has a significant effect on the
amounts reported.  For example, increasing the assumed health care cost trend
rate by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of June 30, 1996 by $45,700.  The
aggregate of interest and service cost for the year ended June 30, 1996 is
not affected by this increase due to the minimal number of retirees receiving
benefits that are not fixed and the large number of retirees receiving
benefits that were not affected by the trend rate during the 1995-96 fiscal
year.
    
    
                                  F-16
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)
    
    
    
5. Income Tax Expense
=====================  

Effective July 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
FASB Statement No. 109, Accounting for Income Taxes.  As permitted under the
new rules, prior years  financial statements have not been restated.
  
The cumulative effect of adopting Statement No. 109 as of July 1, 1993 was to
increase net income by $92,365 for nonregulated operations and create a
regulatory asset of $600,867 and regulatory liability of $204,620 for
regulated operations.  The regulatory assets and liabilities represent the
anticipated effects on regulated rates charged to customers which will result
from the adoption of Statement No. 109.  For the year ended June 30, 1996,
amortization of certain liabilities resulted in a decrease in regulatory
assets of $75,566 and in regulatory liabilities of $14,409 for regulated
entities, resulting in ending balances of $443,918 and $162,121,
respectively.
  
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.  
  
Significant components of the Company's deferred tax assets and liabilities
as of June 30, 1996 and 1995 are as follows:
  
                                                 1996             1995
                                              ---------------------------  
  Deferred tax assets:
   Allowance for doubtful accounts            $     54,065   $     55,987
   Unamortized investment tax credit               162,343        175,983
   Contributions in aid of construction            115,876        102,458
   Other nondeductible accruals                    189,935        156,096
   Other                                            47,093         42,318
                                              ---------------------------
  Total deferred tax assets                        569,312        532,842



                                  F-17
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)

  
5. Income Tax Expense (continued)
=================================  
  
                                                     1996           1995
                                                 ---------------------------
  Deferred tax liabilities:
   Customer refunds payable                      $   399,255    $     84,525
   Property, plant and equipment                   2,908,836       2,615,597
   Unamortized debt issue costs                      201,635         215,827
   Unamortized environmental study costs                   -         101,330
   Covenant not to compete                            89,041          93,283
   Other                                              20,014          15,810
                                                 ---------------------------
  Total deferred tax liabilities                   3,618,781       3,126,372
                                                 ---------------------------
  Net deferred tax liabilities                    $3,049,469      $2,593,530
  
  
Income tax expense consists of the following:
  
                                                   Year ended June 30
                                                1996       1995      1994
                                              ------------------------------
  Current income taxes:
   Federal                                    $244,777   $705,420   $490,698
   State                                        21,819    120,074     12,331
                                              ------------------------------
  Total current income taxes                   266,596    825,494    503,029
  Deferred income taxes (benefits):
   Tax depreciation in excess of book          341,217    179,794    139,564
   Book amortization in excess of tax          (35,958)   (56,981)   (73,435)
   Recoverable cost of gas purchases           322,479    (98,479)    86,341
   Environmental study cleanup costs                 -     20,539     81,442
   Regulatory surcharges                       (44,830)         -          -
   Other                                       (25,362)    17,813    (62,016)
                                              ------------------------------
  Total deferred income taxes                  557,546     62,686    171,896
  Investment tax credit, net                   (21,062)   (21,062)   (21,062)
                                              ------------------------------
  Total income taxes                          $803,080   $867,118   $653,863
                                              ==============================
  
  Income taxes - operations                   $765,925   $815,688   $613,964
  Income taxes - other income                   37,155     51,430     39,899
                                              ------------------------------
  Total income taxes                          $803,080   $867,118   $653,863
                                              ==============================


                                  F-18
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)

  
5. Income Tax Expense (continued)
=================================  

Income tax expense from operations differs from the amount computed by
applying the federal statutory rate to pre-tax income for the following
reasons:
  
                                               1996       1995       1994
                                             ------------------------------
  Tax expense at statutory rate - 34%        $747,269   $799,582   $607,394
  State income tax, net of federal tax
   benefit                                     60,271     77,377     38,693
  Amortization of deferred investment
   tax credits                                (21,062)   (21,062)   (21,062)
  Other                                        16,602     11,221     28,838
                                             ------------------------------
  Total income taxes                         $803,080   $867,118   $653,863
                                             ==============================
  

6. Regulated and Nonregulated Operations
========================================  

Summarized financial information for the Company's regulated utility and
nonregulated nonutility operations (before intercompany eliminations between
regulated and nonregulated primarily consisting of gas sales from
nonregulated to regulated entities, intercompany accounts receivable,
accounts payable, equity, and subsidiary investment) is as follows: 
  


                                  F-19
******************************************************************************
   

                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)


6. Regulated and Nonregulated Operations (continued)
====================================================  
  

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Note:  These two tables were originally in side-by-side format.  The format
       was changed to meet the EDGAR file width limitations.

                             ****************** JUNE 30, 1996 *****************
                                 REG.        NONREG.      ADJ.         CONSOL. 
                             --------------------------------------------------
CAPITAL EXPENDITURES          $3,910,000    $680,609                 $4,590,609
                             --------------------------------------------------
PROPERTY,PLANT AND EQUIPMENT, 
 NET
  REGULATED UTILITIES        $22,362,130                            $22,362,130
  NONREGULATED PROPANE                     2,971,174                  2,971,174
  OIL AND GAS OPERATIONS                     274,352                    274,352
  REAL ESTATE HELD FOR   
   INVESTMENT                                482,173            1       482,174
                             --------------------------------------------------
TOTAL P P & E                 22,362,130   3,727,699            1    26,089,830

CURRENT ASSETS                 7,663,566   2,385,186     (956,548)    9,092,204
OTHER ASSETS                   3,669,404     590,542   (1,947,307)    2,312,639
                             --------------------------------------------------
TOTAL ASSETS                 $33,695,100  $6,703,427  ($2,903,854)  $37,494,673
                             ==================================================

EQUITY                        $9,303,596  $3,308,651  $(1,071,999)  $11,540,248
LONG-TERM DEBT                 8,257,090   1,788,624                 10,045,714
CURRENT LIABILITIES           10,452,787   1,192,271     (557,495)   11,087,563
DEFERRED INCOME TAXES          3,207,968     366,716     (778,600)    2,796,084
OTHER LIABILITIES              2,473,659      47,165     (495,760)    2,025,064
                             --------------------------------------------------
TOTAL CAPITALIZATION AND 
 LIABILITIES                 $33,695,100  $6,703,427  ($2,903,854)  $37,494,673
                             ==================================================




                             ****************** JUNE 30,1995 ******************
                                 REG.        NONREG.       ADJ.        CONSOL.
                             --------------------------------------------------
CAPITAL EXPENDITURES          $3,933,828    $772,040                 $4,705,868
                             --------------------------------------------------
PROPERTY,PLANT AND EQUIPMENT, 
 NET
  REGULATED UTILITIES        $19,907,237                            $19,907,237
  NONREGULATED PROPANE                     2,811,913                  2,811,913
  OIL AND GAS OPERATIONS                     334,704                    334,704
  REAL ESTATE HELD FOR       
   INVESTMENT                                496,483                    496,483
                             --------------------------------------------------
TOTAL P P & E                 19,907,237   3,643,100                 23,550,337

CURRENT ASSETS                 4,458,594   2,420,839     (616,157)    6,263,276
OTHER ASSETS                   3,884,006     496,360   (1,819,198)    2,561,168
                             --------------------------------------------------
TOTAL ASSETS                 $28,249,837  $6,560,299  ($2,435,355)  $32,374,781
                             ==================================================

EQUITY                        $8,903,740  $2,701,018  $(1,072,000)  $10,532,758
LONG-TERM DEBT                 8,533,074   1,901,883                 10,434,957
CURRENT LIABILITIES            6,304,063   1,493,087   (1,011,157)    6,785,993
DEFERRED INCOME TAXES          2,727,782     299,343     (352,197)    2,674,928
OTHER LIABILITIES              1,781,178     164,968           (1)    1,946,145
                             --------------------------------------------------
TOTAL CAPITALIZATION AND 
 LIABILITIES                 $28,249,837  $6,560,299  ($2,435,355)  $32,374,781
                             ==================================================
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX



XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Note:  These three tables were originally in side-by-side format.  The format
       was changed to meet the EDGAR file width limitations.

                             ********************** 1996 **********************
                                 REG.       NONREG.       ADJ.        CONSOL.  
                             --------------------------------------------------
OPERATING REVENUE            $23,672,186  $4,510,942  ($1,213,359)  $26,969,769
GAS TRADING REVENUE                        4,348,239                  4,348,239
                             --------------------------------------------------
TOTAL OPERATING REVENUE       23,672,186   8,859,181   (1,213,359)   31,318,008

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

COST OF GAS TRADING                        3,751,053                  3,751,053
DISTRIBUTION, GENERAL & ADMIN  5,578,188   1,346,203                  6,924,391
MAINTENANCE                      348,123      60,467                    408,590
DEPRECIATION AND AMORTIZATION  1,359,339     307,917                  1,667,256
TAXES OTHER THAN INCOME          523,768     105,660                    629,428
                             --------------------------------------------------
OPERATING INCOME              $2,216,590    $748,246           $0    $2,964,836
                             ==================================================




                             ********************** 1995 **********************
                                 REG.       NONREG.       ADJ.         CONSOL. 
                             --------------------------------------------------
OPERATING REVENUE            $24,363,446  $4,077,768  ($1,131,655)  $27,309,559
GAS TRADING REVENUE                        3,238,839                  3,238,839
                             --------------------------------------------------
TOTAL OPERATING REVENUE       24,363,446   7,316,607   (1,131,655)   30,548,398

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

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




                             ********************** 1994 ********************
                                 REG.       NONREG.      ADJ.       CONSOL.
                             ------------------------------------------------
OPERATING REVENUE            $24,421,153  $3,935,760  ($974,327)  $27,382,586
GAS TRADING REVENUE                        1,964,866                1,964,866
                             ------------------------------------------------
TOTAL OPERATING REVENUE       24,421,153   5,900,626   (974,327)   29,347,452

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

COST OF GAS TRADING                        1,667,182                1,667,182
DISTRIBUTION, GENERAL & ADMIN  4,792,531   1,187,090                5,979,621
MAINTENANCE                      315,409      15,353                  330,762
DEPRECIATION AND AMORTIZATION  1,134,150     329,928                1,464,078
TAXES OTHER THAN INCOME          430,446      96,696                  527,142
                             ------------------------------------------------
OPERATING INCOME              $2,081,764    $554,000         $0    $2,635,764
                             ================================================
    
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX


                                  F-20
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)


7. Stock Options and Ownership Plans
====================================

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

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


                                      Number of          Price Per
                                        Shares             Share
                                     -------------------------------
Fiscal 1996
Outstanding at July 1, 1995             90,588          $4.875-9.125
Granted                                      -
Exercised                              (13,680)         $4.875-7.125
Expired                                 (1,200)                $6.50
                                     -----------
Outstanding at June 30, 1996            75,708          $6.375-9.125
                                     ===========
At June 30, 1996
Exercisable                             75,708
Available for grant                      6,052

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

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

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

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


                                  F-21
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)


7. Stock Options and Ownership Plans (continued)
================================================

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

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

9. Gain on Sale of Assets
-------------------------
On June 28, 1996, one of the Company's nonregulated subsidiaries sold real
property, consisting of land and office and warehouse buildings, for $525,000
in cash.  Concurrent with the sale, the Company leased the property back for
a period of ten years at an annual rental of $51,975.  The initial ten-year
term of the lease is extended for two successive five-year periods unless the
Company provides at least six months notice prior to the end of either the
initial term or the first successive five-year term.

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


                                  F-22
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)


9. Gain on Sale of Assets (continued)
=====================================

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

10. Commitments and Contingencies
=================================

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

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

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

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


                                  F-23
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)


10. Commitments and Contingencies (continued)
=============================================

Environmental Contingency
-------------------------
The Company owns property on which it operated a manufactured gas plant from
1909 to 1928.  The site is currently used as a service center and to store
certain equipment and materials and supplies.  The coal gasification process
utilized in the plant resulted in the production of certain by-products which
have been classified by the federal government and the state of Montana as
hazardous to the environment.  After management became aware of the potential
of contamination on this site, it initiated an assessment of the property
through the assistance of a qualified consulting firm.  That assessment
revealed the presence of certain hazardous material in quantities exceeding
tolerances established for such material by regulatory authorities.  After
making required notifications of that condition to federal and state
regulatory authorities, a report summarizing the assessment was filed with
the State of Montana Department of Health and Environmental Science ("MDHES"). 
Subsequent to that submittal a meeting was held with a representative of the
MDHES wherein a process was agreed upon to arrive at appropriate remediation
of the site.  The costs incurred by the Company to date approximate $320,000
and have been capitalized as other deferred charges.  Until further work is
done regarding remediation alternatives, no further estimate of the costs of
remediation can be made.  
   
However, management believes that regardless of the
alternative selected, the costs incurred will not materially affect the
Company's financial position, results of operations and net cash flows.
    

The Company received formal approval from the MPSC to recover the costs
associated with the cleanup of this site.  The Company began recovery of
costs incurred at June 30, 1995 over two years through a surcharge in billing
rates effective July 1, 1995.  Management intends to request that future
costs be recovered over a similar time period.  The total of recoveries
collected through June 30, 1996 is $214,000.

11. Regulatory Matters
======================

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


                                  F-24
******************************************************************************


                    Energy West Incorporated and Subsidiaries
    
             Notes to Consolidated Financial Statements (continued)


12. Financial Instruments and Risk Management
=============================================
   
During 1996, the Company was a party to gas financial swap agreements for its
regulated operations.  Under these agreements, the Company is required to pay
the counterparty (an entity making a market in gas futures) a cash settlement
equal to the excess of the stated index price over an agreed upon fixed price
for gas purchases.  The Company receives cash from the counterparty when the
stated index price falls below the fixed price.  These swap agreements are
made to minimize exposure to gas price fluctuations.  During the fiscal year
ending June 30, 1996 the company had financial swap agreements in place with
average fixed prices of $1.33 per MMBTU.  The index price paid for the
volumes associated with those agreements was $1.04. This price differential
had no impact on earnings, because the effect of the difference is included
in gas costs and adjusted to recoverable cost of gas purchases for any
differences between the cost of gas allowed by the regulators and the actual
prices paid.
    
Beginning on September 1, 1996, the Company is a party to two gas swap
agreements, for its nonregulated operations, to hedge 4,400 MMBTU of its
daily gas purchases.  This contract represents approximately 92% of the
supply required for the Company's customers who have selected fixed price
service.  The hedges were made to minimize the Company's exposure to price
fluctuations and to secure a known margin for the purchase and resale of gas
in marketing activities.


                                  F-25
******************************************************************************
   


                                SCHEDULE II             
                      VALUATION AND QUALIFYING ACCOUNTS                      
                          
                              ENERGY WEST INC.              

                               June 30, 1996
                                          
                                      
                              Balance at  Charged     Write-offs     Balance
                              Beginning   to Costs      Net of      at end of 
Description                   of Period  & Expenses   Recoveries     Period
Allowance for                ----------  ----------   ----------   ----------
Uncollectible Accounts                         
------------------------                          
                          
Year Ended June 30, 1994       $160,500    $141,590    ($121,799)    $180,291   
                          
                    
Year Ended June 30, 1995       $180,291     $81,327     ($70,450)    $191,168  
                          
                                   
Year Ended June 30, 1996       $191,168     $64,509     ($47,571)    $208,106  
                              
                          


                                  F-25
******************************************************************************