<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, 2005

                                       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 [ ]

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

      At April 30, 2005, 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 Balance Sheets as of March 31, 2005,
              September 30, 2004 and March 31, 2004                            1

            Condensed Statements of Income for the three and
              six months ended March 31, 2005 and 2004                         2

            Condensed Statements of Cash Flows for the
              six months ended March 31, 2005 and 2004                         3

            Notes to Condensed Financial Statements                       4 - 13

   Item 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations                        14 - 19

   Item 3.  Quantitative and Qualitative Disclosures About Market Risk   19 - 20

   Item 4.  Controls and Procedures                                           21

PART II OTHER INFORMATION

   Item 1.  Legal Proceedings                                                 22

   Item 6.  Exhibits                                                          22

   Signatures                                                                 23
</TABLE>

                                       -i-
<PAGE>

                               UGI UTILITIES, INC.

                            CONDENSED BALANCE SHEETS
                                   (unaudited)
                             (Thousands of dollars)

<TABLE>
<CAPTION>
                                                                                    March 31,         September 30,      March 31,
                                                                                      2005                 2004             2004
                                                                                   ----------         -------------      ----------
<S>                                                                                <C>                <C>                <C>
ASSETS
   Current assets:
        Cash and cash equivalents                                                  $   2,008            $      21        $   2,796
        Accounts receivable (less allowances for doubtful accounts
              of $7,448, $3,374 and $6,573, respectively)                            103,344               38,897           86,880
        Accrued utility revenues                                                      27,418                9,742           24,230
        Inventories                                                                    8,934               65,177            8,648
        Deferred income taxes                                                         15,963                7,230           13,537
        Prepaid expenses and other current assets                                      6,994                8,723            6,029
                                                                                   ---------            ---------        ---------
              Total current assets                                                   164,661              129,790          142,120

   Property, plant and equipment, at cost (less accumulated depreciation
        and amortization of $323,100, $313,030 and $305,764, respectively)           639,487              631,264          617,141

   Regulatory assets                                                                  66,171               65,060           62,102
   Other assets                                                                       29,678               29,664           30,860
                                                                                   ---------            ---------        ---------
        Total assets                                                               $ 899,997            $ 855,778        $ 852,223
                                                                                   =========            =========        =========

LIABILITIES  AND  STOCKHOLDER'S  EQUITY
   Current liabilities:
        Current maturities of long-term debt                                       $  70,000            $  20,000        $       -
        Current maturities of preferred shares subject to mandatory
              redemption, without par value                                                -               20,000            1,000
        Bank loans                                                                    39,200               60,900           42,400
        Accounts payable                                                              63,243               62,707           48,674
        Accrued income taxes                                                          21,418                2,111           16,438
        Deferred fuel costs                                                           22,689                7,862           18,245
        Other current liabilities                                                     46,487               49,367           42,296
                                                                                   ---------            ---------        ---------
              Total current liabilities                                              263,037              222,947          169,053

   Long-term debt                                                                    167,090              197,151          217,211
   Deferred income taxes                                                             163,445              158,136          151,000
   Deferred investment tax credits                                                     7,390                7,589            7,788
   Other noncurrent liabilities                                                        8,317                9,924           12,170
   Preferred shares subject to mandatory redemption, without par value                     -                    -           19,000
                                                                                   ---------            ---------        ---------
              Total liabilities                                                      609,279              595,747          576,222

   Commitments and contingencies (note 5)

   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                                                    79,773               79,773           79,046
        Retained earnings                                                            151,317              121,454          138,696
        Accumulated other comprehensive loss                                            (631)              (1,455)          (2,000)
                                                                                   ---------            ---------        ---------
              Total common stockholder's equity                                      290,718              260,031          276,001
                                                                                   ---------            ---------        ---------
        Total liabilities and stockholder's equity                                 $ 899,997            $ 855,778        $ 852,223
                                                                                   =========            =========        =========
</TABLE>

See accompanying notes to condensed financial statements.

                                      -1-
<PAGE>

                               UGI UTILITIES, INC.

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

<TABLE>
<CAPTION>
                                                                    Three Months Ended                 Six Months Ended
                                                                         March 31,                         March 31,
                                                               ----------------------------     -----------------------------
                                                                  2005              2004           2005               2004
                                                               ----------         ---------     ---------          ----------
<S>                                                            <C>                <C>           <C>                <C>
Revenues                                                       $ 281,454          $ 268,217     $ 464,935          $ 438,901
                                                               ---------          ---------     ---------          ---------
Costs and expenses:
   Cost of sales - gas, fuel and purchased power                 189,200            176,491       306,789            282,136
   Operating and administrative expenses                          25,776             25,823        48,541             46,638
   Operating and administrative expenses - related parties         2,522              2,242         5,617              5,818
   Taxes other than income taxes                                   3,739              3,555         6,927              6,653
   Depreciation and amortization                                   5,966              6,076        11,766             11,470
   Other (income) loss, net                                       (1,419)               753        (3,244)            (1,041)
                                                               ---------          ---------     ---------          ---------
                                                                 225,784            214,940       376,396            351,674
                                                               ---------          ---------     ---------          ---------

Operating income                                                  55,670             53,277        88,539             87,227
Interest expense                                                   4,622              4,457         9,148              9,061
                                                               ---------          ---------     ---------          ---------
Income before income taxes                                        51,048             48,820        79,391             78,166
Income taxes                                                      20,340             19,671        31,717             31,509
                                                               ---------          ---------     ---------          ---------
Net income                                                     $  30,708          $  29,149     $  47,674          $  46,657
                                                               =========          =========     =========          =========
</TABLE>

See accompanying notes to condensed financial statements.

                                      -2-
<PAGE>

                               UGI UTILITIES, INC.

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

<TABLE>
<CAPTION>
                                                                                Six Months Ended
                                                                                   March 31,
                                                                          ---------------------------
                                                                             2005             2004
                                                                          ---------         ---------
<S>                                                                       <C>               <C>
CASH  FLOWS  FROM  OPERATING  ACTIVITIES:
   Net income                                                             $ 47,674          $ 46,657
   Adjustments to reconcile net income to net cash provided
     by operating activities:
         Depreciation and amortization                                      11,766            11,470
         Deferred income tax (benefit) expense, net                         (5,464)            1,399
         Provision for uncollectible accounts                                6,548             5,691
         Other, net                                                          1,073             1,922
         Net change in:
           Accounts receivable and accrued utility revenues                (88,671)          (79,270)
           Inventories                                                      56,243            45,369
           Deferred fuel costs                                              14,827             3,511
           Accounts payable                                                  2,264            (6,624)
           Other current assets and liabilities                             15,094            13,523
                                                                          --------          --------
     Net cash provided by operating activities                              61,354            43,648
                                                                          --------          --------
CASH  FLOWS  FROM  INVESTING  ACTIVITIES:
   Expenditures for property, plant and equipment                          (19,287)          (16,499)
   Net costs of property, plant and equipment disposals                       (568)             (899)
                                                                          --------          --------
     Net cash used by investing activities                                 (19,855)          (17,398)
                                                                          --------          --------
CASH  FLOWS  FROM  FINANCING  ACTIVITIES:
   Payment of dividends                                                    (17,812)          (25,458)
   Redemption of preferred shares subject to mandatory redemption          (20,000)                -
   Bank loans (decrease) increase                                          (21,700)            1,700
   Issuance of long-term debt                                               20,000                 -
                                                                          --------          --------
     Net cash used by financing activities                                 (39,512)          (23,758)
                                                                          --------          --------
   Cash and cash equivalents increase                                     $  1,987          $  2,492
                                                                          ========          ========
CASH  AND  CASH  EQUIVALENTS:
   End of period                                                          $  2,008          $  2,796
   Beginning of period                                                          21               304
                                                                          --------          --------
     Increase                                                             $  1,987          $  2,492
                                                                          ========          ========
</TABLE>

See accompanying notes to condensed financial statements.

                                      - 3 -
<PAGE>

                               UGI UTILITIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)
                (Thousands of dollars, except per share amounts)

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 and an
      electricity distribution utility ("Electric Utility") in northeastern
      Pennsylvania. We refer to Gas Utility and Electric Utility collectively as
      "the Company" or "we." Gas Utility and Electric Utility are subject to
      regulation by the Pennsylvania Public Utility Commission ("PUC").

      The accompanying condensed 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, 2004
      condensed 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, 2004 ("Company's 2004 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.

      COMPREHENSIVE INCOME. The following table presents the components of
      comprehensive income for the three and six months ended March 31, 2005 and
      2004:

<TABLE>
<CAPTION>
                                   Three Months Ended    Six Months Ended
                                        March 31,            March 31,
                                   -------------------  ------------------
                                     2005      2004       2005      2004
                                   --------  ---------  --------  --------
<S>                                <C>       <C>        <C>       <C>
Net income                         $ 30,708  $ 29,149   $ 47,674  $ 46,657
Other comprehensive income (loss)     1,494      (202)       824        49
                                   --------  --------   --------  --------
Comprehensive income               $ 32,202  $ 28,947   $ 48,498  $ 46,706
                                   --------  --------   --------  --------
</TABLE>

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

      STOCK-BASED COMPENSATION. Certain members of the Company's management may
      be granted stock options and other equity-based awards of UGI Common Stock
      under UGI's equity compensation plans. As permitted by Statement of
      Financial Accounting Standards ("SFAS") No. 123, "Accounting for
      Stock-Based Compensation" ("SFAS 123"), we apply the provisions of
      Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
      Issued to Employees" ("APB 25"), in recording compensation expense for
      grants of equity instruments to employees.

      We use the intrinsic value method prescribed by APB 25 for UGI's
      equity-based employee compensation plans. We recorded pre-tax equity-based
      compensation expense

                                       -4-
<PAGE>

                               UGI UTILITIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)
                (Thousands of dollars, except per share amounts)

      of $233 and $994 during the three and six months ended March 31, 2005,
      respectively, and $681 and $1,475 during the three and six months ended
      March 31, 2004, respectively. If we had determined stock-based
      compensation expense under the fair value method prescribed by the
      provisions of SFAS 123, net income would have been as follows:

<TABLE>
<CAPTION>
                                                      Three Months Ended     Six Months Ended
                                                           March 31,             March 31,
                                                     --------------------  --------------------
                                                        2005      2004       2005       2004
                                                     ---------  ---------  ---------  ---------
<S>                                                  <C>        <C>        <C>        <C>
Net income, as reported                              $ 30,708   $ 29,149   $ 47,674   $ 46,657
Add: Stock-based employee compensation expense
     included in reported net income, net of
     related tax effects                                  136        398        581        863
Deduct: Total stock-based employee compensation
     expense determined under the fair value method
     for all awards, net of related tax effects          (215)      (427)      (705)      (935)
                                                     --------   --------   --------   --------
Pro forma net income                                 $ 30,629   $ 29,120   $ 47,550   $ 46,585
                                                     --------   --------   --------   --------
</TABLE>

      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.

2.    SEGMENT INFORMATION

      The Company has two reportable segments: (1) Gas Utility and (2) Electric
      Utility. 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 2004 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 Utility. There are no significant intersegment
      transactions. In addition, all of our reportable segments' revenues are
      derived from sources within the United States.

                                       -5-
<PAGE>

                               UGI UTILITIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)
                (Thousands of dollars, except per share amounts)

Financial information by business segment follows:

THREE MONTHS ENDED MARCH 31, 2005:

<TABLE>
<CAPTION>
                                                             Gas     Electric
                                                 Total     Utility    Utility
                                               --------   --------   --------
<S>                                            <C>        <C>        <C>
Revenues                                       $281,454   $255,861   $ 25,593
Cost of sales - gas, fuel and purchased power   189,200    177,283     11,917
Depreciation and amortization                     5,966      5,176        790
Operating income                                 55,670     48,541      7,129
Interest expense                                  4,622      4,037        585
Income before income taxes                       51,048     44,504      6,544
Total assets at period end                      899,997    802,651     97,346
</TABLE>

THREE MONTHS ENDED MARCH 31, 2004:

<TABLE>
<CAPTION>
                                                             Gas     Electric
                                                Total      Utility   Utility
                                               --------   --------   --------
<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>

                                       -6-
<PAGE>

                               UGI UTILITIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)
                (Thousands of dollars, except per share amounts)

SIX MONTHS ENDED MARCH 31, 2005:

<TABLE>
<CAPTION>
                                                            Gas      Electric
                                                 Total    Utility     Utility
                                               --------   --------   --------
<S>                                            <C>        <C>        <C>
Revenues                                       $464,935   $417,080   $ 47,855
Cost of sales - gas, fuel and purchased power   306,789    283,888     22,901
Depreciation and amortization                    11,766     10,230      1,536
Operating income                                 88,539     76,687     11,852
Interest expense                                  9,148      8,110      1,038
Income before income taxes                       79,391     68,577     10,814
Total assets at period end                      899,997    802,651     97,346
</TABLE>

SIX MONTHS ENDED MARCH 31, 2004:

<TABLE>
<CAPTION>
                                                             Gas     Electric
                                                Total      Utility    Utility
                                               --------   --------   --------
<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>

                                       -7-
<PAGE>

                               UGI UTILITIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)
                (Thousands of dollars, except per share amounts)

3.    REDEMPTION OF SERIES PREFERRED STOCK

      On October 1, 2004, UGI Utilities redeemed all 200,000 shares of its $7.75
      Series Preferred Stock at a price of $100 per share together with full
      cumulative dividends. The redemption of the $7.75 Series Preferred Stock
      was funded with proceeds from the October 2004 issuance of $20,000 of
      6.13% Medium-Term Notes due 2034.

4.    DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS

      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 active and retired employees.

                                       -8-
<PAGE>

                               UGI UTILITIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)
                (Thousands of dollars, except per share amounts)

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

<TABLE>
<CAPTION>
                                                              Other
                                   Pension Benefits   Postretirement Benefits
                                  ------------------  -----------------------
                                  Three Months Ended    Three Months Ended
                                       March 31,             March 31,
                                  ------------------  -----------------------
                                    2005      2004       2005         2004
                                  --------  --------  ----------   ----------
<S>                               <C>       <C>       <C>          <C>
Service cost                      $ 1,090   $ 1,165     $    29      $    30
Interest cost                       2,998     3,095         368          364
Expected return on assets          (3,975)   (4,108)       (119)        (115)
Amortization of:
   Transition (asset) obligation        -      (328)        169          170
   Prior service cost                 155       166           -            -
   Actuarial loss                     308       288          81           68
                                  -------   -------     -------      -------
Net benefit cost                      576       278         528          517
Change in regulatory assets
   and liabilities                      -         -         247          258
                                  -------   -------     -------      -------
Net expense                       $   576   $   278     $   775      $   775
                                  -------   -------     -------      -------
</TABLE>

<TABLE>
<CAPTION>
                                                               Other
                                   Pension Benefits   Postretirement Benefits
                                  ------------------  -----------------------
                                   Six Months Ended       Six Months Ended
                                       March 31,             March 31,
                                  ------------------  -----------------------
                                    2005      2004       2005         2004
                                  --------  --------  ----------   ----------
<S>                               <C>       <C>       <C>          <C>
Service cost                      $ 2,180   $ 2,330     $    57      $    60
Interest cost                       5,996     6,189         737          728
Expected return on assets          (7,950)   (8,216)       (238)        (230)
Amortization of:
   Transition (asset) obligation        -      (655)        338          340
   Prior service cost                 310       331           -            -
   Actuarial loss                     616       577         163          136
                                  -------   -------     -------      -------
Net benefit cost                    1,152       556       1,057        1,034
Change in regulatory assets
   and liabilities                      -         -         493          516
                                  -------   -------     -------      -------
Net expense                       $ 1,152   $   556     $ 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 ending September 30, 2005. Pursuant to orders previously issued by the PUC,
UGI Utilities has established a Voluntary Employees' Beneficiary Association
("VEBA") trust to fund and pay UGI Utilities' postretirement health care and
life insurance benefits referred to above 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.
The Company expects to contribute approximately $2,500 to the VEBA during the
year ending September 30, 2005. During the six months ended March 31, 2005, the
Company made contributions of approximately $1,250 to the VEBA.

                                       -9-
<PAGE>

                               UGI UTILITIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)
                (Thousands of dollars, except per share amounts)

      We also sponsor an unfunded and non-qualified supplemental executive
      retirement income plan. We recorded expense for this plan of $108 and $216
      for the three and six months ended March 31, 2005, respectively, and $104
      and $208 for the three and six months ended March 31, 2004, respectively.

5.    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 private parties
      allege MGPs were formerly owned or operated by it or owned or operated by
      its former subsidiaries. Such 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 owned or 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

                                      -10-
<PAGE>

                               UGI UTILITIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)
                (Thousands of dollars, except per share amounts)

      Citizens may be required to pay to the City for cleaning up tar deposits
      in the Penobscot River. Citizens alleges that UGI Utilities and its
      predecessors owned and operated the MGP from 1901 to 1928. 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. In March 2005, the court
      granted UGI Utilities' motion for summary judgment and dismissed AGL's
      complaint. AGL has appealed.

      AGL has informed UGI Utilities that it has begun remediation of MGP wastes
      at a site owned by AGL in Savannah, Georgia. A former subsidiary of UGI
      Utilities operated the MGP in the early 1900s. AGL believes that the total
      cost of remediation could be as high as $55,000. AGL has not filed suit
      against UGI Utilities for a share of these costs. UGI Utilities believes
      that it will have good 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. By
      orders issued in November 2003 and March 2004, the court granted UGI
      Utilities' motion for summary judgment and dismissed ConEd's complaint.
      ConEd has appealed.

      By letter dated June 24, 2004, KeySpan Energy ("KeySpan") informed UGI
      Utilities that KeySpan has spent $2,300 and expects to spend another
      $11,000 to clean up an MGP site it owns in Sag Harbor, New York. KeySpan
      believes that UGI Utilities is responsible for approximately 50% of these
      costs as a result of UGI Utilities' alleged direct ownership and operation
      of the plant from 1885 to 1902. UGI Utilities is in the process of
      reviewing the information provided by KeySpan and is investigating this
      claim.

      By letter dated August 5, 2004, Yankee Gas Services Company and
      Connecticut Light and Power Company, subsidiaries of Northeast Utilities,
      (together, the "Northeast Companies"), demanded contribution from UGI
      Utilities for past and future remediation costs related to MGP operations
      on thirteen sites owned by the Northeast Companies in nine cities in the
      State of Connecticut. The Northeast Companies allege that UGI Utilities
      controlled operations of the plants from 1883 to 1941. According to the
      letter,

                                      -11-
<PAGE>

                               UGI UTILITIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)
                (Thousands of dollars, except per share amounts)

      investigation and remedial costs at the sites to date total approximately
      $10,000 and complete remediation costs for all sites could total $182,000.
      The Northeast Companies seek an unspecified fair and equitable allocation
      of these costs to UGI Utilities. UGI Utilities is in the process of
      reviewing the information provided by Northeast Companies and is
      investigating this claim.

      In addition to these environmental matters, there are other pending claims
      and legal actions arising in the normal course of our businesses. We
      cannot predict with certainty the final results of environmental and other
      matters. However, it is reasonably possible that some of them could be
      resolved unfavorably to us. Although we currently believe, after
      consultation with counsel, that damages or settlements, if any, recovered
      by the plaintiffs in such claims or actions will not have a material
      adverse effect on our financial position, damages or settlements could be
      material to our operating results or cash flows in future periods
      depending on the nature and timing of future developments with respect to
      these matters and the amounts of future operating results and cash flows.
      At March 31, 2005, the Company's accrued liability for environmental
      investigation and cleanup costs was not material.

6.    STORAGE CONTRACT ADMINISTRATION AGREEMENT

      Effective December 1, 2004, following a competitive bidding process, UGI
      Utilities entered into a Storage Contract Administration Agreement
      ("SCAA") with UGI Energy Services, Inc. ("Energy Services"), a wholly
      owned, indirect subsidiary of UGI. Under the SCAA, UGI Utilities has
      released certain gas transportation and storage contracts through October
      31, 2005 and has transferred associated gas storage inventories to Energy
      Services. UGI Utilities may recall such released transportation and
      storage contracts without penalty if recalled to meet operational
      requirements, and if not recalled, the releases will terminate at the end
      of the term of the SCAA. In the event that released contracts are recalled
      or at the expiration of the SCAA, Energy Services is required to transfer
      associated gas storage inventories to UGI Utilities. In exchange for the
      ability to utilize these assets, Energy Services will pay a monthly fee to
      UGI Utilities and will provide a firm natural gas delivery service to UGI
      Utilities. In support of Energy Services' performance obligations under
      the SCAA, UGI has provided UGI Utilities with performance security in the
      amount of $20,000.

      UGI Utilities reflects the historical cost of the gas storage inventories
      and any exchange receivable from Energy Services (for any amounts of gas
      utilized but not yet replenished by Energy Services) on its balance sheet
      under the caption "Inventories." The carrying value of these gas storage
      inventories at March 31, 2005, comprising 0.9 billion cubic feet of
      natural gas, was $6,174.

                                      -12-
<PAGE>

                               UGI UTILITIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)
                (Thousands of dollars, except per share amounts)

7.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

      In December 2004, the Financial Accounting Standards Board ("FASB") issued
      SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS
      123R replaces SFAS 123 and supersedes APB 25. SFAS 123, as originally
      issued in 1995, established as preferable a fair-value-based method of
      accounting for share-based payment transactions with employees. However,
      SFAS 123 permitted entities the option of continuing to apply the guidance
      in APB 25, as long as the footnotes to financial statements disclosed what
      net income would have been had the preferable fair-value-based method been
      used. SFAS 123R requires that the compensation cost relating to
      share-based payment transactions be recognized in the financial
      statements. The cost is required to be measured based on the fair value of
      the equity or liability instruments issued. SFAS 123R covers a wide range
      of share-based compensation arrangements including share options,
      restricted share plans, performance-based awards, share appreciation
      rights and employee share purchase plans. SFAS 123R is effective with our
      fiscal year ending September 30, 2006. Under all of the transition
      methods, unrecognized compensation expense for awards that are not vested
      on the adoption date will be recognized in the Company's statements of
      income through the end of the requisite service period. We do not believe
      that the adoption of SFAS 123R will have a material impact on our results
      of operations or financial position. Also, see Note 1.

      In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
      Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
      Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair
      value measurement for nonmonetary exchanges of similar productive assets
      in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
      Transactions," and replaces it with an exception for exchanges that lack
      commercial substance. SFAS 153 specifies that a nonmonetary exchange has
      commercial substance if the future cash flows of the entity are expected
      to change significantly as a result of the exchange. SFAS 153 is effective
      for our interim period beginning after June 15, 2005. We do not believe
      that the adoption of SFAS 153 will have a material effect on our results
      of operations or financial position.

                                      -13-
<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, 2005 ("2005 three-month period") with the three months
ended March 31, 2004 ("2004 three-month period") and (2) the six months ended
March 31, 2005 ("2005 six-month period") with the six months ended March 31,
2004 ("2004 six-month period"). Our analyses of results of operations should be
read in conjunction with the segment information included in Note 2 to the
Condensed Financial Statements.

2005 THREE-MONTH PERIOD COMPARED WITH 2004 THREE-MONTH PERIOD

Three Months Ended March 31,

<TABLE>
<CAPTION>
(Millions of dollars)                                   Increase
                                    2005     2004      (Decrease)
                                  -------  -------  -----------------
<S>                               <C>      <C>      <C>         <C>
GAS UTILITY:
  Revenues                        $255.9   $243.5   $ 12.4      5.1%
  Total margin (a)                $ 78.6   $ 78.5   $  0.1      0.1%
  Operating income                $ 48.5   $ 46.5   $  2.0      4.3%
  Income before income taxes      $ 44.5   $ 42.6   $  1.9      4.5%
  System throughput - bcf           31.0     31.2     (0.2)    (0.6)%
  Heating degree days - % colder
       than normal                   5.7%     2.7%       -        -

ELECTRIC UTILITY:
  Revenues                        $ 25.6   $ 24.7   $  0.9      3.6%
  Total margin (a)                $ 12.3   $ 11.9   $  0.4      3.4%
  Operating income                $  7.1   $  6.8   $  0.3      4.4%
  Income before income taxes      $  6.5   $  6.2   $  0.3      4.8%
  Distribution sales - gwh         282.1    282.2     (0.1)     0.0%
</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 Utility's total margin represents total revenues less cost of
      sales and revenue-related taxes, i.e. Electric Utility gross receipts
      taxes, of $1.4 million and $1.3 million in the three-month periods ended
      March 31, 2005 and 2004, respectively. For financial statement purposes,
      revenue-related taxes are included in "taxes other than income taxes" on
      the Condensed Statements of Income.

GAS UTILITY. Weather in Gas Utility's service territory based upon heating
degree days was 5.7% colder than normal during the 2005 three-month period
compared with weather that was 2.7% colder than normal in the 2004 three-month
period. Notwithstanding the colder weather and year-over-year growth in the
number of our customers, total distribution system throughput decreased slightly
as lower sales to firm- residential, commercial and industrial ("retail
core-market") customers

                                      -14-
<PAGE>

                               UGI UTILITIES, INC.

due in part to the effects of price-induced customer conservation, and lower
volumes transported for firm delivery service customers, were partially offset
by increased volumes transported for interruptible delivery service customers.
The $12.4 million increase in Gas Utility revenues during the 2005 three-month
period reflects $21.0 million greater retail core-market revenues principally as
a result of higher average purchased gas cost ("PGC") rates partially offset by
a decrease in revenues from low-margin off-system sales. The higher PGC rates
reflect higher 2005 three-month period natural gas costs. Gas Utility's cost of
gas was $177.3 million in the 2005 three-month period compared to $165.0 million
in the 2004 three-month period reflecting the previously mentioned higher
average PGC rates partially offset by the effects of lower off-system sales. Gas
Utility total margin in the 2005 three-month period was comparable with the
prior-year period.

Gas Utility operating income increased to $48.5 million in the 2005 three-month
period from $46.5 million in the 2004 three-month period principally reflecting
higher other income. Other income increased $2.1 million due in large part to
the absence of costs recorded in the prior-year period related to settling a
regulatory claim resulting from the discontinuance of natural gas service to
certain customers. Total operating and administrative expenses were comparable
with the prior year reflecting in large part lower required provisions for
injuries and damages claims partially offset principally by higher uncollectible
accounts expense. The increase in Gas Utility income before income taxes
reflects the previously mentioned increase in operating income and the effects
of slightly higher interest expense.

ELECTRIC UTILITY. Electric Utility's 2005 three-month period kilowatt-hour sales
were essentially equal with the prior-year period on weather that was comparable
to the prior-year period. Electric Utility's increased revenues reflect an
increase in its Provider of Last Resort ("POLR") electric generation rates
effective January 1, 2005. Electric Utility's cost of sales increased $0.5
million as a result of higher per-unit purchased power costs.

Electric Utility total margin in the 2005 three-month period increased by $0.4
million reflecting the previously mentioned higher POLR rates slightly offset by
the effects of increased per-unit purchased power costs. Operating income and
income before income taxes were higher in the 2005 three-month period
principally reflecting the increase in total margin.

                                      -15-
<PAGE>

                               UGI UTILITIES, INC.

2005 SIX-MONTH PERIOD COMPARED WITH 2004 SIX-MONTH PERIOD

Six Months Ended March 31,

<TABLE>
<CAPTION>
(Millions of dollars)                                    Increase
                                   2005     2004        (Decrease)
                                  -------  -------  -----------------
<S>                               <C>      <C>      <C>        <C>
GAS UTILITY:
  Revenues                        $417.1   $392.8   $ 24.3      6.2%
  Total margin (a)                $133.2   $132.7   $  0.5      0.4%
  Operating income                $ 76.7   $ 75.9   $  0.8      1.1%
  Income before income taxes      $ 68.6   $ 67.9   $  0.7      1.0%
  System throughput - bcf           53.9     54.5     (0.6)    (1.1)%
  Heating degree days - % colder
     than normal                     3.6%     0.0%       -        -

ELECTRIC UTILITY:
  Revenues                        $ 47.9   $ 46.1   $  1.8      3.9%
  Total margin (a)                $ 22.3   $ 21.6   $  0.7      3.2%
  Operating income                $ 11.9   $ 11.3   $  0.6      5.3%
  Income before income taxes      $ 10.8   $ 10.3   $  0.5      4.9%
  Distribution sales - gwh         531.2    525.7      5.5      1.0%
</TABLE>

(a)   Gas Utility's total margin represents total revenues less cost of sales.
      Electric Utility's total margin represents total revenues less cost of
      sales and revenue-related taxes, i.e. Electric Utility gross receipts
      taxes, of $2.7 million and $2.5 million in the six-month periods ended
      March 31, 2005 and 2004, respectively.

GAS UTILITY. Weather in Gas Utility's service territory during the 2005
six-month period was 3.6% colder than normal compared with weather that was
normal in the 2004 six-month period. Notwithstanding the colder weather and
year-over-year customer growth, total distribution system throughput decreased
0.6 bcf or 1.1% as the persistently high natural gas prices resulted in
price-induced customer conservation primarily in our retail core-market. The
increase in Gas Utility revenues during the 2005 six-month period includes a
$45.3 million increase in retail core-market revenues partially offset by a
decrease in revenues from low-margin off-system sales. The increase in retail
core-market revenues reflects higher average PGC rates. Gas Utility's cost of
gas was $283.9 million in the 2005 six-month period compared to $260.1 million
in the 2004 six-month period reflecting the effects of the higher average PGC
rates partially offset by the effects of lower off-system sales.

The $0.5 million increase in Gas Utility total margin reflects greater margin
generated from slightly higher interruptible delivery service volumes and
slightly higher average delivery service margin partially offset by lower retail
core-market margin resulting from the previously mentioned decline in retail
core-market volumes.

Gas Utility operating income increased $0.8 million in the 2005 six-month period
principally reflecting the $0.5 million increase in total margin and higher
other income partially offset by increased operating and administrative
expenses. Other income increased $2.2 million due in large part to the absence
of costs recorded in the prior-year period related to settling a regulatory

                                      -16-
<PAGE>

                               UGI UTILITIES, INC.

claim resulting from the discontinuance of natural gas service to certain
customers. Operating and administrative expenses increased $1.4 million in the
2005 six-month period principally reflecting greater uncollectible accounts
expense and the absence of environmental insurance settlements received in the
prior-year period partially offset by lower required provisions for injuries and
damages claims. The increase in Gas Utility income before income taxes
principally reflects the increase in operating income and the effects of
slightly higher interest expense.

ELECTRIC UTILITY. Electric Utility's 2005 six-month period kilowatt-hour sales
were slightly higher than the prior-year period on weather that was comparable
to the prior year. The increase in Electric Utility revenues reflect higher POLR
rates. Electric Utility's cost of sales increased approximately 4% reflecting
higher per-unit purchased power costs.

Electric Utility total margin in the 2005 six-month period increased $0.7
million principally as a result of the previously mentioned increase in POLR
rates and slight increase in kilowatt-hour sales partially offset by the higher
purchased power costs. Operating income and in income before income taxes were
higher in the 2005 six-month period principally reflecting the increase in total
margin

                        FINANCIAL CONDITION AND LIQUIDITY

FINANCIAL CONDITION

The Company's total debt outstanding at March 31, 2005 totaled $276.3 million
(including $39.2 million in bank loans) compared with $278.1 million (including
$60.9 million in bank loans) at September 30, 2004. At March 31, 2005, current
maturities of long-term debt were $70 million. We expect to refinance $20
million of our Medium-Term Notes due in May 2005 with the issuance of $20
million of Medium-Term Notes under our existing shelf registration statement. In
addition, we expect to refinance the $50 million of Medium-Term Notes due in
December 2005.

The Company has revolving credit commitments under which it may borrow up to
$110 million. These agreements expire in June 2007. At March 31, 2005 borrowing
under these agreements totaled $39.2 million. UGI Utilities also has a shelf
registration statement with the SEC under which it may issue up to an additional
$20 million of Medium-Term Notes or other debt securities.

                                      -17-
<PAGE>

                               UGI UTILITIES, INC.

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 short-term
borrowings, primarily its revolving credit agreements to manage these seasonal
cash flow needs. Cash provided by operating activities was $61.4 million during
the six months ended March 31, 2005 compared with $43.6 million during the
prior-year six-month period. Cash flow from operating activities before changes
in operating working capital was $61.6 million in the 2005 six-month period
compared to $67.1 million in the prior-year six-month period principally
reflecting lower noncash deferred income tax expense partially offset slightly
by higher operating results. Changes in operating working capital used $0.2
million of operating cash flow during the 2005 six-month period compared with
$23.5 million used during the prior-year six-month period reflecting higher net
overcollections of deferred fuel costs and changes in inventories and accounts
payable.

INVESTING ACTIVITIES. Cash used by investing activities was $19.9 million in the
2005 six-month period compared with $17.4 million in the prior-year period.
Expenditures for property, plant and equipment were $19.3 million in the 2005
six-month period compared with $16.5 million recorded in the prior-year period
due in part to greater information technology systems expenditures. Net costs of
property, plant and equipment disposals were lower in the 2005 six-month period
reflecting greater proceeds from the sale of property.

FINANCING ACTIVITIES. Cash used by financing activities was $39.5 million in the
2005 six-month period compared with $23.8 million in the prior-year period.
Financing activity cash flows are primarily the result of issuances and
repayments of long-term debt, net short-term borrowings including borrowings
under revolving credit agreements, dividends on common shares and capital
contributions from UGI. During the 2005 and 2004 six-month periods, we paid
dividends of $17.8 million and $25.5 million, respectively, to UGI. On October
1, 2004, we redeemed all 200,000 shares of $7.75 Series Preferred Stock at a
price of $100 per share together with full cumulative dividends. The redemption
of the $7.75 Series Preferred Stock was funded with proceeds from the October
2004 issuance of $20 million of 6.13% Medium-Term Notes due 2034. During the
2005 six-month period, we had net repayments of short-term borrowings of $21.7
million compared to net borrowings of $1.7 million in the prior-year period.

                                      -18-
<PAGE>

                               UGI UTILITIES, INC.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"). SFAS 123R replaces SFAS 123 and supersedes
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). SFAS 123, as originally issued in 1995, established as
preferable a fair-value-based method of accounting for share-based payment
transactions with employees. However, SFAS 123 permitted entities the option of
continuing to apply the guidance in APB 25, as long as the footnotes to
financial statements disclosed what net income would have been had the
preferable fair-value-based method been used. SFAS 123R requires that the
compensation cost relating to share-based payment transactions be recognized in
the financial statements. The cost is required to be measured based on the fair
value of the equity or liability instruments issued. SFAS 123R covers a wide
range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights and
employee share purchase plans. SFAS 123R is effective with our fiscal year
ending September 30, 2006. Under all of the transition methods, unrecognized
compensation expense for awards that are not vested on the adoption date will be
recognized in the Company's statements of income through the end of the
requisite service period. We do not believe that the adoption of SFAS 123R will
have a material impact on our results of operations or financial position. Also,
see Note 1 to Condensed Financial Statements.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions"
("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with
an exception for exchanges that lack commercial substance. SFAS 153 specifies
that a nonmonetary exchange has commercial substance if the future cash flows of
the entity are expected to change significantly as a result of the exchange.
SFAS 153 is effective for our interim period beginning after June 15, 2005. We
do not believe that the adoption of SFAS 153 will have a material effect on our
results of operations or financial position.

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.

The risks associated with fluctuation in the prices Electric Utility pays for
its electric power needs are principally a result of market forces reflecting
changes in supply and demand for electricity and other energy commodities.
Electric Utility purchases its electricity from suppliers under fixed-

                                      -19-
<PAGE>

                               UGI UTILITIES, INC.

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 Provider of Last Resort ("POLR")
settlements approved by the PUC, Electric Utility may increase its POLR rates up
to certain limits through December 31, 2006. In accordance with these
settlements, effective January 1, 2005, Electric Utility increased its POLR
generation rates for all metered customers by 4.5% of total rates in effect on
December 31, 2004. In addition, the POLR settlements permit Electric Utility to
increase POLR generation rates effective January 1, 2006 for all metered
customers up to 7.5% of total rates in effect on December 31, 2004. Currently,
Electric Utility's fixed-price contracts with electric suppliers mitigate most
risks associated with the POLR service rate limits in effect through December
31, 2006. However, should any of the suppliers under these contracts fail to
provide electric power under the terms of the power and capacity contracts, any
increases in the cost of replacement power or capacity could negatively impact
Electric Utility's 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. Electric
Utility may enter into electricity price swap agreements to reduce the
volatility in the cost of a portion of its anticipated electricity requirements.

Our variable-rate debt includes borrowings under our revolving credit
agreements. 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.

The fair values of our unsettled market risk sensitive derivative instruments
reflect 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, 2005. At March 31, 2005, the fair value of our electricity price swap was a
gain of $3.5 million. An adverse change in electricity prices of ten percent
would result in a $1.1 million decrease in the fair value of the swap. At March
31, 2005, 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.

                                      -20-
<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.

                                      -21-
<PAGE>

                               UGI UTILITIES, INC.

                            PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      Atlanta Gas Light Company v. UGI Utilities, Inc. 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
million 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. In March 2005, the
court granted UGI Utilities' motion for summary judgment and dismissed AGL's
complaint. AGL has appealed.

ITEM 6. EXHIBITS

            12.1  Computation of ratio of earnings to fixed charges


            31.1  Certification by the Chief Executive Officer relating to the
                         Registrant's Report on Form 10-Q for the quarter ended
                         March 31, 2005, 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, 2005, 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, 2005,
                         pursuant to Section 906 of the Sarbanes-Oxley Act of
                         2002.

                                      -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 6, 2005                         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

31.1  Certification by the Chief Executive Officer relating to the Registrant's
      Report on Form 10-Q for the quarter ended March 31, 2005, 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, 2005, 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, 2005, pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.