<PAGE>



                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-K

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

For the fiscal year ended June 30, 1999

                                       OR

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

For the transition period from _______________ to _______________

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

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

                  1 First Avenue South, Great Falls, Mt. 59401
                   (Address of principal executive    (Zip Code)
                                    offices)

        Registrant's telephone number, including area code (406)-791-7500
           Securities registered pursuant to Section 12(b) of the Act:
            Title of each class Name of Exchange on which registered
                      Common Stock - Par Value $.15    NASDAQ

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

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 15, 1999: Common Stock, $.15 Par Value - $14,794,963
The number of shares outstanding of the issuer's classes of common stock as of
September 15, 1999: Common Stock, $.15 Par Value - 2,449,893 shares.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held
November 18, 1999 are incorporated by reference into Part III.

<PAGE>

PART I

Item 1. - Business

         ENERGY WEST INCORPORATED ("the Company") is a regulated public utility,
with certain non-utility operations conducted through its subsidiaries. The
Company's regulated utility operations involve the distribution and sale of
natural gas to the public in the Great Falls, Montana and Cody, Wyoming areas
and sale of propane to the public through underground propane vapor systems in
the Payson, Arizona and Cascade, Montana areas. In addition, since 1995, the
Company has distributed natural gas through an underground system in West
Yellowstone, Montana, that is supplied by liquefied natural gas ("LNG").

         The Company conducts certain non-regulated non-utility operations
through its three wholly owned subsidiaries, Energy West Propane, Inc. ("EWP"),
FORMERLY ROCKY MOUNTAIN FUELS, INC., Energy West Resources, Inc. ("EWR"), and
Energy West Development, Inc. ("EWD"), FORMERLY MONTANA SUN. EWP is engaged in
the distribution of retail and wholesale bulk propane in Wyoming, South Dakota,
Nebraska, Colorado, Arizona and Montana. EWR is involved in the marketing of gas
and electricity and gas storage in Montana. EWD owns two real estate properties
in Great Falls, Montana.

UTILITY OPERATIONS

         The Company's primary business is the distribution and sale of natural
gas and propane to residential, commercial and industrial customers. The utility
distribution operations consist of three divisions, Energy West - Montana,
including operations in Great Falls, Cascade and West Yellowstone, Montana,
Energy West - Wyoming and Energy West - Arizona. Energy West - Wyoming and
Energy West - Montana are also involved in the transportation of natural gas.
Generally, residential customers use natural gas and propane for space heating
and water heating, commercial customers use natural gas and propane for space
heating and cooking, and industrial customers use natural gas as a fuel in
industrial processing and space heating. The Company's revenues from utility
operations are generated under tariffs regulated by the respective state utility
commissions.

ENERGY WEST - MONTANA ("EWM") - GREAT FALLS DIVISION

         The EWM - Great Falls division ("GF division") provides natural gas
service to Great Falls, Montana and much of suburban Great Falls within
approximately 11 miles of the city limits. The service area has a population
base of approximately 79,000. The Company has a franchise to distribute natural
gas within the city of Great Falls. The franchise was renewed for 50 years by
the City of Great Falls in 1971. As of June 30, 1999, the GF division provided
service to over 25,000 customers, including approximately 22,600 residential
customers and approximately 2,600 commercial customers. An oil refinery,
Malmstrom Air Force Base ("Malmstrom") and several other industrial customers
are served through distribution transportation agreements.


                                       2

<PAGE>

The following table shows the GF division's revenues by customer class for the
year ended June 30, 1999 and the past two fiscal years:

<TABLE>
<CAPTION>

                                                      Gas Revenues
                                                     (in thousands)

                                                     Years Ended June 30,
                                                     --------------------
                                            1999              1998           1997
                                            ----              ----           ----
<S>                                       <C>               <C>            <C>
Residential.................              $9,513            $9,162         $9,267
Commercial..................               5,412             5,521          6,631
Transportation..............               1,750             1,457            431
                                           -----             -----            ---
        Total...............             $16,675           $16,140        $16,329
                                         -------           -------        -------
                                         -------           -------        -------
</TABLE>


         The following table shows the volumes of natural gas, expressed in
millions of cubic feet ("MMcf") at 13.28 P.S.I.A., sold or transported by the GF
division for the year ended June 30, 1999 and the past two fiscal years:

<TABLE>
<CAPTION>

                                                     Gas Volumes
                                                     (MMcf)

                                                     Years Ended June 30,
                                                     --------------------
                                            1999              1998           1997
                                            ----              ----           ----
<S>                                        <C>               <C>            <C>
Residential.................               2,179             2,206          2,614
Commercial..................               1,233             1,329          1,881
                                           -----             -----          -----

                  Total Gas Sales          3,412             3,535          4,495
                                           -----             -----          -----
                                           -----             -----          -----

Transportation                             1,431             1,282          1,171
                                           -----             -----          -----
                                           -----             -----          -----
</TABLE>

         Malmstrom, a gas transportation customer is GF division's largest
customer, accounting for approximately 4% of the revenues of the division in
fiscal 1999. Malmstrom annually rebids its gas supply to gas marketing firms
licensed in the State of Montana. Malmstrom purchases gas for space heating and
water heating for buildings and residential housing, to supplement its
coal-fired central heating system. Malmstrom, which is located near Great Falls,
is an air force base with several wings of Minuteman III intercontinental
nuclear missiles. The base employed approximately 4,400 military personnel and
550 civilian personnel as of June 30, 1999.


                                       3

<PAGE>

         Malmstrom has been selected as the site where 13 of 15 test flights of
NASA's X-33 space shuttle are scheduled to land during the summer of 2000.
Malmstrom is currently one of the sites the State of Montana and the City of
Great Falls has submitted to Lockheed Martin, as the location for the
VentureStar Spaceport, which would be used to launch an experimental space
vehicle [the X-33], a single-stage-to-orbit-spacecraft. It is anticipated that
the decision by Lockheed for the location of the Spaceport will be made sometime
in calendar 2000. If Great Falls is selected as the location significant load
growth could result due to anticipated population growth. However, no assurance
can be given as to the future level of activity at Malmstrom or the likelihood
that Great Falls will be selected.

         The GF division has 109 transport customers the largest one being an
oil refinery located in the city. The Company provides gas to this customer for
processing use in its refining business. In fiscal 1999, the refinery accounted
for less than 1% of the consolidated revenues of the Company. Historically, this
customer's gas load has remained relatively constant during the year because the
gas is used in the customer's business and is therefore not weather-sensitive.

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

         On July 8, 1996, the GF division filed for a general rate increase
with the MPSC, which reflected increased operating, maintenance and
depreciation costs as well as a change in the cost of capital. The GF
division applied for and received interim relief on November 8, 1996 of
approximately $274,000 to cover increases in operating costs and taxes. The
MPSC issued a final order on April 7, 1997, which granted the GF division an
increase of $20,000 from the interim, due to the allowance of an overall rate
of return increase, resulting in a total increase of approximately $295,000.
The MPSC also granted, in that final order, the GF division's request for an
increase to recover its gas costs in the amount of approximately $386,000.

         On March 24, 1998, the GF division filed with the MPSC, the utility's
plan ("Plan") to allow customers to choose a natural gas supplier other than the
utility. The Plan would give all its customers the option to purchase natural
gas supply from third party marketing firms, while the utility will continue to
offer delivery service and allow customers, who do not want to choose another
supplier, to remain full service customers of the division. The final public
hearing was held in mid-September 1998. The GF division would not experience a
loss of margin as a result of the Plan. The MPSC approved the Plan in December
1998. The Plan called for terms and conditions through which existing open
access and customer choice, to GF division customers, will be provided and a
code of conduct for the GF division's relationship with its marketing affiliate
EWR. The Plan also called for a transition period (not more than five years) to
full customer choice for all GF division customer classes and a traditional
service tariff for customers not wanting to change suppliers. In addition the
MPSC approved a rate design stipulation between the GF division and the Montana
Consumer Counsel, which more accurately reflects GF division's fixed costs of
service and modifications to GF division's uniform system benefits program.

         The MPSC also ordered that the GF division bid the services contained
in an Agreement between GF division and EWR, which would have expired in October
2002. Both parties have agreed to unwinding that Agreement. The only service
which would continue to be provided, by EWR to the GF division, is for balancing
and nomination functions, until such time as that service is successfully
contracted for through the bid process required by the MPSC order. That bidding
process has been completed and in August 1999, EWR was awarded a contract for
certain gas balancing and supply services.


                                       4

<PAGE>

         Since an order by the MPSC in 1991, the Company has been able to
purchase gas from any supplier and transport supplies on Montana Power Company's
("MPC") transmission system. The Company pays transportation tariffs to MPC at
rates approved by the MPSC.

         The GF division purchased most of its gas supply in fiscal years 1998
and 1999 from EWR, a subsidiary of Energy West, Inc. under a long-term contract
expiring in 2002. The MPSC ordered the GF division in December 1998, to
competitively bid a supplier for those customers not selecting an alternate
supplier. In July 1999, GF division awarded 50% of its required supply for its
customers to Montana Power Trading and Marketing and 50% to EWR.

                  The GF division contracted for gas storage from MPC in
MPC-owned gas storage areas and paid storage tariffs at rates approved by the
MPSC through October 1997. This storage was assigned to EWR when a five-year gas
supply contract was signed with EWR effective November 1, 1997. The division
uses this storage capacity to provide for seasonal peaking needs. In April 1999
EWR and the GF division unwound the agreement, due to the MPSC December 1998
order, which required the utility to bid the services contained in the
Agreement. As mentioned above, the service was subsequently awarded to EWR for a
one-year period.

         Also in December 1998, the MPSC granted an interim rate change, which
increased rates about 5.5% for the GF division, as part of the Company's annual
reconciliation of purchased gas costs. This increase did not result in any
increased margins to the Company. In August 1999, the MPSC issued a Final Order
authorizing increased rates for natural gas service by $559,000. This amount is
$159,000 less than requested. The GF division will apply to the MPSC in the fall
of 1999 in an effort to recover the balance.

ENERGY WEST - WYOMING ("EWW") DIVISION

         The EWW division provides natural gas service in Northwestern Wyoming
to the city of Cody and the towns of Meeteetse and Ralston and the surrounding
areas. The service area has a population base of approximately 12,000. The EWW
division has a certificate of public convenience and necessity granted by the
Wyoming Public Service Commission (the "WPSC") for transportation and
distribution covering the west side of the Big Horn Basin, which stretches
approximately 70 miles north and south and 40 miles east and west from Cody. As
of June 30, 1999, the EWW division provided service to approximately 5,600
customers, including 4,800 residential customers, 800 commercial customers and
one industrial customer. The division also provides transportation service to
two customers.

         The following table shows the EWW division's revenues by customer class
for the year ended June 30, 1999 and the past two fiscal years:

<TABLE>
<CAPTION>

                                                            Gas Revenues
                                                           (in thousands)

                                                      Years Ended June 30,

                                                        1999     1998     1997
                                                     --------------------------
<S>                                                   <C>      <C>      <C>
Residential.................                          $2,510   $2,576   $2,669
Commercial..................                           2,004    2,206    2,242
Industrial..................                           2,000    1,999    1,819
Transportation..............                             304      304      304
                                                      ------    -----    -----
         Total.................                       $6,818   $7,085   $7,034
                                                      ------   ------   ------
                                                      ------   ------   ------
</TABLE>


                                       5

<PAGE>

         The following table shows the volumes of natural gas, expressed in
millions of cubic feet ("MMcf") at 13.28 P.S.I.A., sold by the EWW division for
the year ended June 30, 1999 and the past two fiscal years:

<TABLE>
<CAPTION>
                                                           Gas Volumes
                                                              (MMcf)
                                                     Years Ended June 30,
                                                     1999      1998      1997
                                                     ------------------------
<S>                                                 <C>       <C>       <C>
Residential..................                         500       506       541
Commercial...................                         496       540       573
Industrial...................                         674       640       636
                                                      ---       ---       ---
         Total Gas Sales.......                     1,670     1,686     1,750
                                                    -----     -----     -----
                                                    -----     -----     -----
Transportation                                        320       354       295
                                                      ---       ---       ---
                                                      ---       ---       ---
</TABLE>


         The industrial sales in the EWW division is to Celotex, a manufacturer
of gypsum wallboard, under a long-term contract expiring in 2000. Sales to the
customer are made pursuant to a special industrial tariff, which fluctuates,
with the cost of gas. In fiscal 1999 this customer accounted for approximately
29% of the revenues of the division and approximately 4% of the consolidated
revenues of the Company. The division's sales to Celotex, whose business is
cyclical and dependent on the level of national housing starts, increased by
approximately 5% over previous year's volumes. Celotex and its parent company
Jim Walters Corporation filed a petition under Chapter 11 bankruptcy in October
1990. The filing stemmed from potential asbestos claims. Approximately $132,000
was due the EWW division prior to the bankruptcy filing. During 1995 the
division increased its allowance for uncollectible accounts to $52,000. On July
12, 1996, Celotex filed a joint Plan of Reorganization. The Bankruptcy Court
held a confirmation hearing on the Plan beginning on October 7, 1996. A
settlement was reached and the plan of reorganization was approved. As a result,
on June 20, 1997, the EWW division received 90% of the amount due or
approximately $118,000. The effect of the settlement was to decrease bad debt
expense by approximately $39,000, which increased the EWW division and
consolidated earnings by approximately $26,000 for fiscal 1997. No assurance can
be given that Celotex will continue to be a significant customer of the EWW
division.

         The EWW division's primary transportation customer and primary supplier
of natural gas is K-N Energy. The parameters of the transportation tariff
(currently between $.08 and $.30 per Mcf) are established by the WPSC.
Agreements between the Company and the customer are negotiated periodically
within the parameters.

         During fiscal 1999, the Company was a party to gas financial swap
agreements for its regulated operations in the EWW division. Under these
agreements, the Company is required to pay the counterparty (an entity making a
market in gas futures) a cash settlement equal to the excess of the stated index
price over an agreed upon fixed price for gas purchases. The Company receives
cash from the counterparty when the stated index price falls below the fixed
price. These swap agreements are made to minimize exposure to gas price
fluctuations. Any cash settlements or receipts are included in gas purchased.

         The division's revenues are generated under regulated tariffs that are
designed to recover a base cost of gas, administrative and operating expenses
and provide sufficient return to cover interest and profit. The division also
services customers under separate contract rates that were individually approved
by the WPSC. The division's tariffs include a purchased gas adjustment clause
which allows an adjustment of rates charged to customers in order to recover
changes in gas costs from base gas costs. A WPSC approved incentive permitted
gas utilities to retain 10% of its cost of gas savings over a base period level
through fiscal 1996. The amount of gas cost incentive if any, fluctuates with
the market price of natural gas. In fiscal 1997, the WPSC lowered the target
amount in the gas cost incentive and the EWW division currently does not earn an
incentive on its gas costs.


                                       6

<PAGE>

         The EWW division's last general rate order was effective in 1989. The
Company does not contemplate filing an application for a general rate increase
for the division in the foreseeable future

         The EWW division has a five-year agreement, expiring in 2000, with K-N
Energy to supply natural gas to the division. The contract has been renewed and
renegotiated annually since 1989. The contract requires K-N Energy to deliver
gas to various points on the division's transmission system. Most of the gas
purchased by the division is transported on the division's own transportation
system and the balance is transported on K-N Energy's transportation system. The
division also has several small supply contracts with small producers in the
Cody transportation network. In addition, the division has a backup contract to
purchase natural gas from Coastal Gas Marketing, but has never purchased gas
under this contract.

ENERGY WEST - ARIZONA ("EWA") DIVISION

         The EWA division is involved in the regulated distribution of propane
in the Payson, Arizona area. The division was formed following the Company's
acquisition of Broken Bow Gas's underground propane vapor distribution system in
January 1993. The service area of the EWA division includes approximately 575
square miles and has a population base of approximately 30,000. As of June 30,
1999, the EWA division provided service to approximately 5,300 customers.

         The EWA division's operations are subject to regulation by the
Arizona Corporation Commission, which regulates rates, adequacy of service,
issuance of securities and other matters. The EWA division's properties
include approximately 100 miles of underground distribution pipeline and an
office building leased from a third party. The division purchases its propane
supplies from Energy West Propane-Arizona under terms reviewed periodically
by the Arizona Corporation Commission.

         In September 1996, the EWA division filed for a general rate increase
with the Arizona Corporation Commission, which reflected increased operating,
maintenance and depreciation costs as well as a change in the cost of capital.
On August 29, 1997, the Arizona Corporation Commission approved a rate increase
of $390,000 effective October 1, 1997.

NON-UTILITY OPERATIONS

         The Company conducts its non-utility operations through its three
wholly owned subsidiaries: EWP, EWR and EWD. EWP is engaged in the bulk sale of
propane through its three divisions: Energy West Propane-Wyoming (FORMERLY WYO
L-P), which serves Northwestern Wyoming, Energy West Propane-Arizona (FORMERLY
PETROGAS OF ARIZONA), which serves the Payson, Arizona area and Energy West
Propane-Montana (FORMERLY MISSOURI RIVER PROPANE), which sells bulk propane in
the Cascade County area, surrounding Great Falls, Montana. EWP also markets
wholesale propane through an operation whose d.b.a. is known as Rocky Mountain
Fuels Wholesale, which also markets propane to propane distributors in Wyoming,
Nebraska, South Dakota and Colorado.

Energy West Propane

         EWP had approximately 2,450 customers as of June 30, 1999, of which the
EWP - Wyoming had approximately 580 customers, EWP - Arizona 1,600 customers and
EWP - Montana approximately 270 customers. EWP purchases propane from various
suppliers under short-term contracts and on the spot market, and sells propane
to residential and commercial customers, primarily for use in space heating and
cooking. EWP - Arizona also supplies propane to the EWA division, while EWP -
Montana supplies propane to EWM Cascade division, for underground propane-vapor
systems serving the city of Cascade, Montana and surrounding areas. For the
twelve months ended June 30, 1999, EWP's revenues were approximately $3,569,000
(excluding approximately $2,300,000 sales by Rocky Mountain Fuels Wholesale to
EWP - Wyoming, EWP - Arizona and EWP - Montana, $1,852,000 sales by EWP -
Arizona to the EWA division and approximately $113,000 sales by EWP - Montana to
EWM - Cascade division), of which approximately $1,651,000 was attributable
retail sales by EWP - Wyoming, EWP - Arizona and EWP - Montana. In addition,
approximately $1,918,000 was attributable to the Rocky Mountain Fuels Wholesale
operation.


                                       7

<PAGE>

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

         On August 1, 1997, the Company entered into a take or pay propane
contract, which expired July 31, 1998. The contract generally required the
Company to purchase all propane quantities produced by a propane producer in
Wyoming (approximately 250,000 gallons per month) tied to the Worland, Wyoming
spot price.

         On February 23, 1998, the Company sold four retail propane districts in
Wyoming, which was part of Wyo L-P (now Energy West Propane - Wyoming),
resulting in a one-time pre-tax capital gain of approximately $125,000.

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

Energy West Resources

         EWR was involved in a small amount of oil and gas development and the
marketing of gas in Montana and Wyoming. EWR had varying working interests in
four oil and nine gas producing properties. Those properties were sold in fiscal
1997, with no significant gain. Volumes of oil and gas produced were not
significant and did not result in significant net income in fiscal 1997. The
ordering of MPC to provide open access on its gas transportation and electricity
system in Montana has presented opportunities for EWR to do business as a broker
of natural gas and electricity, using the MPC and other systems. EWR presently
has fifty-five customers for gas services and five for electricity services. EWR
has access to an underground storage facility near Havre, Montana, which allows
more flexibility in the timing of its gas purchases.

         In July 1998, the Company signed a basis swap agreement between the
NYMEX and AECO price indices. The contract period for the 5,000 MMBTU per day
swap begins November 1, 1999 and ends October 31, 2000. The swap compares the
index prices of natural gas quoted on the NYMEX gas exchange with the AECO
gas exchange on a daily basis. The original basis differential was $.62 per
MMBTU. The Company settled this basis differential at $.38 resulting in a
gain of $390,000 which is recorded as a mark-to-market gain in other income.
The Company has designated this basis swap as a trading commodity derivative.
For the fiscal year ended June 30, 1998, the Company was a party to one hedge
agreement for non-regulated operations.

         In May 1999 the Company signed a basis for the swap agreement,
between the NYMEX and AECO price indexes. The contract period for the 4,000
MMBTU per day begins July 1, 1999 to October 31, 1999. The swap compares the
index prices of natural gas quoted on the NYMEX gas exchange with the AECO
gas exchange on a daily basis. The original basis differential was at $.38
per MMBTU. The Company settled the June 1999 portion of the swap at a gain of
$13,000 and settled the remaining portion, a basis differential at $.36 for
an additional gain of $7,500.

         The Company entered into two swap agreements with a market maker which
requires the market maker to pay a fixed price to the Company and for the
Company to pay the AECO index price for the contracted volumes. The Company
entered into a reciprocal agreement with a counter party whereby the counter
party pays the AECO index price to the Company and the Company pays the AECO
fixed price to the counter party. The first agreement is from June 1, 1999 to
October 31, 1999 for 2,500 MMBTU per day at a fixed price of $1.925. The second
agreement is from November 1, 1999 to October 31, 2001 for 1,200 MMBTU per day
at a fixed of $2.06. The AECO index price at June 30, 1999 was $1.93.


                                       8

<PAGE>

         In the event the counter-party fails to perform under its obligation,
and the AECO index price exceeds the fixed prices of these swaps, the Company
would be liable to the market maker. The Company's contingent liability based on
the June 30, 1999 AECO index price is minimal.

Energy West Development

         EWD owns a commercial real estate property and a parcel of undeveloped
land in Great Falls, Montana. EWD leases the commercial property to a federal
governmental agency. Other then this lease and the Company's efforts to sell
this commercial property, the Company is inactive at this time.

         Additional information with respect to the non-utility operation of the
Company is set forth in Notes 1, 6, 9 and 10 to the Company's consolidated
financial statements.

Capital Expenditures

         The Company generally conducts a continuing construction program and is
continuing expansion of its gas and propane pipeline systems, in all of its
utility service areas, as a result of growth and system maintenance and
enhancement. The Company also continues to experience growth in its retail
propane operations requiring capital expenditures to serve those customers. In
fiscal years 1999, 1998 and 1997, total capital expenditures for the Company
were approximately $3,604,000, $3,075,000 and $3,207,000 respectively.

Other Business Information

         The principal competition faced by the Company in its distribution of
natural gas is from other suppliers of competitive fuels, including electricity,
oil, propane and coal. The principal competition faced by the Company in its
distribution and sales of propane is from other propane distributors and
suppliers of the same energy sources that compete with natural gas and
electricity. Competition is based primarily on price and there is a high degree
of competition with other propane distributors in the service areas. The
principal considerations affecting a customer's selection of utility gas service
over competing energy sources include service, price, equipment costs,
reliability and ease of delivery. In addition, the type of equipment already
installed in businesses and residences significantly affects the customer's
choice of energy. However, where previously installed equipment is not an issue,
households in recent years have generally preferred the installation of gas
heat. The EWM - Great Falls division's statistics indicate that approximately
95% of the houses and businesses in the service area use natural gas for space
heating fuel, approximately 91% use gas for water heating and approximately 99%
of the new homes built on or near the EWM Great Falls division's service mains
in recent years have selected natural gas as their energy source. The EWW
division believes that approximately 95% of the houses and businesses in the
service area use natural gas for space heating fuel, approximately 90% use gas
for water heating, and approximately 99% of the new homes built on or near the
division's service mains in recent years have selected gas as their energy
source. The EWA division believes that approximately 59% of the houses and
businesses adjacent to the division's distribution pipeline use the division's
propane for space heating or water heating. EWR's principal competition is from
other gas-marketing firms doing business in the State of Montana. EWR presently
has fifty-five customers for natural gas services and five for electricity
services. The GF division and MPC have filed plans with the MPSC, to allow all
of its customers to choose a natural gas supplier other than the utility. Those
plans have been approved by the MPSC. EWR believes that the unbundling of
natural gas service will provide future opportunity for gas marketing
operations. The unbundling of electric utility service, occurring in phases on
the MPC system, will provide future opportunity for electric marketing
operations.


                                       9

<PAGE>

         The Company had 128 employees as of June 30, 1999. Six of the employees
were with EWR, 21 employees were with the EWW division, 10 employees were with
EWP and 20 were with the EWA division. The other 64 employees were with the EWM
- Great Falls division, including Cascade Gas and West Yellowstone Gas and 7 at
corporate headquarters. Approximately 13 full-time and 3 seasonal hourly
employees in the EWM - Great Falls division are represented by two collective
bargaining units, the United Association of Journeymen and Apprentices of the
Plumbing and Pipefitting Industry of the USA and the Construction and General
Laborer's Union. The Company's two labor contracts were renegotiated through
April 30, 2000. The Company considers its relationship with its employees to be
satisfactory.

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

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

         The Company has expanded its wholesale propane operations to retail
propane distributors in South Dakota, Nebraska and Colorado.

         The Company has management and employee incentive programs tied to
bottom-line performance of the corporation. Officers and management participate
in a pay-for-performance program based on achievement of earnings and Economic
Value Added (EVA) targets. The targets are set by the Compensation Committee of
the Board of Directors, based on the operating budget set by the Company.
Division personnel incentives are based on a combination of the division
earnings performance and on the corporate performance measures discussed above.
In addition, each individual incentive payout is contingent upon achievement of
Specific Performance Objectives (SPO) set at the beginning of each year. All
officers and eligible employees participate in the Company's Employee Stock
Ownership Plan ("ESOP"), in which payout is based on pre-tax, pre-ESOP earnings
of the Company and approved by the Board each year.

         The Company has implemented a deferred compensation plan for directors,
which allows a director to defer directors' fees and incentive awards until such
time as the director ceases to be a director of the Company by retirement or
otherwise. The plan provides incentive compensation based on the total fees
earned by each Director for each year multiplied by the highest percentage
incentive award for that year to any employee under the Company's management
incentive compensation plan, which in fiscal 1999 was 33.05%. Fees (either cash
or stock) and incentive compensation (stock only) can be received either
currently, as they are earned, or on a deferred basis. Elections to defer
receipts are subject to timing requirements. The deferred compensation plan for
directors was approved by the shareholders at the Annual Shareholders Meeting of
Energy West, Incorporated on November 21, 1996.


                                       10

<PAGE>

PART I
Item 2. - Properties

         The Company owns all of its properties in Great Falls, including an
office building, a service and operating center, regulating stations and its
distribution system. In Wyoming, the Company owns its distribution system,
including 167 miles of transmission pipeline. Office and service buildings for
the EWW division are leased under long-term leases. EWP owns buildings, propane
tanks and related metering and regulating equipment for the Wyoming and Arizona
propane distribution operations. In Arizona, the Company owns mains, service
lines and five acres of land for it's propane vapor distribution operation in
Payson, Arizona. In June 1996, Energy West Propane - Arizona, a division of EWP,
sold its land and office and warehouse buildings in Payson, Arizona to an
outside party and signed a lease agreement with the same party for a period of
ten (10) years, with a provision for extension of the lease for two successive
five (5) year periods. EWP 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 offered.

Environmental Matters

         The Company owns property on which it operated a manufactured gas plant
from 1909 to 1928. The site is currently used as a service center where certain
equipment and materials are stored. The coal gasification process utilized in
the plant resulted in the production of certain by-products which have been
classified by the federal government and the State of Montana as hazardous to
the environment. Several years ago the Company initiated an assessment of the
site to determine if remediation of the site was required. That assessment
resulted in a submission to the Montana Department of Environmental Quality
("MDEQ"), formerly known as the Montana Department of Health and Environmental
Science ("MDHES"), in 1994. The Company has worked with the MDEQ since that time
to obtain the data that would lead to a remediation action acceptable to the
MDEQ. In the summer of 1999 the Company received final approval from the DEQ for
its plan for remediation of soil contaminants. The Company is in the process of
implementing that plan. The Company and its consultants continue their work with
the MDEQ relating to the remediation plan for water contaminants.

         At June 30, 1999, the costs incurred to evaluate and begin remediation
have totaled approximately $1,267,000. On May 30, 1995, the Company received an
order from the Montana Public Service Commission allowing for recovery of the
costs associated with evaluation and remediation of the site through a surcharge
on customer bills. As of June 30, 1999, that recovery mechanism had generated
approximately $742,000. The Commission's decision calls for ongoing review by
the Commission of the costs incurred related to this matter. The soil
remediation has been substantially completed.


                                       11

<PAGE>

Item 3. - Legal Proceedings

         From time to time the Company is involved in litigation relating to
claims arising from its operations in the normal course of business. The Company
contracts for liability insurance through a primary insurance carrier in the
amount of $1,000,000 and an excess carrier, in the amount of $30,000,000 in
order to indemnify itself from such claims. The Company has been charged with
responsibility for certain actions, which have been litigated or are in the
process of litigation. In its judgement, there is no legal proceeding, which
could result in a material adverse effect on the Company's results of
operations, financial position or liquidity. Significant legal proceedings, most
of which are covered under its liability insurance policies, are described
below.

         On February 6, 1998 a judgement was entered against the Company in
the Federal District Court for Wyoming in favor of Randy and Melissa Hynes.
The Company was found to be 55% responsible resulting in a liability of
approximately $2,900,000 for which the Company is indemnified under the
policies described above. The action arose out of a natural gas explosion
involving a four-plex apartment building in Cody, Wyoming. The Company has
appealed the judgement to the United States Court of Appeals for the Tenth
Circuit.

         Two lawsuits arising out of the same explosion as that in the
"Hynes" case but involving other plaintiffs have been recently settled. One
lawsuit filed by the building owner is still pending. The Company is
indemnified under its insurance policies for the defense of these claims and
believes it will be completely indemnified from any judgement on the
remaining claim.

         On September 4, 1998, the Company received correspondence from the
Department of Justice that a claim was being considered by the United States of
America (U.S.) against Energy West, Incorporated. The correspondence indicated
that a complaint has been prepared by Jack Grynberg, acting as Relater on behalf
of the U.S., alleging that the Company had utilized improper measurement
procedures in the measurement of gas which was produced from wells owned by it,
by its subsidiaries, or from which the Company may have acted as operator. The
alleged improper measurement procedure purportedly understated the amount of
royalty revenue, which would have been paid to the U.S. The complaint is
substantially identical to the complaint being made against seventy-seven other
parties. The Company is alleged to have been responsible for the measurement of
over 150 wells during a five-year period. The Company has investigated this
allegation and believes it had measurement responsibility for four wells. The
quantity of production from those wells is small enough that the Company does
not expect its potential liability to be material from any adverse decision in
any action actually pursued by the U.S. or Mr. Grynberg. Furthermore, the
Company believes that the allegations made by Mr. Grynberg are not sustainable.
In the spring of 1999 the United States declined to intervene in the action. The
Company has been served with the Complaint by Mr. Grynberg and the matter is
currently the subject of preliminary motions in Federal Court. The Company
intends to vigorously contest the claims made in the Complaint.


                                       12

<PAGE>

Item 4. - Submission of Matters to a Vote of Security Holders

             None

Executive Officers and Directors of the Company

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

<TABLE>
<CAPTION>
Name                   Age                                   Position
----                   ---                                   --------
<S>                    <C>                   <C>
Larry D. Geske          60                   President and Director since 1978;
                                             appointed Chief Executive Officer
                                             in 1979

Edward J. Bernica       50                   Executive Vice-President, Chief
                                             Operating Officer and Chief
                                             Financial Officer since March 1999;
                                             Vice-President and Chief Financial
                                             Officer since October 1994

William J. Quast        60                   Vice-President and Manager of
                                             Montana Operations of Energy West,
                                             Inc and Assistant Secretary since
                                             July 1998, Vice-President,
                                             Treasurer, Controller and Assistant
                                             Secretary since 1988, has been
                                             Vice-President, Secretary and
                                             Treasurer since 1987, Assistant
                                             Vice-President, Secretary
                                             Controller and Assistant Treasurer
                                             since 1983, Secretary since 1982
                                             and an Assistant Treasurer of the
                                             Company since 1979

Tim A. Good             54                   Vice-President and Manager of the
                                             Energy West Wyoming since 1988;
                                             General Manager of Cody Gas
                                             Company, a Division of the Coastal
                                             Corporation, for five years prior
                                             to the acquisition of CGD by the
                                             Company


                                       13

<PAGE>

Sheila M. Rice          52                   Vice-President of Marketing for
                                             Energy West, Inc. since July 1998;
                                             Vice-President and Division Manager
                                             of the EWM - Great Falls division
                                             since April 1993; Vice-President
                                             Marketing and Consumer Services
                                             1988 -1993 and has been
                                             Vice-President, Marketing and
                                             Consumer Relations 1987 -1988;
                                             Assistant Vice-President for
                                             Marketing and Customer Relations
                                             1983-1987.


John C. Allen           48                   Vice-President of Human Resources
                                             and General Counsel and Secretary
                                             since 1992; Corporate Counsel and
                                             Secretary since 1988; Counsel and
                                             Assistant Secretary from November
                                             1986 to 1988 and Corporate Attorney
                                             to the Company from March 1986 to
                                             November 1986

Steven G. Powers        51                   Assistant Vice-President and
                                             Manager of Energy West Resources
                                             since August 1997

Douglas R. Mann         52                   Vice-President of EWP since
                                             February 1999 and Assistant
                                             Vice-President of EWP since
                                             November 1997 and Manager of Broken
                                             Bow Gas and Energy West Propane -
                                             Arizona divisions and Assistant
                                             Secretary, since 1995, employed by
                                             Energy West, Inc. since 1983.
</TABLE>

                                       14

<PAGE>

<TABLE>
<CAPTION>

Name                    Age                  Position
----                    ---                  --------
<S>                     <C>                  <C>
Ian B. Davidson         67                   Director since 1969

George D. Ruff          61                   Director since 1996

Thomas N. McGowen, Jr.  73                   Director since 1978

G. Montgomery Mitchell  71                   Director since 1984

Dean South              56                   Director since 1996

David A. Flitner        66                   Director since 1988

Richard J. Schulte      59                   Director since 1997
</TABLE>

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

Mr. Edward J. Bernica has been employed by the Company since October 1994 and
became Executive Vice-President, Chief Operating Officer and Chief Financial
Officer in March 1999. In November 1994, Mr. Bernica became Vice-President and
Chief Financial Officer. Mr. Bernica, prior to service with the Company, was
Director of Finance at U. S. West in Englewood, Colorado and prior to that, was
employed by ENRON Corporation in Omaha, Nebraska as Director-Financial Analysis
and Planning

William J. Quast has been Vice-President, Treasurer, Controller and Assistant
Secretary since 1988 and on July 1, 1998 was appointed Vice-President and
Division Manager of the Montana Operations. He has served as Vice-President,
Secretary and Treasurer since 1987 and as Assistant Vice-President, Secretary,
Controller and Assistant Treasurer since 1983. He has served as Secretary of the
Company since 1982 and as Assistant Treasurer of the Company since 1979. Mr.
Quast, prior to service with the Company, was an accounting manager for Wyton
Oil and Gas Company, a multi-state propane distributor headquartered in Denver,
Colorado, and was Treasurer for D. A. Davidson & Co. in Great Falls, Montana.

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

Sheila M. Rice has been Vice-President and Division Manager of the EWM - Great
Falls division since April, 1993 and effective July 1, 1998, was appointed
Vice-President of Marketing. Prior to that, she was Vice-President of Marketing
and Consumer Services since 1988. She served as Vice-President, Marketing and
Consumer Relations from 1987 to 1988, Assistant Vice-President for
Marketing/Customer Relations from 1983 to 1987 and as Consumer Service
Representative/Conservation Specialist for the Company from 1979 to 1983.

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


                                       15

<PAGE>

Steven G. Powers has been Assistant Vice-President and Manager of Energy West
Resources since August 1997.

Douglas R. Mann has been Vice-President of EWP since February 1999 and Assistant
Vice-President of EWP since November 1997 and Manager of Broken Bow Gas and
Energy West Propane - Arizona divisions and Assistant Secretary, since 1995,
employed by Energy West, Inc. since April 1983.

Ian B. Davidson has been a Director of the Company since 1969. Mr. Davidson
serves as Chairman and CEO of DADCO, a holding company that owns D. A. Davidson
& Co., Davidson Trust Co., Financial Aims Corp. and DADCO Travel since October
1970. Mr. Davidson is also a Director of Plum Creek Management Company of
Seattle, Washington and is a past Chairman of the National Association of
Securities Dealers.

George D. Ruff has been a Director of the Company since 1996. Mr. Ruff retired
as Vice-President of Montana Operations for U.S. West, Inc. He held that
position from June 1983 until his retirement in 1997. He is a director of
Norwest Bank, the Montana Taxpayers Association and is a Director of the Montana
Chamber Foundation Board.

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

G. Montgomery Mitchell has been a Director of the Company since 1984. Mr.
Mitchell was a Senior Vice-President and Director of Stone and Webster
Management Consultants, Inc. from August 1980 until his retirement in 1993. Mr.
Mitchell is a Director of Energy South, Inc. (formerly Mobile Gas Service
Corporation)(Alabama).

Dean South has been a Director of the Company since 1996. Mr. South currently
ranches north of Helena, Montana. Mr. South has been active in the management of
propane distribution companies for most of his career. In 1991, Mr. South
retired from the propane distribution industry having served as Vice President
of Western Operations for Heritage Propane Corporation from October of 1989
until his retirement in 1991. From 1986 until 1989 he served as President and
Chief Operating Officer of Louis Dreyfus Propane Corporation. From 1981 until
1986 he served as President of Northern Energy Company which subsequently merged
with Louis Dreyfus Propane. He was appointed in August, 1996 to fill the
unexpired term of Mr. Moylan as a Director for ENERGY WEST, Inc.

David A. Flitner has been a Director of the Company since 1988. Mr. Flitner is
owner of the Flitner Ranch and Hideout Adventures, Inc., a recreational
enterprise.

Richard J. Schulte has been a Director of the Company since 1997. He is a
principal in Schulte Associates LLC, a consulting firm providing management,
marketing, restructuring and planning services to energy related businesses. Mr.
Schulte was formerly President of International Approval Services, Inc.; and
Senior Vice President Laboratories for the American Gas Association. He is
chairman of the Audit and Finance Committee for the American Society for Testing
and Materials (ASTM).


                                       16

<PAGE>

PART II

Item 5. - Market for registrant's common equity and related stockholder matters

Common Stock Prices and Dividend Comparison - Fiscal 1999 and 1998 Shares of
the Company's Class "A" Common Stock are traded in the over-the-counter
market on the NASDAQ (National Association of Securities Dealers Automated
Quotation) system-symbol: EWST. The over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission,
and may not necessarily represent the actual transactions. Prices are shown
as a result of a 2-for-1 stock split, effective June 24, 1994.

<TABLE>
<CAPTION>

Price Range - Fiscal 1999           High                       Low
-------------------------           ----                       ---
<S>                               <C>                        <C>
First Quarter                      9.375                     8.625
Second Quarter                     9.75                      9.125
Third Quarter                     10.625                     8.375
Fourth Quarter                    10.00                      8.250
Year                              10.625                     8.250
</TABLE>

<TABLE>
<CAPTION>

Price Range - Fiscal 1998           High                       Low
-------------------------           ----                       ---
<S>                                <C>                        <C>
First Quarter                      9.125                      8.25
Second Quarter                     9.125                      8.75
Third Quarter                      9.125                      8.625
Fourth Quarter                     8.938                      8.375
Year                               9.125                      8.25
</TABLE>


Dividends: The Board of Directors normally considers approving common stock
dividends for payments in March, June, September and January. Quarterly dividend
payments per common share for Fiscal Years 1999 and 1998 were:

<TABLE>
<CAPTION>

                                   Fiscal 1999              Fiscal 1998
                                   -----------              -----------
<S>                                <C>                      <C>
September                               $.1150                   $.1100
January                                 $.1150                   $.1100
March                                   $.1150                   $.1100
June                                    $.1200                   $.1150
</TABLE>


                                       17

<PAGE>

Item 6. - Selected Financial Data

Selected Financial Data on a Consolidated Basis (1999-1995)
(dollar amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                         1999       1998        1997         1996        1995
                                         ----------------------------------------------------
<S>                                   <C>        <C>         <C>         <C>          <C>
Operating results:
Operating revenue                     $53,461    $43,064     $38,215     $ 31,318     $30,548
Operating expenses
         Gas and electric purchases    39,428     28,757      24,675       18,724      18,616
         General and administrative     7,921      7,697       7,498        6,924       6,380
         Maintenance                      469        497         497          409         306
         Depreciation and amortization  1,695      1,732       1,689        1,667       1,559
         Taxes other than income          708        628         660          629         595
                                      -------------------------------------------------------
         Total operating expenses      50,221     39,311      35,019       28,353      27,456
                                      -------------------------------------------------------
Operating income                        3,240      3,753       3,196        2,965       3,092
Other income - net                        817        142         325          215         175
                                      -------------------------------------------------------
Income before interest charges          4,057      3,895       3,521        3,180       3,267
Total interest charges                  1,493      1,583       1,525        1,243         938
                                      -------------------------------------------------------
Income before taxes                     2,564      2,312       1,996        1,937       2,329
Income taxes                              977        792         703          670         816
                                      -------------------------------------------------------
Net income                             $1,587     $1,520      $1,293       $1,267      $1,513
                                      -------------------------------------------------------
                                      -------------------------------------------------------
Earnings per common share                 .66        .64         .55          .55         .68
Dividends per common share                .47        .45         .43          .41         .39
Weighted average common shares
Outstanding                         2,418,910  2,390,814   2,356,624    2,298,734   2,235,413

At year end:
         Current assets               $11,429    $12,326     $12,398       $9,092      $6,263
         Total assets                  44,201     43,335      42,885       37,495      32,375

         Current liabilities            7,230      6,745      15,317       11,088       6,786
         Total long-term obligations   16,840     17,278       9,684       10,046      10,435
         Total stockholders' equity    13,532     12,811      11,997       11,400      10,533
                                       ------------------------------------------------------
         Total capitalization         $30,372    $30,089    $ 21,681     $ 21,446    $ 20,968
                                      -------------------------------------------------------
                                      -------------------------------------------------------
</TABLE>


                                       18

<PAGE>

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

RESULTS OF CONSOLIDATED OPERATIONS

Fiscal 1999 Compared to Fiscal 1998

Net Income
         The Company's net income for fiscal 1999 was $1,587,000 compared to
$1,520,000 in fiscal 1998, an increase of $67,000. Net income from utility
operations increased by $130,000 due to higher gross margins, higher other
income and lower interest costs. Energy West Propane, Inc ("EWP") (formerly
Rocky Mountain Fuels, Inc.) had lower net income of $90,000 due to a capital
gain recognized, in fiscal 1998, from the sale of four retail propane and from
warmer weather in all of its propane operating areas. Also, Energy West
Resources, Inc ("EWR"), the Company's gas and electric marketing affiliate, had
an earnings decrease of $100,000 due to significantly higher natural gas prices
in Canada and Montana. This subsidiary achieved its first electric marketing
sales in fiscal 1999 offsetting some of the decrease in gas marketing margins.
In addition, this subsidiary had a $390,000 gain from trading derivatives.
Energy West Development, Inc. ("EWD") (formerly Montana Sun), the Company's real
estate development affiliate, had higher net income of $170,000 because, in
fiscal 1998, it recorded a loss from its investment in American Gas Finance
Company, LLC, a financing operation of the American Gas Association, which
discontinued operations. The Company also lowered its interest costs by
approximately $100,000 primarily from generating more cash from operating
activities.

Revenue
         Operating revenues increased approximately 24%. Although weather was
slightly warmer than last year in the Company's utility operations, revenues
were approximately the same as the prior year due to customer growth, in all
utility operations, and rate increases in certain Energy West Montana ("EWM")
operating entities. Revenues decreased approximately 5% in propane operations
due to the sale of the four retail propane districts in Wyoming in February of
fiscal 1998 and warmer weather than last year. Revenues from gas and electric
marketing activities increased approximately 90% of which, 51% is from
significantly higher volumes of natural gas sold and 39% is from the electric
sales.

 Gross Margin
         Gross margins (operating revenues less cost of gas purchased and cost
of gas trading) decreased approximately $275,000 in 1999. Regulatory gross
margins increased approximately $445,000 even though degree-days were slightly
warmer than the previous year in all the Company's utility operations. The
increase in gross margin resulted from customer growth in all utility operations
and allowed rate increases in the West Yellowstone and Cascade districts of EWM.
Gross margins from propane operations decreased approximately $410,000 from the
sale of the propane properties in fiscal 1998 and warmer weather experienced in
all of its operating divisions in fiscal 1999. EWR had lower gross margins of
$390,000 of which, gas marketing decreased by $520,000 due to significantly
higher natural gas prices in Canada and Montana. This was partially offset by
electric gross margins totaling $115,000.

Operating Income
         Operating income decreased by approximately $510,000. Regulated
operations had an increase of $75,000, however propane operations had a decrease
of $200,000 and energy marketing had a decrease of $420,000. The increased
operating income from regulated operations resulted from higher gross margin of
$445,000 offset by higher operating expenses of $300,000 primarily due to
inflationary trends and additional staff added for safety operations of the
Company. Taxes other than income increased approximately $70,000, of which,
approximately $50,000 was due to an unfavorable settlement of a sales and use
tax audit related to the Company's Arizona operations. The decreased operating
income from propane operations was due to a $410,000 decrease in gross margins
offset by lower operating expenses of $200,000 both of which are related to the
sale of the properties in Wyoming. The decrease in operating income from the
Company's energy marketing activities was primarily due to the decrease in gross
margin.


                                       19

<PAGE>

Other Expenses

         Operating expenses (excluding cost of gas sales) increased
approximately $240,000 or 2% in 1999.

         The result of the changes, as detailed above, was a decrease in
operating income from $3,753,000 in 1998 to $3,240,000 in 1999. However,
interest expense decreased by $91,000 or 6% from $1,492,000 in fiscal 1999
compared to $1,583,000 in fiscal 1998. The decrease in interest expense was
primarily due to improvement in cash generated from operating activities. Other
income increased $698,000 from $209,000 in fiscal 1998 to $907,000 in fiscal
1999. The primary reasons for this increase were gains on derivative trading of
$390,000, an increase in carrying costs on regulatory assets of $100,000 and a
loss recognized in fiscal 1998 from the write-off of the investment in American
Gas Finance Company, LLC of approximately $248,000.

Fiscal 1998 Compared to Fiscal 1997

Net Income
         The Company's net income for fiscal 1998 was $1,520,000 compared to
$1,293,000 in fiscal 1997, an increase of $227,000 or 18%. This increase was
primarily due to higher net income for EWP, of $168,000, resulting from a
one-time capital gain from the sale of the propane properties. Net income
also increased for EWR by $208,000 from higher gas trading margins due to
favorable natural gas prices in Canada and Montana. Partially offsetting
these increases was a decrease in net income from EWD of $244,000 related to
the write-off of an investment in American Gas Finance Company, LLC. In
addition, net income from utility operations increased by $95,000 due to
higher other income from service and appliance sales and lower interest
charges.

Revenue
         Operating revenues increased approximately 13%. Regulated revenues
increased approximately 4% compared to the prior year from rate increases and
customer growth in Energy West Arizona (EWA) and the West Yellowstone district
of EWM. EWR's operating revenues increased approximately 90% from higher gas
trading revenue due to expanded markets, customer growth and decreased natural
gas prices. Partially offsetting this increase was a decrease in revenue for EWP
of approximately 28% related to the sale of the propane properties.

Gross Margin
         Gross margins increased approximately $770,000 in 1998. Regulatory
gross margins increased approximately $90,000 because of higher margins from
propane vapor sales in EWA, due to a 17% rate increase and customer growth. In
addition, higher margins from natural gas sales were achieved in the West
Yellowstone district of EWM from customer growth and a rate increase. Partially
offsetting these increases was a decrease in margins in the Energy West Montana
(EWM) and Energy West Wyoming (EWW), due to warmer weather than one year ago.
Gross margin increased, for EWR, approximately $720,000 from much higher gas
volumes sold and lower natural gas prices. These increases in gross margin were
offset by lower gross margin in EWP because of the sale of the propane
properties in Wyoming and warmer weather than one year ago.

Operating Income
         Operating income increased approximately $560,000 of which regulated
operations had a decrease of $30,000, propane operations had an increase of
$190,000 and energy marketing had an increase of $400,000. The higher gross
margin of $88,000 was offset by higher operating expenses, due to normal
inflationary trends and higher depreciation costs related to expansion of
property, plant and equipment. The increase in operating income from propane
operations occurred because operating expense reductions from the sale of the
propane properties exceeded the reduction in margins generated by those offices.
The increase in operating margin for energy marketing activities resulted from a
gross margin increase of $720,000 partially offset by higher general,
administrative and maintenance expenses of $340,000, due to staff expansion and
training required, to service the growth in gas marketing operations.


                                       20

<PAGE>

Other Expenses
         Operating expenses (excluding cost of gas sales) increased
approximately $200,000 or 2% in 1998. The primary reason for this increase was
normal inflationary trends and increased depreciation due to expansion of
property, plant and equipment.

         As a result of the above changes, operating income increased 17% from
$3,196,000 in 1997 to $3,753,000 in 1998. Total interest expense for the Company
was $1,583,000 for fiscal 1998, up from $1,525,000 in fiscal 1997, primarily due
to an $8,000,000 debt issuance on August 15, 1997, which was used to pay down
short-term debt. Other income decreased 56% from $325,000 in fiscal 1997 to
$142,000 in fiscal 1998, primarily due to the write-off of the investment in
American Gas Finance Company, LLC of approximately $248,000. This loss was
partially offset by a one-time capital gain from the sale of the propane
properties of approximately $136,000

-------------------------------------------------------------------------------

OPERATING RESULTS OF THE COMPANY'S UTILITY OPERATIONS
-----------------------------------------------------

<TABLE>
<CAPTION>

                                                                 Years Ended June 30
                                                        1999              1998            1997
                                                                     (IN THOUSANDS)
<S>                                                     <C>               <C>             <C>
Operating revenues:
  Energy West Montana                                   $17,693           $17,028         $17,133
  Energy West Wyoming                                     6,817             7,085           7,034
  Energy West Arizona                                     3,595             3,712           2,715
                                                 --------------- ----------------- ---------------

Total operating revenues                                 28,105            27,825          26,882
Gas purchased                                            16,885            17,047          16,193
                                                 --------------- ----------------- ---------------
Gross Margin                                             11,220            10,778          10,689
Operating expenses                                        8,644             8,273           8,155
Interest charges   (SEE NOTE BELOW)                       1,239             1,343           1,477
Other utility (income) expense                            (225)             (177)           (125)
Federal and state income taxes                              534               439             377
                                                 --------------- ----------------- ---------------

Net utility income                                       $1,028             $ 900           $ 805
                                                 --------------- ----------------- ---------------
                                                 --------------- ----------------- ---------------
</TABLE>


         [INTEREST CHARGES FOR UTILITY AND NON-UTILITY OPERATIONS DO NOT EQUAL
TOTAL INTEREST CHARGES FOR THE COMPANY, DUE TO ELIMINATING ENTRIES BETWEEN
ENTITIES.]


                                       21

<PAGE>

Fiscal 1999 Compared to Fiscal 1998

Revenues and Gross Margins

         Regulated revenues increased from $27,825,000 in fiscal 1998 to
$28,105,000 in fiscal 1999 or 1%. Gas purchases decreased from approximately
$17,047,000 in fiscal 1998 to $16,885,000 in fiscal 1999 or 1%. Regulated gross
margin, which is defined as operating revenues less gas purchased, was
approximately $11,220,000 for fiscal 1999 compared to approximately $10,778,000
in fiscal 1998.

         Overall revenues increased approximately $280,000 from fiscal 1998
primarily due to rate increases related to gas purchase adjustments and general
rate increases for EWM operating entities. The increased revenue for EWM was
partially offset by lower revenue for EWW and EWA due to warmer weather than one
year ago. Utility margins increased $442,000 or 4%, because of higher margins
from natural gas sales in EWM and slightly higher margins from propane vapor
sales in EWA due to a change in regulations related to propane purchase
adjustments. These increases were offset by lower margins from warmer weather in
EWW. Annual degree-days were 2% warmer in EWM, 8% warmer in EWW and 9% warmer in
EWA, than the same period one year ago.

Operating Expenses
         Utility operating expenses, exclusive of the cost of gas purchased and
federal and state income taxes, were approximately $8,644,000 for fiscal 1999,
as compared to approximately $8,273,000 for fiscal 1998. The $370,000 or 4%
increase in the period is due to normal inflationary trends, additional staff
added for safety operations of the Company and higher vacation accruals. In
addition, taxes other than income, which are included in operating expenses
increased by about $50,000 from an unfavorable settlement of a sales and use tax
audit related to the Arizona operations.

Interest Charges
         Interest charges allocable to the Company's utility divisions were
approximately $1,239,000 in fiscal 1999, as compared to approximately $1,343,000
in fiscal 1998. The decrease in interest costs of $104,000 is primarily related
to higher cash generated from operating activities.

Income Taxes
         State and federal income taxes for the Company's utility operations was
approximately $534,000 in fiscal 1999, as compared to approximately $439,000 in
fiscal 1998 primarily due to an increase in pre-tax earnings of approximately
$250,000.

Fiscal 1998 Compared to Fiscal 1997

Revenues and Gross Margins

         Utility operating revenues in fiscal 1998 were approximately
$27,825,000 compared to $26,882,000 in fiscal 1997 or 4%. Regulated gross
margin, which is defined as operating revenues less gas purchased, was
approximately $10,778,000 for fiscal 1998 compared to approximately $10,689,000
in fiscal 1997.

         Overall revenues increased by $943,000 primarily due to higher revenues
of approximately $997,000 from greater propane vapor sales in EWA resulting from
colder weather than previous year, from customer growth and from a 17% rate
increase. Also contributing to the higher revenue was a 2% rate increase and
customer growth in the West Yellowstone district of EWM. These increases were
partially offset by lower revenues in the Great Falls district of EWM and in
EWW, due to warmer weather than one year ago. Gas purchased costs increased from
approximately $16,193,000 in fiscal 1997 to $17,047,000 in fiscal 1998 or 5%,
primarily due to an increase in natural gas prices.

         Utility margins increased by only $89,000 or 1%. The higher margins
from propane vapor sales in the EWA and natural gas sales in the West
Yellowstone district, were mostly offset by lower margins from natural gas sales
in EWM and EWW due to the warmer weather. The winter heating season was 12%
colder than one year ago in EWA, but 17% warmer in EWM and 6% warmer in EWW,
than the same period one year ago.


                                       22

<PAGE>

Operating Expenses
         Utility operating expenses, exclusive of the cost of gas purchased and
federal and state income taxes, were approximately $8,273,000 for fiscal 1998,
as compared to approximately $8,155,000 for fiscal 1997. The 1% increase in the
period is due to normal inflationary trends and higher depreciation costs, due
to expansion of utility property, plant and equipment.

Interest Charges
         Interest charges allocable to the Company's utility divisions were
approximately $1,343,000 in fiscal 1998, as compared to approximately $1,477,000
in fiscal 1997. Long-term debt increased and was used to pay down short-term
debt, which decreased from the same period one year ago.

Income Taxes
         State and federal income taxes of the Company's utility divisions was
approximately $439,000 in fiscal 1998, as compared to approximately $377,000 in
fiscal 1997 primarily due to an increase in pre-tax earnings of approximately
$175,000.
-------------------------------------------------------------------------------

OPERATING RESULTS OF THE COMPANY'S PROPANE OPERATIONS
-----------------------------------------------------

<TABLE>
<CAPTION>

                                                                       Years Ended June 30
                                                              1999              1998          1997
                                                                              (IN THOUSANDS)
<S>                                                           <C>               <C>           <C>
ENERGY WEST PROPANE (EWP)
     Operating revenues                                       $3,569            $3,757        $ 5,200
     Cost of propane                                           1,693             1,525          2,943
     Operating expenses                                        1,462             1,664          1,875
     Other (income) expense-net                                 (178)             (204)           (92)
     Interest expense (SEE NOTE BELOW)                           168               198            171
     Federal and state income taxes                              152               208            106
                                                        ------------------ ------------------ -------------
               Net income                                     $  272            $  366        $   197
                                                        ------------------ ------------------ -------------
                                                        ------------------ ------------------ -------------
</TABLE>




Fiscal 1999 Compared to Fiscal 1998

Revenues and Gross Margins
         Propane revenues decreased from $3,757,000 in fiscal 1998 to $3,569,000
in fiscal 1999. Propane purchases increased from $1,525,000 in fiscal 1998 to
$1,693,000 in fiscal 1999. Correspondingly, gross margin decreased by $356,000
from $2,232,000 in fiscal 1998 to $1,876,000 in fiscal 1999. The decrease in
revenue resulted primarily from the sale of retail propane properties, in
February of fiscal 1998. However, greater propane wholesale sales of $306,000
mitigated the reduction in retail sales, from that sale. The gas cost increase
and margin decrease were also directly attributable to the change in the mix of
retail to wholesale propane sales. The margin per gallon for wholesale gallons
sold are substantially less than margin per gallon for retail gallons sold.
Also, contributing to the decrease in gross margin was warmer weather than last
year throughout the Company's propane operations.

Other Income
          In fiscal 1999 and in fiscal 1998 EWP had capital gains from the sale
of operating entities or land and buildings. The decrease in other income in
fiscal 1999 compared to fiscal 1998 is directly related to these sales.
Specifically, there was a one-time capital gain of approximately $95,000 from
the sale of property in Wyoming in fiscal 1999. In fiscal 1998 approximately
$125,000 of EWP's other income was attributable to a one-time capital gain on
the sale of four district retail propane offices in Wyoming.

Expenses for Operations, Interest and Income Taxes
          Operating expenses for propane operations decreased from approximately
$1,664,000 in fiscal 1998 to approximately $1,462,000 in fiscal 1999 for a
decrease of $202,000. The decrease in operating


                                       23

<PAGE>

expenses was primarily related to the sale of the retail properties in fiscal
1998. Interest charges allocable to the Company's propane divisions were
approximately $168,000 in fiscal 1999 compared to approximately $198,000 in
fiscal 1998. This decrease of $30,000 is primarily related to lower investments
in property, plant and equipment related to the property sales in fiscal 1998
and fiscal 1999. State and federal income taxes decreased approximately $56,000
from fiscal 1998 to fiscal 1999, primarily due to lower pre-tax earnings in
fiscal 1999.

Fiscal 1998 Compared to Fiscal 1997

Revenues and Gross Margins
         Propane revenues decreased from $5,200,000 in fiscal 1997 to $3,757,000
in fiscal 1998. Propane purchases decreased from $2,943,000 in fiscal 1997 to
$1,525,000 in fiscal 1998. These decreases occurred primarily because of the
sale of the propane properties. However, gross margin only decreased by $18,000
primarily because of colder weather in EWP's operations in Arizona and customer
growth experienced in the Arizona and Montana propane operations.

Other Income
         Other income increased by $112,000 from fiscal 1997 to fiscal 1998. The
primary reason for this increase was a one-time capital gain, of approximately
$125,000, from the sale of the propane properties.

Expenses for Operations, Interest and Income Taxes
          Operating expenses for propane operations decreased from approximately
$1,875,000 in fiscal 1997 to approximately $1,664,000 in fiscal 1998, a decrease
of $211,000. The decrease in operating expenses was primarily related to the
sale of the propane properties in fiscal 1998. Interest charges allocable to the
Company's propane divisions were approximately $198,000 in fiscal 1998 compared
to approximately $171,000 in fiscal 1997. The higher interest costs was
primarily due to increased propane inventory, as a result of the growth in EWP's
wholesale propane operations. State and federal income taxes increased to
approximately $208,000 for fiscal 1998 from $106,000 due to higher pre-tax
income in RMF this year of approximately $270,000.
-------------------------------------------------------------------------------

OPERATING RESULTS OF THE COMPANY'S ENERGY MARKETING OPERATIONS
--------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                        Years Ended June 30
                                                              1999              1998              1997
                                                                             (IN THOUSANDS)
<S>                                                          <C>               <C>               <C>
ENERGY WEST RESOURCES (EWR)

     Operating revenues                                     $    --           $    --             $  42
     Gas & electric trading revenue                          21,643            11,383             5,993
     Cost of gas & electric trading                          20,850            10,185             5,560
     Operating expenses                                         637               570               251
     Other (income) expense-net                               (355)               (4)             (120)
      Federal and state income taxes                            247               234               154
                                                        ------------------ ------------------ --------------
               Net income                                     $ 264              $ 398             $ 190
                                                        ------------------ ------------------ --------------
                                                        ------------------ ------------------ --------------
</TABLE>


Fiscal 1999 Compared to Fiscal 1998

Revenues and Gross Margins
         Gas marketing revenues increased from approximately $11,383,000 in
fiscal 1998 to $17,168,000 in fiscal 1999. Cost of gas increased from
$10,185,000 in fiscal 1998 to $16,490,000 in fiscal 1999. However, gross margin
decreased by $520,000 from $1,198,000 in fiscal 1998 to $678,000 in fiscal 1999.
The increase in revenue resulted primarily from greater gas volumes sold due to
higher market capture in fiscal 1999 compared to fiscal 1998. The higher cost of
gas occurred because of greater gas volumes sold and from significantly higher
prices, for gas purchases, in Canada and Montana. The higher cost of gas was the
most significant factor affecting the decrease in gross margin. The Company had
its first electric marketing


                                       24

<PAGE>

sales in fiscal 1999. The revenues and cost of electricity associated with these
electric sales were approximately $4,475,000 and $4,360,000, respectively. The
resulting margin from these sales was $115,000.

Other Income
           Other income increased by approximately $351,000 in fiscal 1999 when
compared to fiscal 1998. This increase was directly related to mark-to-market
gains associated with gas trading derivative activities.

Expenses for Operations, Interest and Income Taxes
          Operating expenses related to energy marketing activities increased
from approximately $570,000 in fiscal 1998 to approximately $638,000 in fiscal
1999, an increase of $67,000. The increase in operating expenses is primarily
due to inflationary trends, staff expansion and training costs required to serve
the growth in marketing activity. Interest charges allocable to EWR increased by
approximately $50,000 from fiscal 1998 to fiscal 1999. This increase is related
to higher working capital required to finance gas inventory and an increase in
accounts receivable due to increased sales of gas and electricity. State and
federal income taxes increased approximately $10,000 from fiscal 1998 to fiscal
1999.

Fiscal 1998 Compared to Fiscal 1997

Revenues and Gross Margins
         Gas marketing revenues increased from approximately $5,993,000 in
fiscal 1997 to $11,383,000 in fiscal 1998. Cost of gas increased from $5,560,000
in fiscal 1997 to $10,185,000 in fiscal 1998. Consequently, gross margin
increased by $723,000 from fiscal 1997 to fiscal 1998. The increase in revenue
and cost of gas resulted primarily from greater gas volumes sold due to higher
market capture and an increase in customers in fiscal 1998 compared to fiscal
1997. The increase in gross margin was a result of greater gas volumes sold and
from lower prices, for gas purchases, in Canada and Montana.

Expenses for Operations, Interest and Income Taxes
          Operating expenses related to energy marketing activities increased
from approximately $251,000 in fiscal 1997 to approximately $570,000 in fiscal
1998. This increase in operating expenses was related to staff expansion and
training costs required to serve the growth in marketing activity. Interest
charges increased approximately $116,000, due to increased gas storage inventory
purchases in fiscal 1998. State and federal income taxes increased in fiscal
1998 to approximately $234,000 from $154,000 in fiscal 1997, due to increased
pre-tax income of approximately $288,000.
-------------------------------------------------------------------------------

OPERATING RESULTS OF THE COMPANY'S OTHER OPERATIONS
---------------------------------------------------

<TABLE>
<CAPTION>

                                                                    Years Ended June 30
                                                            1999             1998          1997
                                                                       (IN THOUSANDS)
<S>                                                       <C>           <C>               <C>
ENERGY WEST DEVELOPMENT (EWD)
     Operating revenues                                   $  144              $98         $  97
     Operating expenses                                       50               47            43
     Other (income) expense-net                              (3)              284         (113)
     Interest expense (SEE NOTE BELOW)                        30                0             0
     Federal and state income taxes (benefit)                 44             (89)            67
                                                        ---------- ------------------ --------------
     Net income (loss)                                      $ 23        ($   144)         $ 100
                                                        ---------- ------------------ --------------
                                                        ---------- ------------------ --------------
</TABLE>



         Currently the other operations of the Company are primarily related to
EWD, the Company's real estate development subsidiary. In fiscal 1999, EWD's net
income was approximately $23,000 as compared to a net loss of ($144,000). The
primary difference in net income is due a to pre-tax cash settlement of $45,000
upon final dissolution of Gas Finco, a financing subsidiary of the American Gas
Association as


                                       25

<PAGE>

compared to a pre-tax write-off of $250,000 from the Company's investment in Gas
Finco. In fiscal 1998, EWD's net loss of approximately ($144,000) as compared to
net income of $100,000 for fiscal 1997, was primarily due to the write-off of
the Company's investment in Gas Finco.

Liquidity and Capital Resources
         The Company's operating capital needs, as well as dividend payments and
capital expenditures are generally funded through cash flow from operating
activities, short-term borrowing and liquidation of temporary cash investments.
Historically, to the extent cash flow has not been sufficient to fund capital
expenditures, the Company has borrowed short-term. As the short-term debt
balance significantly exceeds working capital requirements, the Company has
issued long-term debt or equity securities to pay down short-term debt.

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

         At June 30, 1999, the Company had $19,000,000 in bank lines of credit.
There was no borrowing under these credit agreements at June 30, 1999. The
short-term borrowings for fiscal 1999 had a daily weighted average interest rate
of 7.16%. The Company had outstanding letters of credit totaling $3,450,000
related to electric and gas purchase contracts. These letters of credit, when
netted against the total bank lines of credit, result in a reduction in
borrowing capacity to $15,550,000.

CASH FLOW ANALYSIS

Fiscal 1999 Compared to Fiscal 1998

         The Company provided net cash in operating activities for fiscal 1999
of approximately $6,275,000 as compared to net cash provided from operating
activities of approximately $4,960,000 for fiscal 1998. This increase in cash
provided by operating activities of $1,315,000 was primarily due to lower
working capital requirements of approximately $1,220,000. The decrease in
working capital requirements resulted primarily from lower natural gas inventory
somewhat offset by an increase in recoverable cost of gas purchases. The
required quantity for natural gas inventory is lower because of open access,
approved by the Montana Public Service Commission, for the Great Falls district
of EWM. Regulatory treatment of natural gas inventory pricing has the affect of
increasing recoverable cost of gas purchases, as inventory levels decline. The
lower inventory also impacts the increase in recoverable cost of gas purchases.
Other significant impacts on lower working capital were an increase in accounts
payable of approximately $750,000 offset by higher accounts receivable of
approximately $430,000 primarily due to greater natural gas revenues and the
Company's first electric sales by EWR.

         Net income and non-cash transactions affecting net income improved cash
generated from operations by approximately $100,000. The most significant items
affecting this increase were higher net income of $70,000, less gains from the
sale of assets of $90,000 and greater deferred income taxes of $225,000. These
increases were offset by the write-off of an investment in American Gas Finance
Co. of $250,000 in fiscal 1998.


                                       26

<PAGE>

         Cash used in investing activities was approximately $3,240,000 in
fiscal 1999 compared to approximately $1,590,000 in fiscal 1998, an increase of
$1,650,000. This increase was primarily due to higher construction expenditures
for capital projects of approximately $720,000, a decrease in the proceeds from
the sale of assets of approximately $950,000 and a net decrease in proceeds from
customer advances for construction and contributions in aid of construction of
approximately $180,000. These increases were offset by lower loans to customers,
recorded as notes receivable, of approximately $190,000.

         Cash used in financing activities was approximately $2,860,000 in
fiscal 1999 compared to approximately $3,460,000 in fiscal 1998, a decrease of
$600,000. The primary reasons for the decrease are lower principal payments on
notes payable of $8,490,000 mostly offset by proceeds, from a long-term debt
issuance in fiscal 1998 of approximately $7,540,000 resulting in a net decrease
of $940,000. These decreases are offset by higher dividends paid of
approximately $140,000 and lower sales of common stock through the Company's
Dividend Reinvestment Plan and the Company's Incentive Stock Option Plan of
approximately $160,000.

Fiscal 1998 Compared to Fiscal 1997

         The Company provided net cash in operating activities for fiscal 1998
of approximately $4,960,000 as compared to net cash used in operating activities
of approximately $900,000 for fiscal 1997. This increase in cash provided by
operating activities of approximately $5,860,000 was primarily due to lower
working capital requirements of approximately $5,650,000 due to the following:
1) decreased purchases of natural gas inventory, 2) higher gas purchases
payable, 3) smaller increase in utility unrecovered gas costs due to gas tracker
increases in fiscal 1998, 4) reduced prepaid items primarily related to a
prepaid gas contract, 5) and in other assets and liabilities, increased working
capital due to increased incentives in fiscal 1998, higher accrued interest,
higher employee benefits and accrued vacation, offset partially by a change in
refundable income tax payments, an increase in regulatory assets and an increase
in accounts receivable.

         Higher net income of approximately $225,000, higher depreciation and
amortization costs of $90,000, the gain on the sale of marketable securities
last year of approximately $100,000 and the write-off of an investment in
American Gas Finance Co. of $250,000, increased cash provided by operating
activities, offset partially by a decrease in the gain and deferred gain on the
sale of assets of approximately $190,000 and lower deferred income taxes of
approximately $275,000.

         Cash used in investing activities was approximately $1,590,000 in
fiscal 1998, as compared to approximately $2,820,000 in fiscal 1997, a decrease
of approximately $1,230,000 primarily due to lower construction expenditures for
capital projects of approximately $190,000, an investment of $250,000 in a
financing operation of the American Gas Association in 1997, the sale of
property, plant & equipment in Wyoming of approximately $1,090,000 this year and
increased proceeds from customer advances for and contributions in aid of
construction of approximately $165,000, partially offset by the proceeds of the
sale of marketable equity securities in 1997 of approximately $275,000 and an
increase in notes receivable of approximately $200,000.

         Cash used in financing activities was approximately $3,460,000 in
fiscal 1998, as compared to cash provided by financing activities of
approximately $3,150,000 in fiscal 1997, a decrease of approximately $6,600,000
primarily due to an increase in dividends paid of approximately $165,000,
increased principal payments on notes payable of approximately $14,140,000,
partially offset by proceeds of long-term debt of approximately $7,540,000 and
increased sale of common stock through the Company's Dividend Reinvestment Plan
and the Company's Incentive Stock Option Plan of approximately $155,000.

Capital Expenditures

         Capital expenditures of the Company are primarily for expansion and
improvement of its regulated utility properties. To a lesser extent, funds are
also expended to meet the equipment needs of the Company's operating
subsidiaries and to meet the Company's administrative needs. The Company's
capital expenditures were approximately $3.7 million in fiscal 1999, $3.0
million for fiscal 1998 and $3.2 million in fiscal 1997. During fiscal 1999,
approximately $2.9 million was expended for system expansion,


                                       27

<PAGE>

construction and maintenance of the natural gas and propane vapor systems for
the regulated utility operations. In addition, approximately $.7 million was
expended for bulk tanks, customer tanks and equipment for the propane operating
entities. Capital expenditures are expected to be approximately $4.9 million in
fiscal 2000, including approximately $3.8 million for continued system
expansion, construction and maintenance of the natural gas and propane vapor
systems for the regulated utility operations. In addition, approximately $.7
million is expected to be expended for bulk tanks, customer tanks and equipment
for the propane operating entities with the balance of $.4 million to be
expended for energy marketing. Included in the above expenditures is
approximately $.5 million for the development and implementation of a new
billing system to facilitate billing for open access opportunities in the
Company's service territories and to consolidate all existing billing systems
into one system. The Company continues to evaluate opportunities to expand its
existing businesses from time to time.

         The major factors which will affect the Company's future results
include general and regional economic conditions, weather, customer retention
and growth, the ability to meet competitive pressures and to contain costs, the
adequacy and timeliness of rate relief, cost recovery and necessary regulatory
approvals, and continued access to capital markets. In addition, changes in the
competitive environment particularly related to the Company's propane and energy
marketing segments could have a significant impact on the performance of the
Company.

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

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

SEC Ratio of Earnings to Fixed Charges

         For the twelve months ended June 30, 1999, 1998 and 1997, the Company's
ratio of earnings to fixed charges was 2.45, 2.25 and 2.11 times, respectively.
Fixed charges include interest related to long-term debt, short-term borrowing,
certain lease obligations and other current liabilities.


                                       28

<PAGE>

Inflation

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

Accounting for Income Taxes

         Effective July 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
SFAS No. 109, Accounting for Income Taxes. The cumulative effect of adopting
Statement No. 109 created a regulatory asset and a regulatory liability for
regulated operations, representing 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, 1999, changes in certain assets and liabilities
resulted in an increase in regulatory assets of $51,109 and a decrease in
regulatory liabilities of $13,160 for regulated entities, resulting in ending
balances of $641,559 and $122,641, 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. See Note 5 to
the Consolidated Financial Statements for additional information.

Postretirement Benefits Other Than Pensions

         The Company adopted, effective July 1, 1993, SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This standard
requires that the projected future cost of providing postretirement benefits be
recognized as an expense as employees render service rather than when paid.
Effective for fiscal year 1994, the Company modified its plan for these benefits
and has elected to pay eligible retirees (post 65 years of age) $125 per month
in lieu of contracting for health and life insurance benefits. The amount of
this payment is fixed and will not increase with medical trends or inflation.
The Company's transition obligation at June 30, 1999 and 1998 was $274,560 and
$293,600, respectively, of which $234,100 in 1999 and $250,800 in 1998 is
related to the regulated utility operations. The transition obligation was
accrued as a deferred charge and will be amortized over 20 years. Substantially
the entire transition obligation is for the future cost of benefits to active
employees.

         The Company made a change to the plan, effective July 1, 1996 allowing
pre-65 retirees and their spouses to remain on the same medical plan as active
employees by contributing 125% of the current COBRA rate to retain this
coverage. The increased liability from this change is $269,200. The prior
service obligation associated with this plan change at June 30, 1999 and 1998
was $216,120 and $233,400, respectively, of which $178,520 in 1999 and $193,300
in 1998 is related to regulated utility operations. The prior service obligation
was accrued as a deferred charge and will be amortized over fifteen years. The
Company expects regulators in Montana and Wyoming to allow recovery of the
additional costs associated with this plan change. The adoption of SFAS No. 106
did not have a significant effect upon results of operations. See Note 4 to the
Consolidated Financial Statements for additional information.

Environmental Issues

         The Company owns property on which it operated a manufactured gas plant
from 1909 to 1928. The site is currently used as a service center where certain
equipment and materials are stored. The coal gasification process utilized in
the plant resulted in the production of certain by-products, which have been
classified by the federal government and the State of Montana as hazardous to
the environment. Several years ago the Company initiated an assessment of the
site to determine if remediation of the site was


                                       29

<PAGE>

required. That assessment resulted in a submission to the Montana Department of
Environmental Quality (MDEQ) formerly known as the Montana Department of Health
and Environmental Science ("MDHES") in 1994. The Company has worked with the
MDEQ since that time to obtain the data that would lead to a remediation action
acceptable to the MDEQ. In the summer of 1999 the Company received final
approval from the DEQ for its plan for remediation of soil contaminants. The
Company is in the process of implementing that plan. The Company and its
consultants continue their work with the DEQ relating to the remediation plan
for water contaminants.

         At June 30, 1999 the costs incurred in evaluating this site and
beginning to make remediation have totaled approximately $1,267,000. On May
30, 1995 the Company received an order from the Montana Public Service
Commission allowing for recovery of the costs associated with evaluation and
remediation of the site through a surcharge on customer bills. As of June 30,
1999 that recovery mechanism had generated approximately $742,000. The
Company expects to recover the full amount expended through the surcharge. The
Commission's decision calls for ongoing review by the Commission of the costs
incurred for this matter. The Company will submit an application for review
by the Commission when the remediation plan is approved by the MDEQ for its
water remediation.

Year 2000

         The Y2K issue relates to the ability of systems, including hardware,
software and embedded technology, to properly interpret date information
relating to the Year 2000 and beyond. Any of the Company's computer systems and
embedded microprocessors that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the Year 2000 (Y2K). This could result
in a system failure or miscalculations causing disruptions in operations. Some
possible affects include the inability to process transactions, send billing
statements to customers, or similar normal business activities.

         The Company has formed a Y2K committee consisting of management,
information technology and operations personnel to address its Y2K compliance
issues. This committee meets weekly and is charged with the task of managing the
Y2K compliance effort.

         The Company has completed its internal remediation and testing of
mission critical hardware, software and embedded technology systems. For
components of mission critical systems, which the Company could not test, the
Company has contacted those manufacturers and providers of those components with
regards to their Y2K readiness. To date, the Company's testing and remediation
efforts have not revealed any Y2K compliance problems related to mission
critical systems. Also, to date, responses from manufacturers or providers of
mission critical components have indicated any Y2K compliance problems. However,
no assurance can be given that all mission critical components have been
identified, to date. Therefore, the Company will continue its Y2K committee
weekly meetings and will continue to review mission critical systems for Y2K
compliance well into the Year 2000.

         The Company has had formal communications with all of its mission
critical suppliers, gas and electric transmission companies and large customers,
to determine the extent to which the Company's interface systems are vulnerable
to third parties' failure. To date, there have been no responses, received from
these suppliers or customers, indicating their systems would not be Y2K
compliant by December 31, 1999. The Company has determined it has no exposure
contingencies related to the Y2K issue for the products it has sold.

         The Company's total Y2K project costs and estimates include the
estimated costs and time associated with the impact of third party Y2K issues
based on presently available information. Total Y2K assessment, remediation and
testing costs, incurred to date, have been approximately $75,000, most of which
are internal personnel costs. Although it is not currently possible to estimate
the total costs for any required modifications, it is not expected to exceed
$150,000, and therefore, it would not have a material impact on the Company's
current financial position, liquidity or results of operations.


                                       30

<PAGE>

         The Company has begun development of contingency plans specific to the
Y2K issue, which is expected to be complete by October 1999. However the
Company has emergency plans in place as part of its normal safety plans, which
address system outages. The Company plans to utilize these emergency plans as
the basis for the Y2K contingency plans. The Company plans to have emergency
staff on-site or on call, prior to and after the Y2K rollover on December 31,
1999. Emergency personnel are also aware that vacations will not be taken around
this sensitive time.

         The preceding paragraph is a disclosure provided pursuant to the Year
2000 Information and Readiness Disclosure Act.

Market Risk

         The Company's energy-related businesses are exposed to risks relating
to changes in certain commodity prices and counterparty performance. In order to
manage the various risks relating to these exposures, the Company utilizes
natural gas derivatives and has established risk management oversight for these
risks. The Company has implemented or is in the process of implementing
procedures to manage such risk and has established a comprehensive risk
management committee, overseen by the Audit Committee of the Company's Board of
Directors, to monitor compliance with the Company's risk management policies and
procedures.

         The Company protects itself against price fluctuations on natural
gas by limiting the aggregate level of net open positions which are exposed
to market price changes and through the use of natural gas derivative
instruments for hedging purposes. The net open position is actively managed
with strict policies designed to limit the exposure to market risk and which
require at least weekly reporting to management of potential financial
exposure. The risk management committee has limited the types of financial
instruments the company may trade to those related to natural gas
commodities. Financial instruments generally are not held for speculative
trading purposes.

                                       31

<PAGE>

Supplementary Data (Unaudited)
Consolidated Quarterly Financial Data
 ( In thousands, except per share data)

<TABLE>
<CAPTION>


                                       FIRST    SECOND     THIRD    FOURTH
                                      QUARTER   QUARTER   QUARTER   QUARTER
<S>                                   <C>       <C>       <C>        <C>
FISCAL YEAR 1999
----------------
Revenues                               $9,061   $17,115   $17,749    $9,536
Operating income (loss)                $(893)    $1,315    $2,265      $553
Net income (loss)                      $(685)      $751    $1,290      $231
Net income (loss) per share           $(0.28)     $0.31     $0.53     $0.10

FISCAL YEAR 1998
----------------
Revenues                               $5,225   $14,642   $15,921    $7,276
Operating income (loss)                $(744)    $1,615    $2,437      $445
Net income (loss)                      $(681)      $816    $1,442     $(57)
Net income (loss) per share           $(0.29)     $0.35     $0.60   $(0.02)
</TABLE>


Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995

         The foregoing Management's Discussion and Analysis and other portions
of this annual report contain various "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Sections
21E of the Securities Exchange Act of 1934, as amended, which represent the
Company's expectations or beliefs concerning future events, including the
statement that the total cost of changes required to achieve a year 2000 date
conversion are not expected to have a material effect on the Company's financial
statements. In addition, statements containing expressions such as "believes,"
"anticipates," "plans" or "expects" used in the Company's periodic reports on
Forms 10-K and 10-Q filed with the SEC are intended to identify forward-looking
statements. The company cautions that these and similar statements included in
this report and in previously filed periodic reports including reports filed on
Forms 10-K and 10-Q are further qualified by important factors that could cause
actual results to differ materially from those in the forward looking statement.


                                       32

<PAGE>

Item 8. Financial Statements and Supplementary Data

Report of Independent Auditors


The Board of Directors

Energy West Incorporated

We have audited the accompanying consolidated balance sheets of Energy West
Incorporated and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 1999. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.

                                               Ernst & Young LLP

  Salt Lake City, Utah
  August 20, 1999


                                       33

<PAGE>

                    Energy West Incorporated and Subsidiaries

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                             JUNE 30
                                                                      1999             1998
                                                               ------------------------------------
<S>                                                             <C>                <C>
Assets
Current assets:
   Cash and cash equivalents                                    $       225,970    $       58,006
   Accounts receivable, less allowances for
     uncollectible accounts of  $84,538 ($98,761
     at June 30, 1998)                                                6,033,820         4,504,235
   Natural gas and propane inventory                                  1,423,910         4,669,933
   Materials and supplies                                               627,046           556,077
   Prepayments and other                                                154,643           147,091
   Refundable income tax payments                                       122,202           464,155
   Recoverable costs of gas purchases                                 2,840,975         1,926,749
                                                               -----------------------------------
Total current assets                                                 11,428,566        12,326,246

Investments                                                                  --             3,365

Notes receivable due after one year                                     188,446           192,192

Property, plant and equipment                                        50,913,383        47,620,125
Less accumulated depreciation and amortization                       21,541,657        20,048,221
                                                               -----------------------------------
Net property, plant and equipment                                    29,371,726        27,571,904

Deferred charges:
   Net unamortized debt issue costs                                   1,112,081         1,232,561
   Regulatory assets for income taxes                                   641,559           590,450
   Unrecognized postretirement obligation                               490,679           526,975
   Other regulated assets                                               765,529           453,615
   Other assets                                                         202,385           163,358
                                                               ------------------------------------
Total deferred charges                                                3,212,233         2,966,959



                                                               ------------------------------------
Total Assets                                                        $44,200,971       $43,060,666
                                                               ------------------------------------
                                                               ------------------------------------
</TABLE>


                                       34

<PAGE>

<TABLE>
<CAPTION>

                                                                                 JUNE 30
                                                                          1999              1998
                                                                   -------------------------------------
<S>                                                                  <C>               <C>
CAPITALIZATION AND LIABILITIES
Current liabilities:
   Long-term debt due within one year                                $       430,723   $      413,032
   Notes payable                                                                  --        1,442,982
   Accounts payable-gas and electric purchases                             3,522,655        2,029,703
   Accounts payable-other                                                    679,288          556,311
   Payable to employee benefit plans                                         641,721          564,642
   Accrued vacation                                                          393,256          318,354
   Other current liabilities                                                 611,672          810,919
   Deferred income taxes-current                                             950,446          608,890
                                                                    ---------------------------------------
Total current liabilities                                                  7,229,761        6,744,833

Other:

   Deferred income taxes                                                   3,565,085        3,327,760
   Deferred investment tax credits                                           439,655          460,716
   Contributions in aid of construction                                      938,572          894,768
   Customer advances for construction                                        658,867          514,062
   Accumulated postretirement obligation                                     647,214          659,594
   Regulatory liability for income taxes                                     122,641          135,801
   Deferred gain on sale-leaseback of assets                                 165,407          189,035
   Other                                                                      61,754           44,775
                                                                    ---------------------------------------
Total other                                                                6,599,195        6,226,511

Long-term debt (less amounts due within
   one year)                                                              16,840,000       17,278,033

Commitments and contingencies

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 2,433,740 shares (2,403,190 shares
       at June 30, 1998)                                                     365,065          360,481
   Capital in excess of par value                                          3,560,541        3,286,228
     Retained earnings                                                     9,606,409        9,164,580
                                                                    ---------------------------------------
   Total stockholders' equity                                             13,532,015       12,811,289
                                                                    ---------------------------------------
   Total capitalization                                                   30,372,015       30,089,322
                                                                    ---------------------------------------
   Total capitalization and liabilities                                  $44,200,971      $43,060,666
                                                                    ---------------------------------------
                                                                    ---------------------------------------
</TABLE>


SEE ACCOMPANYING NOTES.


                                       35

<PAGE>

                    Energy West Incorporated and Subsidiaries

                        Consolidated Statements of Income

<TABLE>
<CAPTION>

                                                                       YEAR ENDED JUNE 30
                                                          1999              1998              1997
                                                   -------------------------------------------------------
<S>                                                      <C>                <C>              <C>
Operating revenue:
   Utilities                                             $28,105,077        $27,824,360      $26,882,248
   Propane operations                                      3,568,594          3,757,742        5,242,053
   Gas & electric trading                                 21,643,071         11,383,019        5,993,668
   Other                                                     143,844             98,500           97,500
                                                   -------------------------------------------------------
Total operating revenue                                   53,460,586         43,063,621       38,215,469

Operating expenses:
   Gas purchased                                          18,577,797         18,571,808       19,136,723
   Gas & electric trading                                 20,850,052         10,184,855        5,538,847
   Distribution, general and administrative                7,920,711          7,696,928        7,498,467
   Maintenance                                               469,021            496,545          496,721
   Depreciation and amortization                           1,694,895          1,732,394        1,689,082
   Taxes other than income                                   708,354            628,183          660,133
                                                   -------------------------------------------------------
Total operating expenses                                  50,220,830         39,310,713       35,019,973
                                                   -------------------------------------------------------
Operating income                                           3,239,756          3,752,908        3,195,496

Other income, net                                            816,874            142,574          325,334
                                                   -------------------------------------------------------
Income before interest charges and
   income taxes                                            4,056,630          3,895,482        3,520,830

Interest charges:
   Long-term debt                                          1,258,810          1,216,190          700,484
   Short-term and other                                      233,747            367,073          824,100
                                                   -------------------------------------------------------
Total interest charges                                     1,492,557          1,583,263        1,524,584
                                                   -------------------------------------------------------
Income before income taxes                                 2,564,073          2,312,219        1,996,246
Provision for income taxes                                   976,760            792,129          703,472
                                                   -------------------------------------------------------
Net income                                           $     1,587,313    $     1,520,090 $      1,292,774
                                                   -------------------------------------------------------
                                                   -------------------------------------------------------
Basic and diluted earnings per
   Common share                                           $.66              $.64              $.55
</TABLE>


SEE ACCOMPANYING NOTES.


                                       36

<PAGE>

                    Energy West Incorporated and Subsidiaries

                 Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>

                                                                     CAPITAL IN
                                                           COMMON     EXCESS OF      RETAINED
                                                           STOCK      PAR VALUE      EARNINGS        TOTAL
                                                     ----------------------------------------------------------
<S>                                                      <C>         <C>           <C>            <C>
Balance at June 30, 1996                                 $348,198    $2,635,540    $8,416,119     $11,399,857

   Exercise of stock options into 980 shares of
     common stock at $6.50 to $7.13 per share                 147         6,773            --           6,920
   Sale of 20,692 shares of common stock at $8.38
     to $8.50 per share under the Company's
     dividend reinvestment plan                             3,104       171,466            --         174,570
   Issuance of 14,490 shares of common stock to
     ESOP at an estimated value of $8.38 per share          2,174       119,183            --         121,357
   Net income for the year ended June 30, 1997                 --            --     1,292,774       1,292,774
   Dividends on common stock-$.425 per share                   --            --      (998,544)       (998,544)
                                                     ----------------------------------------------------------
Balance at June 30, 1997                                  353,623     2,932,962     8,710,349      11,996,934

   Exercise of stock options into 22,908 shares of
     common stock at $6.375 to $7.125 per share             3,436       157,948            --         161,384
   Sale of 8,095 shares of common stock at $8.846
     to $9.004 per share under the Company's
     dividend reinvestment plan                             1,214        71,071            --          72,285
   Issuance of 11,639 shares of common stock to
     ESOP at estimated fair value of $8.645 per
     share                                                  1,746        98,869            --         100,615
   Issuance of 3,078 shares of common stock at
     $8.395 per share under the Company's
     deferred board stock compensation plan                   462        25,378            --          25,840
   Net income for the year ended June 30, 1998                 --            --     1,520,090       1,520,090
   Dividends on common stock-$.445 per share                   --            --    (1,065,859)     (1,065,859)
                                                     ----------------------------------------------------------
Balance at June 30, 1998                                  360,481     3,286,228     9,164,580      12,811,289

   Exercise of stock options into 100 shares of
     common stock at $9.00 per share                           15           885            --             900
   Sale of 15,011 shares of common stock at $8.625
     to $9.688 per share under the Company's
     dividend reinvestment plan                             2,253       132,533            --         134,786
   Issuance of 13,738 shares of common stock to
     ESOP at estimated fair value of $9.310 per
     share                                                  2,061       125,840            --         127,901
   Issuance of 1,701 shares of common stock at
     $9.00 per share under the Company's Deferred
     Board stock compensation plan                            255        15,055            --          15,310
   Net income for the year ended June 30, 1999                 --            --     1,587,313       1,587,313
   Dividends on common stock-$.445 per share                   --            --    (1,145,484)     (1,145,484)
                                                     ----------------------------------------------------------
Balance at June 30, 1999                                 $365,065    $3,560,541    $9,606,409     $13,532,015
                                                     ----------------------------------------------------------
                                                     ----------------------------------------------------------
</TABLE>


                             SEE ACCOMPANYING NOTES.


                                       37

<PAGE>

                    Energy West Incorporated and Subsidiaries

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                       YEAR ENDED JUNE 30
                                                           1999               1998               1997
                                                   -----------------------------------------------------------
<S>                                                   <C>                 <C>                 <C>
OPERATING ACTIVITIES
Net income                                            $    1,587,313      $  1,520,090        $   1,292,774
Adjustments to reconcile net income
   to net cash provided by (used in)
   operating activities:
     Depreciation and amortization                         1,948,408         1,986,224            1,893,368
     Write-off of investment in Gas Finco                          -           250,000
     Gain on sale of assets                                 (121,416)         (211,465)             (24,484)
     Gain on sale of marketable equity
       securities                                                  -                 -             (100,526)
     Investment tax credit                                   (21,061)          (21,063)             (21,062)
     Deferred gain on sale of assets                         (23,628)          (23,628)             (23,628)
     Deferred income taxes                                   578,881           353,438              629,643
     Changes in operating assets and
       liabilities:
         Accounts receivable                              (1,529,585)       (1,101,707)              83,800
         Natural gas and propane
           inventory                                       3,246,023         1,122,584           (3,591,739)
         Accounts payable                                  1,615,928           864,460             (331,839)
         Recoverable costs of gas
           purchases                                        (914,226)         (253,464)            (719,893)
         Prepaid gas                                          (7,552)          371,413               83,923
         Other assets and liabilities                        (84,916)          102,488              (71,364)
                                                   -----------------------------------------------------------
Net cash provided by (used in) operating
   activities                                              6,274,169         4,959,370             (901,027)

INVESTING ACTIVITIES
Construction expenditures                                 (3,731,125)       (3,014,020)          (3,207,200)
Increase in investments                                            -                 -             (250,000)
Increase in notes receivable                                 (13,200)         (200,000)                   -
Proceeds from sale of assets                                 298,378         1,247,601              153,716
Proceeds from sale of marketable equity
   securities                                                      -                 -              273,572
Collection of long-term notes                                 16,946            10,345                6,653
Customer advances for construction                           144,804           347,374              (23,954)
Increase from contributions in aid of
construction                                                  43,805            22,025              228,468
                                                   -----------------------------------------------------------
Net cash used in investing activities                    $(3,240,392)      $(1,586,675)         $(2,818,745)
</TABLE>


                                       38
<PAGE>

<TABLE>
<CAPTION>
                                                                   YEAR ENDED JUNE 30
                                                       1999               1998               1997
                                                ----------------------------------------------------------
<S>                                             <C>                <C>                <C>
FINANCING ACTIVITIES
Proceeds from long-term debt                    $             -    $     8,000,000    $              -
Debt issuance and reacquisition costs                         -           (458,642)                  -
Payment of long-term debt                              (413,033)          (361,959)           (361,959)
Proceeds from notes payable                          29,231,484         22,346,120          32,512,000
Repayment of notes payable                          (30,674,466)       (32,283,139)        (28,307,000)
Sale of common stock                                        900            161,384               6,920
Dividends paid                                       (1,010,698)          (867,118)           (702,617)
                                                ----------------------------------------------------------
Net cash provided by (used in) financing
   activities                                        (2,865,813)        (3,463,354)          3,147,344
                                                ----------------------------------------------------------

Net increase (decrease) in cash and
   cash equivalents                                     167,964            (90,659)           (572,428)
Cash and cash equivalents at
   beginning of year                                     58,006            148,665             721,093
                                                ----------------------------------------------------------
Cash and cash equivalents at
   end of year                                  $       225,970    $        58,006    $        148,665
                                                ----------------------------------------------------------
                                                ----------------------------------------------------------

Supplemental disclosures of cash
   flow information:
     Cash paid (received) for:
       Interest                                 $     1,444,943    $     1,536,402    $      1,528,441
       Income taxes                             $       (38,319)   $       862,000    $        169,546

Noncash financing activities:
   Dividend reinvestment and compensation plan  $       134,786    $        98,125    $        174,570
   ESOP shares issued                           $       127,901    $       100,615    $        121,357
</TABLE>


SEE ACCOMPANYING NOTES.


                                       39
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  JUNE 30, 1999

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. The entities falling under the Energy West Incorporated
heading include Energy West Montana Great Falls, Cascade and West Yellowstone
(formerly Great Falls Gas, Cascade Gas and West Yellowstone Gas), Energy West
Wyoming (Formerly Cody Gas), and Energy West Arizona (formerly Broken Bow Gas).
These natural gas and propane vapor distribution operations are regulated by the
Montana Public Service Commission ("MPSC"), the Wyoming Public Service
Commission ("WPSC") and the Arizona Corporation Commission ("ACC"). 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 consolidated financial statements include three wholly-owned, nonregulated
subsidiaries - Energy West Resources, Inc., Energy West Propane, Inc., (formerly
Rocky Mountain Fuels, Inc.) and Energy West Development, Inc. (formerly Montana
Sun, Inc.). All significant intercompany accounts and transactions have been
eliminated in consolidation.

Energy West Resources, Inc. ("EWR") is a gas and electricity marketing
operation. Its principal assets are capitalized storage field costs and
inventory. EWR primarily markets gas and electricity to industrial and
commercial customers (businesses using over 5,000 Mcf of natural gas annually).
EWR began its electric marketing activities in January 1999.

Energy West Propane, Inc. ("EWP") is a bulk retail and wholesale liquid propane
sales operation. Its principal assets include bulk storage and customer tanks,
delivery trucks, and related equipment.

Energy West Development, Inc.'s ("EWD") operating activities consist of
commercial real estate development. Its significant assets consist of real
estate held for future sale.


                                       40
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

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

NATURAL GAS AND PROPANE INVENTORY

Natural gas inventory and propane inventory are stated at the lower of weighted
average cost or net realizable value except for Energy West Montana Great Falls,
which is stated at the rate approved by the MPSC, which includes transportation
costs.

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 3.38%, 3.66% and 3.7%
during the years ended June 30, 1999, 1998 and 1997, respectively.

GAS REVENUE AND COST RECOGNITION

The Company's business activities include the buying and selling of natural gas.
The Company recognizes revenue and costs on gas transactions when gas is
delivered to the purchaser. Any gas not purchased by the consumer at the end of
each month is carried in inventory at cost.


                                       41
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

GAS COMMODITY HEDGING

The Company's energy-related businesses are exposed to risks relating to changes
in certain commodity prices and counter-party performance. In order to manage
the various risks relating to these exposures, the Company utilizes natural gas
derivatives and has established risk management oversight for these risks. The
Company has procedures to manage such risk and has established a comprehensive
risk management committee, overseen by the Audit Committee of the Company's
Board of Directors, to monitor compliance with the Company's risk management
policies and procedures.

The Company protects itself against price fluctuations on natural gas by
limiting the aggregate level of net open positions exposed to market price
changes and through the use of natural gas derivative instruments for hedging
purposes. The net open position is actively managed with strict policies
designed to limit the exposure to market risk and which require at least weekly
reporting to management of potential financial exposure. The risk management
committee has limited the types of financial instruments the Company may trade
to those related to natural gas commodities. Financial instruments generally are
not held for speculative trading purposes. Gains and losses related to
derivative commodity instruments which qualify as hedges are recognized in the
consolidated statements of income when the underlying hedged physical
transaction closes (the deferral method) and are included in the same category
as the hedged item (natural gas purchased).

GAS COMMODITY TRADING

The Company may engage in natural gas commodity derivatives designated for
trading purposes and therefore experiences net open positions in terms of price
and volume and specified delivery point. The open positions exposed the Company
to the risk that fluctuating market prices may adversely impact its financial
position or results of operations. However, the net open position is actively
managed with strict policies designed to limit the exposure to market risk and
which require weekly reporting to management of potential financial exposure.
Management has limited the types of derivative instruments the company may trade
to those related to natural gas commodities.


                                       42
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

GAS COMMODITY TRADING (CONTINUED)

The Company's trading activities are subject to mark-to-market accounting. Under
this method, changes in the market value of outstanding natural gas derivative
instruments utilized for trading are recognized in income on a current basis.
They are included on the Consolidated Statements of Income in operating revenues
or expenses (cost of sales) as appropriate, and on the Consolidated Balance
Sheets as energy commodity assets or liabilities. Because of underlying price
fluctuations, the mark-to-market totals may fluctuate throughout the month.

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, 1999. 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 and cash equivalents, 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.

      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.


                                       43
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

FINANCIAL INSTRUMENTS (CONTINUED)

The fair value of the Company's long-term debt, based on quoted market prices
for the same or similar issues, is approximately 107% of the carrying value.

Outstanding letters of credit totaled $3,450,000 at June 30, 1999 and $1,030,000
at June 30, 1998. The letters of credit guarantee the Company's performance to
third parties for gas purchases and gas transportation services.

EARNINGS PER SHARE

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

Basic EPS is calculated by dividing net income by the weighted-average shares
outstanding during the period.

Diluted EPS is calculated by dividing net income by the sum of the
weighted-average shares outstanding during the period and the additional
dilutive shares resulting from the outstanding stock options.

For fiscal year ended June 30, 1999, 1998, and 1997 the calculations for basic
EPS and diluted EPS resulted in the same earnings per share. The weighted
average number of shares under the diluted method at each date were 2,418,910 in
1999, 2,390,814 in 1998, and 2,356,624 in 1997.

STOCK-BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion ("APB")
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (the intrinsic value method),
for its stock options rather than the alternative fair value method provided for
by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Accounting for stock
options using APB No. 25 results in no compensation expense to the Company
because the exercise price for the stock options equals the market price of the
underlying stock on the date of the grant.


                                       44
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

REGULATION

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

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

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
approximate the economic lives for generally accepted accounting principles.

COMPREHENSIVE INCOME

The Company has no additional components of comprehensive income. Net income is
equal to comprehensive income.


                                       45
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATIONS

Certain reclassifications have been made to the fiscal 1998 and 1997
consolidated financial statements to conform to the fiscal 1999 presentation.

2. NOTES PAYABLE

At June 30, 1999, the Company maintained two lines of credit totaling
$19,000,000. One line is for $11,000,000 with interest calculated at the lower
of the London Interbank Offering Rate ("LIBOR") plus 2% or prime less 1/2
percent, expiring January 5, 2000. The other is for $8,000,000 with interest
calculated at the lower of the LIBOR plus 2% or prime less .04 percent, expiring
January 15, 2000. Borrowings on lines of credit, based upon daily loan balances,
averaged $2,519,255, $4,193,679 and $9,390,334 during the years ended June 30,
1999, 1998 and 1997, respectively. The maximum borrowings outstanding on these
lines at any month end were $5,587,000, $11,835,000 and $11,380,000 during these
same periods. There were no amounts outstanding at June 30, 1999 and $1,442,982
outstanding at June 30, 1998. The daily weighted average interest rate was
7.16%, 7.85% and 8.0% for the years ended June 30, 1999, 1998 and 1997,
respectively. Management expects both lines of credit to be renewed for another
year.

3. LONG-TERM DEBT OBLIGATIONS

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                 JUNE 30
                                                                        1999               1998
                                                                 ---------------------------------------
<S>                                                               <C>                   <C>
          Series 1997 notes payable                               $     8,000,000       $  8,000,000
          Series 1993 notes payable                                     7,635,000          7,800,000
          Industrial development revenue obligations:
           Series 1992A                                                   185,000            360,000
           Series 1992B                                                 1,450,000          1,515,000
          Other                                                               723             16,065
                                                                 ---------------------------------------
          Total long-term obligations                                  17,270,723         17,691,065
          Less portion due within one year                                430,723            413,032
                                                                 ---------------------------------------
          Long-term obligations due after one year                    $16,840,000        $17,278,033
                                                                 ---------------------------------------
                                                                 ---------------------------------------
</TABLE>


                                       46
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. LONG-TERM DEBT OBLIGATIONS (CONTINUED)

SERIES 1997 NOTES PAYABLE

On August 1, 1997, the Company issued $8,000,000 of Series 1997 unsecured notes
bearing interest at the rate of 7.5%, payable semiannually on June 1 and
December 1 of each year, commencing on December 1, 1997. All principal amount of
notes then outstanding, plus accrued interest, will be due and payable on June
1, 2012. At the Company's option, beginning June 1, 2002, notes maturing
subsequent to 2002 may be redeemed prior to maturity, in whole or part, at 100%
of face value, plus accrued interest.

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%, payable semiannually on
June 1 and December 1 of each year, commencing on December 1, 1993. Maturity
dates began 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
will mature in October 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%.


                                       47
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. LONG-TERM DEBT OBLIGATIONS (CONTINUED)

AGGREGATE ANNUAL MATURITIES

<TABLE>
<CAPTION>
        FISCAL             SERIES          IDR OBLIGATIONS         SERIES                     TOTAL
      YEAR ENDING           1997        SERIES        SERIES        1993                    LONG-TERM
        JUNE 30            NOTES         1992A        1992B         NOTES       OTHER      OBLIGATIONS
-----------------------------------------------------------------------------------------------------------
<C>                     <C>              <C>       <C>            <C>            <C>       <C>
2000                    $          -     $185,000  $     70,000   $   175,000    $723      $    430,723
2001                               -            -        75,000       370,000       -           445,000
2002                               -            -        75,000       390,000       -           465,000
2003                               -            -        80,000       420,000       -           500,000
2004                               -            -        85,000       445,000       -           530,000
Thereafter                 8,000,000            -     1,065,000     5,835,000       -        14,900,000
                       ------------------------------------------------------------------------------------
                           8,000,000      185,000     1,450,000     7,635,000     723        17,270,723
Less current portion               -      185,000        70,000       175,000     723           430,723
                       ------------------------------------------------------------------------------------
                          $8,000,000   $        -    $1,380,000    $7,460,000    $  -       $16,840,000
                       ------------------------------------------------------------------------------------
                       ------------------------------------------------------------------------------------
</TABLE>

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

4. RETIREMENT PLANS

The Company has a defined contribution pension plan (the Plan) which covers
substantially all of the Company's employees. Under the Plan, the Company
contributes 10% of each participant's eligible compensation. Total contributions
to the plan for the years ended June 30, 1999, 1998 and 1997, were $497,015,
$392,868 and $383,018, respectfully.

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, 1999 and 1998 was $274,560 and $293,600
respectively, of which $234,100 in 1999 and $250,800 in 1998 is related to the
regulated utility operations.


                                       48
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. RETIREMENT PLANS (CONTINUED)

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 Company's plan allows 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 prior service obligation associated with this
plan provision at June 30, 1999 and 1998 was $216,120 and $233,400 respectively,
of which $178,520 in 1999 and $193,300 in 1998 is related to regulated utility
operations. The prior service obligation was accrued as a deferred charge and
will be amortized over fifteen years.

The incremental annual increases in consolidated expenses due to adoption of
SFAS No. 106 were $115,116, $121,600 and $126,400 in fiscal years 1999, 1998 and
1997, respectively. Included in these amounts were $95,600 in 1999, $95,600 in
1998 and $101,900 in 1997 relating to regulatory operations. The MPSC allowed
recovery of these costs beginning on November 4, 1997 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 plan assets are held in a VEBA trust fund into which
the all the Company's contributions are made. The trust primarily invests in
money market funds.


                                       49
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. RETIREMENT PLANS (CONTINUED)

The following table presents a summary of the expense of the postretirement
benefits:

<TABLE>
<CAPTION>
                                                                          YEAR ENDED JUNE 30
Year ended June 30                                                     1999                1998
                                                                ----------------------------------------
<S>                                                                   <C>                <C>
Service Costs                                                         $   37,900         $  41,300
Interest Costs                                                            50,980            52,900
Expected return on plan assets                                           (10,060)          (10,100)
Amortization of transition obligation                                     19,040            19,600
Amortization of unrecognized prior service costs                          17,256            17,900
                                                                ----------------------------------------
   Postretirement benefit expense                                       $115,116          $121,600
                                                                ----------------------------------------
                                                                ----------------------------------------
Weighted-Average assumptions as of June 30,
 Discount rate                                                          7.0%               7.0%
Long-term return on plan assets                                         9.0%               9.0%
Heath care inflation rate                                               9.0%               9.0%
                                                                    GRADING TO 5.5%  grading to 5.5%

<CAPTION>

                                                                          YEAR ENDED JUNE 30
Change in benefit obligation                                              1999                1998
                                                                ----------------------------------------
<S>                                                                     <C>                 <C>
Projected benefit obligation
   Projected benefit obligation at July 1                               $933,813            $867,919
   Service costs                                                          37,900              41,300
   Interest costs                                                         50,980              52,900
   Actuarial (gain) loss                                                 (10,023)                400
   Benefits paid                                                         (62,825)            (28,706)
                                                                ----------------------------------------
Projected benefit obligation at June 30                                 $949,845            $933,813
                                                                ----------------------------------------
                                                                ----------------------------------------
Change in plan assets
   Fair value of plan assets at July 1                                  $285,113            $147,650
     Actual return on plan assets                                         12,280              10,894
     Contributions to the plan                                            91,200             155,275
     Benefits paid                                                       (62,825)            (28,706)
   Fair value of plan assets at June 30                                  325,768             285,113
                                                                ----------------------------------------
Projected benefit Obligation in excess of plan assets                    624,077             648,700
Unrecognized net gain                                                    (23,137)            (10,894)
                                                                ----------------------------------------
Accrued  postretirement  benefit  liability  recorded in other
   liabilities                                                          $647,214            $659,594
                                                                ----------------------------------------
                                                                ----------------------------------------
</TABLE>


                                       50
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INCOME TAX EXPENSE

Effective July 1, 1993, the Company changed its method of accounting for income
taxes from the deferred method to the liability method required by FASB
Statement No. 109, ACCOUNTING FOR INCOME TAXES. The cumulative effect of
adopting Statement No. 109 created a regulatory asset and a regulatory liability
for regulated operations, representing 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, 1999, changes in certain assets and liabilities
resulted in an increase in regulatory assets of $51,109 and a decrease in
regulatory liabilities of $13,160 for regulated entities, resulting in ending
balances of $641,559 and $122,641 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, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                     1999              1998
                                                              -------------------------------------
<S>                                                               <C>                <C>
Deferred tax assets:
   Allowance for doubtful accounts                                $     28,274       $    34,163
   Unamortized investment tax credit                                   122,862           136,022
   Contributions in aid of construction                                164,955           149,093
   Other nondeductible accruals                                        221,949           197,114
   Deferred gain on sale of assets                                      66,064            75,501
   Other                                                                60,224            64,583
                                                              -------------------------------------
Total deferred tax assets                                              664,328           656,476
Deferred tax liabilities:
   Customer refunds payable                                          1,128,838           768,913
   Property, plant and equipment                                     3,715,188         3,431,603
   Unamortized debt issue costs                                        159,058           173,251
   Unamortized deferred rate case costs                                 84,550           114,113
   Covenant not to compete                                              76,313            80,556
   Other                                                                15,912            24,690
                                                              -------------------------------------
Total deferred tax liabilities                                       5,179,859         4,593,126
                                                              -------------------------------------
Net deferred tax liabilities                                        $4,515,531        $3,936,650
                                                              -------------------------------------
                                                              -------------------------------------
</TABLE>


                                       51
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INCOME TAX EXPENSE (CONTINUED)

Income tax expense consists of the following:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED JUNE 30
                                                        1999               1998                1997
                                                 -----------------------------------------------------------
<S>                                                <C>                <C>                     <C>
Current income taxes:
   Federal                                         $     159,487      $     704,914           $202,356
   State                                                 105,807             27,487             31,477
                                                 -----------------------------------------------------------
Total current income taxes                               265,294            732,401            233,833

Deferred income taxes (benefits):
   Tax depreciation in excess of book                    235,141            285,124            364,262
   Book amortization in excess of tax                    (18,434)           (18,434)           (29,900)
   Recoverable cost of gas purchases                     363,763            111,393            255,130
   Regulatory surcharges                                 246,445            (93,149)           (70,955)
   Deferred gain (loss) on sale of assets                  9,284           (215,552)             9,428
   Contributions in aid of construction                  (15,862)            55,237            (88,347)
   Deferred rate case costs                              (29,563)             4,553             93,287
   Bad debt reserves                                       5,370             23,726                  -
   Other                                                  27,035             (5,377)             7,022
                                                 -----------------------------------------------------------
Total deferred income taxes                              823,179            147,521            539,927
Investment tax credit, net                               (21,062)           (21,062)           (21,062)
                                                 -----------------------------------------------------------
Total income taxes                                $    1,067,411           $858,860           $752,698
                                                 -----------------------------------------------------------
                                                 -----------------------------------------------------------
Income taxes-operations                            $     976,760           $792,129           $703,472
Income taxes-other income                                 90,651             66,731             49,226
                                                 -----------------------------------------------------------
Total income taxes                                    $1,067,411           $858,860           $752,698
                                                 -----------------------------------------------------------
                                                 -----------------------------------------------------------
</TABLE>


                                       52
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INCOME TAX EXPENSE (CONTINUED)

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

<TABLE>
<CAPTION>
                                                          1999                1998               1997
                                                  -----------------------------------------------------------
<S>                                                 <C>                     <C>                <C>
Tax expense at statutory rate - 34%                 $    902,606            $812,798           $702,989
State income tax, net of federal tax benefit             149,331              55,138             47,084
Amortization of deferred investment tax
   credits                                               (21,062)            (21,062)           (21,062)
Other                                                     36,536              11,968             23,687
                                                  -----------------------------------------------------------
Total Income Taxes                                    $1,067,411            $858,860           $752,698
                                                  -----------------------------------------------------------
                                                  -----------------------------------------------------------
</TABLE>

6. SEGMENTS OF OPERATIONS

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


                                       53
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SEGMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
June 30, 1999                            REGULATED       PROPANE
                                         UTILITIES      OPERATIONS        EWR            OTHER       ELIMINATIONS        CONSOL.
                                        -----------------------------------------------------------------------------------------
<S>                                     <C>            <C>            <C>             <C>             <C>             <C>
Capital expenditures                    $ 3,012,735    $   688,932    $     2,482     $    26,976     $      --       $ 3,731,125
                                        -----------------------------------------------------------------------------------------
                                        -----------------------------------------------------------------------------------------
Property, plant and equipment, net      $26,200,361    $ 2,599,628    $   105,854     $      --       $      --       $28,905,843
Real estate held for investment                --             --             --           465,883            --           465,883
                                        -----------------------------------------------------------------------------------------
Total P&E                                26,200,361      2,599,628        105,854         465,883            --        29,371,726
Current assets                            6,581,740      1,467,551      4,585,655          81,773      (1,288,153)     11,428,566
Other assets                              4,196,419         51,763        197,513          26,984      (1,072,000)      3,400,679
                                        -----------------------------------------------------------------------------------------
Total assets                            $36,978,520    $ 4,118,942    $ 4,889,022     $   574,640     $(2,360,153)    $44,200,971
                                        -----------------------------------------------------------------------------------------
                                        -----------------------------------------------------------------------------------------
Equity                                  $ 9,767,171    $ 1,463,217    $ 2,476,983     $   895,740     $(1,071,096)    $13,532,015
Long-term debt                           15,108,317      1,350,876         95,419         285,388            --        16,840,000
Current liabilities                       4,348,582        755,054      3,312,005         103,177      (1,289,057)      7,229,761
Deferred income taxes                     3,253,552        323,284         21,611         (33,362)           --         3,565,085
Other liabilities                         4,500,898        226,511     (1,016,996)       (676,303)           --         3,034,110
                                        -----------------------------------------------------------------------------------------
Total capitalization and liabilities    $36,978,520    $ 4,118,942    $ 4,889,022     $   574,640     $(2,360,153)    $44,200,971
                                        -----------------------------------------------------------------------------------------
                                        -----------------------------------------------------------------------------------------
</TABLE>


                                       54
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SEGMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
June 30, 1998
                                        REGULATED       PROPANE
                                        UTILITIES      OPERATIONS        EWR            OTHER       ELIMINATIONS        CONSOL.
                                        ----------------------------------------------------------------------------------------
<S>                                     <C>            <C>            <C>            <C>             <C>             <C>
Capital expenditures                    $ 2,475,740    $   518,022    $    20,258    $      --       $      --       $ 3,014,020
                                        ----------------------------------------------------------------------------------------
                                        ----------------------------------------------------------------------------------------
Property, plant and equipment, net      $24,708,248    $ 2,286,974    $   123,128    $      --       $      --       $27,118,350
Real estate held for investment                --             --             --          453,554            --           453,554
                                        ----------------------------------------------------------------------------------------
Total P&E                                24,708,248      2,286,974        123,128        453,554            --        27,571,904
Current assets                            7,792,284      2,198,211      4,312,796         11,432      (1,988,477)     12,326,246
Other assets                              3,983,881         48,977        201,657           --        (1,071,999)      3,162,516
                                        ----------------------------------------------------------------------------------------
Total assets                            $36,484,413    $ 4,534,162    $ 4,637,581    $   464,986     $(3,060,476)    $43,060,666
                                        ----------------------------------------------------------------------------------------
                                        ----------------------------------------------------------------------------------------
Equity                                  $ 9,605,315    $ 1,190,853    $ 2,181,012    $   905,199     $(1,071,090)    $12,811,289
Long-term debt                           15,546,350      1,350,876         95,419        285,388            --        17,278,033
Current liabilities                       5,934,499        679,059      2,182,675        (62,014)     (1,989,386)      6,744,833
Deferred income taxes                     3,103,164        236,184         21,385        (32,973)           --         3,327,760
Other liabilities                         2,295,085      1,077,190        157,090       (630,614)           --         2,898,751
                                        ----------------------------------------------------------------------------------------
Total capitalization and liabilities    $36,484,413    $ 4,534,162    $ 4,637,581    $   464,986     $(3,060,476)    $43,060,666
                                        ----------------------------------------------------------------------------------------
                                        ----------------------------------------------------------------------------------------
</TABLE>


                                       55
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SEGMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
Year ended June 30, 1999
                                     REGULATED        PROPANE
                                     UTILITIES       OPERATIONS          EWR             OTHER         ELIMINATIONS       CONSOL.
                                   -------------------------------------------------------------------------------------------------
<S>                                <C>              <C>              <C>              <C>              <C>               <C>
Operating revenue
Regulated utilities                $28,105,983      $      --        $      --        $      --        $      (906)      $28,105,077
Propane operations                        --          7,832,247             --               --         (4,263,653)        3,568,594
EWR                                       --               --         25,012,590             --         (3,369,519)       21,643,071
Other                                     --               --               --            143,844             --             143,844
                                   -------------------------------------------------------------------------------------------------
Total operating revenues            28,105,983        7,832,247       25,012,590          143,844       (7,634,078)       53,460,586
Gas purchased                       16,885,480        5,956,876             --               --         (4,264,559)       18,577,797
EWR Cost of trading                       --               --         24,219,571             --         (3,369,519)       20,850,052
Distribution, general & admin        6,197,407        1,102,717          546,675           73,912             --           7,920,711
Maintenance                            396,057           72,964             --               --               --             469,021
Depreciation                         1,450,434          210,058           19,756           14,647             --           1,694,895
Taxes other than income                599,615           76,039           19,950           12,750             --             708,354
                                   -------------------------------------------------------------------------------------------------
Operating expenses                  25,528,993        7,418,654       24,805,952          101,309       (7,634,078)       50,220,830
                                   -------------------------------------------------------------------------------------------------
Operating income                   $ 2,576,990      $   413,593      $   206,638      $    42,535      $      --         $ 3,239,756
                                   -------------------------------------------------------------------------------------------------
                                   -------------------------------------------------------------------------------------------------
</TABLE>


                                       56
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SEGMENTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
Year ended June 30, 1998
                                     REGULATED        PROPANE
                                     UTILITIES       OPERATIONS          EWR             OTHER         ELIMINATIONS       CONSOL.
                                   -------------------------------------------------------------------------------------------------
<S>                                <C>              <C>              <C>              <C>              <C>               <C>
Operating Revenue
Regulated Utilities                $27,824,360      $      --        $      --        $      --        $      --         $27,824,360
Propane Operations                        --          8,642,464             --               --         (4,884,722)        3,757,742
EWR                                       --               --         14,488,326             --         (3,105,307)       11,383,019
Other                                     --               --               --             98,500             --              98,500
                                   -------------------------------------------------------------------------------------------------
Total Operating Revenue             27,824,360        8,642,464       14,488,326           98,500       (7,990,029)       43,063,621
Gas Purchased                       17,046,612        6,404,939             --               --         (4,879,743)       18,571,808
EWR Cost of trading                       --               --         13,289,205             --         (3,104,350)       10,184,855
Distribution, general & admin        5,910,077        1,226,697          538,438           21,716             --           7,696,928
Maintenance                            397,512           99,033             --               --               --             496,545
Depreciation                         1,435,936          270,191           17,893           14,310           (5,936)        1,732,394
Taxes other than income                529,671           73,806           13,906           10,800             --             628,183
                                   -------------------------------------------------------------------------------------------------
Operating expenses                  25,319,808        8,074,666       13,859,442           46,826       (7,990,029)       39,310,713
                                   -------------------------------------------------------------------------------------------------
Operating income                   $ 2,504,552      $   567,798      $   628,884      $    51,674      $      --         $ 3,752,908
                                   -------------------------------------------------------------------------------------------------
                                   -------------------------------------------------------------------------------------------------
</TABLE>


                                       57
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SEGMENTS OF OPERATION (CONTINUED)

<TABLE>
<CAPTION>
Year Ended June 30, 1997
                                     REGULATED        PROPANE
                                     UTILITIES       OPERATIONS          EWR             OTHER         ELIMINATIONS       CONSOL.
                                   -------------------------------------------------------------------------------------------------
<S>                                <C>              <C>              <C>              <C>              <C>               <C>
Operating revenue
Regulated utilities                $26,882,248      $      --        $      --        $      --        $      --         $26,882,248
Propane operations                        --          9,045,644             --               --         (3,803,591)        5,242,053
EWR                                       --               --          5,993,668             --               --           5,993,668
Other                                     --               --               --             97,500             --              97,500
                                   -------------------------------------------------------------------------------------------------
Total operating revenue             26,882,248        9,045,644        5,993,668           97,500       (3,803,591)       38,215,469
Gas purchased                       16,192,875        6,747,439             --               --         (3,803,591)       19,136,723
EWR Cost of trading                       --               --          5,538,847             --               --           5,538,847
Distribution, general & admin        5,857,321        1,406,236          216,805           18,105             --           7,498,467
Maintenance                            403,723           92,998             --               --               --             496,721
Depreciation                         1,348,733          280,329           45,710           14,310             --           1,689,082
Taxes and other income                 545,448           95,104            8,781           10,800             --             660,133
                                   -------------------------------------------------------------------------------------------------
Operating expenses                  24,348,100        8,622,106        5,810,143           43,215       (3,803,591)       35,019,973
                                   -------------------------------------------------------------------------------------------------
Operating income                   $ 2,534,148      $   423,538      $   183,525      $    54,285      $      --         $ 3,195,496
                                   -------------------------------------------------------------------------------------------------
                                   -------------------------------------------------------------------------------------------------
</TABLE>


                                       58
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCK OPTIONS AND OWNERSHIP PLANS

STOCK OPTIONS

The Company has an Incentive Stock Option Plan which provides for options to
purchase up to 100,000 shares of the Company's common stock by certain 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.

Since the Company has elected to use APB No. 25, pro forma information regarding
net income and earnings per share is required by SFAS No. 123 as if the Company
had accounted for its stock options under the fair value method of that
statement. For the fiscal year ended June 30, 1999, 42,820 options were granted.
For purposes of pro forma disclosures the company's pro forma net income for
1999 was $1,537,110 or $.64 per share. In the fiscal year ended June 30, 1998,
no options were granted. The fair value for these options was estimated at the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions:

<TABLE>
<CAPTION>
                                                                            1999
                                                                            ----
<S>                                                                       <C>
         Risk-free interest rate-length of exercise period                  6.3%
         Dividend yields                                                    5.2%
         Volatility factors of the expected market price of
           the Company's common stock                                       .164
         Weighted-average expected life of the employee
           stock options                                                  5 Year
         The weighted-average fair value of options granted                $1.13
</TABLE>

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of the Company's stock options.


                                       59
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCK OPTIONS AND OWNERSHIP PLANS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                                                          WEIGHTED
                                                                   NUMBER OF              AVERAGE
                                                                     SHARES            EXERCISE PRICE
                                                             ---------------------------------------------
<S>                                                                <C>                 <C>
   Fiscal 1997
   Outstanding at July 1, 1996                                           75,708             $7.244
   Granted                                                               20,000             $8.406
   Exercised                                                               (980)            $7.061
   Expired                                                               (5,300)            $6.783
   Outstanding at June 30, 1997                                          89,428             $7.533

   At June 30, 1997
   Exercisable                                                           89,428
   Available for grant                                                    8,400

   Fiscal 1998
   Outstanding at July 1, 1997                                           89,428             $7.533
   Granted                                                                    -
   Exercised                                                            (22,908)            $7.045
   Expired                                                              (37,920)            $7.172
   Outstanding at June 30, 1998                                          28,600             $8.402

   At June 30, 1998
   Exercisable                                                           28,600
   Available for grant                                                   42,820

   Fiscal 1999
   Outstanding at July 1, 1998                                           28,600             $8.402
   Granted                                                               42,820             $9.096
   Exercised                                                               (100)            $9.000
   Expired                                                               (3,600)            $7.375
   Outstanding at June 30, 1999                                          67,720             $8.894

   At June 30, 1999
   Exercisable                                                           67,720
   Available for grant                                                    3,600
</TABLE>



                                       60
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCK OPTIONS AND OWNERSHIP PLANS (CONTINUED)

EMPLOYEE STOCK OWNERSHIP PLAN

The Company has 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 buys 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 $144,118, $127,901 and
$100,615 for the years ended June 30, 1999, 1998 and 1997, respectively. During
the years ended June 30, 1999, 1998 and 1997, the ESOP acquired 13,738 shares at
$9.31 per share, 11,639 shares at $8.65 per share and 14,490 shares at $8.38 per
share, respectively.

8. LEASES

The Company leases a building in Cody, Wyoming. The lease expires on June 30,
2005. Future minimum rental payments will be approximately $79,200 per year from
fiscal 2000 through fiscal 2005, for total future minimum lease payments of
$475,200. Rental expenses related to this lease were $80,631, $75,438 and
$73,599 for the years ended June 30, 1999, 1998 and 1997, respectively.

The Company leases certain property consisting of land and offices and office
buildings 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.

The future minimum lease payments under the terms of the related lease agreement
require the payment of $51,975 per year from fiscal 2000 through fiscal 2006,
for total future minimum lease payments of $363,825.


                                       61
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

The Company has entered into long-term, take or pay natural gas supply contracts
which expire at varying times through 2002. 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 $1.60 to $1.80. Based on current prices, the minimum
take or pay obligation at June 30, 1999 for each of the next three years and in
total is as follows:

<TABLE>
<CAPTION>
                  FISCAL YEAR
<S>                                           <C>
                     2000                     $1,119,153
                     2001                        555,713
                     2002                        164,250
                                             -----------
                     Total                    $1,839,116
                                             -----------
                                             -----------
</TABLE>

Natural gas purchases under these contracts for the years ended June 30, 1999,
1998 and 1997 approximated $2,042,000, $1,630,000 and $1,100,000, respectively.

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 where certain
equipment and materials are stored. The coal gasification process utilized in
the plant resulted in the production of certain by-products which have been
classified by the federal government and the State of Montana as hazardous to
the environment. Several years ago the Company initiated an assessment of the
site to determine if remediation of the site was required. That assessment
resulted in a submission to the Montana Department of Environmental Quality
("MDEQ"), formerly known as the Montana Department of Health and Environmental
Science ("MDHES"), in 1994. The Company has worked with the MDEQ since that time
to obtain the data that would lead to a remediation action acceptable to the
MDEQ. The Company's environmental consultant filed the report with the MDEQ on
June 11, 1997. After consultation with the MDEQ, it was decided to bifurcate the
evaluation into two components, those issues related to soil and those related
to water contamination. A remediation plan was filed respecting the soil


                                       62
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. COMMITMENTS AND CONTINGENCIES (CONTINUED)

ENVIRONMENTAL CONTINGENCY (CONTINUED)

remediation and the MDEQ has notified the Company that is has accepted that
plan. The Company and its consultants are now working with the MDEQ to complete
the remediation plan related to water contamination.

At June 30, 1999, the costs incurred to evaluate and begin remediation have
totaled approximately $1,267,000. On May 30, 1995, the Company received an order
from the Montana Public Service Commission allowing for recovery of the costs
associated with evaluation and remediation of the site through a surcharge on
customer bills. As of June 30, 1999, that recovery mechanism had generated
approximately $742,000. The Commission's decision calls for ongoing review by
the Commission of the costs incurred related to this matter. The soil
remediation has been substantially completed.

10. REGULATORY MATTERS

On March 23, 1998 the Company's Great Falls Division filed a restructuring
application with the Montana Public Service Commission (MPSC). The application
requested permission to unbundle its gas supply function from its tariffs. The
company currently permits its larger customers to purchase gas from third party
suppliers and transport the product through its distribution system for a fee.
The utility has contracted for certain gas balancing and supply services with
its affiliate, EWR, as part of its transition to open access. In December of
1998 the Company received an order from the MPSC that required the Company to
request bids for the services being provided by EWR for the period beginning
October 1999. The Company has renegotiated its agreement with EWR and has
requested bids for its gas supply requirements and its balancing and services
requirements consistent with the MPSC order. Montana Trading and Marketing and
EWR were the successful bidders for two proposals. The Company has also received
an order from the MPSC regarding its gas tracking application. In that order the
MPSC adjusted costs down from what was applied for by the Company in the amount
of $159,000. The MPSC accepted arguments by the Montana Consumer Counsel that
the affiliate contract with EWR should be compared to a price that would have
existed without the affiliate contract. For the period ending June 30, 1998,
this methodology indicated an adjustment consistent with the Commission
decision. However, the pricing included in the affiliate contract was a two year
price. When the Commission's methodology is applied to the tracking period
ending June 30, 1999, the Company believes the impact over the two year period,
July 1, 1997 to June 30, 1999, will be negligible.


                                       63
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. REGULATORY MATTERS (CONTINUED)

The Company filed for a general rate increase for Broken Bow (a regulated
utility subsidiary in Payson, Arizona) on September 26, 1996 with the ACC. The
ACC made its final ruling on August 27, 1997 approving an increase of $390,000.

11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

At June 30, 1998, the Company is a party to one gas hedge agreement for
nonregulated operations. This hedge was made to minimize the Company's exposure
to price fluctuations and to secure a known margin for the purchase and resale
of gas.

<TABLE>
<CAPTION>
                                                                                                      FAIR
                                                           INDEX PRICE                              VALUE OF
   FISCAL     VOLUME                                        RANGE FOR      CONTRACT     INDEX      REMAINING
    YEAR    (MMBTU PER  EFFECTIVE  TERMINATION  CONTRACT      FISCAL       VALUE AT   PRICE AT    CONTRACT AT
    1998       DAY)       DATE         DATE       PRICE        YEAR        JUNE 30     JUNE 30      JUNE 30
----------------------------------------------------------------------------------------------------------------
<S>         <C>         <C>        <C>          <C>        <C>             <C>        <C>         <C>
Hedge #1        5,000    5/1/98      10/31/98     $1.33   $1.32to $1.58     $818,000    $1.32        $812,000
</TABLE>


In July 1998 the Company signed a basis swap agreement, between the NYMEX and
AECO price indexes. The contract period for the 5,000 MMBTU per day begins
November 1, 1999 and ends October 31, 2000. The swap compares the index prices
of natural gas quoted on the NYMEX gas exchange with the AECO gas exchange on a
daily basis. The original basis differential was at $.62 per MMBTU. The company
had designated this basis swap as a trading commodity derivative. The Company
settled this basis differential at $.38 resulting in a gain of $390,000 which is
recorded as a mark-to-market gain in other income.

In May 1999 the Company signed a basis swap agreement, between the NYMEX and
AECO price indexes. The contract period is for 4,000 MMBTU per day begins July
1, 1999 to October 31, 1999. The swap compares the index prices of natural gas
quoted on the NYMEX gas exchange with the AECO gas exchange on a daily basis.
The original basis differential was at $.38 per MMBTU. The company had
designated this basis swap as a trading commodity derivative. The Company
settled the June 1999 portion of the swap at a gain of $13,000 and settled the
remaining portion, a basis differential at $.36 for an additional gain of
$7,500.

The Company entered into two swap agreements with a market maker which requires
the market maker to pay a fixed price to the Company and for the Company to pay
the AECO index price for the contracted volumes. The Company entered into two
reciprocal agreements with a counter party whereby the counter party pays the
AECO index price to


                                       64
<PAGE>

                    ENERGY WEST INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. FINANCIAL INSTRUMENTS & RISK MANAGEMENT (CONTINUED)

the Company and the Company pays the fixed price to the counter party.  The
first agreement is from June 1, 1999 to October 31, 1999 for 2,500 MMBTU per
day at a fixed price of $1.925. The second agreement is from November 1, 1999
to October 31, 2001 for 1,200 MMBTU per day at a fixed price of $2.06. The
company had designated this basis swap as a trading commodity derivative. The
reciprocal agreements have offsetting terms, resulting in no gain or loss.
The AECO index price at June 30, 1999 was $1.93.

In the event the counter-party fails to perform under its obligation, and the
AECO index price exceeds the fixed prices of these swaps, the Company would be
liable to the market maker. The Company's contingent liability based on the June
30, 1999 AECO index price is minimal.


                                       65
<PAGE>

Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Not Applicable


                                       66
<PAGE>

PART III

Item 10. - Directors and Executive Officer of the Registrant

Information concerning the directors and executive officers is included in Part
I, on pages 14 through 17. The information contained under the heading "Election
of Directors" in the Proxy Statement is incorporated herein by reference in
response to this item.

Item 11. - Executive Compensation

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

Item 12. - Security Ownership of Certain Beneficial Owners and Management

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

Item 13. - Certain Relationships and Related Transactions

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


                                       67
<PAGE>

PART IV

Item 14. - Exhibits, Financial Statement Schedules and Reports on Form 8K

(a)      1.  Financial Statements included in Part II, Item 8:
                  Report of Independent Auditors
                  Consolidated Balance Sheets
                  Consolidated Statements of Income
                  Consolidated Statements of Stockholders' Equity
                  Consolidated Statements of Cash Flows
                  Notes to Consolidated Financial Statements
         2.       Financial Statement Schedules included in Item 14 (d):
                  Schedule II - Valuation and Qualifying Accounts

All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.

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

(b)    Reports on Form 8-K
                  none

                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS

                                ENERGY WEST INC.

                                  JUNE 30, 1999

<TABLE>
<CAPTION>
                              Balance At     Charged        Write-Offs      Balance
                              Beginning      to Costs       Net of          at End of
Description                   of Period      & Expenses     Recoveries      Period   .
--------------------------------------------------------------------------------------
<S>                           <C>            <C>            <C>             <C>
ALLOWANCE FOR
UNCOLLECTIBLE ACCOUNTS

Year Ended June 30, 1997      $ 208,106      $ 130,992      ($171,274)      $ 167,824

Year Ended June 30, 1998      $ 167,824      $  69,651      ($138,714)      $  98,761

Year Ended June 30, 1999      $  98,761      $  62,160      ($ 76,383)      $  84,538
</TABLE>


                                       68
<PAGE>

SIGNATURES

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

ENERGY WEST INCORPORATED

/s/  Larry D. Geske                    /s/  Edward J. Bernica
Larry D. Geske, President and          Edward J. Bernica, Executive Vice-
Chief Executive Officer                President, Chief Operating Officer and
and Chairman of the Board              Chief Financial Officer

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

<TABLE>
<S>                                  <C>                     <C>
/s/  Larry D. Geske                                          09/27/99
Larry D. Geske                                               Date
President and Chief Executive
Officer and Acting Chairman of the Board

/s/ Ian B. Davidson                                          09/27/99
Ian B. Davidson                      Director                Date

/s/ Thomas N. McGowen, Jr.                                   09/27/99
Thomas N. McGowen, Jr.               Director                Date

/s/ G. Montgomery Mitchell                                   09/27/99
G. Montgomery Mitchell               Director                Date

/s/ George D. Ruff                                           09/27/99
George D. Ruff                       Director                Date

/s/ David A. Flitner                                         09/27/99
David A. Flitner                     Director                Date

/s/ Dean South                                               09/27/99
Dean South                           Director                Date

/s/ Richard J. Schulte                                       09/27/99
Richard J. Schulte                   Director                Date
</TABLE>


                                       69
<PAGE>

EXHIBIT INDEX

EXHIBITS

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

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

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

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

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

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

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

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

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

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


                                       E-1
<PAGE>

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

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

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

10.10     1992 Stock Option Plan (previously filed).

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

10.12     Management Incentive Plan (previously filed).

21.1      Subsidiaries of the Company (filed herewith).

23.1      Consent of Independent Auditors (filed herewith).

27.1      Financial Data Schedule (filed herewith).


                                       E-1