<PAGE>

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

               For the quarterly period ended   December 31, 1996


                        Commission file number:   1-7196


                         CASCADE NATURAL GAS CORPORATION
             (Exact name of registrant as specified in its charter)

       Washington                                    91-0599090
       ----------                                    ----------
State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization                     Identification No.)


 222 Fairview Avenue North, Seattle, WA                     98109
 --------------------------------------                     -----
 (Address of principal executive office)                  (Zip Code)

Registrant's telephone number, including area code          (206) 624-3900
                                                            --------------

     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 the number of shares outstanding of each of the registrant's 
classes of common stock, as of the latest practicable date.

              Title                                 Outstanding
              -----                                 -----------

Common Stock, Par Value $1 per Share       10,824,160 as of December 31, 1996

<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                     CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES 
                    CONSOLIDATED CONDENSED STATEMENTS OF NET EARNINGS 
                                      (unaudited) 

                                                      THREE MONTHS ENDED 
                                              ----------------------------------

                                               Dec 31, 1996        Dec 31, 1995
                                              --------------      --------------
                                               (thousands except per share data)

 Operating revenues                             $64,971              $56,908

 Less: Gas purchases                             35,689               31,621 
   Revenue taxes                                  3,671                3,272 
                                                -------              -------
 Operating margin                                25,611               22,015 
                                                -------              -------

 Cost of operations: 
   Operating expenses                             8,985                7,717 
   Depreciation and amortization                  3,223                3,028 
   Property and payroll taxes                     1,028                  935 
                                                -------              -------
                                                 13,236               11,680 
                                                -------              -------

 Earnings from operations                        12,375               10,335 
 Less interest and other 
   deductions - net                               2,330                2,470 
                                                -------              -------
 Earnings before income taxes                    10,045                7,865 

 Income taxes                                     3,597                2,666 
                                                -------              -------
 Earnings before preferred dividends              6,448                5,199 
 Preferred dividends                                128                  131 
                                                -------              -------

 Net earnings                                   $ 6,320              $ 5,068 
                                                -------              -------
                                                -------              -------

 Common shares outstanding: 
   Weighted average                              10,800                9,115 
   End of period                                 10,821                9,140 

 Net earnings per common share                  $  0.59              $  0.56 
                                                -------              -------
                                                -------              -------

 Cash dividends per share                       $  0.24              $  0.24 
                                                -------              -------
                                                -------              -------

                  See Notes to Consolidated Condensed Financial Statements 

                                            2

<PAGE>

                     CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES 
                          CONSOLIDATED CONDENSED BALANCE SHEETS 

<TABLE>
<CAPTION>

                                                                  Dec 31, 1996    Sep 30, 1996
                                                                  ------------    ------------
                                                                    (dollars in thousands) 
                                                                   (unaudited) 
                                    ASSETS 

<S>                                                                <C>              <C>
 Utility Plant, net after accumulated 
  depreciation of $150,946 and $147,599                               $  247,295       $ 236,172 
  Construction work in progress                                            6,258          19,497 
                                                                     ------------      ----------
                                                                         253,553         255,669 
                                                                     ------------      ----------
 Other Assets:                                                                      
  Investments                                                                668             667 
  Notes receivable, less current maturities                                1,722           1,777 
                                                                     ------------      ----------
                                                                           2,390           2,444 
                                                                     ------------      ----------
 Current Assets:                                                                    
  Cash and cash equivalents                                                  359             543 
  Accounts receivable, less allowance of $559                                       
   and $439 for doubtful accounts                                         31,668          11,646 
  Current maturities of notes receivable                                     631             631 
  Materials, supplies and inventories                                      5,897           6,063 
  Prepaid expenses and other assets                                        5,768           5,723 
                                                                     ------------      ----------
                                                                          44,323          24,606 
                                                                     ------------      ----------
                                                                                    
 Deferred Charges                                                         13,237          13,662 
                                                                     ------------      ----------
                                                                                    
                                                                      $  313,503       $ 296,381 
                                                                     ------------      ----------
                                                                     ------------      ----------
                                                                                    
                   COMMON SHAREHOLDERS' EQUITY,                                     
                 PREFERRED STOCKS AND LIABILITIES                                   
 Common Shareholders' Equity:                                                       
  Common stock, par value $1 per share, authorized 15,000,000                       
  shares, issued and outstanding 10,824,160 and 10,786,585 shares     $   10,824       $  10,787 
  Additional paid-in capital                                              93,972          93,438 
  Retained earnings                                                        8,621           4,901 
                                                                     ------------      ----------
                                                                         113,417         109,126 
                                                                     ------------      ----------
 Redeemable Preferred Stocks, aggregate redemption                                  
  amount of $6,845 and $7,097                                              6,630           6,851 
                                                                     ------------      ----------
                                                                                    
 Long-term Debt                                                          101,550         101,850 
                                                                     ------------      ----------
                                                                                    
 Current Liabilities:                                                               
  Notes payable and commercial paper                                       6,194              --   
  Accounts payable                                                        26,744          17,599 
  Property, payroll and excise taxes                                       5,063           3,113 
  Dividends and interest payable                                           4,710           6,570 
  Other current liabilities                                                6,830           2,931 
                                                                     ------------      ----------
                                                                          49,541          30,213 
                                                                     ------------      ----------
 Deferred Credits:                                                                  
  Gas cost changes                                                        15,933          21,578 
  Other                                                                   26,432          26,763 
                                                                     ------------      ----------
                                                                          42,365          48,341 
                                                                     ------------      ----------
 Commitments and Contingencies                                                --              --   
                                                                                    
                                                                     ------------      ----------
                                                                      $  313,503       $ 296,381 
                                                                     ------------      ----------
                                                                     ------------      ----------
</TABLE>

                See Notes to Consolidated Condensed Financial Statements 

                                               3
<PAGE>

                  CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES 
                   CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS 
                                    (unaudited) 
<TABLE>
<CAPTION>
                                                                               THREE MONTHS ENDED
                                                                          ----------------------------
                                                                          Dec 31, 1996    Dec 31, 1995
                                                                          ------------    ------------
                                                                             (dollars in thousands) 
<S>                                                                         <C>             <C>
 OPERATING ACTIVITIES: 
   Earnings before preferred dividends                                      $  6,447        $ 5,199 
   Adjustments to reconcile earnings before preferred                                    
    dividends to net cash provided by operating activities:                               
      Depreciation                                                             3,223          3,134 
      Amortization of gas cost changes                                          (602)           988 
      Decrease in deferred income taxes                                         (608)          (427)
      Decrease in deferred investment tax credits                                (58)           (85)
      Cash provided (used) by changes in operating assets and liabilities:                 
        Current assets and liabilities                                        (6,797)        (4,480)
        Gas cost changes                                                      (5,043)         3,966 
        Other deferrals and non-current liabilities                              724         (2,350)
                                                                              ------        -------
                                                                                         
   Net cash (used) provided by operating activities                           (2,714)         5,945 
                                                                              ------        -------
                                                                                         
 INVESTING ACTIVITIES:                                                                   
   Capital expenditures                                                       (6,984)       (15,229)
   Customer contributions in aid of construction                               5,975            176 
   New consumer loans                                                           (244)          (449)
   Receipts on consumer loans                                                    266            785 
   Purchase of securities available for sale                                      --         (2,293)
   Proceeds from securities available for sale                                    --          4,375 
                                                                              ------        -------
                                                                                         
   Net cash used by investing activities                                        (987)       (12,635)
                                                                              ------        -------
                                                                                         
 FINANCING ACTIVITIES:                                                                   
   Issuance of common stock                                                      282            470 
   Redemption of preferred stock                                                (216)          (345)
   Proceeds from issuance of long-term debt                                       --          2,100 
   Repayment of long-term debt                                                  (300)        (5,000)
   Changes in notes payable and commercial paper, net                          6,194         13,000
   Dividends paid                                                             (2,443)        (2,056)
                                                                              ------        -------
                                                                                         
   Net cash provided by financing activities                                   3,517          8,169 
                                                                              ------        -------
                                                                                         
 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           (184)         1,479 
                                                                                         
 CASH AND CASH EQUIVALENTS:                                                              
   Beginning of period                                                           543            718 
                                                                              ------        -------
   End of period                                                              $  359        $ 2,197 
                                                                              ------        -------
                                                                              ------        -------
                                                                                         
</TABLE>
                     See Notes to Consolidated Condensed Financial Statements 




                                                          4
<PAGE>

                CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED DECEMBER 31, 1996

     The preceding statements were taken from the books and records of the 
Company and reflect all adjustments which are, in the opinion of management, 
necessary for a fair statement of the results for the interim periods. All 
adjustments were of a normal and recurring nature.

     Because of the highly seasonal nature of the business, earnings or loss 
for any portion of the year are disproportionate in relation to the full year.

     Reference is directed to the Notes to Consolidated Financial Statements 
contained in the 1996 transition report for the period January 1, 1996 to 
September 30, 1996 on Form 10-K, and to comments included therein under 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations". 
 







                                       5

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
OF OPERATION.

     The following is management's assessment of the Company's financial 
condition and a discussion of the principal factors that affect consolidated 
results of operations for the three month periods ended December 31, 1996 and 
December 31, 1995.

RESULTS OF OPERATIONS

     Net earnings for the first quarter of fiscal 1997 were $6,320,000, or 
$0.59 per share, compared to net earnings of $5,068,000, or $0.56 per share, 
for the quarter ended December 31, 1995. The 25% increase in net earnings is 
primarily attributable to improved overall operating margin. Per share 
earnings are affected by the 1,487,700 shares of new common stock issued in 
August, 1996.

RESIDENTIAL AND COMMERCIAL OPERATING MARGIN

            RESIDENTIAL AND COMMERCIAL OPERATING MARGIN
            (dollars in thousands)
            --------------------------------------------------------           
            --------------------------------------------------------
                                             Three Months Ended
                                                 December 31
                                              1996          1995
                                          ---------     ---------
            Degree Days                       2,191         1,940 
            
            Average Customers
             Residential                    132,894       124,957 
             Commercial                      24,403        23,345 
            
            Therms per Customer
             Residential                        303           272 
             Commercial                       1,529         1,395 
            
            Margin
             Residential                   $ 10,511      $  8,466 
             Commercial                    $  7,200      $  6,168 
            --------------------------------------------------------
            --------------------------------------------------------


     Operating margin from sales to residential and commercial customers 
increased $3,077,000, or 21%, quarter to quarter. Factors contributing to 
this increase were an increase of 8,995 (6.1%) in the average number of 
residential and commercial customers, an 11.4% increase in gas consumption 
per residential customer, and a 9.6% increase in gas consumption per 
commercial customer. Consumption improvement is driven by the mix of 
customers, particularly commercial, the number of appliances in use, and by 
the weather. Estimated degree days were 13% greater than in the quarter ended 
December 31, 1995, and 9% greater than normal. New tariff rates charged to 
customers in the state of Washington, which became effective August 1, 1996, 
contributed an estimated $1 million of additional margin. Mitigating the 
improvements was $428,000 of gas cost increases representing 20% of the 
excess of incurred gas cost over the base gas cost level established in the 
Company's tariff for sales in the state of Oregon. The tariff requires the 
Company to absorb 20% of such differences (positive or negative), while the 
remaining 80% is deferred for pass back to customers. 


                                       6
<PAGE>


INDUSTRIAL AND OTHER MARGIN

     Operating margin from industrial and other customers increased $520,000, 
or 7%, quarter to quarter, primarily resulting from increased margins from 
cogeneration customers, including service to a new customer that began 
commercial operation in the second quarter of 1996.

COST OF OPERATIONS

     Cost of operations, which consists of operating expenses, depreciation 
and amortization, and property and payroll taxes, increased $1,556,000 or 13% 
over the quarter ended December 31, 1995. Operating expenses, which are 
primarily labor and benefits expenses, contributed $1,268,000 of the 
increase. Of this increase, $351,000 is attributable to increases in amounts 
included therein for postretirement benefits other than pensions (PBOP). From 
1993 through July 1996, a portion of PBOP expenses were deferred, in 
accordance with a policy statement issued by the Washington Utilities and 
Transportation Commission in 1992. Concurrent with the settlement of the 
Washington rate case, effective August 1, 1996, ongoing PBOP expenses are no 
longer deferred, and amortization of the previously deferred amounts is also 
included in operating expenses, resulting in the $351,000 increase. 
Additionally there were increased expenses resulting from higher wage rates, 
overtime pay, and purchased services.

     Increases in depreciation and amortization and in property and payroll 
taxes are primarily attributable to increases in utility plant.

INTEREST AND OTHER DEDUCTIONS

     Interest and other deductions for the quarter decreased $140,000, or 
5.7% from the quarter ended December 31, 1995, due primarily to decreases in 
the amount of outstanding debt during the quarter. Less debt was required 
because of the common stock sold in a public offering in August 1996 which 
added $20 million of common equity.

LIQUIDITY AND CAPITAL RESOURCES

     The seasonal nature of the Company's business creates short-term cash 
requirements to finance customer accounts receivable and construction 
expenditures. To provide working capital for these requirements, the Company 
has a five-year credit commitment for $40 million from three banks. The 
committed lines also support a money market facility of a similar amount and 
a regional commercial paper program. A subsidiary has a $5 million five-year 
revolving credit facility used for non-regulated business, and at December 31, 
1996, $1.55 million was outstanding. The Company also has $25 million of 
uncommitted lines from three banks.
     
     Longer term financing is provided by a Medium-Term Note program with 
$100 million outstanding at December 31, 1996, and $50 million registered 
under the Securities Act of 1933 and available for issuance. Because of the 
availability of short-term credit and the ability to issue long-term debt and 
additional equity, management believes it has adequate financial flexibility 
to meet its anticipated cash needs.

     Operating activities provided a negative cash flow of $2,714,000 for the 
quarter, compared to a positive $5,943,000 for the quarter ended December 31, 
1995, primarily due to higher gas costs incurred. The effect of these higher 
gas costs, except for $428,000 discussed above under "Residential and 
Commercial Operating Margin", has been deferred, and the Company will file 
for recovery from customers through purchased gas rate adjustments over 
future periods. Capital expenditures for the quarter were $6,984,000, which 
was mostly offset by contributions in aid of construction of $5,975,000.  
Capital 


                                      7

<PAGE>

expenditures for fiscal 1997 are budgeted at approximately $32 million. The 
Company expects that fiscal 1997 capital expenditures will be financed 50% to 
75% by debt financing. The broad range of capital needs coverage is due to 
uncertainty of gas costs. If gas costs continue at high levels, there will 
continue to be a negative effect on operating cash flow.

REGULATORY MATTERS

     The Company has consistently earned in excess of its allowed rate of 
return in Oregon in recent years, and continued earnings improvement in that 
state would likely result in a mandated general rate reduction under the 
current regulatory system. The staff of the Oregon Public Utility Commission 
(OPUC)  has agreed to collaborate with the Company in exploring alternative 
incentive rate mechanisms which would allow the Company and its customers to 
equitably share earnings improvements resulting from improved efficiency. 
These discussions are not complete, and the outcome is uncertain. 
Approximately 26% of the Company's pre-tax regulated operating income is 
derived from Oregon operations.

FORWARD-LOOKING STATEMENTS

     Statements contained in this report which are not historical in nature 
are forward-looking statements within the meaning of the Private Securities 
Litigation Reform Act of 1995. Forward-looking statements are subject to 
risks and uncertainties that may cause actual future results to differ 
materially. Such risks and uncertainties with respect to the Company include, 
among others, its ability to successfully implement internal performance 
goals, competition from alternative forms of energy, performance issues with 
key natural gas suppliers, the capital-intensive nature of the Company's 
business, regulatory issues, including the need for adequate and timely rate 
relief to recover increased capital and operating costs resulting from 
customer growth and to sustain dividend levels, the weather, increasing 
competition brought on by deregulation initiatives at the federal and state 
levels, the potential loss of large volume industrial customers due to 
"bypass" or the shift by such customers to special competitive contracts at 
lower per unit margins, exposure to environmental cleanup requirements, and 
economic conditions, particularly in the Company's service area.










                                         8
<PAGE>

  

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES.

      
     Under the terms of its bank credit agreements, the Company is required 
to maintain a minimum of $83,716,000 of net worth. Under the most restrictive 
agreement, approximately $29,701,000 was available for the payment of 
dividends as of December 31, 1996.  

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.


      The 1997 annual meeting of the Shareholders of the Corporation was held 
on January 23, 1997. The following directors were elected at the meeting for 
terms of office expiring in 1998 by the vote indicated below: 


                                                           Abstentions and 
                                     For       Withheld    Broker Non-Votes 
                                  ---------    --------    ----------------
    Carl Burnham, Jr.             8,944,363      81,306               2,135 
    Melvin C. Clapp               8,937,905      84,264               5,093 
    Thomas E. Cronin              8,918,272     107,367              28,226 
    David A. Ederer               8,944,473      81,196               2,025 
    Howard L. Hubbard             8,940,725      81,444               2,273 
    W. Brian Matsuyama            8,941,745      84,024               4,858 
    Larry L. Pinnt                8,939,171      82,998               3,827 
    Brooks G. Ragen               8,940,510      81,659               2,488 
    Mary A. Williams              8,937,304      84,865               5,694 


ITEM 5. OTHER INFORMATION.

Ratio of Earnings to Fixed Charges:


                             Twelve Months Ended
     -------------------------------------------------------------------

     12/31/96    9/30/96    12/31/95    12/31/94    12/31/93    12/31/92
     --------    -------    --------    --------    --------    --------

       2.39       2.17        2.16        2.07        2.86        1.97


     For purposes of this calculation, earnings include income before income
taxes plus fixed charges. Fixed charges include interest expense and the
amortization of debt issuance expenses. Refer to Exhibit 12 for the calculation
of these ratios as well as the ratio of earnings to fixed charges including
preferred dividends.



                                         9
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

a. Exhibits:

     No.       Description
     ---       -----------

     3.2    Restated Bylaws of the Registrant

     12     Computation of Ratio of Earnings to Fixed Charges

     27     Financial Data Schedule UT

b. Reports on Form 8-K:
      
     No reports were filed on Form 8-K during the quarter.  





                                     10
<PAGE>

SIGNATURE

     Pursuant to the requirements 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.

CASCADE NATURAL GAS CORPORATION
          (Registrant)



By:  
         -------------------------------------------------------------------
         J. D. Wessling Vice President - Finance and Chief Financial Officer

Date:    February 7, 1997











                                      11