<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 March 31, 2004

                                       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 April 30, 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 March 31, 2004,
                     September 30, 2003 and March 31, 2003                                             1

                 Condensed Consolidated Statements of Income for the three
                     and six months ended March 31, 2004 and 2003                                      2

                 Condensed Consolidated Statements of Cash Flows for the
                     six months ended March 31, 2004 and 2003                                          3

                 Notes to Condensed Consolidated Financial Statements                                4 - 12

      Item 2.    Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                                            13 - 18

      Item 3.    Quantitative and Qualitative Disclosures About Market Risk                           19

      Item 4.    Controls and Procedures                                                              20

PART II OTHER INFORMATION

      Item 1.    Legal Proceedings                                                                    21

      Item 6.    Exhibits and Reports on Form 8-K                                                     22

      Signatures                                                                                      23
</TABLE>

                                      -i-
<PAGE>

                               UGI UTILITIES, INC.

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

<TABLE>
<CAPTION>
                                                                                 March 31,     September 30,     March 31,
                                                                                   2004            2003            2003
                                                                               -------------   -------------   -------------
<S>                                                                            <C>             <C>             <C>
ASSETS
     Current assets:
          Cash and cash equivalents                                            $       2,796   $         304   $       8,617
          Accounts receivable (less allowances for doubtful accounts
               of $6,573, $3,275 and $6,202, respectively)                            86,880          30,101          99,847
          Accrued utility revenues                                                    24,230           7,431          21,721
          Inventories                                                                  8,648          54,017           6,563
          Deferred income taxes                                                       13,537          10,375          18,074
          Prepaid expenses and other current assets                                    6,029           5,552           3,907
                                                                               -------------   -------------   -------------
               Total current assets                                                  142,120         107,780         158,729

     Property, plant and equipment, at cost (less accumulated depreciation
          and amortization of $305,764, $296,871 and $299,273, respectively)         617,141         610,987         598,395

     Regulatory assets                                                                62,102          60,253          59,212
     Other assets                                                                     30,860          30,028          40,574
                                                                               -------------   -------------   -------------
          Total assets                                                         $     852,223   $     809,048   $     856,910
                                                                               =============   =============   =============

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                                                                  42,400          40,700          27,700
          Accounts payable                                                            48,674          55,298          51,079
          Accrued income taxes                                                        16,438             479          29,671
          Deferred fuel refunds                                                       18,245          14,734          31,369
          Other current liabilities                                                   42,296          41,700          37,034
                                                                               -------------   -------------   -------------
               Total current liabilities                                             169,053         152,911         226,853

     Long-term debt                                                                  217,211         217,271         172,322
     Deferred income taxes                                                           151,000         144,176         138,169
     Deferred investment tax credits                                                   7,788           7,987           8,186
     Other noncurrent liabilities                                                     12,170          11,951          12,821
     Preferred shares subject to mandatory redemption, without par value              19,000          20,000               -
                                                                               -------------   -------------   -------------
               Total liabilities                                                     576,222         554,296         558,351

     Commitments and contingencies (note 4)

     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                                                          138,696         117,496         147,791
          Accumulated other comprehensive loss                                        (2,000)         (2,049)         (2,548)
                                                                               -------------   -------------   -------------
               Total common stockholder's equity                                     276,001         254,752         278,559
                                                                               -------------   -------------   -------------
          Total liabilities and stockholder's equity                           $     852,223   $     809,048   $     856,910
                                                                               =============   =============   =============
</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             Six Months Ended
                                                                         March 31,                     March 31,
                                                                ---------------------------   ---------------------------
                                                                    2004           2003           2004           2003
                                                                ------------   ------------   ------------   ------------
<S>                                                             <C>            <C>            <C>            <C>
Revenues                                                        $    268,217   $    269,296   $    438,901   $    437,647
                                                                ------------   ------------   ------------   ------------

Costs and expenses:
     Cost of sales - gas, fuel and purchased power                   176,491        173,167        282,136        273,611
     Operating and administrative expenses                            25,823         25,074         46,638         45,882
     Operating and administrative expenses - related parties           2,242          3,080          5,818          4,970
     Taxes other than income taxes                                     3,555          3,430          6,653          6,368
     Depreciation and amortization                                     6,076          5,340         11,470         10,654
     Other expense (income), net                                         753         (4,244)        (1,041)        (6,117)
                                                                ------------   ------------   ------------   ------------
                                                                     214,940        205,847        351,674        335,368
                                                                ------------   ------------   ------------   ------------

Operating income                                                      53,277         63,449         87,227        102,279
Interest expense                                                       4,457          4,141          9,061          8,476
                                                                ------------   ------------   ------------   ------------
Income before income taxes                                            48,820         59,308         78,166         93,803
Income taxes                                                          19,671         23,909         31,509         37,690
                                                                ------------   ------------   ------------   ------------
Net income                                                            29,149         35,399         46,657         56,113
Dividends on preferred shares subject to mandatory redemption              -            387              -            775
                                                                ------------   ------------   ------------   ------------
Net income after dividends on preferred shares subject to
     mandatory redemption                                       $     29,149   $     35,012   $     46,657   $     55,338
                                                                ============   ============   ============   ============
</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>
                                                                     Six Months Ended
                                                                         March 31,
                                                                ---------------------------
                                                                    2004           2003
                                                                ------------   ------------
<S>                                                             <C>            <C>
CASH  FLOWS  FROM  OPERATING  ACTIVITIES:
    Net income                                                  $     46,657   $     56,113
    Adjustments to reconcile net income to net cash provided
       by operating activities:
          Depreciation and amortization                               11,470         10,654
          Deferred income taxes, net                                   1,485        (10,328)
          Provision for uncollectible accounts                         5,691          5,810
          Other, net                                                   1,836         (2,077)
          Net change in:
             Accounts receivable and accrued utility revenues        (79,270)       (80,756)
             Inventories                                              45,369         32,091
             Deferred fuel costs                                       3,360         35,673
             Accounts payable                                         (6,624)        (6,420)
             Other current assets and liabilities                     13,674         28,672
                                                                ------------   ------------
       Net cash provided by operating activities                      43,648         69,432
                                                                ------------   ------------

CASH  FLOWS  FROM  INVESTING  ACTIVITIES:
    Expenditures for property, plant and equipment                   (16,499)       (15,452)
    Net costs of property, plant and equipment disposals                (899)          (319)
                                                                ------------   ------------
       Net cash used by investing activities                         (17,398)       (15,771)
                                                                ------------   ------------

CASH  FLOWS  FROM  FINANCING  ACTIVITIES:
    Payment of dividends                                             (25,458)       (15,634)
    Repayment of long-term debt                                            -        (26,000)
    Bank loans increase (decrease)                                     1,700         (9,500)
                                                                ------------   ------------
       Net cash used by financing activities                         (23,758)       (51,134)
                                                                ------------   ------------

    Cash and cash equivalents increase                          $      2,492   $      2,527
                                                                ============   ============

CASH  AND  CASH  EQUIVALENTS:
    End of period                                               $      2,796   $      8,617
    Beginning of period                                                  304          6,090
                                                                ------------   ------------
       Increase                                                 $      2,492   $      2,527
                                                                ============   ============
</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, prior to their distribution to UGI, UGID and its
         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. The results of operations of UGID and its
         subsidiaries did not have a material effect on the Company's results of
         operations for the three- or six-month periods ended March 31, 2003.

         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 and six months ended March 31, 2004
         and 2003:

<TABLE>
<CAPTION>
                                      Three Months Ended         Six Months Ended
                                           March 31,                  March 31,
                                    -----------------------   -----------------------
                                       2004         2003         2004         2003
                                    ----------   ----------   ----------   ----------
<S>                                 <C>          <C>          <C>          <C>
Net income                          $   29,149   $   35,399   $   46,657   $   56,113
Other comprehensive (loss) income         (202)          25           49          226
-------------------------------------------------------------------------------------
Comprehensive income                $   28,947   $   35,424   $   46,706   $   56,339
-------------------------------------------------------------------------------------
</TABLE>

         Other comprehensive (loss) 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 MARCH 31, 2004:

<TABLE>
<CAPTION>
                                                                      Gas           Electric
                                                    Total           Utility       Operations (a)
                                                ------------------------------------------------
<S>                                             <C>              <C>              <C>
Revenues                                        $      268,217   $      243,543   $       24,674
Cost of sales - gas, fuel and purchased power          176,491          165,026           11,465
Depreciation and amortization                            6,076            5,079              997
Operating income                                        53,277           46,492            6,785
Interest expense                                         4,457            3,912              545
Income before income taxes                              48,820           42,580            6,240
Total assets at period end                             852,223          763,096           89,127
</TABLE>

THREE MONTHS ENDED MARCH 31, 2003:

<TABLE>
<CAPTION>
                                                                      Gas           Electric
                                                    Total           Utility       Operations (a)
                                                ------------------------------------------------
<S>                                             <C>              <C>              <C>
Revenues                                        $      269,296   $      239,920   $       29,376
Cost of sales - gas, fuel and purchased power          173,167          158,974           14,193
Depreciation and amortization                            5,340            4,547              793
Operating income                                        63,449           55,020            8,429
Interest expense                                         4,141            3,502              639
Income before income taxes                              59,308           51,519            7,789
Total assets at period end                             856,910          744,907          112,003
</TABLE>

(a)      Electric Operations comprises Electric Utility and, for the three
         months ended March 31, 2003, UGID and its consolidated subsidiaries.

                                     - 6 -
<PAGE>

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

SIX MONTHS ENDED MARCH 31, 2004:

<TABLE>
<CAPTION>
                                                                      Gas           Electric
                                                    Total           Utility       Operations (a)
                                                ------------------------------------------------
<S>                                             <C>              <C>              <C>
Revenues                                        $      438,901   $      392,808   $       46,093
Cost of sales - gas, fuel and purchased power          282,136          260,136           22,000
Depreciation and amortization                           11,470            9,737            1,733
Operating income                                        87,227           75,893           11,334
Interest expense                                         9,061            8,028            1,033
Income before income taxes                              78,166           67,865           10,301
Total assets at period end                             852,223          763,096           89,127
</TABLE>

SIX MONTHS ENDED MARCH 31, 2003:

<TABLE>
<CAPTION>
                                                                      Gas           Electric
                                                    Total           Utility       Operations (a)
                                                ------------------------------------------------
<S>                                             <C>              <C>              <C>
Revenues                                        $      437,647   $      384,995   $       52,652
Cost of sales - gas, fuel and purchased power          273,611          247,368           26,243
Depreciation and amortization                           10,654            9,077            1,577
Operating income                                       102,279           88,563           13,716
Interest expense                                         8,476            7,220            1,256
Income before income taxes                              93,803           81,343           12,460
Total assets at period end                             856,910          744,907          112,003
</TABLE>

(a)      Electric Operations comprises Electric Utility and, for the six months
         ended March 31, 2003, UGID and its consolidated subsidiaries.

3.       DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS

         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"). As required
         by SFAS 132, the Company is providing the following supplemental
         disclosures regarding the UGI Utilities defined benefit pension plan
         and its postretirement health and life insurance plan.

         We sponsor a defined benefit pension plan ("UGI Utilities Pension
         Plan") for employees of UGI, UGI Utilities, and certain of UGI's other
         wholly owned subsidiaries. In addition, we provide postretirement
         health care benefits to certain retirees and a limited number of active
         employees meeting certain age and service requirements, and
         postretirement life insurance benefits to nearly all domestic active
         and retired employees.

                                     - 7 -
<PAGE>

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

         Net periodic pension expense (income) and other postretirement benefit
         costs relating to UGI Utilities employees include the following
         components:

<TABLE>
<CAPTION>
                                            Pension Benefits       Other Postretirement Benefits
                                            ----------------        ---------------------------
                                      Three Months Ended March 31,  Three Months Ended March 31,
                                          2004           2003           2004           2003
-----------------------------------------------------------------------------------------------
<S>                                   <C>            <C>            <C>            <C>
Service cost                          $      1,165   $      1,013   $         30   $         27
Interest cost                                3,095          3,001            364            374
Expected return on assets                   (4,108)        (4,162)          (115)          (104)
Amortization of:
      Transition (asset) obligation           (328)          (378)           170            170
      Prior service cost                       166            161              -              -
      Actuarial loss                           288             54             68             51
                                      ---------------------------------------------------------
Net benefit cost (income)                      278           (311)           517            519
Change in regulatory assets
      and liabilities                            -              -            258            256
                                      ---------------------------------------------------------
Net expense (income)                  $        278   $       (311)  $        775   $        775
-----------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                            Pension Benefits       Other Postretirement Benefits
                                            ----------------        ---------------------------
                                       Six Months Ended March 31,    Six Months Ended March 31,
                                          2004           2003           2004           2003
-----------------------------------------------------------------------------------------------
<S>                                   <C>            <C>            <C>            <C>
Service cost                          $      2,330   $      2,026   $         60   $         55
Interest cost                                6,189          6,002            728            749
Expected return on assets                   (8,216)        (8,323)          (230)          (207)
Amortization of:
      Transition (asset) obligation           (655)          (755)           340            340
      Prior service cost                       331            322              -              -
      Actuarial loss                           577            108            136            102
                                      ---------------------------------------------------------
Net benefit cost (income)                      556           (621)         1,034          1,038
Change in regulatory assets
      and liabilities                            -              -            516            512
                                      ---------------------------------------------------------
Net expense (income)                  $        556   $       (621)  $      1,550   $      1,550
-----------------------------------------------------------------------------------------------
</TABLE>

         UGI Utilities Pension Plan assets are held in trust and consist
         principally of equity and fixed income mutual funds. The Company does
         not believe it will be required to make any contributions to the UGI
         Utilities Pension Plan during the year ended September 30, 2004.
         Pursuant to orders previously issued by the PUC, UGI Utilities has
         established a Voluntary Employees' Beneficiary Association ("VEBA")
         trust to fund the UGI Utilities' postretirement obligations and to pay
         retiree health care and life insurance benefits by depositing into the
         VEBA the annual amount of postretirement benefits costs determined
         under SFAS No. 106, "Employers Accounting for Postretirement Benefits
         Other Than Pensions." The difference between the annual amount
         calculated and the amount included in UGI Utilities rates is deferred
         for future recovery from, or refund to, ratepayers. The Company expects
         to contribute approximately $2,300 to the VEBA during the year ended
         September 30, 2004, subject to the actuarial impact of the Medicare
         Prescription Drug Improvement and Modernization Act of 2003 (as more
         fully described in Note 5 to Condensed Consolidated Financial
         Statements). Through March

                                     - 8 -
<PAGE>

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

         31, 2004, the Company has made contributions of approximately $1,200 to
         the VEBA in respect of the year ended September 30, 2004.

         The net benefit cost of our unfunded and non-qualified supplemental
         executive retirement plan includes the following components:

<TABLE>
<CAPTION>
                               Three Months Ended March 31,   Six Months Ended March 31,
                                   2004           2003           2004           2003
----------------------------------------------------------------------------------------
<S>                            <C>            <C>            <C>            <C>
Service cost                   $         13   $         (2)  $         26   $         (4)
Interest cost                            50             41            100             82
Amortization of:
       Transition obligation             13             13             26             26
       Prior service cost                (1)            (1)            (2)            (2)
       Actuarial loss                    29             16             58             32
                               ---------------------------------------------------------
Net benefit cost               $        104   $         67   $        208   $        134
----------------------------------------------------------------------------------------
</TABLE>

4.       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

                                     - 9 -
<PAGE>

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

         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 April 2003, Citizens Communications Company ("Citizens") served a
         complaint naming UGI Utilities as a third-party defendant in a civil
         action pending in United States District Court for the District of
         Maine. In that action, the plaintiff, City of Bangor, Maine ("City")
         sued Citizens to recover environmental response costs associated with
         MGP wastes generated at a plant allegedly operated by Citizens'
         predecessors at a site on the Penobscot River. Citizens subsequently
         joined UGI Utilities and ten other third-party defendants alleging that
         the third-party defendants are responsible for an equitable share of
         costs Citizens may be required to pay to the City for cleaning up tar
         deposits in the Penobscot River. The City believes that it could cost
         as much as $50,000 to clean up the river. UGI Utilities believes that
         it has good defenses to the claim and is defending the suit.

         By letter dated July 29, 2003, Atlanta Gas Light Company ("AGL") served
         UGI Utilities with a complaint filed in the United States District
         Court for the Middle District of Florida in which AGL alleges that UGI
         Utilities is responsible for 20% of approximately $8,000 incurred by
         AGL in the investigation and remediation of a former MGP site in St.
         Augustine, Florida. UGI Utilities formerly owned stock of the St.
         Augustine Gas Company, the owner and operator of the MGP. UGI Utilities
         believes that it has good defenses to the claim and is defending the
         suit.

         AGL previously informed UGI Utilities that it was investigating
         contamination that appeared to be related to MGP operations at a site
         owned by AGL in Savannah, Georgia. A former subsidiary of UGI
         Utilities' operated the MGP in the early 1900's. AGL has recently
         informed UGI Utilities that it has begun remediation of MGP wastes at
         the site and believes that the total cost of remediation could be as
         high as $55,000. AGL has stated an intention to make a claim against
         UGI Utilities for a share of these costs. UGI Utilities believes that
         it will have substantial defenses to any action that may arise out of
         this site.

         On September 20, 2001, Consolidated Edison Company of New York
         ("ConEd") filed suit against UGI Utilities in the United States
         District Court for the Southern District of New York, seeking
         contribution from UGI Utilities for an allocated share of response
         costs associated with investigating and assessing gas plant related
         contamination at former MGP sites in Westchester County, New York. The
         complaint alleges that UGI Utilities "owned and operated" the MGPs
         prior to 1904. The complaint also seeks a declaration that UGI
         Utilities is responsible for an allocated percentage of future
         investigative and remedial costs at the sites. ConEd believes that the
         cost of remediation for all of the sites could exceed $70,000. In
         November 2003, the court granted UGI Utilities' motion for summary
         judgment in part, dismissing all claims premised on a disregard of the
         separate corporate form of UGI Utilities' former subsidiaries and
         dismissing claims premised on UGI

                                     - 10 -
<PAGE>

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

         Utilities' operation of three of the MGPs under operating leases with
         ConEd's predecessors. In March 2004, the court granted summary judgment
         on the remaining claims and dismissed ConEd's complaint. ConEd has
         appealed.

         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 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.

5.       RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In December 2003, the FASB revised Financial Interpretation No. 46,
         "Consolidation of Variable Interest Entities" ("FIN 46"), which was
         originally issued in January 2003 and clarifies Accounting Research
         Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was
         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 our interim
         period ended March 31, 2004. The Company has not created or obtained
         any variable interest entities after January 31, 2003. If certain
         conditions are met, FIN 46 requires the primary beneficiary to
         consolidate certain variable interest entities. The adoption of FIN 46
         did not have any impact on 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 principally 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 previously issued by the PUC, UGI Utilities has established a
         VEBA trust to fund the UGI Utilities' postretirement obligations and to
         pay retiree health care and life insurance benefits 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.

                                     - 11 -
<PAGE>

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

         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"
         ("FSP-106-1"). Therefore, the condensed consolidated financial
         statements and accompanying footnotes do not reflect the effects of the
         Act. 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.

                                     - 12 -
<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 (1) the
three months ended March 31, 2004 ("2004 three-month period") with the three
months ended March 31, 2003 ("2003 three-month period") and (2) the six months
ended March 31, 2004 ("2004 six-month period") with the six months ended March
31, 2003 ("2003 six-month period"). Results of operations in the 2004 three-
and six-month periods comprise those of Electric Utility. Results of operations
in the 2003 three- and six-month periods comprise those of Electric Utility and
UGID (see Note 1 to Condensed Consolidated Financial Statements). 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.

2004 THREE-MONTH PERIOD COMPARED WITH 2003 THREE-MONTH PERIOD

<TABLE>
<CAPTION>
                                                                                 Increase
Three Months Ended March 31,              2004            2003                  (Decrease)
---------------------------------------------------------------------------------------------------
(Millions of dollars)
<S>                                   <C>             <C>             <C>                   <C>
GAS UTILITY:
     Revenues                         $      243.5    $      239.9    $        3.6            1.5%
     Total margin (a)                 $       78.5    $       80.9    $       (2.4)          (3.0)%
     Operating income                 $       46.5    $       55.0    $       (8.5)         (15.5)%
     Income before income taxes       $       42.6    $       51.5    $       (8.9)         (17.3)%
     System throughput - bcf                  31.2            32.4            (1.2)          (3.7)%
     Heating degree days - % colder
         than normal                           2.7%            7.9%              -              -

ELECTRIC OPERATIONS (b):
     Revenues                         $       24.7    $       29.4    $       (4.7)         (16.0)%
     Total margin (a)                 $       11.9    $       13.9    $       (2.0)         (14.4)%
     Operating income                 $        6.8    $        8.4    $       (1.6)         (19.0)%
     Income before income taxes       $        6.2    $        7.8    $       (1.6)         (20.5)%
     Distribution sales - gwh                282.2           281.1             1.1              -
</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 $1.3 million in each
                  of the three-month periods ended March 31, 2004 and 2003. For
                  financial statement purposes, revenue-related taxes are
                  included in "taxes other than income taxes" on the Condensed
                  Consolidated Statements of Income.

         (b)      Electric Operations comprises Electric Utility and, for the
                  three months ended March 31, 2003, UGID and its consolidated
                  subsidiaries.

                                     - 13 -
<PAGE>

                               UGI UTILITIES, INC.

GAS UTILITY. Weather in Gas Utility's service territory during the 2004
three-month period was 2.7% colder than normal compared with weather that was
7.9% colder than normal in the 2003 three-month period. Total distribution
system throughput decreased 1.2 bcf or 3.7% as lower volumes transported for
residential, commercial and industrial delivery service customers and lower
heating-related sales to firm- residential, commercial and industrial ("retail
core-market") customers were partially offset by the volume effects of
year-over-year retail core-market customer growth. The increase in Gas Utility
revenues during the 2004 three-month period reflects greater revenues from
retail core-market customers principally as a result of higher average purchased
gas cost ("PGC") rates partially offset by lower revenues from delivery service
customers and a decrease in revenues from off-system sales. Gas Utility cost of
gas was $165.0 million in the 2004 three-month period compared to $159.0 million
in the 2003 three-month period reflecting the previously mentioned higher
average PGC rates partially offset by the effects of the lower retail
core-market and off-system sales.

The decline in Gas Utility total margin reflects a $1.6 million decline in
residential, commercial and industrial delivery service total margin resulting
from lower volumes transported and, to a lesser extent, lower retail core-market
total margin resulting from the decline in retail core-market sales.

Gas Utility operating income declined $8.5 million in the 2004 three-month
period principally reflecting the previously mentioned decline in total margin,
lower other income, and slightly higher operating and administrative expenses.
Other income declined $4.9 million due in large part to a $2.7 million decline
in non-tariff service income and costs related to settling a regulatory claim
resulting from the discontinuance of natural gas service to certain customers.
Operating and administrative expenses include, among other things, an increase
in provisions for injuries and damages claims and higher pension costs partially
offset by lower stock-based incentive compensation costs. The decrease in Gas
Utility income before income taxes reflects the previously mentioned decline in
operating income and higher interest expense in the 2004 three-month period as a
result of including dividends paid on preferred shares subject to mandatory
redemption as a component of interest expense 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").

ELECTRIC OPERATIONS. Electric Utility's 2004 three-month period kilowatt-hour
sales were essentially equal with the prior-year period on weather that was
slightly warmer. Temperatures based upon the number of heating degree days in
the 2004 three-month period were approximately 1.2% warmer than in the
prior-year period.

The decline in Electric Operations revenues in the 2004 three-month period
principally reflects the absence of revenues from UGID's electricity generation
business. Electric Operations' cost of sales declined $2.7 million in the 2004
three-month period principally reflecting the absence of $2.4 million of costs
related to UGID's operations and $0.3 million of lower Electric Utility cost of
sales reflecting slightly lower per-unit purchased power costs.

Electric Operations total margin in the 2004 three-month period declined $2.0
million principally as a result of the absence of margin related to UGID's
operations. Operating income and income before income taxes were lower in the
2004 three-month period principally reflecting the decline in total margin
partially offset by the absence of operating expenses related to UGID's
operations and lower Electric Utility operating and administrative expenses.

                                     - 14 -
<PAGE>

                               UGI UTILITIES, INC.

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 did not have a
material effect on Electric Utility's 2004 three-month period results of
operations.

2004 SIX-MONTH PERIOD COMPARED WITH 2003 SIX-MONTH PERIOD

<TABLE>
<CAPTION>
                                                                                  Increase
Six Months Ended March 31,                2004            2003                   (Decrease)
-------------------------------------------------------------------------------------------------
(Millions of dollars)
<S>                                   <C>             <C>             <C>                   <C>
GAS UTILITY:
     Revenues                         $      392.8    $      385.0    $        7.8            2.0%
     Total margin (a)                 $      132.7    $      137.6    $       (4.9)          (3.6)%
     Operating income                 $       75.9    $       88.6    $      (12.7)         (14.3)%
     Income before income taxes       $       67.9    $       81.3    $      (13.4)         (16.5)%
     System throughput - bcf                  54.5            55.7            (1.2)          (2.2)%
     Heating degree days - % colder
         than normal                           0.0%            7.3%              -              -

ELECTRIC OPERATIONS (b):
     Revenues                         $       46.1    $       52.6    $       (6.5)         (12.4)%
     Total margin (a)                 $       21.6    $       23.9    $       (2.3)          (9.6)%
     Operating income                 $       11.3    $       13.7    $       (2.4)         (17.5)%
     Income before income taxes       $       10.3    $       12.5    $       (2.2)         (17.6)%
     Distribution sales - gwh                525.7           525.5             0.2              -
</TABLE>

         (a)      Gas Utility's total margin represents total revenues less cost
                  of sales. Electric Operations' total margin represents total
                  revenues less cost of sales and revenue-related taxes, i.e.
                  Electric Utility gross receipts taxes, of $2.5 million and
                  $2.6 million in the six-month periods ended March 31, 2004 and
                  2003, respectively.

         (b)      Electric Operations comprises Electric Utility and, for the
                  six months ended March 31, 2003, UGID and its consolidated
                  subsidiaries.

GAS UTILITY. Weather in Gas Utility's service territory during the 2004
six-month period was essentially normal compared with weather that was 7.3%
colder than normal in the 2003 six-month period. Total distribution system
throughput decreased 1.2 bcf or 2.2% as the adverse effects of the warmer
weather on sales to retail core-market customers were partially offset by a
slight increase in sales to residential, commercial and industrial delivery
service customers and the volume effects of year-over-year retail core-market
customer growth. The increase in Gas Utility revenues during the 2004 six-month
period includes a $9.4 million increase in revenues from off-system sales and
slightly higher retail core-market revenues partially offset by lower delivery
service revenues. The slight increase in retail core-market revenues reflects
higher average PGC rates substantially offset by the effects of reduced retail
core-market volumes. Gas Utility cost of gas was $260.1 million in the 2004
six-month period compared to $247.4 million in the 2003 six-month period
reflecting the effects of higher average PGC rates and increased cost of gas
associated with the higher off-system sales partially offset by the effects of
the lower retail core-market volumes sold.

                                     - 15 -
<PAGE>

                               UGI UTILITIES, INC.

The decline in Gas Utility total margin is principally the result of a $2.9
million decline in retail core-market margin resulting from the lower retail
core-market sales and a $2.3 million decline in delivery service and
interruptible retail margin.

Gas Utility operating income declined $12.7 million in the 2004 six-month period
principally reflecting the previously mentioned decline in total margin, lower
other income, and an increase in operating and administrative expenses. Other
income declined $4.7 million due in large part to a $2.6 million decline in
non-tariff service income and costs related to settling a regulatory claim
resulting from the discontinuance of natural gas service to certain customers.
Operating and administrative expenses increased $2.4 million due principally to
increases in provisions for injuries and damages claims and higher compensation
and benefits expenses partially offset by lower distribution system maintenance
expenses. The decrease in Gas Utility income before income taxes reflects the
decline in operating income and higher interest expense in the 2004 six-month
period as a result of including dividends paid on preferred shares subject to
mandatory redemption as a component of interest expense in accordance with SFAS
150.

ELECTRIC OPERATIONS. Electric Utility's 2004 six-month period kilowatt-hour
sales were essentially equal with the 2003 six-month period. Temperatures in the
2004 six-month period were approximately 5.0% warmer than in the prior-year
period.

The decline in Electric Operations revenues in the 2004 six-month period
principally reflects the absence of revenues from UGID's electricity generation
business. Electric Operations' cost of sales declined $4.2 million in the 2004
six-month period principally reflecting the absence of $4.5 million of costs
related to UGID's operations offset by $0.3 million of higher Electric Utility
purchased power costs.

Electric Operations total margin in the 2004 six-month period declined $2.3
million principally as a result of the absence of total margin related to UGID's
operations. Operating income and income before income taxes were lower in the
2004 six-month period principally reflecting the decline in total margin.

                        FINANCIAL CONDITION AND LIQUIDITY

FINANCIAL CONDITION

The Company's total debt outstanding at March 31, 2004 totaled $259.6 million
(including $42.4 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
$110 million. These agreements expire in June 2006. At March 31, 2004 borrowing
under these agreements totaled $22.4 million. In addition, UGI Utilities has an
uncommitted arrangement with a major bank under which it may borrow up to $20
million. At March 31, 2004, there was $20 million outstanding under this
agreement which amount matured and was repaid on April 13, 2004. Amounts
outstanding under the revolving credit agreements and the uncommitted
arrangement are classified as bank loans on the Condensed Consolidated Balance
Sheets. UGI Utilities also

                                     - 16 -
<PAGE>

                               UGI UTILITIES, INC.

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
provided by operating activities was $43.6 million during the six months ended
March 31, 2004 compared with cash provided by operating activities of $69.4
million in the prior-year period. The decline in operating cash flow principally
reflects lower net overcollections of deferred fuel costs during the 2004
six-month period. Cash flow from operating activities before changes in
operating working capital was $67.1 million in the 2004 six-month period
compared to $60.2 million in the prior-year six-month period principally
reflecting greater noncash deferred income tax expense partially offset by lower
operating results. Changes in operating working capital used $23.5 million of
operating cash flow during the 2004 six-month period compared with $9.3 million
provided during the prior-year six-month period.

INVESTING ACTIVITIES. Cash used by investing activities was $17.4 million in the
2004 six-month period compared with $15.8 million in the prior-year period.
Expenditures for property, plant and equipment were $16.5 million in the 2004
six-month period compared with $15.5 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 2004
six-month period as the prior-year amount reflected greater proceeds from the
sale of property.

FINANCING ACTIVITIES. Cash used by financing activities was $23.8 million in the
2004 six-month period compared with $51.1 million in the prior-year period.
Financing activity cash flows are primarily the result of issuances and
repayments of long-term debt, net borrowings under revolving credit agreements,
dividends on common and preferred shares (prior to the adoption of SFAS 150),
and capital contributions from UGI. During the 2004 and 2003 six-month periods,
we paid dividends of $25.5 million and $14.9 million, respectively, to UGI.
Although we paid dividends of $0.8 million on our preferred shares subject to
mandatory redemption during both six-month periods, dividends paid on preferred
shares subject to mandatory redemption during the six months ended March 31,
2004 are reflected in cash flow from operations as a result of the application
of SFAS 150 (see "Preferred Shares Subject to Mandatory Redemption" below).
During the 2004 six-month period, we had net borrowings of $1.7 million under
our revolving credit agreements and the uncommitted arrangement with a major
bank compared to net repayments of $9.5 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

                                     - 17 -
<PAGE>

                               UGI UTILITIES, INC.

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") revised
Financial Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN 46"), which was originally issued in January 2003 and clarifies Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was
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 our interim period ending March 31, 2004. If
certain conditions are met, FIN 46 requires the primary beneficiary to
consolidate certain variable interest entities. The Company has not created or
obtained any variable interest entities after January 31, 2003. The adoption of
FIN 46 did not have any impact on 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 principally 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 fund the UGI Utilities' postretirement
benefit obligations and to pay retiree health care and life insurance benefits
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 included in UGI Utilities' rates is deferred for future recovery
from, or refund to, ratepayers.

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"
("FSP-106-1"). Therefore, the Condensed Consolidated Financial Statements and
accompanying footnotes do not reflect the effects of the Act. 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.

                                     - 18 -
<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. At March 31, 2004, Electric Utility is a party to an
electricity price swap agreement to reduce the volatility in the cost of a
portion of its anticipated electricity requirements in 2007. At March 31, 2004,
the fair value of this price swap was a gain of $1.6 million. Fair value
reflects the estimated amount that we would expect to receive or pay to
terminate the contract based upon quoted market prices of comparable contracts
at March 31, 2004. An adverse change in electricity prices of ten percent would
result in a $0.9 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 March
31, 2004, the fair value of our unsettled interest rate protection agreements,
which have been designated and qualify as cash flow hedges, was a loss of $1.3
million. An adverse change in interest rates on ten-year U.S. treasury notes of
ten percent would result in a $2.3 million decrease in the fair value of these
interest rate protection agreements.

                                     - 19 -
<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.

                                     - 20 -
<PAGE>

                               UGI UTILITIES, INC.

                           PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         Consolidated Edison Company of New York v. UGI Utilities, Inc. On
September 20, 2001, Consolidated Edison Company of New York ("ConEd") filed suit
against Utilities in the United States District Court for the Southern District
of New York, seeking contribution from Utilities for an allocated share of
response costs associated with investigating and assessing gas plant related
contamination at former MGP sites in Westchester County, New York. The complaint
alleges that Utilities "owned and operated" the MGPs prior to 1904. The
complaint also seeks a declaration that Utilities is responsible for an
allocated percentage of future investigative and remedial costs at the sites.
ConEd believes that the cost of remediation for all of the sites could exceed
$70 million.

         In November 2003, the court granted Utilities' motion for summary
judgment in part, dismissing all claims premised on a disregard of the separate
corporate form of Utilities' former subsidiaries and dismissing claims premised
on Utilities' operation of three of the MGPs under operating leases with ConEd's
predecessors. In March 2004, the court granted summary judgment on the remaining
claims and dismissed ConEd's complaint. ConEd has appealed.

         Savannah, Georgia Matter. Atlanta Gas Light Company ("AGL") previously
informed UGI Utilities that it was investigating contamination that appeared to
be related to MGP operations at a site owned by AGL in Savannah, Georgia. A
former subsidiary of UGI Utilities' operated the MGP in the early 1900's. AGL
has recently informed UGI Utilities that it has begun remediation of MGP wastes
at the site and believes that the total cost of remediation could be as high as
$55 million. AGL has stated an intention to make a claim against UGI Utilities
for a share of these costs. UGI Utilities believes that it will have substantial
defenses to any action that may arise out of this site.

                                     - 21 -
<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 March 31, 2004, 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 March 31, 2004, 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 March 31, 2004, 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
                second quarter of fiscal year 2004.

----------------
*        This Exhibit shall not be deemed "filed" for purposes of Section 18 of
         the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
         or otherwise subject to liability under that section, nor shall it be
         deemed incorporated by reference in any filing under the Securities Act
         of 1933, as amended, or the Exchange Act, except as expressly set forth
         by specific reference in such filing.

                                     - 22 -
<PAGE>

                               UGI UTILITIES, INC.

                                   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:  May 17, 2004                       By: /s/ John C. Barney
                                          -----------------------------------
                                          John C. Barney
                                          Senior Vice President - Finance
                                          (Principal Financial Officer)

                                     - 23 -
<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 March 31, 2004
         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 March 31, 2004 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 March 31, 2004 pursuant to Section 906 of the
         Sarbanes-Oxley Act of 2002.

----------------
*        This Exhibit shall not be deemed "filed" for purposes of Section 18 of
         the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
         or otherwise subject to liability under that section, nor shall it be
         deemed incorporated by reference in any filing under the Securities Act
         of 1933, as amended, or the Exchange Act, except as expressly set forth
         by specific reference in such filing.