<PAGE>   1
                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended December 31, 1996

                                       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, 1997, 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>   2
                      UGI UTILITIES, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                     PAGES

PART I FINANCIAL INFORMATION

<S>                                                                                                  <C>
      Item 1.    Financial Statements

                 Condensed Consolidated Balance Sheets as of December 31, 1996
                     September 30, 1996 and December 31, 1995                                          1

                 Condensed Consolidated Statements of Income for the
                     three and twelve months ended December 31, 1996 and 1995                          2

                 Condensed Consolidated Statements of Cash Flows for the
                     three and twelve months ended December 31, 1996 and 1995                          3

                 Notes to Condensed Consolidated Financial Statements                                4 - 7

      Item 2.    Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                                             8 - 13




PART II OTHER INFORMATION

      Item 6.    Exhibits and Reports on Form 8-K                                                      14

      Signatures                                                                                       15

</TABLE>

                                      -i-
<PAGE>   3
                          PART I FINANCIAL INFORMATION
                      UGI UTILITIES, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                               December 31,  September 30,  December 31,
                                                                                   1996          1996         1995(a)
                                                                                 --------      --------      --------
ASSETS
<S>                                                                              <C>           <C>           <C>
     Current assets:
         Cash and cash equivalents                                               $  3,546      $  3,100      $  2,891
         Accounts receivable (less allowances for doubtful accounts of
            $3,585, $3,976 and $2,941, respectively)                               49,821        26,288        47,345
         Accrued utility revenues                                                  22,443         8,612        24,245
         Inventories                                                               28,426        30,035        18,836
         Deferred income taxes                                                      6,193         6,316         9,421
         Prepaid expenses and other current assets                                    173         1,920         2,059
                                                                                 --------      --------      --------
            Total current assets                                                  110,602        76,271       104,797

     Property, plant and equipment, at cost (less accumulated depreciation
         and amortization of $227,832, $222,559 and $214,561, respectively)       511,288       507,300       492,598

     Regulatory income tax asset                                                   43,257        42,908        38,134
     Other assets                                                                  21,565        23,420        21,839
                                                                                 --------      --------      --------

         Total assets                                                            $686,712      $649,899      $657,368
                                                                                 ========      ========      ========

LIABILITIES  AND  STOCKHOLDERS'  EQUITY
     Current liabilities:
         Current maturities of long-term debt                                    $ 17,143      $ 25,543      $ 15,723
         Bank loans                                                                69,300        50,500        44,500
         Accounts payable                                                          41,259        39,517        38,140
         Other current liabilities                                                 49,812        41,369        54,504
                                                                                 --------      --------      --------
            Total current liabilities                                             177,514       156,929       152,867

     Long-term debt                                                               151,116       151,111       168,237
     Deferred income taxes                                                         96,742        95,452        87,674
     Other noncurrent liabilities                                                  21,218        21,779        24,237

     Redeemable preferred stock                                                    35,187        35,187        35,202

     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                                                68,052        68,052        68,052
         Retained earnings                                                         76,624        61,130        60,840
                                                                                 --------      --------      --------
            Total common stockholder's equity                                     204,935       189,441       189,151
                                                                                 --------      --------      --------

         Total liabilities and stockholders' equity                              $686,712      $649,899      $657,368
                                                                                 ========      ========      ========
</TABLE>


(a)  Certain amounts have been reclassified.

The accompanying notes are an integral part of these financial statements.


                                       -1-
<PAGE>   4
                      UGI UTILITIES, INC. AND SUBSIDIARIES

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


<TABLE>
<CAPTION>
                                                        Three Months Ended              Twelve Months Ended
                                                           December 31,                     December 31,
                                                   -------------------------       ------------------------
                                                      1996          1995(a)          1996            1995(a)
                                                   ---------       ---------       ---------       ---------

<S>                                                <C>             <C>             <C>             <C>
Revenues                                           $ 134,154       $ 122,241       $ 472,409       $ 380,080
                                                   ---------       ---------       ---------       ---------
Costs and expenses:
       Gas, fuel and purchased power                  69,295          59,879         249,059         180,882
       Operating and administrative expenses          28,336          28,342         119,426         110,072
       Operating and administrative expenses
           - related parties                           1,246           1,500           3,596           6,447
       Depreciation and amortization                   5,564           5,308          21,858          20,114
       Miscellaneous income, net                        (630)           (500)         (1,972)         (3,197)
                                                   ---------       ---------       ---------       ---------
                                                     103,811          94,529         391,967         314,318
                                                   ---------       ---------       ---------       ---------

Operating income                                      30,343          27,712          80,442          65,762
Interest charges                                       4,242           4,244          16,092          16,874
                                                   ---------       ---------       ---------       ---------
Income before income taxes                            26,101          23,468          64,350          48,888
Income taxes                                           9,916           8,808          24,477          14,849
                                                   ---------       ---------       ---------       ---------
Net income                                            16,185          14,660          39,873          34,039
Dividends on preferred stock                             691             691           2,765           2,765
                                                   ---------       ---------       ---------       ---------
Net income after dividends on preferred stock      $  15,494       $  13,969       $  37,108       $  31,274
                                                   =========       =========       =========       =========
</TABLE>



     (a)    Revenues (and related cost of sales) have been reclassified to
            reflect revenues from certain Gas Utility sales on a total, rather
            than net, basis.


     The accompanying notes are an integral part of these financial statements.



                                      -2-
<PAGE>   5
                      UGI UTILITIES, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                             (Thousands of dollars)
<TABLE>
<CAPTION>
                                                                          Three Months Ended          Twelve Months Ended
                                                                             December 31,                December 31,
                                                                      -----------------------       -----------------------
                                                                         1996           1995          1996          1995
                                                                      --------       --------       --------       --------
<S>                                                                   <C>            <C>            <C>            <C>
CASH  FLOWS  FROM  OPERATING  ACTIVITIES:
     Net income                                                       $ 16,185       $ 14,660       $ 39,873       $ 34,039
     Adjustments to reconcile net income to net cash provided
         (used) by operating activities:
            Depreciation and amortization                                5,564          5,308         21,858         20,114
            Deferred income taxes, net                                     964          2,734          5,711          4,814
            Other, net                                                    (739)           992          2,498          2,847
                                                                      --------       --------       --------       --------
                                                                        21,974         23,694         69,940         61,814
            Net change in:
                Accounts receivable and accrued utility revenues       (38,171)       (42,051)        (5,564)       (24,175)
                Inventories                                              1,609          4,591         (9,590)         2,453
                Deferred fuel adjustments                                1,225             (4)        (9,502)        (3,839)
                Pipeline transition and producer settlement
                    recoveries (costs), net                               (380)        (1,328)         2,022         (7,786)
                Accounts payable                                         1,742          4,517          3,119         13,766
                Other current assets and liabilities                    11,878         12,430          4,632         (1,239)
                                                                      --------       --------       --------       --------
            Net cash provided (used) by operating activities              (123)         1,849         55,057         40,994
                                                                      --------       --------       --------       --------

CASH  FLOWS  FROM  INVESTING  ACTIVITIES:
     Expenditures for property, plant and equipment                     (9,594)       (10,104)       (39,149)       (50,005)
     Net costs of property, plant and equipment disposals                  (46)           (89)        (1,146)          (875)
     Other, net                                                            500            500            740          1,225
                                                                      --------       --------       --------       --------
        Net cash used by investing activities                           (9,140)        (9,693)       (39,555)       (49,655)
                                                                      --------       --------       --------       --------

CASH  FLOWS  FROM  FINANCING  ACTIVITIES:
     Payment of dividends                                                 (691)       (12,251)       (24,089)       (22,800)
     Issuance of long-term debt                                              -         20,000              -         68,000
     Repayment of long-term debt                                        (8,400)       (47,685)       (15,543)       (64,921)
     Bank loans increase                                                18,800          2,500         24,800         12,000
     Redemption of Series Preferred Stock                                    -              -            (15)             -
                                                                      --------       --------       --------       --------
        Net cash provided (used) by financing activities                 9,709        (37,436)       (14,847)        (7,721)
                                                                      --------       --------       --------       --------

    Cash and cash equivalents increase (decrease)                     $    446       $(45,280)      $    655       $(16,382)
                                                                      ========       ========       ========       ========

CASH AND CASH EQUIVALENTS:
     End of period                                                    $  3,546       $  2,891       $  3,546       $  2,891
     Beginning of period                                                 3,100         48,171          2,891         19,273
                                                                      --------       --------       --------       --------
         Increase (decrease)                                          $    446       $(45,280)      $    655       $(16,382)
                                                                      ========       ========       ========       ========
</TABLE>



The accompanying notes are an integral part of these financial statements.


                                      -3-
<PAGE>   6
  
                      UGI UTILITIES, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)
                             (Thousands of dollars)


1.       BASIS OF PRESENTATION

         The accompanying condensed consolidated financial statements include
         the accounts of UGI Utilities, Inc. (UGI Utilities) and its
         subsidiaries (collectively, "the Company"). All significant
         intercompany accounts and transactions have been eliminated in
         consolidation. UGI Utilities is a wholly owned subsidiary of UGI
         Corporation (UGI) and operates a natural gas distribution utility (Gas
         Utility) and an electric utility (Electric Utility) in Pennsylvania.

         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. They
         include all adjustments which the Company considers necessary for a
         fair statement of the results for the interim periods presented. Such
         adjustments consisted only of normal recurring items unless otherwise
         disclosed. These financial statements should be read in conjunction
         with the financial statements and the notes thereto included in the
         Company's Annual Report on Form 10-K for the year ended September 30,
         1996. Due to the seasonal nature of the Company's businesses, the
         results of operations for interim periods are not necessarily
         indicative of the results to be expected for a full year.

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities, the disclosure of contingent assets and liabilities at the
         date of the financial statements, and revenues and expenses during the
         reporting period. Actual results could differ from these estimates.




                                      -4-
<PAGE>   7
                      UGI UTILITIES, INC. AND SUBSIDIARIES
                                   (unaudited)
                             (Thousands of dollars)

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2.     SEGMENT INFORMATION
       Information on revenues, operating income (loss), depreciation and
       amortization, identifiable assets and certain operating statistics by
       business segment for the periods presented follows:

<TABLE>
<CAPTION>
                                                             Three Months Ended             Twelve Months Ended
                                                               December 31,                     December 31,
                                                        -------------------------       -------------------------
                                                           1996            1995            1996            1995
                                                        ---------       ---------       ---------       ---------
<S>                                                     <C>             <C>             <C>             <C>      
REVENUES
       Gas utility                                      $ 115,772       $ 105,148       $ 401,618       $ 313,101
       Electric utility                                    18,382          17,093          70,791          66,979
                                                        ---------       ---------       ---------       ---------
         Total                                          $ 134,154       $ 122,241       $ 472,409       $ 380,080
                                                        =========       =========       =========       =========


OPERATING  INCOME (LOSS)
       Gas utility                                      $  28,582       $  27,002       $  74,517       $  61,629
       Electric utility                                     2,980           2,164           9,438           8,997
       Other                                                   27              46              83           1,583
       Corporate general                                   (1,246)         (1,500)         (3,596)         (6,447)
                                                        ---------       ---------       ---------       ---------
         Total                                          $  30,343       $  27,712       $  80,442       $  65,762
                                                        =========       =========       =========       =========


DEPRECIATION  AND  AMORTIZATION
       Gas utility                                      $   4,547       $   4,300       $  17,823       $  16,351
       Electric utility                                     1,017           1,007           4,034           3,758
       Corporate general and other                              -               1               1               5
                                                        ---------       ---------       ---------       ---------
          Total                                         $   5,564       $   5,308       $  21,858       $  20,114
                                                        =========       =========       =========       =========


IDENTIFIABLE  ASSETS
       (at period end)
       Gas utility                                      $ 596,070       $ 569,018       $ 596,070       $ 569,018
       Electric utility                                    86,391          83,870          86,391          83,870
       Corporate general and other                          4,251           4,480           4,251           4,480
                                                        ---------       ---------       ---------       ---------
          Total                                         $ 686,712       $ 657,368       $ 686,712       $ 657,368
                                                        =========       =========       =========       =========


OPERATING  STATISTICS
       Natural gas system throughput -
               billions of cubic feet                        24.6            25.1            84.9            85.1
       Electric sales - millions of kilowatt hours          223.7           224.7           883.6           871.5
</TABLE>


                                      -5-
<PAGE>   8
                      UGI UTILITIES, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)
                             (Thousands of dollars)




3.       COMMITMENTS AND CONTINGENCIES

         UGI Utilities, along with other companies, has been named as a
         potentially responsible party in several administrative proceedings for
         the cleanup of various waste sites, including some Superfund sites.
         Also, certain private parties have filed, or threatened to file, suit
         against UGI Utilities to recover costs of investigation and, as
         appropriate, remediation of several waste sites. In addition, UGI
         Utilities has identified environmental contamination at several of its
         properties and has voluntarily undertaken investigation and, as
         appropriate, remediation of these sites in cooperation with appropriate
         environmental agencies or private parties.

         At a manufactured gas plant site in Burlington, Vermont, the United
         States Environmental Protection Agency (EPA) has named nineteen
         parties, including UGI Utilities, as potentially responsible parties
         for gas plant contamination that resulted from the operations of a
         former subsidiary of UGI Utilities. In May 1993, after receiving and
         reviewing extensive public comment, EPA withdrew a proposed plan of
         remediation that would have cost an estimated $50,000. EPA is now
         working with community groups and potentially responsible parties to
         develop a revised remediation plan. These groups continue to study the
         site and evaluate the effect of the contamination on the environment.
         UGI Utilities cannot estimate the cost associated with any revised
         plan, but it does not believe such cost will exceed the estimated cost
         of the originally proposed plan.

         With respect to a manufactured gas plant site in Concord, New
         Hampshire, EnergyNorth Natural Gas, Inc. (EnergyNorth) has filed suit
         against UGI Utilities alone seeking UGI Utilities' purportedly
         allocable share of response costs associated with remediating gas plant
         related contaminants at that site. EnergyNorth alleges that to date it
         has spent $3,500 to remediate part of the site and that it will be
         required to spend an unknown amount in the future to complete
         remediation.

         At Burlington, Concord and other sites, management believes that UGI
         Utilities should not have significant liability in those instances in
         which a former subsidiary operated a manufactured gas plant because UGI
         Utilities generally is not legally liable for the obligations of its
         subsidiaries. Under certain circumstances, however, courts have found
         parent companies liable for environmental damage caused by subsidiary
         companies when the parent company exercised such substantial control
         over the subsidiary that the court concluded that the parent company
         either (i) itself operated the facility causing the environmental
         damage or (ii) otherwise so controlled the subsidiary that the
         subsidiary's separate corporate form should be disregarded. There could
         be, therefore, significant future costs of an uncertain amount
         associated with environmental damage caused by manufactured gas plants
         that UGI Utilities owned or directly operated or that were owned 


                                      -6-
<PAGE>   9
                      UGI UTILITIES, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)
                             (Thousands of dollars)

         or operated by former subsidiaries of UGI Utilities, if a court were to
         conclude that the level of control exercised by UGI Utilities over the
         subsidiary satisfies the standard described above. In many
         circumstances where UGI Utilities may be liable, expenditures may not
         be reasonably quantifiable because of a number of factors including
         various costs associated with potential remedial alternatives, the
         unknown number of other potentially responsible parties involved and
         their ability to contribute to the costs of investigation and
         remediation, and changing environmental laws and regulations.

         The Company's policy is to accrue environmental investigation and
         cleanup costs when it is probable that a liability exists and the
         amount or range of amounts is reasonably estimable. The Company intends
         to pursue recovery of any incurred costs through all appropriate means,
         including regulatory relief, although such recovery cannot be assured.
         Under the terms of the August 31, 1995 Gas Utility base rate
         settlement, Gas Utility is permitted to amortize as removal costs
         site-specific environmental investigation and remediation costs, net of
         related third-party payments, associated with Pennsylvania sites. Gas
         Utility will be permitted to include in rates through future base rate
         proceedings, a five-year average of such prudently incurred removal
         costs.

         In addition to these environmental matters, there are various other
         pending claims and legal actions arising out of the normal conduct of
         the Company's businesses. The final results of environmental and other
         matters cannot be predicted with certainty. However, it is reasonably
         possible that some of them could be resolved unfavorably to the
         Company. Management believes, 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 the
         Company's financial position but could be material to 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>   10
                      UGI UTILITIES, INC. AND SUBSIDIARIES

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


                        ANALYSIS OF RESULTS OF OPERATIONS

The following analyses of the Company's results of operations should be read in
conjunction with the segment information included in Note 2 to the Condensed
Consolidated Financial Statements. Due to the seasonal nature of the Company's
businesses, the results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year.

THREE MONTHS ENDED DECEMBER 31, 1996 (1996 THREE-MONTH PERIOD) COMPARED WITH
THREE MONTHS ENDED DECEMBER 31, 1995 (1995 THREE-MONTH PERIOD)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                                   Increase
 Three Months Ended December 31,                1996          1995                 (Decrease)
--------------------------------------------------------------------------------------------------
 (Millions of dollars)

<S>                                          <C>            <C>              <C>            <C>   
 GAS UTILITY:
      Natural gas system throughput - bcf        24.6           25.1            (.5)        (2.0)%
      Degree days - % colder (warmer)
          than normal                            (3.2)           5.4            -            -
      Revenues                               $  115.8       $  105.1         $ 10.7         10.2%
      Total margin (a)                       $   50.6       $   49.2         $  1.4          2.8%
      Operating income                       $   28.6       $   27.0         $  1.6          5.9%

 ELECTRIC UTILITY:
      Electric sales - gwh                      223.7          224.7           (1.0)         (.4)%
      Degree days - % colder than
          normal                                  2.8            9.2              -            -
      Revenues                               $   18.4       $   17.1         $  1.3          7.6%
      Total margin (a)                       $    8.8       $    8.1         $   .7          8.6%
      Operating income                       $    3.0       $    2.2         $   .8         36.4%

 CORPORATE GENERAL:
      Corporate general expenses             $   (1.2)      $   (1.5)        $  (.3)       (20.0)%
--------------------------------------------------------------------------------------------------
</TABLE>

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

(a)      Gas and Electric utilities' total margin represents total revenues less
         cost of sales and revenue-related taxes.

GAS UTILITY. Weather in the Gas Utility service area during the three months
ended December 31, 1996 was 3.2% warmer than normal compared with weather that
was 5.4% colder than normal in the prior-year period. Total system throughput
decreased 2.0% during the 1996 three-month period 


                                      -8-
<PAGE>   11
                      UGI UTILITIES, INC. AND SUBSIDIARIES
                                               
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)



principally reflecting the effect of the warmer weather on firm-residential,
firm-commercial and firm-industrial (collectively, "core market") sales.

The increase in Gas Utility's total revenues reflects higher purchased gas cost
(PGC) rates in effect during the 1996 three-month period and greater revenues
from sales to customers outside Gas Utility's distribution system (off-system
sales). Cost of gas sold by the Gas Utility was $60.5 million during the 1996
three-month period, an increase of $8.9 million over the prior-year period,
reflecting the higher average PGC rates and gas costs associated with off-system
sales.

The increase in Gas Utility total margin principally reflects an increase in
total margin from interruptible customers partially offset by lower total margin
from core market customers. The increase in interruptible total margin includes
higher total margin from interruptible delivery service customers. The decrease
in total margin from core market customers reflects the effects of the warmer
weather on volumes sold.

Gas Utility operating income during the 1996 three-month period increased $1.6
million principally reflecting the increase in total margin. Operating and
administrative expenses during the 1996 three-month period were essentially
unchanged from the prior-year period.

ELECTRIC UTILITY. Electric Utility sales decreased during the 1996 three-month
period reflecting weather which was 5.9% warmer than last year. Electric Utility
revenues increased $1.3 million, notwithstanding the lower sales, reflecting a
higher energy cost (EC) rate and an increase in base rates effective July 19,
1996. Cost of sales increased to $8.7 million in the 1996 three-month period
from $8.2 million in the prior-year period as a result of a higher EC rate
partially offset by the lower sales.

Electric Utility total margin and operating income increased during the 1996
three-month period principally as a result of the higher base rates effective in
July. Electric Utility operating and administrative expenses in the 1996
three-month period were virtually unchanged from the prior-year period.

CORPORATE GENERAL. Corporate general expenses, which represent an allocated
share of UGI corporate headquarters' expenses, were $1.2 million in the 1996
three-month period compared with $1.5 million in the 1995 three-month period.
The decrease reflects lower UGI corporate headquarters' expenses.

INTEREST EXPENSE AND INCOME TAXES. Interest expense during the 1996 three-month
period was $4.2 million, virtually unchanged from interest expense in the
prior-year period. The effective income tax rate for the 1996 three-month period
was 38.0% compared with a rate of 37.5% in the three months ended December 31,
1995.


                                      -9-
<PAGE>   12
                      UGI UTILITIES, INC. AND SUBSIDIARIES
                                               
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


TWELVE MONTHS ENDED DECEMBER 31, 1996 (1996 TWELVE-MONTH PERIOD) COMPARED WITH
TWELVE MONTHS ENDED DECEMBER 31, 1995 (1995 TWELVE-MONTH PERIOD)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                                                    Increase
 Twelve Months Ended December 31,               1996           1995                (Decrease)
--------------------------------------------------------------------------------------------------
 (Millions of dollars)

<S>                                           <C>            <C>             <C>           <C>
 GAS UTILITY:
      Natural gas system throughput - bcf        84.9            85.1           (.2)        (.2)%
      Degree days - % colder than normal           .9              .2           -           -
      Revenues                                $ 401.6        $  313.1        $ 88.5        28.3%
      Total margin (a)                        $ 171.0        $  151.3        $ 19.7        13.0%
      Operating income                        $  74.5        $   61.6        $ 12.9        20.9%

 ELECTRIC UTILITY:
      Electric sales - gwh                      883.6           871.5          12.1         1.4%
      Degree days - % warmer than normal         (1.3)           (6.1)          -           -
      Revenues                                $  70.8        $   67.0        $  3.8         5.7%
      Total margin (a)                        $  33.8        $   32.3        $  1.5         4.6%
      Operating income                        $   9.4        $    9.0        $   .4         4.4%

 CORPORATE GENERAL AND OTHER:
      Corporate general expenses              $  (3.6)       $   (6.4)       $ (2.8)      (43.8)%
      Other operating income                  $    .1        $    1.6        $ (1.5)      (93.8)%
--------------------------------------------------------------------------------------------------
</TABLE>

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

(a)      Gas and Electric utilities' total margin represents total revenues less
         cost of sales and revenue-related taxes.

GAS UTILITY. Weather in Gas Utility's service territory in the 1996 twelve-month
period was colder than normal and also colder than in the 1995 twelve-month
period. Notwithstanding the colder weather, total system throughput declined
principally reflecting lower interruptible volumes from more frequent
weather-related interruptions of service and a decrease in firm delivery service
volumes as a result of customer switching to interruptible service. These
decreases were partially offset by a 3.0 bcf increase in sales to core market
customers.

The increase in Gas Utility total revenues reflects higher sales to core market
customers, greater off-system sales, higher base rate revenues resulting from
the full-year effect of Gas Utility's $19.5 million annual base rate increase
effective August 31, 1995, and higher PGC revenues. Cost of gas sold was $215.2
million during the 1996 twelve-month period, an increase of $66.0 million from
the same period


                                      -10-
<PAGE>   13
                      UGI UTILITIES, INC. AND SUBSIDIARIES
                                               
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


in 1995, reflecting principally the greater sales to core market customers,
higher off-system sales, and higher average PGC rates.

The increase in Gas Utility total margin in the twelve months ended December 31,
1996 reflects a $23.3 million increase in total margin from core market
customers as a result of the colder weather and higher base rates. However,
partially offsetting the increase in core market margin was a decrease in total
margin from interruptible customers reflecting lower 1996 twelve-month period
average unit margins, and a decrease in total margin from firm delivery service
customers due in large part to the lower volumes.

Gas Utility operating income during the 1996 twelve-month period benefitted from
the increase in total margin. However, the benefit was partially offset by
higher operating and administrative expenses and higher charges for
depreciation.

ELECTRIC UTILITY. Electric Utility sales increased during the 1996 twelve-month
period principally from colder 1996 winter weather. The increase in Electric
Utility revenues reflects the impact of the higher sales, a higher EC rate, and
an increase in base rates effective July 19, 1996. Electric Utility cost of
sales was $33.9 million, an increase of $2.2 million from the prior-year period.
The increase in the cost of sales resulted from the higher sales and a higher
average EC rate.

Electric Utility total margin increased as a result of the increased sales and
higher base rates effective in July. Although Electric Utility operating income
benefitted from the increase in total margin, this benefit was partially offset
by higher general and administrative expenses and depreciation.

CORPORATE GENERAL. Corporate general expenses were $(3.6) million in the 1996
twelve-month period compared with $(6.4) million in the 1995 twelve-month
period. The decrease represents lower levels of UGI corporate headquarters'
expenses.

INTEREST EXPENSE AND INCOME TAXES. Interest expense was $16.1 million in the
1996 twelve-month period compared with $16.9 million in the 1995 twelve-month
period. The decrease in interest expense in the 1996 twelve-month period is
principally due to a lower average interest rate on long-term debt outstanding.
The effective income tax rate for the 1996 twelve-month period was 38.0%
compared with a rate of 30.4% in the prior year period. The lower income tax
rate in the 1995 twelve-month period principally reflects the benefit of an
adjustment to deferred state income taxes of $4.3 million recorded in September
1995.


                                      -11-
<PAGE>   14
                      UGI UTILITIES, INC. AND SUBSIDIARIES
                                               
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


                        FINANCIAL CONDITION AND LIQUIDITY

CAPITAL STRUCTURE

The Company's consolidated debt-to-total-capitalization ratio was 49.7% at
December 31, 1996 compared with a ratio of 50.3% at September 30, 1996. The
lower ratio reflects the retirement of $8.4 million of UGI Utilities' 7.85%
Series First Mortgage Bonds in November 1996 and an increase in common
stockholder's equity partially offset by an $18.8 million seasonal increase in
bank loans.

CASH FLOWS

Cash and cash equivalents totaled $3.5 million at December 31, 1996 compared
with $3.1 million at September 30, 1996. The Company's cash flows from operating
activities are seasonal and are generally greatest during the second and third
fiscal quarters when customers pay bills incurred during the heating season and
are typically at their lowest levels during the first and fourth fiscal
quarters. Accordingly, cash flows from operations during the three months ended
December 31, 1996 are not necessarily indicative of cash flows to be expected
for a full year.

OPERATING ACTIVITIES. Cash used by operating activities was $.1 million during
the three months ended December 31, 1996 compared with cash inflows from
operating activities of $1.8 million in the comparable prior-year period. Cash
flow from operations before changes in operating working capital totaled $22.0
million during the three months ended December 31, 1996 compared with $23.7
million in the prior-year period reflecting a reduction in net deferred income
taxes and the timing of certain Electric Utility operating expense payments.
Changes in operating working capital during the three months ended December 31,
1996 required $22.1 million of operating cash flow principally from a $38.2
million seasonal increase in accounts receivable and accrued utility revenues
partially offset by increases in accrued liabilities, principally accrued income
taxes, and to a lesser extent changes in accounts payable and inventories. In
the three months ended December 31, 1995, changes in operating working capital
required $21.8 million of operating cash flow.

INVESTING ACTIVITIES. Cash expenditures for property, plant and equipment
totaled $9.6 million in the three months ended December 31, 1996 compared with
$10.1 million in the same period in 1995. The decrease reflects lower Gas
Utility and Electric Utility capital expenditures.

FINANCING ACTIVITIES. Cash flows from financing activities for the three months
ended December 31, 1996 and 1995 include dividends to preferred stockholders of
$.7 million. Dividends during the three months ended December 31, 1995 also
include $11.6 million of dividend payments to UGI.


                                      -12-
<PAGE>   15
                      UGI UTILITIES, INC. AND SUBSIDIARIES
                                               
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Borrowings under UGI Utilities' revolving credit agreements totaled $18.8
million in the 1996 three-month period compared with $2.5 million in the
prior-year period. Cash flows from financing activities in the prior-year period
include the issuance of $20 million of notes under its Medium-Term Note program.
During the three months ended December 31, 1996, UGI Utilities repaid $8.4
million of its 7.85% Series First Mortgage Bonds. During the prior-year period,
UGI Utilities redeemed $45.9 million face value of its 9% First Mortgage Bonds
principally from existing cash balances.


ELECTRICITY GENERATION CUSTOMER CHOICE AND COMPETITION ACT

On January 1, 1997, the Electricity Generation Customer Choice and Competition
Act (Customer Choice Act) became effective. The Customer Choice Act permits all
Pennsylvania retail electric customers to choose their electric generation
supplier. One-third of the peak load of each customer class of an electric
utility will have the opportunity for direct access to generation suppliers by
January 1, 1999, two-thirds of the peak load of each customer class by January
1, 2000, and all customers will have direct access by January 1, 2001, subject
to certain exceptions.

The Customer Choice Act establishes rate caps that are designed to prevent a
customer's total electric service costs from increasing above levels existing as
of January 1, 1997 during the transition to full competition. The Pennsylvania
Public Utility Commission (PUC) may grant exceptions to the rate caps in limited
situations where a utility's costs have increased above current levels due to
circumstances beyond its control. Under the Customer Choice Act, Electric
Utility will continue to be the only regulated electric utility having the
right, granted by the PUC or by law, to transmit and distribute electric energy
in its service territory. The Customer Choice Act requires all electric
utilities to file restructuring plans with the PUC which, among other things,
include unbundled prices for electric generation, transmission and distribution
and a proposed competitive transition charge (CTC) for the recovery of stranded
costs resulting from competition. The PUC has directed Electric Utility to file
its restructuring plan by August 1, 1997.

Based upon a current evaluation of the various factors and conditions affecting
future cost recovery, the Company does not expect the Customer Choice Act to
have a material adverse effect on its financial condition or results of
operations. The Company will continue to monitor regulatory proceedings in this
area.


                                      -13-
<PAGE>   16
                      UGI UTILITIES, INC. AND SUBSIDIARIES

                            PART II OTHER INFORMATION



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

                  27     Financial Data Schedule


         (b)      The Company filed a Current Report on Form 8-K dated November
                  19, 1996, reporting factors affecting forward-looking
                  statements under Item 5.



                                      -14-
<PAGE>   17
                                   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, 1997                       By:  J. C. Barney
------------------------                       --------------------------------
                                               J. C. Barney, Vice President -
                                               Finance and Accounting
                                              (Principal Financial Officer)




                                      -15-
<PAGE>   18
                      UGI UTILITIES, INC. AND SUBSIDIARIES

                                 EXHIBIT INDEX




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



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

27         Financial Data Schedule