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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, 2001

Commission
file number: 1-7196

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

|Washington(State or other jurisdiction of
incorporation or organization)       |  | 91-0599090(I.R.S. Employer
Identification No.)
|------------------------------------------------------------------------------ |  | ----------------------------------------------
|222 Fairview Avenue North, Seattle, WA(Address of principal executive offices) |  | 98109(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 |  | 11,045,095 as of April 30, 2001

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CASCADE NATURAL GAS CORPORATION

Index

|          |  |                                                                                                 |  | Page No.
|--------- |  | ----------------------------------------------------------------------------------------------- |  | --------
|Part I.   |  | Financial Information                                                                           |  |         
|          |  | Item 1. Financial Statements                                                                    |  |         
|          |  | Consolidated Condensed Statements of Net Earnings                                               |  | 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                              |  | 10      
|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

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PART I. Financial Information

Item 1. Financial Statements

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

|                                                 |                               | THREE MONTHS ENDED |         | SIX MONTHS ENDED
|------------------------------------------------ | ----------------------------- | ------------------ | ------- | ----------------
|
|
|Operating revenues                               |                               | $                  | 124,728 |                 
|Less: Gas purchases                              |                               |                    | 86,552  |                 
|Revenue taxes                                    |                               |                    | 7,381   |                 
|                                                 |                               |                    |         |                 
|Operating margin                                 |                               |                    | 30,795  |                 
|                                                 |                               |                    |         |                 
|Cost of operations:                              |                               |                    |         |                 
|                                                 | Operating expenses            |                    |         | 9,481           
|                                                 | Depreciation and amortization |                    |         | 3,427           
|                                                 | Property and payroll taxes    |                    |         | 1,264           
|                                                 |                               |                    |         |                 
|                                                 |                               |                    | 14,172  |                 
|                                                 |                               |                    |         |                 
|Earnings from operations                         |                               |                    | 16,623  |                 
|Less interest and other deductionsnet           |                               |                    | 2,472   |                 
|                                                 |                               |                    |         |                 
|Earnings before income taxes                     |                               |                    | 14,151  |                 
|Income taxes                                     |                               |                    | 5,165   |                 
|                                                 |                               |                    |         |                 
|Net earnings                                     |                               |                    | 8,986   |                 
|Preferred dividends                              |                               |                    |        |                 
|                                                 |                               |                    |         |                 
|Net earnings available to common shareholders    |                               | $                  | 8,986   |                 
|                                                 |                               |                    |         |                 
|Weighted average common shares outstanding       |                               |                    | 11,045  |                 
|Net earnings per common share, basic and diluted |                               | $                  | 0.81    |                 
|                                                 |                               |                    |         |                 
|Cash dividends per share                         |                               | $                  | 0.24    |                 
|                                                 |                               |                    |         |                 

The
accompanying notes are an integral part of these financial statements

3

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CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES  CONSOLIDATED CONDENSED BALANCE SHEETS  (Dollars in Thousands)

|                                                                        |                                                                                                              | Mar 31, 2001                  |         | Sep 30, 2000
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ----------------------------- | ------- | ------------
|
|ASSETS                                                                  |                                                                                                              |                               |         |             
|Utility Plant, net of accumulated depreciation of $195,958 and $189,058 |                                                                                                              | $                             | 281,551 |             
|                                                                        |                                                                                                              | Construction work in progress |         |             
|                                                                        |                                                                                                              |                               |         |             
|                                                                        |                                                                                                              |                               | 287,820 |             
|                                                                        |                                                                                                              |                               |         |             
|Other Assets:                                                           |                                                                                                              |                               |         |             
|                                                                        | Investments in non-utility property                                                                          |                               |         | 202         
|                                                                        | Notes receivable, less current maturities                                                                    |                               |         | 365         
|                                                                        |                                                                                                              |                               |         |             
|                                                                        |                                                                                                              |                               | 567     |             
|                                                                        |                                                                                                              |                               |         |             
|Current Assets:                                                         |                                                                                                              |                               |         |             
|                                                                        | Cash and cash equivalents                                                                                    |                               |         | 56          
|                                                                        | Accounts receivable, less allowance of $1,297 and $1,224 for doubtful accounts                               |                               |         | 45,108      
|                                                                        | Current maturities of notes receivable                                                                       |                               |         | 481         
|                                                                        | Materials, supplies and inventories                                                                          |                               |         | 7,230       
|                                                                        | Prepaid expenses and other assets                                                                            |                               |         | 6,943       
|                                                                        |                                                                                                              |                               |         |             
|                                                                        |                                                                                                              |                               | 59,818  |             
|                                                                        |                                                                                                              |                               |         |             
|Deferred Charges                                                        |                                                                                                              |                               |         |             
|                                                                        | Deferred gas cost changes                                                                                    |                               |         | 25,984      
|                                                                        | Other                                                                                                        |                               |         | 5,817       
|                                                                        |                                                                                                              |                               |         |             
|                                                                        |                                                                                                              |                               | 31,801  |             
|                                                                        |                                                                                                              |                               |         |             
|                                                                        |                                                                                                              | $                             | 380,006 |             
|                                                                        |                                                                                                              |                               |         |             
|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 11,045,095 shares |                               | $       | 11,045      
|                                                                        | Additional paid-in capital                                                                                   |                               |         | 97,380      
|                                                                        | Retained earnings                                                                                            |                               |         | 22,815      
|                                                                        |                                                                                                              |                               |         |             
|                                                                        |                                                                                                              |                               | 131,240 |             
|                                                                        |                                                                                                              |                               |         |             
|Redeemable Preferred Stocks, aggregate redemption
amount of $0 and $73  |                                                                                                              |                               |        |             
|                                                                        |                                                                                                              |                               |         |             
|Long-term Debt                                                          |                                                                                                              |                               | 125,000 |             
|                                                                        |                                                                                                              |                               |         |             
|Current Liabilities:                                                    |                                                                                                              |                               |         |             
|                                                                        | Notes payable and commercial paper                                                                           |                               |         | 37,000      
|                                                                        | Accounts payable                                                                                             |                               |         | 27,159      
|                                                                        | Property, payroll and excise taxes                                                                           |                               |         | 7,622       
|                                                                        | Dividends and interest payable                                                                               |                               |         | 2,691       
|                                                                        | Other current liabilities                                                                                    |                               |         | 11,194      
|                                                                        |                                                                                                              |                               |         |             
|                                                                        |                                                                                                              |                               | 85,666  |             
|                                                                        |                                                                                                              |                               |         |             
|Deferred Credits and Other:                                             |                                                                                                              |                               |         |             
|                                                                        | Gas cost changes                                                                                             |                               |         |            
|                                                                        | Other                                                                                                        |                               |         | 38,100      
|                                                                        |                                                                                                              |                               |         |             
|                                                                        |                                                                                                              |                               | 38,100  |             
|                                                                        |                                                                                                              |                               |         |             
|Commitments and Contingencies                                           |                                                                                                              |                               |        |             
|                                                                        |                                                                                                              |                               |         |             
|                                                                        |                                                                                                              | $                             | 380,006 |             
|                                                                        |                                                                                                              |                               |         |             

The accompanying notes are an integral part of these financial statements

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

|                                                     |                                                                                     | SIX MONTHS ENDED                          |       
|---------------------------------------------------- | ----------------------------------------------------------------------------------- | ----------------------------------------- | ------
|
|
|Operating Activities                                 |                                                                                     |                                           |       
|                                                     | Net earnings                                                                        |                                           | $     
|                                                     | Adjustments to reconcile net earnings to net cash provided by operating activities: |                                           |       
|                                                     |                                                                                     | Depreciation and amortization             |       
|                                                     |                                                                                     | Deferrals of gas cost changes             |       
|                                                     |                                                                                     | Amortization of gas cost changes          |       
|                                                     |                                                                                     | Other deferrals and amortizations         |       
|                                                     |                                                                                     | Deferred income taxes and tax creditsnet |       
|                                                     |                                                                                     | Other                                     |       
|                                                     |                                                                                     | Change in current assets and liabilities  |       
|                                                     |                                                                                     |                                           |       
|                                                     | Net cash provided (used) by operating activities                                    |                                           |       
|                                                     |                                                                                     |                                           |       
|Investing Activities                                 |                                                                                     |                                           |       
|                                                     | Capital expenditures                                                                |                                           |       
|                                                     | Customer contributions in aid of construction                                       |                                           |       
|                                                     | Other                                                                               |                                           |       
|                                                     |                                                                                     |                                           |       
|                                                     | Net cash used by investing activities                                               |                                           |       
|                                                     |                                                                                     |                                           |       
|Financing Activities                                 |                                                                                     |                                           |       
|                                                     | Redemption of preferred stock                                                       |                                           |       
|                                                     | Changes in notes payable and commercial paper, net                                  |                                           |       
|                                                     | Dividends paid                                                                      |                                           |       
|                                                     |                                                                                     |                                           |       
|                                                     | Net cash provided (used) by financing activities                                    |                                           |       
|                                                     |                                                                                     |                                           |       
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                                     |                                           | (2,077
|Cash and Cash Equivalents                            |                                                                                     |                                           |       
|                                                     | Beginning of year                                                                   |                                           |       
|                                                     |                                                                                     |                                           |       
|                                                     | End of period                                                                       |                                           | $     
|                                                     |                                                                                     |                                           |       

The
accompanying notes are an integral part of these financial statements

5

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CASCADE NATURAL GAS CORPORATION  NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  THREE AND SIX MONTH PERIODS ENDED MARCH 31, 2001

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 natural gas distribution 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 2000 Annual Report on Form 10-K for the fiscal year ended
September 30, 2000, and comments included therein under "Management's Discussion and Analysis of Financial Condition and Results of Operations".

New Accounting Standards:

FAS No. 133.As of the first quarter of fiscal 2001, the Company adopted FAS
No. 133, entitled"Accounting for Derivative Instruments and Hedging Activities", as amended by FAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities".These standards require that the fair value of all derivative financial
instruments be recognized as either assets or liabilities on the Company's balance sheet. Changes during a period in the fair value of a derivative instrument would be included in earnings or other
comprehensive income for the period.

The
Company has reviewed its various contractual arrangements to determine applicability of the standards, and has concluded only certain of its natural gas purchase contracts meet
the criteria for definition of derivative assets or liabilities. The majority of contracts for the purchase, sale, transportation and storage of natural gas constitute "normal purchases and sales"
under FAS Nos. 133 and 138, as such, they are not subject to the accounting requirements of the new standards. The applicable contracts generally do not qualify for the "normal purchases and sales"
exemption because they contain fixed-price and option provisions. These contracts are short-term in nature and have minimal fixed price components. For these contracts, the Company
recorded a derivative asset of $205,000 and a derivative liability of $84,000, representing the values as of the October 1, 2000 date of adoption of the standard.

Generally,
gains or losses resulting from the eventual settlement of these contracts are subject to deferral under the Company's tariffs with the WUTC and OPUC. Therefore, related
derivative assets and liabilities are offset with corresponding regulatory liability and asset amounts included in "Other Deferred Credits" and "Deferred Charges", pursuant to FAS No. 71. Thus,
as gains and losses on contracts in place as of October 1, 2000 were subject to deferral, the adoption of FAS Nos. 133 and 138 had no impact on earnings. Gains and losses on contracts not
subject to deferral are recognized currently. As of and for the quarter ended March 31, 2001, contracts required to be accounted for as derivatives under FAS Nos. 133 and 138 had an
insignificant impact on the financial position and results of operations.

In
March, 2001, the Financial Accounting Standards Board approved the Derivative Implementation Group (DIG) Issue C-10,Scope Exceptions: Can
Option Contracts and Forward Contracts with Optionality Features Qualify for the Normal Purchases and Normal Sales Exception, which states that derivative contracts containing
volumetric options can not constitute "normal purchases and sales." The Company will be required to adopt the provisions of DIG Issue C-10 beginning July 1, 2001. Management is
currently in the process of evaluating the impact on the Company's financial statements from adopting DIG Issue C-10.

6

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Stock Options:

During the quarter ended March 31, 2001, the Company awarded officers and certain management employees, under the 1998 Plan for Incentive Stock Options,
grants to purchase 58,900 shares of its common stock. The exercise price per share was equal to the fair market value of the stock at the date of grant. Stock awards granted at 100% of fair market
value are not recognized as compensation expense.

Also
during the quarter, 333 options that had been granted in March 2000 were exercised.

Contingencies

Environmental Matters

There are two claims against the Company for as yet unknown costs for clean up of alleged environmental contamination related to manufactured gas plant sites
that were previously operated by companies, which were subsequently merged into Cascade.

The
first claim was received in 1995, and relates to a site in Oregon. An investigation has shown that contamination does exist, but there is currently not enough information
available to estimate the potential liability associated with this claim. It is expected that other parties will participate in the clean up costs, and negotiations are ongoing as to the sharing
arrangement. Through March 31, 2001, the amounts spent, primarily on investigation and containment, have been immaterial.

The
second claim was received in 1997, and relates to a site in Washington. An investigation has determined there is evidence of contamination at the site, but there is also evidence
of an oil line, operated by an unrelated party, crossing the property, which may have also contributed to the contamination. There is currently not enough information available to estimate the
potential liability associated with this claim. The party who originally made this claim has not been actively pursuing it.

Management
intends to pursue reimbursement from its insurance carriers, and recovery from its customers through increased rates, for any remediation costs for which the Company is
determined to be liable. There is precedent for such recovery through increased rates, as both the WUTC and OPUC have previously allowed regulated utilities to increase customer rates to recover
similar costs.

Litigation

Various lawsuits, claims, and contingent liabilities may arise from time to time from the conduct of the Company's business. In 1998, the Company was served
with a lawsuit by six plaintiffs, claiming unspecified damages for personal injuries in connection with carbon monoxide exposure. The plaintiffs were residents of a house served by the Company at the
time of the incident. The Company denies any responsibility for these injuries, and the parties are engaged in discovery. This case had been scheduled for trial in May 2001, but the trial date
has been postponed until April 2002. There is currently not enough information available to estimate the Company's potential liability associated with this claim, but its
self-insured exposure with respect to such claims is $1 million. No other claim now pending, in the opinion of management, is expected to have a material effect on the Company's
financial position, results of operations, or liquidity.

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 affected consolidated results of
operations and cash flows for the three- and six-month periods ended March 31, 2001 and March 31, 2000.

7

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RESULTS OF OPERATIONS

Net earnings available to common shareholders for the second quarter of fiscal 2001 (quarter ended March 31, 2001) were $8,986,000, or $0.81 per share,
compared to $9,866,000, or $0.89 per share, for the second quarter of fiscal 2000, a 9% decline in quarterly earnings per share. For the six-month period, net earnings available to common
shareholders were $17,381,000, or $1.57 per share, a slight decline from the 2000 period results of $17,506,000, or $1.58 per share. The unfavorable comparisons for the quarter and year to date
periods are primarily attributable to decreases in operating margins because of reduced usage of gas by customers.

Operating Margin

Residential and Commercial Margin.Operating margins derived from sales to residential and commercial customers were as
set forth in the following table:

|                                 |             | Second Quarter of Fiscal |         |       |         | Year to Date March 31 |       |       |        
|-------------------------------- | ----------- | ------------------------ | ------- | ----- | ------- | --------------------- | ----- | ----- | -------
|
|
|
|Degree Days                      |             | 2,345                    |         | 2,361 |         | -0.7                  | %     | 4,653 |        
|Average Number of Customers      |             |                          |         |       |         |                       |       |       |        
|                                 | Residential |                          | 165,227 |       | 158,602 |                       | 4.2   | %     | 163,784
|                                 | Commercial  |                          | 28,140  |       | 27,452  |                       | 2.5   | %     | 27,894 
|Average Therm Usage per Customer |             |                          |         |       |         |                       |       |       |        
|                                 | Residential |                          | 302     |       | 358     |                       | -15.6 | %     | 597    
|                                 | Commercial  |                          | 1,530   |       | 1,517   |                       | 0.9   | %     | 2,974  
|Operating Margin                 |             |                          |         |       |         |                       |       |       |        
|                                 | Residential |                          | 14,234  |       | 15,266  |                       | -6.8  | %     | 27,429 
|                                 | Commercial  |                          | 8,714   |       | 8,499   |                       | 2.5   | %     | 16,792 

Margin
declines primarily stem from lower consumption by residential customers. It appears customers reduced their use of gas in response to higher prices. In addition there has been
a barrage of appeals for energy conservation stemming from the current shortage of electric generation capacity on the West Coast. Retail prices to customers are approximately 36% higher, on average,
compared to last year. Prices are higher to recover dramatically higher wholesale costs. Partially mitigating the effect of lower consumption was $951,000 in margin from 7,300 new residential and
commercial customers.

Year
to date margin shows moderate increases over last year, mostly resulting from higher consumption levels in the first quarter, largely attributable to colder weather. Public
awareness of rapidly escalating energy costs began late in the first quarter and was fully apparent in the second quarter. Management expects customers will continue to reduce consumption, but does
not expect such dramatic reductions for the remainder of the year because in the spring and summer quarters, more of the consumption is base load, rather than weather sensitive, and there is less
opportunity to conserve.

Industrial and Other Margin.Operating margin from industrial and other customers during the 2001 second quarter decreased $674,000
from the March 2000 quarter, and $896,000 year to date. Electric generation customers used 33% more gas than in the second quarter 2000, which contributed $349,000 additional margin;
however, consumption by all other industrial customers was down 28%, reducing margins $1 million. Some non-generating industrial customers curtailed operations and cut back on
energy use throughout the winter to save costs. Others, including some electric generators, switched to alternative fuels from December to February, when spot market gas prices in the Pacific
Northwest reached unprecedented levels.

8

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In contrast to the negative impacts of the western electricity crisis to date, opportunities arising from that crisis are expected to benefit results for the remainder of the fiscal
year. Contracts dealing with off-system interstate pipeline capacity over the next two years are expected to provide additional revenue. In addition, Cascade's electric generation
customers are planning to operate existing plants at
higher levels than previously anticipated for the remainder of the year and are working hard to bring additional facilities on line this summer.

Cost of Operations

Cost of operations for the quarter ended March 31, 2001, which consists of operating expenses, depreciation and amortization, and property and payroll
taxes, decreased $72,000 or 0.5% from the quarter ended March 31, 2000.

Operating Expenses, which are primarily labor and benefits expenses, decreased $348,000, or 3.5%, for the quarter. Included in
operating expense for last year's second quarter was an accrual of $471,000 for performance based compensation, while there was none applicable to the 2001 second quarter.

Year
to date operating expenses increased $163,000, or 0.9%. Expenses include a $612,000 increase in consulting costs related to implementation of new integrated work management and
financial software, planned for completion in the summer of 2001. Various other categories of expense decreased, in the aggregate, $449,000.

Depreciation and Amortizationincreased $116,000 (3.5%) for the quarter, and $235,000 (3.6%) year to date. The increases are due to new
asset additions.

Property and Payroll Taxesincreased $160,000 (14.5%) for the quarter, and $188,000 (8.2%) year to date. The increases are mainly due
to higher property tax accruals for 2001, related to increases in property assessments.

Interest and Other DeductionsNet

Interest and other deductions decreased $237,000 (8.7%) for the quarter, and $70,000 (1.3%) year to date. The improvement is due primarily to interest earned
on deferred gas cost assets, which more than offsets higher interest cost related to increased short-term borrowing. In the same quarter of the prior year, deferred gas cost liabilities
resulted in interest expense (refer to "Operating Activities" below, under "Liquidity and Capital Resources").

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 $40 million bank revolving credit commitment. This agreement has an annual 0.16% commitment fee with a term
that expires in 2004. The Company also has $20 million of uncommitted lines from two banks. The Company considers these short-term facilities adequate at this time but is in
discussions to increase the available lines.

A
Medium-Term Note program provides longer term financing with $125 million outstanding at March 31, 2001. There is $15 million remaining registered
under the Securities Act of 1933 and available for issuance. The Company will likely register for additional debt securities before fiscal year end. The remainder of the fiscal year is a period of
lower cash requirements and therefore the available credit is adequate. To manage future needs, it is expected that additional short and long-term credit capacity will be added before next
fiscal year.

9

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Operating Activities

For the six months ended March 31, 2001, operating activities resulted in a net use of cash of $23,648,000, compared to positive cash flow of
$25,674,000 last year. This represents a $49 million difference in operating cash flow between the two six-month periods. This difference is substantially all due to higher costs of
natural gas purchases that were not passed through to customers in rates, but were deferred. In the six months, under-recovery of gas cost, including amortization of prior deferrals, was
$41 million. In the six months ended March 2000, there was an over-recovery of $6.4 million.

Wholesale
gas prices reached unprecedented high levels in the Northwest during the 2000 - 2001 winter heating season. Effective January 12, 2001, the
WUTC approved the Company's request to increase customer rates to recover the higher gas costs. In spite of this increase, the Company still experienced substantial under-recoveries during the March
quarter, but by the end of the quarter, wholesale prices had declined to a level roughly equivalent to the amount in customer rates. The Company expects to file with the WUTC for recovery of these
deferred amounts over a three-year period beginning next fall.

During
April 2001, the Company reached agreements with some of its major suppliers to lock in prices for a three-year period for a significant portion of its core
supply requirements. These prices are slightly below the amounts reflected in the customer rates that became effective in January. The Company is still in negotiations for the remainder of its core
supply requirements for that period. The Company's objective is to secure competitively priced supplies for a three-year period, and provide core customers assurance of relatively stable
rates during that period.

Investing Activities

Net cash used by investing activities for the six months ended March 31, 2001 was $8,565,000, compared to $6,867,000 for the first six months of fiscal
2000. The higher capital expenditures in fiscal 2001 include $1.6 million for the new integrated financial and work management system expected to be completed in July 2001.

Budgeted
capital expenditures for fiscal 2001 are approximately $25.4 million. This budget includes $18 million for new customer connections and distribution system
replacement and reinforcement. The budget also includes $5.9 million in technology investments, which includes the integrated financial and work management system. The Company previously
reported these expenditures would be financed approximately 75% from operating activities, and 25% from debt financing. Because of negative
operating cash flow discussed above, the Company now expects to fund capital expenditures entirely with debt financing.

Financing Activities

Financing activities for the six months ended March 31, 2001 provided $30,136,000, compared to a use of $11,428,000 for the comparable period last year.
The primary financing activity in fiscal 2001 has been the $35.5 million increase in short-term debt to fund operating activities and capital expenditures.

LABOR RELATIONS

In March 2001, the Company and the International Chemical Workers' Union entered into a new, five-year labor agreement covering 204
operational employees. This agreement accomplished management's objective of obtaining a long-term agreement with the union.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Cascade has evaluated its risk related to financial instruments whose values are subject to market sensitivity. The Company has fixed-rate debt
obligations, but does not have derivative financial

10

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instruments subject to interest rate risk. Cascade makes interest and principal payments on these obligations in the normal course of its business, and does not plan to redeem these obligations prior
to normal maturities.

The
Company's natural gas purchase commodity prices are subject to fluctuations resulting from weather, congestion on interstate pipelines, and other unpredictable factors. The
Company's PGA mechanisms assure the recovery of prudently incurred wholesale gas cost, therefore management believes the Company's commodity price risk is immaterial.

FORWARD LOOKING STATEMENTS

Statements contained in this report that 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, consolidation in the energy industry, 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.

11

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PART II. Other Information

Item 2. Changes in Securities

Under the terms of its bank credit agreement, the Company is required to maintain a minimum net worth of $102,894,000 as of March 31, 2001. Under this
agreement, approximately $23,695,000 was available for payment of dividends.

Item 5. Other Information

Ratio of Earnings to Fixed Charges:

Twelve Months Ended3/31/2001

9/30/2000

9/30/1999

9/30/1998

9/30/1997

9/30/19963.12

3.12

3.00

2.42

2.68

2.17


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



No.

Description12

Computation of Ratio of Earnings to Fixed Charges






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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 |  |                                                                                                                     
|------------------------------- |  | --------------------------------------------------------------------------------------------------------------------
|By:                             |  | /s/J. D. WESSLINGJ. D. Wessling Sr. Vice President Finance and
Chief Financial Officer
(Principal Financial Officer)
|Date: May 8, 2001.              |  |                                                                                                                     

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