<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q

          [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                             SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended December 31, 2003

                                       OR

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

             For the transition period from __________ to __________

                          Commission file number 1-1398

                               UGI UTILITIES, INC.
             (Exact name of registrant as specified in its charter)

                        Pennsylvania                       23-1174060
            (State or other jurisdiction of             (I.R.S. Employer
            incorporation or organization)             Identification No.)

                               UGI UTILITIES, INC.
                         100 Kachel Boulevard, Suite 400
                    Green Hills Corporate Center, Reading, PA
                    (Address of principal executive offices)
                                      19607
                                   (Zip Code)
                                 (610) 796-3400
              (Registrant's telephone number, including area code)

         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 [ ]

         At January 31, 2004, there were 26,781,785 shares of UGI Utilities,
Inc. Common Stock, par value $2.25 per share, outstanding, all of which were
held, beneficially and of record, by UGI Corporation.
<PAGE>

                               UGI UTILITIES, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                        PAGES
                                                                                                        -----
<S>                                                                                                    <C>
PART I FINANCIAL INFORMATION

        Item 1.        Financial Statements

                       Condensed Consolidated Balance Sheets as of December 31, 2003,
                            September 30, 2003 and December 31, 2002                                      1

                       Condensed Consolidated Statements of Income for the three
                            months ended December 31, 2003 and 2002                                       2

                       Condensed Consolidated Statements of Cash Flows for the
                            three months ended December 31, 2003 and 2002                                 3

                       Notes to Condensed Consolidated Financial Statements                             4 - 9

        Item 2.        Management's Discussion and Analysis of Financial
                            Condition and Results of Operations                                        10 - 14

        Item 3.        Quantitative and Qualitative Disclosures About Market Risk                        15

        Item 4.        Controls and Procedures                                                           16

PART II OTHER INFORMATION

        Item 6.        Exhibits and Reports on Form 8-K                                                  17

        Signatures                                                                                       18
</TABLE>

                                       -i-
<PAGE>

                               UGI UTILITIES, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (unaudited)
                             (Thousands of dollars)

<TABLE>
<CAPTION>
                                                                               December 31,   September 30,  December 31,
                                                                                   2003           2003           2002
                                                                               -----------    ------------   -----------
<S>                                                                            <C>            <C>            <C>
ASSETS
  Current assets:
     Cash and cash equivalents                                                  $   2,692       $     304     $   8,510
     Accounts receivable (less allowances for doubtful accounts
          of $3,328, $3,275 and $2,669, respectively)                              66,604          30,101        68,471
     Accrued utility revenues                                                      30,649           7,431        27,844
     Inventories                                                                   47,497          54,017        33,832
     Deferred income taxes                                                          7,742          10,375         4,792
     Prepaid expenses and other current assets                                      5,370           5,552         1,623
                                                                                ---------       ---------     ---------
          Total current assets                                                    160,554         107,780       145,072

  Property, plant and equipment, at cost (less accumulated depreciation
          and amortization of $301,171, $296,871 and $294,948, respectively)      614,456         610,987       596,144

  Regulatory assets                                                                61,322          60,253        58,338
  Other assets                                                                     30,309          30,028        39,134
                                                                                ---------       ---------     ---------
          Total assets                                                          $ 866,641       $ 809,048     $ 838,688
                                                                                =========       =========     =========

LIABILITIES  AND  STOCKHOLDER'S  EQUITY
  Current liabilities:
     Current maturities of long-term debt                                       $       -       $       -     $  50,000
     Current maturities of preferred shares subject to mandatory
           redemption, without par value                                            1,000               -             -
     Bank loans                                                                    72,200          40,700        78,300
     Accounts payable                                                              76,923          55,298        67,915
     Other current liabilities                                                     55,555          56,913        39,888
                                                                                ---------       ---------     ---------
          Total current liabilities                                               205,678         152,911       236,103

  Long-term debt                                                                  217,241         217,271       172,345
  Deferred income taxes                                                           147,674         144,176       135,590
  Deferred investment tax credits                                                   7,887           7,987         8,286
  Other noncurrent liabilities                                                     12,337          11,951        13,312
  Preferred shares subject to mandatory redemption, without par value              19,000          20,000             -
                                                                                ---------       ---------     ---------
          Total liabilities                                                       609,817         554,296       565,636

  Commitments and contingencies (note 3)

  Preferred shares subject to mandatory redemption, without par value                   -               -        20,000

  Common stockholder's equity:
     Common Stock, $2.25 par value (authorized - 40,000,000 shares;
          issued and outstanding - 26,781,785 shares)                              60,259          60,259        60,259
     Additional paid-in capital                                                    79,046          79,046        73,057
     Retained earnings                                                            119,317         117,496       122,309
     Accumulated other comprehensive loss                                          (1,798)         (2,049)       (2,573)
                                                                                ---------       ---------     ---------
          Total common stockholder's equity                                       256,824         254,752       253,052
                                                                                ---------       ---------     ---------
     Total liabilities and stockholder's equity                                 $ 866,641       $ 809,048     $ 838,688
                                                                                =========       =========     =========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                      -1-
<PAGE>

                               UGI UTILITIES, INC.

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (unaudited)
                             (Thousands of dollars)

<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                                      December 31,
                                                                 -----------------------
                                                                    2003         2002
                                                                 ---------     ---------
<S>                                                              <C>           <C>
Revenues                                                         $ 170,684     $ 168,351
                                                                 ---------     ---------

Costs and expenses:
    Cost of sales - gas, fuel and purchased power                  105,645       100,444
    Operating and administrative expenses                           20,815        20,808
    Operating and administrative expenses - related parties          3,576         1,890
    Taxes other than income taxes                                    3,098         2,938
    Depreciation and amortization                                    5,394         5,314
    Other income, net                                               (1,794)       (1,873)
                                                                 ---------     ---------
                                                                   136,734       129,521
                                                                 ---------     ---------

Operating income                                                    33,950        38,830
Interest expense                                                     4,604         4,335
                                                                 ---------     ---------
Income before income taxes                                          29,346        34,495
Income taxes                                                        11,838        13,781
                                                                 ---------     ---------
Net income                                                          17,508        20,714
Dividends on preferred shares subject to mandatory redemption            -           388
                                                                 ---------     ---------
Net income after dividends on preferred shares subject to
    mandatory redemption                                         $  17,508     $  20,326
                                                                 =========     =========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                      -2-
<PAGE>

                               UGI UTILITIES, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                             (Thousands of dollars)

<TABLE>
<CAPTION>
                                                                                Three Months Ended
                                                                                    December 31,
                                                                              -----------------------
                                                                                2003           2002
                                                                              --------       --------
<S>                                                                           <C>            <C>
CASH  FLOWS  FROM  OPERATING  ACTIVITIES:
    Net income                                                                $ 17,508       $ 20,714
    Adjustments to reconcile net income to net cash provided
         by operating activities:
              Depreciation and amortization                                      5,394          5,314
              Deferred income taxes, net                                         4,882            453
              Provision for uncollectible accounts                               1,692          1,867
              Other, net                                                         1,398            473
              Net change in:
                   Accounts receivable and accrued utility revenues            (61,412)       (51,558)
                   Inventories                                                   6,520          4,822
                   Deferred fuel costs                                          (8,420)         7,098
                   Accounts payable                                             21,624         10,416
                   Other current assets and liabilities                          6,189          1,389
                                                                              --------       --------
         Net cash (used) provided by operating activities                       (4,625)           988
                                                                              --------       --------

CASH  FLOWS  FROM  INVESTING  ACTIVITIES:
    Expenditures for property, plant and equipment                              (8,404)        (8,211)
    Net (costs of) proceeds from property, plant and equipment disposals          (396)           261
                                                                              --------       --------
         Net cash used by investing activities                                  (8,800)        (7,950)
                                                                              --------       --------

CASH  FLOWS  FROM  FINANCING  ACTIVITIES:
    Payment of dividends                                                       (15,687)        (5,718)
    Repayment of long-term debt                                                      -        (26,000)
    Bank loans increase                                                         31,500         41,100
                                                                              --------       --------
         Net cash provided by financing activities                              15,813          9,382
                                                                              --------       --------
    Cash and cash equivalents increase                                        $  2,388       $  2,420
                                                                              ========       ========

CASH  AND  CASH  EQUIVALENTS:
    End of period                                                             $  2,692       $  8,510
    Beginning of period                                                            304          6,090
                                                                              --------       --------
         Increase                                                             $  2,388       $  2,420
                                                                              ========       ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                      -3-
<PAGE>

                               UGI UTILITIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)
                             (Thousands of dollars)

1.       BASIS OF PRESENTATION

         UGI Utilities, Inc. ("UGI Utilities"), a wholly owned subsidiary of UGI
         Corporation ("UGI"), owns and operates a natural gas distribution
         utility ("Gas Utility") in parts of eastern and southeastern
         Pennsylvania; owns and operates an electricity distribution utility
         ("Electric Utility") in northeastern Pennsylvania; and prior to the
         June 2003 distribution to UGI of UGI Development Company ("UGID") and
         UGID's subsidiaries and 50%-owned joint-venture affiliate Hunlock Creek
         Energy Ventures ("Energy Ventures"), owned interests in
         Pennsylvania-based electricity generation assets through UGID. We refer
         to Gas Utility, Electric Utility and UGID (prior to its distribution to
         UGI) collectively as "the Company" or "we," and Electric Utility and
         UGID collectively as "Electric Operations."

         Our condensed consolidated financial statements include the accounts of
         UGI Utilities and its majority-owned subsidiaries. We eliminate all
         significant intercompany accounts and transactions when we
         consolidate. Our investment in Energy Ventures was accounted for under
         the equity method. Gas Utility and Electric Utility are subject to
         regulation by the Pennsylvania Public Utility Commission ("PUC"). UGID
         was granted "Exempt Wholesale Generator" status by the Federal Energy
         Regulatory Commission.

         In June 2003, the Company dividended all of the common stock of UGID to
         UGI. The net book value of the assets and liabilities of UGID and its
         subsidiaries totaling $15,407 (including $2,572 of cash) was eliminated
         from the consolidated balance sheet and reflected as a dividend from
         retained earnings. UGID and its subsidiaries did not have a material
         effect on the Company's results of operations for the three months
         ended December 31, 2002.

         The accompanying condensed consolidated financial statements are
         unaudited and have been prepared in accordance with the rules and
         regulations of the U.S. Securities and Exchange Commission ("SEC").
         They include all adjustments which we consider necessary for a fair
         statement of the results for the interim periods presented. Such
         adjustments consisted only of normal recurring items unless otherwise
         disclosed. The September 30, 2003 condensed consolidated balance sheet
         data was derived from audited financial statements, but does not
         include all disclosures required by accounting principles generally
         accepted in the United States of America. These financial statements
         should be read in conjunction with the financial statements and the
         related notes included in our Annual Report on Form 10-K for the year
         ended September 30, 2003 ("Company's 2003 Annual Report"). Due to the
         seasonal nature of our businesses, the results of operations for
         interim periods are not necessarily indicative of the results to be
         expected for a full year.

                                      -4-
<PAGE>

                               UGI UTILITIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)
                             (Thousands of dollars)

         COMPREHENSIVE INCOME. The following table presents the components of
         comprehensive income for the three months ended December 31, 2003 and
         2002:

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                               December 31,
                                                        ------------------------
                                                          2003              2002
--------------------------------------------------------------------------------
<S>                                                     <C>              <C>
Net income                                              $17,508          $20,714
Other comprehensive income                                  251              201
--------------------------------------------------------------------------------
Comprehensive income                                    $17,759          $20,915
--------------------------------------------------------------------------------
</TABLE>

         Other comprehensive income comprises changes in the fair value of
         interest rate protection and electricity price swap agreements
         qualifying as hedges, net of reclassifications to net income.

         USE OF ESTIMATES. We make estimates and assumptions when preparing
         financial statements in conformity with accounting principles generally
         accepted in the United States of America. These estimates and
         assumptions affect the reported amounts of assets and liabilities,
         revenues and expenses, as well as the disclosure of contingent assets
         and liabilities. Actual results could differ from these estimates.

         PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION. Beginning July 1,
         2003, the Company accounts for its preferred shares subject to
         mandatory redemption in accordance with Statement of Financial
         Accounting Standards ("SFAS") No. 150, "Accounting for Certain
         Financial Instruments with Characteristics of Both Liabilities and
         Equity" ("SFAS 150"). SFAS 150 establishes guidelines on how an issuer
         classifies and measures certain financial instruments with
         characteristics of both liabilities and equity. The adoption of SFAS
         150 results in the Company presenting its preferred shares subject to
         mandatory redemption in the liabilities section of the balance sheet,
         and reflecting dividends paid on these shares as a component of
         interest expense, for periods presented after June 30, 2003. Because
         SFAS 150 specifically prohibits the restatement of financial statements
         prior to its adoption, prior period amounts have not been reclassified.

                                      -5-
<PAGE>

                               UGI UTILITIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)
                             (Thousands of dollars)

2.       SEGMENT INFORMATION

         The Company has two reportable segments: (1) Gas Utility and (2)
         Electric Operations. The accounting policies of our two reportable
         segments are the same as those described in the Significant Accounting
         Policies note contained in the Company's 2003 Annual Report. We
         evaluate each segment's profitability principally based upon its income
         before income taxes. No single customer represents more than 10% of the
         total revenues of either Gas Utility or Electric Operations. There are
         no significant intersegment transactions. In addition, all of our
         reportable segments' revenues are derived from sources within the
         United States. Financial information by business segment follows:

         THREE MONTHS ENDED DECEMBER, 2003:

<TABLE>
<CAPTION>
                                                                Gas      Electric
                                                   Total      Utility  Operations(a)
                                                 -----------------------------------
<S>                                              <C>         <C>         <C>
Revenues                                         $170,684    $149,265    $ 21,419
Cost of sales - gas, fuel and purchased power     105,645      95,110      10,535
Depreciation and amortization                       5,394       4,658         736
Operating income                                   33,950      29,401       4,549
Interest expense                                    4,604       4,116         488
Income before income taxes                         29,346      25,285       4,061
Total assets at period end                        866,641     781,804      84,837
</TABLE>

         THREE MONTHS ENDED DECEMBER 31, 2002:

<TABLE>
<CAPTION>
                                                                Gas      Electric
                                                   Total      Utility  Operations(a)
                                                 ----------------------------------
<S>                                              <C>         <C>         <C>
Revenues                                         $168,351    $145,075    $ 23,276
Cost of sales - gas, fuel and purchased power     100,444      88,394      12,050
Depreciation and amortization                       5,314       4,530         784
Operating income                                   38,830      33,543       5,287
Interest expense                                    4,335       3,718         617
Income before income taxes                         34,495      29,824       4,671
Total assets at period end                        838,688     731,125     107,563
</TABLE>

      (a) Electric Operations comprises Electric Utility and, for the three
months ended December 31, 2002, UGID.

                                      -6-
<PAGE>

                               UGI UTILITIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)
                             (Thousands of dollars)

3.       COMMITMENTS AND CONTINGENCIES

         From the late 1800s through the mid-1900s, UGI Utilities and its former
         subsidiaries owned and operated a number of manufactured gas plants
         ("MGPs") prior to the general availability of natural gas. Some
         constituents of coal tars and other residues of the manufactured gas
         process are today considered hazardous substances under the Superfund
         Law and may be present on the sites of former MGPs. Between 1882 and
         1953, UGI Utilities owned the stock of subsidiary gas companies in
         Pennsylvania and elsewhere and also operated the businesses of some gas
         companies under agreement. Pursuant to the requirements of the Public
         Utility Holding Company Act of 1935, UGI Utilities divested all of its
         utility operations other than those which now constitute Gas Utility
         and Electric Utility.

         UGI Utilities does not expect its costs for investigation and
         remediation of hazardous substances at Pennsylvania MGP sites to be
         material to its results of operations because Gas Utility is currently
         permitted to include in rates, through future base rate proceedings,
         prudently incurred remediation costs associated with such sites. UGI
         Utilities has been notified of several sites outside Pennsylvania on
         which (1) MGPs were formerly operated by it or owned or operated by its
         former subsidiaries and (2) either environmental agencies or private
         parties are investigating the extent of environmental contamination or
         performing environmental remediation. UGI Utilities is currently
         litigating three claims against it relating to out-of-state sites.

         Management believes that under applicable law UGI Utilities should not
         be liable in those instances in which a former subsidiary owned or
         operated an MGP. There could be, however, significant future costs of
         an uncertain amount associated with environmental damage caused by MGPs
         outside Pennsylvania that UGI Utilities directly operated, or that were
         owned or operated by former subsidiaries of UGI Utilities, if a court
         were to conclude that (1) the subsidiary's separate corporate form
         should be disregarded or (2) UGI Utilities should be considered to have
         been an operator because of its conduct with respect to its
         subsidiary's MGP.

         In addition to these environmental matters, there are other pending
         claims and legal actions arising in the normal course of our
         businesses. We cannot predict with certainty the final results of
         environmental and other matters. However, it is reasonably possible
         that some of them could be resolved unfavorably to us. Although we
         currently believe, after consultation with counsel, that damages or
         settlements, if any, recovered by the plaintiffs in such claims or
         actions will not have a material adverse effect on our financial
         position, damages or settlements could be material to our operating
         results or cash flows in future periods depending on the nature and
         timing of future developments with respect to these matters and the
         amounts of future operating results and cash flows.

                                      -7-
<PAGE>

                               UGI UTILITIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)
                             (Thousands of dollars)

4.       RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In December 2003, the Financial Accounting Standards Board ("FASB")
         issued SFAS No. 132 (revised 2003), "Employers' Disclosures about
         Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 132
         revises the disclosure requirements about pension plans and other
         postretirement benefit plans, but does not change the measurement or
         recognition of those plans required by FASB Statements No. 87,
         "Employers' Accounting for Pensions," No. 88, "Employers' Accounting
         for Settlements and Curtailments of Defined Benefit Pension Plans and
         for Termination Benefits," and No. 106, "Employers' Accounting for
         Postretirement Benefits Other Than Pensions." SFAS 132 requires
         additional disclosures concerning, among other things, the measurement
         date used to determine pension and other postretirement benefit
         measurements, plan assets, accumulated benefit obligations, cash flows
         and net periodic benefit costs as well as disclosure in interim
         financial statements of net periodic benefit costs, and employer's
         contributions paid and expected to be paid during the fiscal year (if
         amounts are significantly different from those previously disclosed in
         the annual financial statements). SFAS 132 is effective for fiscal
         years ending after December 15, 2003, and for quarters beginning after
         December 15, 2003. As required by SFAS 132, the Company will provide
         supplemental disclosures in its interim financial statements for the
         quarter ended March 31, 2004.

         In January 2003, the FASB issued Financial Interpretation No. 46,
         "Consolidation of Variable Interest Entities" ("FIN 46"), which
         clarifies Accounting Research Bulletin No. 51, "Consolidated Financial
         Statements." FIN 46 is effective immediately for variable interest
         entities created or obtained after January 31, 2003. For variable
         interests created or acquired before February 1, 2003, FIN 46 is
         effective for the first fiscal or interim period beginning after
         December 15, 2003. If certain conditions are met, FIN 46 requires the
         primary beneficiary to consolidate certain variable interest entities
         in which the other equity investors lack the essential characteristics
         of controlling financial interest or their investment at risk is not
         sufficient to permit the variable interest entity to finance its
         activities without additional subordinated financial support from other
         parties. The Company has not created or obtained any variable interest
         entities after January 31, 2003. In December 2003, the FASB issued a
         revision to FIN 46 which addresses new effective dates and certain
         implementation issues. Among these issues is the addition of a scope
         exception for certain entities that meet the definition of a business
         provided certain criteria are met. The adoption of FIN 46, as revised,
         is not expected to impact the Company's financial position or results
         of operations.

         On December 8, 2003, the Medicare Prescription Drug, Improvement and
         Modernization Act of 2003 (the "Act") was signed into law. Among other
         things, the Act provides for a prescription drug benefit to Medicare
         beneficiaries on a voluntary basis beginning in 2006. To encourage
         employers to continue to offer retiree prescription drug benefits, the
         Act provides for a tax-free subsidy to employers who offer a
         prescription drug benefit that is at least actuarially equivalent to
         the standard benefit offered under the Act.

                                      -8-
<PAGE>

                               UGI UTILITIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)
                             (Thousands of dollars)

         The Company provides postretirement health care benefits to certain of
         its retirees and a limited number of active employees meeting certain
         age and service requirements. These postretirement benefits include
         certain retiree prescription drug benefits. Pursuant to orders issued
         by the PUC, UGI Utilities has established a Voluntary Employees'
         Beneficiary Association ("VEBA") trust to pay retiree health care and
         life insurance benefits and to fund the UGI Utilities' postretirement
         benefit liability. UGI Utilities is required to fund its postretirement
         benefit obligations by depositing into the VEBA the annual amount of
         postretirement benefit costs determined under SFAS No. 106, "Employers
         Accounting for Postretirement Benefits Other than Pensions." The
         difference between the annual amount calculated and the amount in UGI
         Utilities' rates is deferred for future recovery from, or refund to,
         ratepayers.

         The Company is currently in the process of evaluating the effects of
         the Act on the benefits it provides to its retirees and whether or not
         it is appropriate to amend certain provisions of the retiree health
         care program in response to the Act. Due to inherent uncertainties
         regarding the direct effects of the Act, the effects of the Act on
         retiree's behavior with respect to prescription drug benefits, pending
         authoritative guidance on how actuarial equivalency in order to qualify
         for the federal subsidy is measured, and how the federal subsidy will
         be reflected under accounting principles generally accepted in the
         United States of America, we have elected to defer recognizing the
         effects of the Act in accounting for these benefits and in providing
         disclosures until authoritative guidance on the accounting for the
         federal subsidy is issued, in accordance with FASB Staff Position No.
         FAS 106-1, "Accounting and Disclosure Requirements Related to the
         Medicare Prescription Drug, Improvement and Modernization Act of 2003."
         Authoritative guidance, when issued, could require us to change the
         amount of postretirement benefit costs we are currently recording.
         However, under the current ratemaking described above, any increases or
         decreases in postretirement benefit costs resulting from the Act will
         not affect our reported results. In addition, because of the limited
         number of participants in the program and the current level of
         postretirement benefits, we do not believe the Act will have a material
         effect on the Company's cash flows.

                                      -9-
<PAGE>

                               UGI UTILITIES, INC.

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

                        ANALYSIS OF RESULTS OF OPERATIONS

The following analyses compare our results of operations for the three months
ended December 31, 2003 ("2003 three-month period") with the three months ended
December 31, 2002 ("2002 three-month period"). Our analyses of results of
operations should be read in conjunction with the segment information included
in Note 2 to the Condensed Consolidated Financial Statements.

<TABLE>
<CAPTION>

                                                                         Increase
Three Months Ended December 31,                2003        2002         (Decrease)
-------------------------------------------------------------------------------------
(Millions of dollars)
<S>                                           <C>        <C>       <C>       <C>
GAS UTILITY:
   Revenues                                   $149.3     $145.1    $  4.2      2.9%
   Total margin (a)                           $ 54.2     $ 56.7    $ (2.5)    (4.4)%
   Operating income                           $ 29.4     $ 33.5    $ (4.1)   (12.2)%
   Income before income taxes                 $ 25.3     $ 29.8    $ (4.5)   (15.1)%
   System throughput - bcf                      23.3       23.3         -        -
   Heating degree days - % colder (warmer)
     than normal                                (3.8)       6.4         -        -

ELECTRIC OPERATIONS:
   Revenues                                   $ 21.4     $ 23.3    $ (1.9)    (8.2)%
   Total margin (a)                           $  9.7     $ 10.0    $ (0.3)    (3.0)%
   Operating income                           $  4.5     $  5.3    $ (0.8)   (15.1)%
   Income before income taxes                 $  4.1     $  4.7    $ (0.6)   (12.8)%
   Distribution sales - gwh                    243.5      244.4      (0.9)    (0.4)%
</TABLE>

bcf - billions of cubic feet.      gwh - millions of kilowatt-hours.

(a)      Gas Utility's total margin represents total revenues less cost of
         sales. Electric Operation's total margin represents total revenues less
         cost of sales and revenue-related taxes, i.e. Electric Utility gross
         receipts taxes, of $1.2 million in each of the three month-periods
         ended December 31, 2003 and 2002. For financial statement purposes,
         revenue-related taxes are included in "taxes other than income taxes"
         on the Condensed Consolidated Statements of Income.

GAS UTILITY. Weather in Gas Utility's service territory during the 2003
three-month period was 3.8% warmer than normal compared with weather that was
6.4% colder than normal in the 2002 three-month period. Total distribution
system throughput was unchanged as lower sales to firm- residential, commercial
and industrial ("retail core-market") customers, resulting from warmer weather,
were offset by greater sales to firm delivery service customers and
year-over-year customer growth. The increase in Gas Utility revenues during the
2003 three-month period reflects a $12.5 million increase in revenues from
off-system sales partially offset by lower revenues from retail core-market
customers resulting from the lower volumes sold. Gas Utility cost of gas was
$95.1 million in the 2003 three-month period compared to $88.4 million in the

                                      -10-
<PAGE>

                               UGI UTILITIES, INC.

2002 three-month period reflecting increased cost of gas associated with the
higher off-system sales reduced by lower retail core-market gas costs as a
result of the lower volumes sold.

The decline in Gas Utility total margin reflects a $2.0 million decline in
retail core-market margin resulting from lower retail core-market sales and
lower margin from interruptible customers.

Gas Utility operating income declined $4.1 million in the 2003 three-month
period reflecting the previously mentioned decline in total margin, an increase
in operating and administrative expenses and slightly higher depreciation and
amortization expense. Operating and administrative expenses increased $1.7
million principally reflecting greater compensation and benefits expense due in
large part to higher stock-based incentive compensation costs. The decrease in
Gas Utility income before income taxes reflects the decline in operating income
and higher interest expense due to including dividends on preferred shares
subject to mandatory redemption as a component of interest expense in accordance
with SFAS 150.

ELECTRIC OPERATIONS. Electric Utility's 2003 three-month period kilowatt-hour
sales were slightly lower reflecting the effects on heating-related sales of
weather that was warmer than in the prior-year period. Temperatures based upon
heating degree days in the 2003 three-month period were approximately 1.7%
warmer than normal compared with temperatures that were approximately 9.5%
colder than normal in the comparable prior-year period.

The decline in Electric Operations' revenues in the 2003 three-month period
principally reflects the absence of revenues from UGID's electricity generation
business. In June 2003, UGID and its subsidiaries were dividended to UGI (see
Note 1 to Condensed Consolidated Financial Statements). Electric Operations cost
of sales declined $1.5 million in the 2003 three-month period principally
reflecting the absence of $2.1 million of costs related to UGID's operations
offset by $0.6 million of higher Electric Utility's purchased power costs.

Electric Operations total margin in the 2003 three-month period declined $0.3
million principally because Electric Utility's cost of sales in the prior year
benefited from transmission system congestion credits. Operating income and
income before income taxes were lower in the 2003 three-month period principally
reflecting the decline in total margin and higher operating and administrative
expenses including greater distribution system and stock-based incentive
compensation expenses.

Consistent with the terms of Electric Utility's Provider of Last Resort ("POLR")
Settlement, effective January 1, 2004, Electric Utility's POLR rates for
commercial and industrial customers increased. This increase is not expected to
have a material effect on Fiscal 2004 operating results.

                                      -11-
<PAGE>

                               UGI UTILITIES, INC.

                        FINANCIAL CONDITION AND LIQUIDITY

FINANCIAL CONDITION

The Company's total debt outstanding at December 31, 2003 totaled $289.4 million
(including $72.2 million in bank loans) compared with $258.0 million (including
$40.7 million in bank loans) at September 30, 2003.

The Company has revolving credit commitments under which it may borrow up to
$107 million. These agreements expire in June 2005 and 2006. At December 31,
2003 borrowing under these agreements totaled $52.2 million. In addition, UGI
Utilities has an uncommitted arrangement with a major bank under which it may
borrow up to $20 million. At December 31, 2003, there was $20 million
outstanding under this agreement which amount matures March 9, 2004. UGI
Utilities also has a shelf registration statement with the SEC under which it
may issue up to an additional $40 million of Medium-Term Notes or other debt
securities.

CASH FLOWS

OPERATING ACTIVITIES. Due to the seasonal nature of UGI Utilities' businesses,
cash flows from operating activities are generally strongest during the second
and third fiscal quarters when customers pay for gas and electricity consumed
during the peak heating season months. Conversely, operating cash flows are
generally at their lowest levels during the first and fourth fiscal quarters
when the Company's investment in working capital, principally accounts
receivable and inventories, is generally greatest. UGI Utilities uses its
revolving credit agreements to manage these seasonal cash flow needs. Cash used
by operating activities was $4.6 million during the three months ended December
31, 2003 compared with cash provided by operating activities of $1.0 million in
the prior-year period. Cash flow from operating activities before changes in
operating working capital was $30.9 million in the 2003 three-month period
compared to $28.8 million in the prior-year three-month period, notwithstanding
the lower operating results, principally reflecting greater noncash deferred
income tax expense. Changes in operating working capital used $35.5 million of
operating cash flow during the 2003 three-month period compared with $27.8
million during the prior-year three-month period.

INVESTING ACTIVITIES. Cash flow used in investing activities was $8.8 million in
the 2003 three-month period compared with $8.0 million in the prior-year period.
Expenditures for property, plant and equipment were $8.4 million in the 2003
three-month period compared with $8.2 million recorded in the prior-year period
principally reflecting slightly higher Gas Utility capital expenditures. Net
costs of property, plant and equipment disposals were higher in the 2003
three-month period as the prior-year amount reflected greater proceeds from the
sale of property.

FINANCING ACTIVITIES. Cash flow from financing activities was $15.8 million in
the 2003 three-month period compared with $9.4 million in the prior-year period.
Financing activity cash flows are primarily due to issuances and repayments of
long-term debt, net borrowings under revolving credit agreements, dividends on
common and preferred shares, and capital contributions from UGI. During the 2003
and 2002 three-month periods, we paid dividends of $15.7 million and $5.3
million, respectively, to UGI. In addition, we paid dividends of $0.4 million on
our preferred

                                      -12-
<PAGE>

                               UGI UTILITIES, INC.

shares subject to mandatory redemption during both periods. The dividends paid
on preferred shares subject to mandatory redemption during the three months
ended December 31, 2003 are reflected in cash flow from operations as a result
of the application of SFAS No. 150 (see "Preferred Shares Subject to Mandatory
Redemption" below). During the 2003 three-month period, we had net borrowings of
$31.5 million under our revolving credit agreements and the uncommitted
arrangement with a major bank compared to net borrowings of $41.1 million in the
prior-year period.

PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION

Beginning July 1, 2003, the Company accounts for its preferred shares subject to
mandatory redemption in accordance with SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS 150"). SFAS 150 establishes guidelines on how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. The adoption of SFAS 150 results in the Company presenting its
preferred shares subject to mandatory redemption in the liabilities section of
the balance sheet, and reflecting dividends paid on these shares as a component
of interest expense, for periods presented after June 30, 2003. Because SFAS 150
specifically prohibits the restatement of financial statements prior to its
adoption, prior period amounts have not been reclassified.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132"). SFAS 132 revises the disclosure
requirements about pension plans and other postretirement benefit plans, but
does not change the measurement or recognition of those plans required by FASB
Statements No. 87, "Employers' Accounting for Pensions," No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits," and No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS 132 requires additional
disclosures concerning, among other things, the measurement date used to
determine pension and other postretirement benefit measurements, plan assets,
accumulated benefit obligations, cash flows and net periodic benefit costs as
well as disclosure in interim financial statements of net periodic benefit
costs, and employer's contributions paid and expected to be paid during the
fiscal year (if amounts are significantly different from those previously
disclosed in the annual financial statements). SFAS 132 is effective for fiscal
years ending after December 15, 2003, and for quarters beginning after December
15, 2003. As required by SFAS 132, the Company will provide supplemental
disclosures in its interim financial statements for the quarter ended March 31,
2004.

In January 2003, the FASB issued Financial Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"), which clarifies Accounting Research
Bulletin No. 51, "Consolidated Financial Statements." FIN 46 is effective
immediately for variable interest entities created or obtained after January 31,
2003. For variable interests created or acquired before February 1, 2003, FIN 46
is effective for the first fiscal or interim period beginning after December 15,
2003. If certain conditions are met, FIN 46 requires the primary beneficiary to
consolidate certain variable interest entities in which the other equity
investors lack the essential characteristics of controlling financial interest
or their investment at risk is not sufficient to permit the variable interest
entity to finance its activities without additional subordinated financial
support from other parties. The Company has not created or obtained any variable
interest entities after January 31,

                                      -13-
<PAGE>

                               UGI UTILITIES, INC.

2003. In December 2003, the FASB issued a revision to FIN 46 which addresses
new effective dates and certain implementation issues. Among these issues is the
addition of a scope exception for certain entities that meet the definition of a
business provided certain criteria are met. The adoption of FIN 46, as revised,
is not expected to impact the Company's financial position or results of
operations.

On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") was signed into law. Among other things,
the Act provides for a prescription drug benefit to Medicare beneficiaries on a
voluntary basis beginning in 2006. To encourage employers to continue to offer
retiree prescription drug benefits, the Act provides for a tax-free subsidy to
employers who offer a prescription drug benefit that is at least actuarially
equivalent to the standard benefit offered under the Act.

The Company provides postretirement health care benefits to certain of its
retirees and a limited number of active employees meeting certain age and
service requirements. These postretirement benefits include certain retiree
prescription drug benefits. Pursuant to orders issued by the Pennsylvania Public
Utility Commission ("PUC"), UGI Utilities has established a Voluntary Employees'
Beneficiary Association ("VEBA") trust to pay retiree health care and life
insurance benefits and to fund the UGI Utilities' postretirement benefit
liability. UGI Utilities is required to fund its postretirement benefit
obligations by depositing into the VEBA the annual amount of postretirement
benefit costs determined under SFAS No. 106, "Employers Accounting for
Postretirement Benefits Other than Pensions." The difference between the annual
amount calculated and the amount in UGI Utilities' rates is deferred for future
recovery from, or refund to, ratepayers.

The Company is currently in the process of evaluating the effects of the Act on
the benefits it provides to its retirees and whether or not it is appropriate to
amend certain provisions of the retiree health care program in response to the
Act. Due to inherent uncertainties regarding the direct effects of the Act, the
effects of the Act on retiree's behavior with respect to prescription drug
benefits, pending authoritative guidance on how actuarial equivalency in order
to qualify for the federal subsidy is measured, and how the federal subsidy will
be reflected under accounting principles generally accepted in the United States
of America, we have elected to defer recognizing the effects of the Act in
accounting for these benefits and in providing disclosures until authoritative
guidance on the accounting for the federal subsidy is issued, in accordance with
FASB Staff Position No. FAS 106-1, "Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003." Authoritative guidance, when issued, could require us to change the
amount of postretirement benefit costs we are currently recording. However,
under the current ratemaking described above, any increases or decreases in
postretirement benefit costs resulting from the Act will not affect our reported
results. In addition, because of the limited number of participants in the
program and the current level of postretirement benefits, we do not believe the
Act will have a material effect on the Company's cash flows.

                                      -14-
<PAGE>
                               UGI UTILITIES, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Gas Utility's tariffs contain clauses that permit recovery of substantially all
of the prudently incurred costs of natural gas it sells to its customers. The
recovery clauses provide for a periodic adjustment for the difference between
the total amount actually collected from customers and the recoverable costs
incurred. Because of this ratemaking mechanism, there is limited commodity price
risk associated with our Gas Utility operations. Gas Utility uses
exchange-traded natural gas call option contracts to reduce volatility in the
cost of gas it purchases for its retail core-market customers. The cost of these
call option contracts, net of associated gains, if any, is included in Gas
Utility's PGC recovery mechanism.

Electric Utility purchases its power needs from electricity suppliers under
fixed-price energy and capacity contracts and, to a much lesser extent, on the
spot market. Prices for electricity can be volatile especially during periods of
high demand or tight supply. In accordance with a Provider of Last Resort
("POLR") settlement approved by the PUC, Electric Utility may increase its POLR
rates up to certain limits through December 31, 2004, and charge market rates
thereafter. Electric Utility's fixed-price contracts with electricity suppliers
mitigate most risks associated with the POLR service rate limits in effect
through December 31, 2004. However, should any of the suppliers under these
contracts fail to provide electric power under the terms of the power and
capacity contracts, increases, if any, in the cost of replacement power or
capacity could negatively impact Electric Utility results. In order to reduce
this non-performance risk, Electric Utility has diversified its purchases across
several suppliers and entered into bilateral collateral arrangements with
certain of them. During the quarter ended December 31, 2003, Electric Utility
entered into an electricity price swap agreement to reduce the volatility in the
cost of a portion of its anticipated electricity requirements in 2007. At
December 31, 2003, the fair value of this price swap was $0.1 million. Fair
value reflects the estimated amount that we would receive or pay to terminate
the contract at the reporting date based upon quoted market prices of comparable
contracts at December 31, 2003. An adverse change in electricity prices of ten
percent would result in a $0.8 million decrease in the fair value of the swap.

Our variable-rate debt includes borrowings under our revolving credit agreements
and the uncommitted arrangement with a major bank. These agreements provide for
interest rates on borrowings that are indexed to short-term market interest
rates. Our long-term debt is typically issued at fixed rates of interest based
upon market rates for debt having similar terms and credit ratings. As these
long-term debt issues mature, we expect to refinance such debt with new debt
having an interest rate that is more or less than the refinanced debt.

In order to reduce interest rate risk associated with near-term issuances of
fixed-rate debt, we may enter into interest rate protection agreements. At
December 31, 2003, the fair value of our unsettled interest rate protection
agreement, which has been designated and qualifies as a cash flow hedge, was
$0.5 million. An adverse change in interest rates on ten-year U.S. treasury
notes of ten percent would result in a $0.4 million decrease in the fair value
of this interest rate protection agreement.

                                      -15-
<PAGE>

                               UGI UTILITIES, INC.

ITEM 4.  CONTROLS AND PROCEDURES

(a)      Evaluation of Disclosure Controls and Procedures

         The Company's management, with the participation of the Company's Chief
         Executive Officer and Chief Financial Officer, evaluated the
         effectiveness of the Company's disclosure controls and procedures as of
         the end of the period covered by this report. Based on that evaluation,
         the Chief Executive Officer and Chief Financial Officer concluded that
         the Company's disclosure controls and procedures as of the end of the
         period covered by this report were designed and functioning effectively
         to provide reasonable assurance that the information required to be
         disclosed by the Company in reports filed under the Securities Exchange
         Act of 1934, as amended, is recorded, processed, summarized and
         reported within the time periods specified in the SEC's rules and
         forms. The Company believes that a controls system, no matter how well
         designed and operated, cannot provide absolute assurance that the
         objectives of the controls system are met, and no evaluation of
         controls can provide absolute assurance that all control issues and
         instances of fraud, if any, within a company have been detected.

(b)      Change in Internal Control over Financial Reporting

         No change in the Company's internal control over financial reporting
         occurred during the Company's most recent fiscal quarter that has
         materially affected, or is reasonably likely to materially affect, the
         Company's internal control over financial reporting.

                                      -16-
<PAGE>

                               UGI UTILITIES, INC.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      List of Exhibits:

         12.1     Computation of ratio of earnings to fixed charges

         12.2     Computation of ratio of earnings to combined fixed charges and
                           preferred stock dividends

         31.1     Certification by the Chief Executive Officer relating to the
                           Registrant's Report on Form 10-Q for the quarter
                           ended December 31, 2003, pursuant to Section 302 of
                           the Sarbanes-Oxley Act of 2002.

         31.2     Certification by the Chief Financial Officer relating to the
                           Registrant's Report on Form 10-Q for the quarter
                           ended December 31, 2003, pursuant to Section 302 of
                           the Sarbanes-Oxley Act of 2002.

        *32       Certification by the Chief Executive Officer and the Chief
                           Financial Officer relating to the Registrant's Report
                           on Form 10-Q for the quarter ended December 31, 2003,
                           pursuant to Section 906 of the Sarbanes-Oxley Act of
                           2002.

(b)      The Company did not file any Current Reports on Form 8-K during the
         fiscal quarter ended December 31, 2003.

--------------
* The Exhibit attached to this Form 10-Q shall not be deemed filed for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended.

                                      -17-
<PAGE>

                                   SIGNATURES

         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.

                                                        UGI Utilities, Inc.
                                                        -----------------------
                                                        (Registrant)

Date: February 13, 2004                          By:  /s/ John C. Barney
                                                 -------------------------------
                                                 John C. Barney
                                                 Senior Vice President - Finance
                                                 (Principal Financial Officer)

                                      -18-
<PAGE>

                      UGI UTILITIES, INC. AND SUBSIDIARIES

                                  EXHIBIT INDEX

12.1     Computation of ratio of earnings to fixed charges

12.2     Computation of ratio of earnings to combined fixed charges and
         preferred stock dividends.

31.1     Certification by the Chief Executive Officer relating to the
         Registrant's Report on Form 10-Q for the quarter ended December 31,
         2003 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2     Certification by the Chief Financial Officer relating to Registrant's
         Report on Form 10-Q for the quarter ended December 31, 2003 pursuant to
         Section 302 of the Sarbanes-Oxley Act of 2002.

32       Certification by the Chief Executive Officer and the Chief Financial
         Officer relating to the Registrant's Report on Form 10-Q for the
         quarter ended December 31, 2003 pursuant to Section 906 of the
         Sarbanes-Oxley Act of 2002.