<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 March 31, 1997
                                       
                                       
                        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 offices)            (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    10,869,032 as of March 31, 1997

<PAGE>

                        CASCADE NATURAL GAS CORPORATION
                                       
                                     Index



                                                                      PAGE NO.
                                                                      --------
Part I.   Financial Information

          Item 1. Financial Statements

               Consolidated Condensed Statements of Net 
                 Earnings Available to Common Shareholders                  3

               Consolidated Condensed Balance Sheets                        4

               Consolidated Condensed Statements of Cash Flows              5

               Notes to Consolidated Condensed Financial Statements         6

          Item 2.  Management's Discussion and Analysis of Financial 
                     Condition and Results of Operations                    7

          Item 3. Quantitative and qualitative Disclosures about 
                     Market Risk                                           12


Part II.  Other Information

          Item 2. Changes in Securities                                    12

          Item 5. Other Information                                        12

          Item 6. Exhibits and Reports on Form 8-K                         12

Signature                                                                  13

                                       2

<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.


                CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
                CONSOLIDATED CONDENSED STATEMENTS OF NET EARNINGS
                         AVAILABLE TO COMMON SHAREHOLDERS
                                     (unaudited)

<TABLE>
<CAPTION>
                                  THREE MONTHS ENDED            SIX MONTHS ENDED
                                  ------------------            ----------------
                               Mar 31, 1997   Mar 31, 1996  Mar 31, 1997   Mar 31, 1996
                               ------------   ------------  ------------   ------------
                                         (thousands except per share data)
<S>                            <C>            <C>           <C>            <C>
Operating revenues                 $71,174      $67,620      $136,145        $124,528

Less: Gas purchases                 38,644       37,400        74,333          69,021
      Revenue taxes                  4,904        4,583         8,575           7,856
                                   -------      -------      --------        --------
Operating margin                    27,626       25,637        53,237          47,651
                                   -------      -------      --------        --------

Cost of operations:
  Operating expenses                 9,321        8,358        18,306          16,075
  Depreciation and amortization      3,286        3,056         6,509           6,084
  Property and payroll taxes           834        1,178         1,862           2,112
                                   -------      -------      --------        --------
                                    13,441       12,592        26,677          24,271
                                   -------      -------      --------        --------

Earnings from operations            14,185       13,045        26,560          23,380
Less interest and other
  deductions - net                   2,249        2,450         4,580           4,920
                                   -------      -------      --------        --------
Earnings before income taxes        11,936       10,595        21,980          18,460

Income taxes                         4,336        3,825         7,933           6,491
                                   -------      -------      --------        --------
Net earnings                         7,600        6,770        14,047          11,969
Preferred dividends                    128          131           255             262
                                   -------      -------      --------        --------
Net earnings available to
  common shareholders              $ 7,472      $ 6,639      $ 13,792        $ 11,707
                                   -------      -------      --------        --------
                                   -------      -------      --------        --------

Common shares outstanding:
  Weighted average                  10,840        9,163        10,814           9,131
  End of period                     10,869        9,196        10,869           9,196

Net earnings per common share      $  0.69      $  0.72      $   1.28        $   1.28
                                   -------      -------      --------        --------
                                   -------      -------      --------        --------

Cash dividends per share           $  0.24      $  0.24      $   0.48        $   0.48
                                   -------      -------      --------        --------
                                   -------      -------      --------        --------

</TABLE>

See notes to consolidated condensed financial statements

                                       3

<PAGE>

                CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS

                                          Mar 31, 1997     Sep 30, 1996
                                          -------------    ------------
                                              (Dollars in Thousands)
                                           (Unaudited)
                ASSETS
 Utility Plant, net after accumulated
  depreciation of $154,349 and $147,599     $  250,837     $  236,172
   Construction work in progress                 5,689         19,497
                                           ------------   ------------
                                               256,526        255,669
                                           ------------   ------------

 Other Assets:
   Investments                                     668            667
   Notes receivable, less current 
     maturities                                  1,747          1,777
                                           ------------   ------------
                                                 2,415          2,444
                                           ------------   ------------

 Current Assets:
   Cash and cash equivalents                     2,215            543
   Accounts receivable, less 
    allowance of $580 and $439 
    for doubtful accounts                       22,909         11,646
   Current maturities of notes receivable          637            631
   Materials, supplies and inventories           6,070          6,063
   Prepaid expenses and other assets             2,444          5,723
                                           ------------   ------------
                                                34,275         24,606
                                           ------------   ------------

 Deferred Charges                               12,780         13,662
                                           ------------   ------------

                                            $  305,996     $  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 10,869,032 and 
    10,786,585 shares                       $   10,869     $   10,787
   Additional paid-in capital                   94,643         93,438
   Retained earnings                            13,483          4,901
                                           ------------   ------------
                                               118,995        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           13,000              -
   Accounts payable                             13,179         17,599
   Property, payroll and excise taxes            5,503          3,113
   Dividends and interest payable                6,610          6,570
   Other current liabilities                     6,466          2,931
                                           ------------   ------------
                                                44,758         30,213
                                           ------------   ------------

 Deferred Credits:
   Gas cost changes                              8,146         21,578
   Other                                        25,917         26,763
                                           ------------   ------------
                                                34,063         48,341
                                           ------------   ------------
 Commitments and Contingencies                       -              -
                                            $  305,996     $  296,381
                                           ------------   ------------
                                           ------------   ------------

 See notes to consolidated condensed financial statements

                                       4

<PAGE>

            CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
            CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                           (unaudited)

                                                   SIX MONTHS ENDED
                                            --------------------------
                                            Mar 31, 1997  Mar 31, 1996
                                            ------------  ------------
                                              (dollars in thousands)
OPERATING ACTIVITIES:
 Net earnings                                  $  14,047    $  11,969
 Adjustments to reconcile net 
   earnings to net cash provided 
   by operating activities:
     Depreciation                                  6,509        6,084
     Amortization of gas cost changes             (1,719)       2,166
     Decrease in deferred income taxes            (1,217)        (125)
     Decrease in deferred investment 
       tax credits                                  (117)        (150)
     Cash provided (used) by changes in 
       operating assets and liabilities:
         Current assets and liabilities           (6,201)         (57)
         Gas cost changes                        (11,713)      11,869
         Other deferrals and non-current 
           liabilities                             1,147       (3,150)
                                             ------------   ------------
 Net cash provided by operating activities           736       28,606
                                             ------------   ------------

INVESTING ACTIVITIES:
 Capital expenditures                            (13,379)     (20,526)
 Customer contributions in aid of 
   construction                                    5,941          265
 New consumer loans                                 (697)        (758)
 Receipts on consumer loans                          769        1,316
 Purchase of securities available for sale             -       (2,293)
 Proceeds from securities 
   available for sale                                  -        4,375
                                             ------------   ------------
 Net cash used by investing activities            (7,366)     (17,621)
                                             ------------   ------------

FINANCING ACTIVITIES:
 Issuance of common stock                            712        1,006
 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                                      13,000       (3,001)
 Dividends paid                                   (4,894)      (4,123)
                                             ------------   ------------
 Net cash provided (used) by 
   financing activities                            8,302       (9,363)
                                             ------------   ------------

NET INCREASE IN CASH AND CASH EQUIVALENTS          1,672        1,622

CASH AND CASH EQUIVALENTS:
 Beginning of period                                 543          718
                                             ------------   ------------
 End of period                                 $   2,215    $   2,340
                                             ------------   ------------
                                             ------------   ------------

See notes to consolidated condensed financial statements

                                      5

<PAGE>

               CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
                                       
             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
               THREE AND SIX MONTH PERIODS ENDED MARCH 31, 1997

   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 on Form 10-K for the period 
January 1, 1996 to September 30, 1996, and  comments included therein under 
"Management's Discussion and Analysis of Financial Condition and 
Results of Operations".

                                       6

<PAGE>

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

   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 and cash flows for the three and six month periods 
ended March 31, 1997 and March 31, 1996.

RESULTS OF OPERATIONS

   Net earnings available to common shareholders for the second quarter of 
fiscal 1997 were $7,472,000, or $0.69 per share, compared to $6,639,000, or 
$0.72 per share, for the quarter ended March 31, 1996. For the six months 
ended March 31, 1997, net earnings available to common shareholders were 
$13,792,000, or $1.28 per share, compared to $11,707,000, or $1.28 per share, 
for the six-month period ended March 31, 1996. The increase in earnings is 
primarily attributable to improved overall operating margin, which was 
partially offset by increased cost of operations for the three and six month 
periods. Per share earnings are affected by the 1,487,700 new shares of 
common stock issued in August, 1996.

OPERATING MARGIN

   RESIDENTIAL AND COMMERCIAL MARGIN. Operating margins derived from sales to 
residential and commercial customers were as set forth in the following table:

                   Residential and Commercial Operating Margin
                             (dollars in thousands)
   ---------------------------------------------------------------------------
                                       Three Months Ended    Six Months Ended
                                             March 31             March 31
                                       1997          1996    1997        1996
                                       ----          ----    ----        ----

   Degree Days                         2,327        2,416    4,518      4,356

   Average Number of Customers
    Residential                      136,175      128,286  134,534    126,622
    Commercial                        24,925       23,913   24,664     23,629

   Therms per Customer
    Residential                          339          339      642        612
    Commercial                         1,703        1,774    3,235      3,174

   Operating Margin
    Residential                    $  12,010    $ 10,662  $ 22,521   $ 19,128
    Commercial                     $   8,107    $  8,151  $ 15,306   $ 14,319
   ---------------------------------------------------------------------------


   Operating margin from sales to residential and commercial customers 
increased by $1,304,000, or 7%, quarter to quarter. Factors contributing to 
this increase were an increase of 8,901 in the average number of residential 
and commercial customers, and new tariff rates charged to customers in the 
state of Washington effective August 1, 1996. These factors resulted in 
margin increases of approximately $972,000 and $1,400,000, respectively. 
Offsetting these increases were three factors. First, there was $561,000 of 
gas cost increases, representing 20% of the excess of 

                                       7

<PAGE>

incurred gas cost over the base gas cost level established in the Company's 
tariff for sales in the state of Oregon. The tariff provides that the Company 
absorb 20% of such differences (positive or negative), while the remaining 
80% is deferred for pass back to customers. Second, the number of therms used 
by the average commercial customer decreased by 4%, resulting in a margin 
decline of approximately $300,000. Third, rates to Oregon customers were 
decreased to recognize decreased property tax expense (see "Cost of 
Operations"), reducing margins by approximately $240,000. The average number 
of therms used by residential customers was the same as in the March 1996 
quarter even though the weather, as measured by estimated degree days, was 
nearly 4% warmer than last year and 2% warmer than normal.

   For the six months ended March 31, 1997, margins from residential and 
commercial customers increased by $4,380,000, or 13.1%. Factors contributing 
to this increase were similar to the factors which caused the net improvement 
in the quarterly period. The new tariff rates in Washington contributed 
approximately $2,400,000, while the increase in the number of customers 
contributed approximately $1,770,000.  Therm consumption per customer 
increased 5% for residential and 2% for commercial over the six months ended 
March 31, 1996, resulting in a margin increase of approximately $1,400,000. 
Consumption per customer is driven by the mix of customers, particularly in 
the commercial class, the number and type of appliances used, and by the 
weather. Weather for the 1997 six-month period was approximately 4% colder 
than the same period last year, and 3% colder than normal. The colder weather 
occurred primarily in the quarter ended December 31, 1996. Partially 
offsetting these margin increases were unrecovered gas costs in Oregon, and 
Oregon rate reductions related to property tax decreases (see preceding 
paragraph) of approximately $990,000 and $340,000, respectively.

   INDUSTRIAL AND NON-CORE MARGIN. Operating margin from industrial and other 
customers increased $685,000, or 10%, quarter to quarter, and by $1,204,000, 
or 8.5%, for the six-month period. These increases are primarily due to the 
addition of ten new customers, including service to a new cogeneration 
customer that began commercial operation in June, 1996.

COST OF OPERATIONS

   Cost of operations for the quarter ended March 31, 1997, which consists of 
operating expenses, depreciation and amortization, and property and payroll 
taxes, increased $849,000 or 6.7% over the quarter ended March 31, 1996. For 
the-six month period, the increase was $2,406,000, or 9.9%.

   OPERATING EXPENSES, which are primarily labor and benefits expenses, 
increased by $963,000, or 11.5%, for the quarter, and $2,231,000, or 13.9% 
for the six month period. Of these increases, $465,000 and $815,000, 
respectively, are 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 expense increase. For the full year, 
this increase is expected to be approximately $1.4 million. Labor costs 
increased by $299,000 for the quarter, and by $756,000 for the six-month 
period.

                                       8

<PAGE>

   DEPRECIATION AND AMORTIZATION increased by $230,000, or 7.5%, for the
quarter, and by $425,000, or 7.0%, for the six-month period. These increases
are attributable to increases in utility plant.

   PROPERTY AND PAYROLL TAXES decreased by $344,000, or 29.2%, for the 
quarter, and $250,000, or 11.8%, for the six-month period. These reductions 
are primarily due to property tax reductions in Oregon resulting from a voter 
referendum. These reductions have no significant effect on net earnings 
because the effect has been deferred in accordance with the policy 
established by the Oregon Public Utility Commission. These deferrals are 
currently being amortized, and rates charged to Oregon customers have been 
reduced accordingly (see "Operating Margin").

INTEREST AND OTHER DEDUCTIONS

   Interest and other deductions for the quarter decreased $201,000, or 8.2%, 
from the quarter ended March 31, 1996. For the six month period, the 
reduction was $340,000, or 6.9%. The reductions are due primarily to 
decreases in the amount of outstanding debt. The debt reductions are 
attributed, in part, to the proceeds of the common stock offering in 
August, 1996.

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 March 31, 
1997, $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 March 31, 1997, 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

   Net cash provided by operating activities was $736,000 for the six months 
ended March 31, 1997, compared to $28,606,000 for the six months ended 
March 31, 1996, primarily due to higher gas costs incurred during the 
1996 - 1997 heating season. For the six months ended March 31, 1997, the 
commodity cost of gas purchased exceeded the base gas cost level established 
in the Company's sales tariffs by approximately $26.5 million. The effect of 
these higher gas costs, except for $990,000 discussed above under "Operating 
Margin", has been deferred, and thus had no effect on net earnings. The 
Company will file for recovery of these deferred amounts from customers 
through purchased gas rate adjustments over future periods. By the end of the 
period, gas costs returned to a level approximately equivalent to the base 
cost level established in the Company's tariffs.

   The decrease in cash flows from operating activities was also affected by
changes in current assets and liabilities. This resulted in a use of 
$6,201,000 for the six months ended March 

                                       9

<PAGE>

31, 1997, compared to $57,000 for the prior year period. This was primarily 
attributable to the cash required to relieve the accounts payable balance at 
September 30, 1996. This balance included amounts accrued for August, 1996 
business which were not settled until after the end of September. Such 
amounts are normally settled in less than 30 days.

INVESTING ACTIVITIES

   Cash used by investing activities for the six months ended March 31, 1997 
was $7,366,000, compared to $17,621,000 for the prior year's six-month 
period. Capital expenditures for the current year period were approximately 
$7.1 million lower than last year. Net cash used by investing activities was 
further reduced by $5,941,000 due to contributions in aid of construction 
received from customers. This compares to $265,000 for the prior year.  
Capital 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, depending on internally generated cash 
flow.

FINANCING ACTIVITIES

   The principal financing activity for the six months ended March 31, 1997, 
was the net increase in short term borrowing of $13,000,000 in the form of 
notes payable and commercial paper. This was due primarily to the negative 
pressure on operating cash flow resulting from the increased gas costs 
discussed above in "Operating Activities".

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.

ENVIRONMENTAL MATTERS

The Company has received notice of, and is investigating allegations of 
environmental contamination from a former manufactured gas plant site in 
Washington previously operated by the Company. The Company has begun an 
investigation, but has not yet determined the existence or extent of the 
alleged contamination. To the extent the Company may be responsible for all 
or part of the cost relating to such contamination, it expects to seek 
contribution from other site owners and its insurers, and would seek 
appropriate rate relief to the extent of remaining expense incurred.

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, 

                                       10

<PAGE>

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 regulatory 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.



 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Not applicable

                                       11

<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 $84,047,000 of net worth. Under the most restrictive 
agreement, approximately $34,948,000 was available for the payment of 
dividends as of March 31, 1997.


ITEM 5. OTHER INFORMATION.


Ratio of Earnings to Fixed Charges:


                         TWELVE MONTHS ENDED
     ------------------------------------------------------------------------
     3/31/97      9/30/96     12/31/95    12/31/94    12/31/93     12/31/92
     -------      -------     --------    --------    --------     --------
      2.57         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.


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

  a. Exhibits:

          NO.            DESCRIPTION
          --             -----------
          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.

                                       12

<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:                     /s/  J D Wessling
     ------------------------------------------------------------
                         J D Wessling
          Vice President - Finance and Chief Financial Officer
                (Principal Financial Officer)


Date:         MAY 6, 1997
              -----------



                                       13