<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, 1998

                                       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, 1999, 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.

                                TABLE OF CONTENTS


                                                                           PAGES
                                                                           -----
PART I FINANCIAL INFORMATION

      Item 1. Financial Statements

              Condensed Consolidated Balance Sheets as of December 31, 
                1998, September 30, 1998 and December 31, 1997                 1

              Condensed Consolidated Statements of Income for the three
                and twelve months ended December 31, 1998 and 1997             2

              Condensed Consolidated Statements of Cash Flows for the
                three and twelve months ended December 31, 1998 and 1997       3

              Notes to Condensed Consolidated Financial Statements           4-8

      Item 2. Management's Discussion and Analysis of Financial
                Condition and Results of Operations                         9-14


      Item 3. Quantitative and Qualitative Disclosures About Market Risk      15


PART II OTHER INFORMATION

      Item 6. Exhibits and Reports on Form 8-K                                15

      Signatures                                                              16


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

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

<TABLE>
<CAPTION>
                                                                                 December 31,   September 30,   December 31,
                                                                                     1998           1998           1997
                                                                                   --------       --------       --------
<S>                                                                              <C>            <C>             <C>
ASSETS
     Current assets:
          Cash and cash equivalents                                                $  3,567       $  4,720       $  2,862
          Accounts receivable (less allowances for doubtful accounts
               of $1,349, $1,373 and $3,084, respectively)                           33,926         20,258         49,691
          Accrued utility revenues                                                   21,687          6,745         23,052
          Inventories                                                                27,016         28,460         26,843
          Deferred income taxes                                                       4,119          4,070          7,887
          Prepaid expenses and other current assets                                   2,887          6,556          1,319
                                                                                   --------       --------       --------
               Total current assets                                                  93,202         70,809        111,654

     Property, plant and equipment, at cost (less accumulated depreciation
          and amortization of $257,963, $253,608 and $241,632, respectively)        547,127        543,913        531,385

     Regulatory assets                                                               59,314         59,318         49,035
     Other assets                                                                    17,079         16,277         16,142
                                                                                   --------       --------       --------
          Total assets                                                             $716,722       $690,317       $708,216
                                                                                   ========       ========       ========


LIABILITIES  AND  STOCKHOLDERS'  EQUITY
     Current liabilities:
          Current maturities of long-term debt                                     $  7,143       $  7,143       $ 17,143
          Current portion of redeemable preferred stock                                  --             --          3,000
          Bank loans                                                                 70,200         68,400         62,700
          Accounts payable                                                           43,802         38,847         40,614
          Other current liabilities                                                  35,861         29,720         55,255
                                                                                   --------       --------       --------
               Total current liabilities                                            157,006        144,110        178,712

     Long-term debt                                                                 180,032        180,027        172,156
     Deferred income taxes                                                          106,456        105,734        101,816
     Other noncurrent liabilities                                                    29,342         29,204         19,967

     Commitments and contingencies

     Redeemable preferred stock                                                      20,000         20,000         32,187

     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                                                 68,559         68,559         68,249
          Retained earnings                                                          95,068         82,424         74,870
                                                                                   --------       --------       --------
               Total common stockholder's equity                                    223,886        211,242        203,378
                                                                                   --------       --------       --------
          Total liabilities and stockholders' equity                               $716,722       $690,317       $708,216
                                                                                   ========       ========       ========
</TABLE>

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


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

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


<TABLE>
<CAPTION>
                                                        Three Months Ended               Twelve Months Ended
                                                           December 31,                      December 31,
                                                    --------------------------        --------------------------
                                                      1998             1997             1998             1997
                                                    ---------        ---------        ---------        ---------
<S>                                                 <C>              <C>              <C>              <C>      
Revenues                                            $ 112,770        $ 135,464        $ 399,589        $ 462,518
                                                    ---------        ---------        ---------        ---------

Costs and expenses:
      Gas, fuel and purchased power                    55,336           72,497          197,470          242,180
      Operating and administrative expenses            26,454           27,075          110,554          116,613
      Operating and administrative expenses
           - related parties                            1,172            1,098            4,911            5,407
      Depreciation and amortization                     5,477            5,351           22,169           21,218
      Other income, net                                (1,121)            (886)          (5,228)          (3,033)
                                                    ---------        ---------        ---------        ---------
                                                       87,318          105,135          329,876          382,385
                                                    ---------        ---------        ---------        ---------

Operating income                                       25,452           30,329           69,713           80,133
Interest expense                                        4,438            4,321           17,700           16,951
                                                    ---------        ---------        ---------        ---------
Income before income taxes                             21,014           26,008           52,013           63,182
Income taxes                                            7,981            9,800           19,637           24,448
                                                    ---------        ---------        ---------        ---------
Net income                                             13,033           16,208           32,376           38,734
Dividends on preferred stock                              388              691            1,857            2,764
                                                    ---------        ---------        ---------        ---------
Net income after dividends on preferred stock       $  12,645        $  15,517        $  30,519        $  35,970
                                                    =========        =========        =========        =========
</TABLE>

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


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

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


<TABLE>
<CAPTION>
                                                                             Three Months Ended             Twelve Months Ended
                                                                                December 31,                    December 31,
                                                                          ------------------------        ------------------------
                                                                            1998            1997            1998            1997
                                                                          --------        --------        --------        --------
<S>                                                                       <C>             <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                            $ 13,033        $ 16,208        $ 32,376        $ 38,734
    Adjustments to reconcile net income to net cash provided
       (used) by operating activities:
          Depreciation and amortization                                      5,477           5,351          22,169          21,218
          Deferred income taxes, net                                           839             484           5,823              69
          Other, net                                                          (106)            878           5,002           5,039
                                                                          --------        --------        --------        --------
                                                                            19,243          22,921          65,370          65,060
          Net change in:
             Accounts receivable and accrued utility revenues              (29,430)        (40,745)         13,210          (4,975)
             Inventories                                                     1,444           3,802            (173)          1,583
             Deferred fuel costs                                               (64)          2,377          (8,182)          4,402
             Accounts payable                                                4,955          (4,753)          3,188            (645)
             Other current assets and liabilities                            9,874          12,523         (13,358)            307
                                                                          --------        --------        --------        --------
          Net cash provided (used) by operating activities                   6,022          (3,875)         60,055          65,732
                                                                          --------        --------        --------        --------


CASH FLOWS FROM INVESTING ACTIVITIES:
    Expenditures for property, plant and equipment                          (8,539)         (8,465)        (37,293)        (40,555)
    Net proceeds (costs) of property, plant and equipment disposals            (48)             13             250            (825)
                                                                          --------        --------        --------        --------
       Net cash used by investing activities                                (8,587)         (8,452)        (37,043)        (41,380)
                                                                          --------        --------        --------        --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Payment of dividends                                                      (388)        (13,324)        (12,157)        (39,456)
    Issuance of long-term debt                                                  --          20,000          15,000          40,000
    Repayment of long-term debt                                                 --              --         (17,143)        (18,980)
    Bank loans increase (decrease)                                           1,800          (4,300)          7,500          (6,600)
    Redemption of Series Preferred Stock                                        --              --         (15,507)             --
                                                                          --------        --------        --------        --------
       Net cash provided (used) by financing activities                      1,412           2,376         (22,307)        (25,036)
                                                                          --------        --------        --------        --------

    Cash and cash equivalents increase (decrease)                         $ (1,153)       $ (9,951)       $    705        $   (684)
                                                                          ========        ========        ========        ========

CASH AND CASH EQUIVALENTS:
    End of period                                                         $  3,567        $  2,862        $  3,567        $  2,862
    Beginning of period                                                      4,720          12,813           2,862           3,546
                                                                          --------        --------        --------        --------
       Increase (decrease)                                                $ (1,153)       $ (9,951)       $    705        $   (684)
                                                                          ========        ========        ========        ========
</TABLE>

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


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

              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 wholly
         owned subsidiary UGI Development Company (collectively, "the Company"
         or "we"). We eliminate all significant intercompany accounts and
         transactions when we consolidate. UGI Utilities is a wholly owned
         subsidiary of UGI Corporation (UGI) and operates a natural gas
         distribution utility (Gas Utility) in parts of eastern and southeastern
         Pennsylvania and an electric utility (Electric Utility) in northeastern
         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 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. 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, 1998. 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.

         Management makes estimates and assumptions when preparing financial
         statements in conformity with generally accepted accounting principles.
         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.

         During the quarter ended December 31, 1998, we adopted Statement of
         Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
         Income" (SFAS 130). SFAS 130 establishes standards for reporting and
         displaying comprehensive income and its components in financial
         statements. Comprehensive income includes net income and all other
         nonowner changes in equity. UGI Utilities' comprehensive income was the
         same as its net income for all periods presented.

2.       SEGMENT INFORMATION

         During the quarter ended December 31, 1998, we adopted SFAS No. 131,
         "Disclosures about Segments of an Enterprise and Related Information"
         (SFAS 131). SFAS 131 establishes standards for reporting information
         about operating segments as well as related 


                                       -4-
<PAGE>   7
                               UGI UTILITIES, INC.

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


         disclosures about products and services, geographic areas, and major
         customers. In determining our reportable segments under the provisions
         of SFAS 131, we examined the way we organize our businesses internally
         for making operating decisions and assessing business performance.
         Because our gas utility and electric utility operations are organized
         and managed as strategic business units offering different products and
         services, we have determined that UGI Utilities has two reportable
         segments comprising Gas Utility and Electric Utility.

         Although Electric Utility's June 1998 Restructuring Order provides for
         the unbundling of prices for electric generation, transmission and
         distribution services, we currently manage and evaluate our electric
         generation, transmission and distribution operations together.
         Accordingly, these operations are combined for segment reporting
         purposes.

         The accounting policies of the two segments are the same as those
         described in the Significant Accounting Policies note contained in our
         Annual Report on Form 10-K for the year ended September 30, 1998. We
         evaluate each segment's performance principally based upon its earnings
         before interest expense, income taxes, depreciation and amortization
         (EBITDA). Although EBITDA is used internally to evaluate segment
         performance, it should not be considered as an alternative to net
         income (as an indicator of operating performance) or as an alternative
         to cash flow (as a measure of liquidity or ability to service debt
         obligations) and is not a measure of performance or financial condition
         under generally accepted accounting principles.

         No single customer represents more than 5% of the total revenues of
         either Gas Utility or Electric Utility. Financial information by
         business segment follows:


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

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


2.       SEGMENT INFORMATION (continued)

THREE MONTHS ENDED DECEMBER 31, 1998:

<TABLE>
<CAPTION>
                                                                                Reportable Segments
                                                                             --------------------------
                                                              Inter-
                                                             segment            Gas            Electric           All
                                             Total        Eliminations        utility          utility           other
                                           -----------------------------------------------------------------------------
<S>                                        <C>            <C>                <C>              <C>              <C>      
Segment revenues                           $ 112,770        $      --        $  94,578        $  18,192        $      --

Segment profit (loss):
   EBITDA                                  $  30,929        $      --        $  26,245        $   4,693        $      (9)
   Depreciation and amortization              (5,477)              --           (4,667)            (810)              --
                                           -----------------------------------------------------------------------------
   Operating income (loss)                    25,452               --           21,578            3,883               (9)
   Interest expense                           (4,438)              --           (3,845)            (593)              --
                                           -----------------------------------------------------------------------------
   Income (loss) before income taxes       $  21,014        $      --        $  17,733        $   3,290        $      (9)
                                           =============================================================================

Segment assets  (at period end)            $ 716,722        $    (101)       $ 619,861        $  96,768        $     194
                                           =============================================================================
</TABLE>


THREE MONTHS ENDED DECEMBER 31, 1997:

<TABLE>
<CAPTION>
                                                                                Reportable Segments
                                                                             --------------------------
                                                              Inter-
                                                             segment            Gas            Electric           All
                                             Total         Eliminations       utility          utility           other
                                           -----------------------------------------------------------------------------
<S>                                        <C>             <C>               <C>              <C>              <C>      
Segment revenues                           $ 135,464        $      --        $ 116,831        $  18,633        $      --

Segment profit (loss):
   EBITDA                                  $  35,680        $      --        $  31,841        $   3,851        $     (12)
   Depreciation and amortization              (5,351)              --           (4,475)            (876)              --
                                           -----------------------------------------------------------------------------
   Operating income (loss)                    30,329               --           27,366            2,975              (12)
   Interest expense                           (4,321)              --           (3,771)            (550)              --
                                           -----------------------------------------------------------------------------
   Income (loss) before income taxes       $  26,008        $      --        $  23,595        $   2,425        $     (12)
                                           =============================================================================

Segment assets  (at period end)            $ 708,216        $     324        $ 620,933        $  86,604        $     355
                                           =============================================================================
</TABLE>


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

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

2.       SEGMENT INFORMATION (continued)

TWELVE MONTHS ENDED DECEMBER 31, 1998:

<TABLE>
<CAPTION>
                                                                                Reportable Segments
                                                                             --------------------------
                                                              Inter-
                                                             segment            Gas           Electric            All
                                             Total         Eliminations       utility          utility           other
                                           -----------------------------------------------------------------------------
<S>                                        <C>             <C>               <C>              <C>              <C>      
Segment revenues                           $ 399,589        $      --        $ 327,901        $  71,688        $      --

Segment profit:
   EBITDA                                  $  91,882        $      --        $  77,341        $  14,402        $     139
   Depreciation and amortization             (22,169)              --          (18,357)          (3,812)              --
                                           -----------------------------------------------------------------------------
   Operating income                           69,713               --           58,984           10,590              139
   Interest expense                          (17,700)              --          (15,343)          (2,357)              --
                                           -----------------------------------------------------------------------------
   Income before income taxes              $  52,013        $      --        $  43,641        $   8,233        $     139
                                           =============================================================================

Segment assets  (at period end)            $ 716,722        $    (101)       $ 619,861        $  96,768        $     194
                                           =============================================================================
</TABLE>


TWELVE MONTHS ENDED DECEMBER 31, 1997:

<TABLE>
<CAPTION>
                                                                                Reportable Segments
                                                                             --------------------------
                                                              Inter-
                                                             segment            Gas           Electric            All
                                             Total         Eliminations       utility          utility           other
                                           -----------------------------------------------------------------------------
<S>                                        <C>             <C>               <C>              <C>              <C>      
Segment revenues                           $ 462,518        $      --        $ 390,123        $  72,395        $      --

Segment profit:
   EBITDA                                  $ 101,351        $      --        $  87,066        $  14,101        $     184
   Depreciation and amortization             (21,218)              --          (17,122)          (4,096)              --
                                           -----------------------------------------------------------------------------
   Operating income                           80,133               --           69,944           10,005              184
   Interest expense                          (16,951)              --          (14,408)          (2,543)              --
                                           -----------------------------------------------------------------------------
   Income before income taxes              $  63,182        $      --        $  55,536        $   7,462        $     184
                                           =============================================================================

Segment assets  (at period end)            $ 708,216        $     324        $ 620,933        $  86,604        $     355
                                           =============================================================================
</TABLE>


                                       -7-
<PAGE>   10
                               UGI UTILITIES, INC.

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


3.       COMMITMENTS AND CONTINGENCIES

         The gas distribution business has been one of UGI Utilities' main
         businesses since it began in 1882. Prior to the construction of major
         natural gas pipelines in the 1950s, gas used for lighting and heating
         was produced at manufactured gas plants (MGPs) from processes involving
         coal, coke or oil. Some constituents of coal tars produced from this
         process are today considered hazardous substances under the Superfund
         Law and may be located at these sites.

         Several private parties have made claims against UGI Utilities to
         recover costs of investigation or remediation of several MGP sites. In
         addition, we have identified environmental contamination at several of
         our properties and have undertaken investigation and, as appropriate,
         remediation of these sites in cooperation with appropriate
         environmental agencies or private parties. At sites where a former
         subsidiary of UGI Utilities operated a MGP, we believe that UGI
         Utilities should not have significant liability because UGI Utilities
         generally is not legally liable for the obligations of its
         subsidiaries. Under certain circumstances, however, a court could find
         a parent company liable for environmental damage at sites owned by a
         subsidiary company when the parent company either (1) itself operated
         the facility causing the environmental damage or (2) 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 MGPs that UGI Utilities owned or directly operated, or that
         were owned or operated by former subsidiaries of UGI Utilities, if a
         court were to conclude that the subsidiary's separate corporate form
         should be disregarded. In many circumstances where UGI Utilities may be
         liable, we may not be able to reasonably quantify expenditures because
         of a number of factors. These factors include the 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.

         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. 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 our financial position but 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.


                                      -8-
<PAGE>   11
                               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 December 31, 1998 (1998 three-month period) with the three months
ended December 31, 1997 (1997 three-month period) and (2) the twelve months
ended December 31, 1998 (1998 twelve-month period) with the twelve months ended
December 31, 1997 (1997 twelve-month period). Our results of operations should
be read in conjunction with the segment information included in Note 2 to the
Condensed Consolidated Financial Statements. Although the adoption of SFAS 131
did not change the operating segments we disclose, Gas Utility and Electric
Utility results now include billed UGI corporate overhead costs.

1998 THREE-MONTH PERIOD COMPARED WITH 1997 THREE-MONTH PERIOD

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                                        Increase
Three Months Ended December 31,                1998       1997         (Decrease)
--------------------------------------------------------------------------------------
(Millions of dollars)
<S>                                           <C>        <C>        <C>       <C>
GAS UTILITY:
     Natural gas system throughput - bcf        20.3       22.7       (2.4)    (10.6)%
     Degree days - % warmer than normal        (17.1)      (1.6)        --        --
     Revenues                                 $ 94.6     $116.8     $(22.2)    (19.0)%
     Total margin (a)                         $ 43.2     $ 48.6     $ (5.4)    (11.1)%
     Operating income                         $ 21.6     $ 27.4     $ (5.8)    (21.2)%
     EBITDA                                   $ 26.2     $ 31.8     $ (5.6)    (17.6)%

ELECTRIC UTILITY:
     Electric sales - gwh                      223.2      227.8       (4.6)     (2.0)%
     Revenues                                 $ 18.2     $ 18.6     $  (.4)     (2.2)%
     Total margin (a)                         $  9.7     $  8.9     $   .8       9.0%
     Operating income                         $  3.9     $  3.0     $   .9      30.0%
     EBITDA                                   $  4.7     $  3.9     $   .8      20.5%
--------------------------------------------------------------------------------------
</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 was 17.1% warmer than
normal and 15.8% warmer than in the prior-year period. As a result of the warmer
temperatures, volumes we 


                                      -9-
<PAGE>   12
                               UGI UTILITIES, INC.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


sold to our firm- residential, commercial and small industrial customers (we
refer to these customers as our "core market") declined 20% (2.1 bcf). The
warmer weather also impacted, to a much lesser extent, volumes we sold or
transported to our large industrial and commercial customers.

The decrease in Gas Utility's revenues in the 1998 three-month period is due to
(1) the decline in core market volumes and (2) lower off-system sales. Gas
Utility's cost of gas decreased $15.9 million reflecting (1) the previously
mentioned decrease in volumes sold to our core market customers and (2) the
lower off-system sales.

The decrease in Gas Utility's total margin principally resulted from (1) a $5.0
million decline in margin from core market customers and (2) a $.5 million
decline in margin from interruptible customers. The decline in core market
margin reflects the lower volumes sold while the decline in interruptible margin
was the result of a less favorable difference between natural gas prices and oil
prices.

Gas Utility operating income and EBITDA decreased in the 1998 three-month period
reflecting the lower total margin and slightly higher operating expenses. Total
operating expenses, excluding revenue-related taxes, were slightly higher in the
1998 three-month period because the 1997 three-month period expenses are net of
$1.6 million of income from an insurance recovery.

ELECTRIC UTILITY. Total electric sales were 2.0% lower in the 1998 three-month
period reflecting the impact of warmer weather. Temperatures were 9.1% warmer
than normal in 1998 compared to temperatures that were 7.3% colder than normal
in 1997. Electric Utility revenues decreased $.4 million in the 1998 three-month
period primarily due to the lower sales.

Electric Utility cost of sales decreased $1.3 million in the 1998 three-month
period reflecting (1) lower power costs and (2) the lower sales. In accordance
with the June 1998 Restructuring Order issued by the Pennsylvania Public Utility
Commission (PUC), our base rates reflect a fixed amount for electric generation
costs and we no longer recover a separate Energy Cost Rate (ECR). As a result,
we no longer defer the difference between our actual costs of electricity and
the amount of such costs included in our rates.

Electric Utility's total margin increased $.8 million in the 1998 three-month
period, notwithstanding the lower sales, reflecting lower power costs. The lower
power costs resulted in large part from lower cost power supply agreements.
Operating income and EBITDA increased principally as a result of the higher
total margin.


                                      -10-
<PAGE>   13
                               UGI UTILITIES, INC.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


1998 TWELVE-MONTH PERIOD COMPARED WITH 1997 TWELVE-MONTH PERIOD

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
                                                                       Increase
Twelve Months Ended December 31,             1998       1997          (Decrease)
------------------------------------------------------------------------------------
(Millions of dollars)
<S>                                         <C>        <C>        <C>       <C>
GAS UTILITY:
     Natural gas system throughput - bcf      72.6       78.3       (5.7)     (7.3)%
     Degree days - % warmer than normal      (21.8)      (4.2)        --        --
     Revenues                               $327.9     $390.1     $(62.2)    (15.9)%
     Total margin (a)                       $151.8     $166.7     $(14.9)     (8.9)%
     Operating income                       $ 59.0     $ 69.9     $(10.9)    (15.6)%
     EBITDA                                 $ 77.3     $ 87.1     $ (9.8)    (11.3)%

ELECTRIC UTILITY:
     Electric sales - gwh                    871.8      872.5        (.7)      (.1)%
     Revenues                               $ 71.7     $ 72.4     $  (.7)     (1.0)%
     Total margin (a)                       $ 34.8     $ 35.3     $  (.5)     (1.4)%
     Operating income                       $ 10.6     $ 10.0     $   .6       6.0%
     EBITDA                                 $ 14.4     $ 14.1     $   .3       2.1%
------------------------------------------------------------------------------------
</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 was 21.8% warmer than
normal during the 1998 twelve-month period compared to weather that was 4.2%
warmer than normal in the prior-year period. The decrease in total system
throughput primarily reflects a 20% (6.8 bcf) decline in core market volumes
partially offset by higher interruptible delivery service volumes.

The decrease in Gas Utility's revenues reflects the decline in core market
volumes resulting from the warmer weather as well as a reduction in revenues
from off-system sales. Cost of gas sold declined $44.5 million due to lower core
market and off-system sales.

The decrease in Gas Utility's total margin principally reflects a $15.1 million
decline in margin from our core market customers. Operating income and EBITDA in
the 1998 twelve-month period declined reflecting the $14.9 million decrease in
total margin partially offset by (1) lower operating expenses and (2) a $1.1
million increase in other income. Gas Utility's operating expenses, excluding
revenue-related taxes, were $2.9 million lower in the 1998 twelve-month 


                                      -11-
<PAGE>   14
                               UGI UTILITIES, INC.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


period reflecting (1) the absence of charges for environmental matters and (2)
lower distribution system maintenance expenditures due in part to the mild
heating-season weather.

ELECTRIC UTILITY. Total electric sales during the 1998 twelve-month period were
comparable with the prior year as the effects of warmer heating-season weather
were mitigated by the warmer summer's effect on electricity used for air
conditioning and an increase in number of customers. Electric Utility revenues
declined $.7 million during the 1998 twelve-month period primarily due to the
impact of Electric Utility's Customer Choice Act Pilot Program which began
November 1, 1997. Because pilot program participants buy their electricity from
other suppliers, we record the revenues for distributing the electricity but we
do not record revenues (or costs) related to the electricity itself.

Electric Utility cost of sales decreased $.2 million principally reflecting the
impact of the pilot program. Electric Utility's total margin decreased $.5
million in the 1998 twelve-month period reflecting the lower sales and slightly
higher average power costs. The increase in operating income and EBITDA,
notwithstanding the lower total margin, reflects higher other income.


                        FINANCIAL CONDITION AND LIQUIDITY

CAPITAL STRUCTURE

The Company's debt outstanding at December 31, 1998 totaled $257.4 million
compared with $255.6 million at September 30, 1998. Included in these amounts
are bank loans outstanding totaling $70.2 million and $68.4 million,
respectively. We may borrow up to $97 million under our revolving credit
agreements.

CASH FLOWS

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 generally lowest during the
first and fourth fiscal quarters. Accordingly, cash flows from operations during
the three months ended December 31, 1998 are not necessarily indicative of cash
flows to be expected for a full year.

OPERATING ACTIVITIES. Cash provided by operating activities was $6.0 million
during the three months ended December 31, 1998. In the prior-year period,
operating activities used $3.9 million of cash. The improvement in operating
cash flow in the 1998 three-month period was principally the result of the
warmer weather's impact on cash needed to fund working capital. Changes in
operating working capital during the three months ended December 31, 1998
required $13.2 million of operating cash flow while changes in operating working
capital during the three months ended December 31, 1997 required $26.8 million
of operating cash flow. Cash generated by operating activities before changes in


                                      -12-
<PAGE>   15
                               UGI UTILITIES, INC.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


operating working capital totaled $19.2 million during the three months ended
December 31, 1998 compared to $22.9 million in the prior-year period.

INVESTING ACTIVITIES. We spent $8.5 million for property, plant and equipment in
each of the three month periods ended December 31, 1998 and 1997.

FINANCING ACTIVITIES. Cash flows from financing activities for the 1998
three-month period include dividends on preferred stock of $.4 million compared
with $.7 million of such dividends in the 1997 three-month period. The lower
preferred stock dividends resulted from the redemption of $15 million face value
of Series Preferred Stock in April 1998. In the prior-year three-month period,
we paid $12.6 million of dividends to our parent company, UGI Corporation.

UGI Utilities' borrowed a net $1.8 million under its revolving credit agreements
in the 1998 three-month period compared with net repayments of $4.3 million in
the prior-year period. During the three months ended December 31, 1997, UGI
Utilities issued $20 million of notes under its Series B Medium-Term Note
program.

YEAR 2000 MATTERS

The Year 2000 ("Y2K") issue is a result of computer programs being written using
two digits (rather than four) to identify and process a year in a date field.
Computer programs, computer-controlled systems and equipment with embedded
software may recognize date fields using "00" as the year 1900 rather than the
year 2000. If uncorrected, miscalculations and possible computer-based system
failures could result which might disrupt business operations. We are
designating the following information as our "Year 2000 Readiness Disclosure."

Recognizing the potential business consequences of the Y2K issue, we are using
internal and external resources to conduct a detailed assessment of critical,
date sensitive computer-based systems and to identify and modify systems which
are not Y2K compliant. The scope of such efforts includes (1) our information
technology ("IT") systems such as computer hardware and software we use in the
operation of our business; (2) non-IT systems that contain embedded computer
technology such as micro-controllers contained in various equipment and
facilities; and (3) the readiness of third parties, including our suppliers and
key vendors, and certain of our customers. We have directed our Y2K compliance
efforts toward ensuring that we will be able to continue to perform three
critical operating functions: (1) obtain products to sell; (2) provide service
to our customers; and (3) bill customers and pay our vendors and employees. In
addition, the PUC has ordered that all Pennsylvania utilities' mission critical
systems must be Y2K compliant by March 31, 1999 or, alternatively, the utility
must file contingency plans with the PUC by that date. We have completed the
assessment phase of our IT and non-IT systems.

We have successfully modified and unit tested all of our critical IT and non-IT
systems including our customer information systems, financial systems and
distribution control systems, except for 


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

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Electric Utility's System Control and Data Acquisition (SCADA) system which is
scheduled for replacement with a Y2K compliant system in April 1999. We began
integrated testing of the remediated systems in February 1999. We currently
anticipate that all IT and non-IT systems critical to the operations of our
business will be Y2K compliant and tested by March 31, 1999 except for the SCADA
system which will be Y2K compliant upon its replacement and testing in April
1999.

In addition to internal Y2K remediation activities, we are in the process of
assessing the readiness of our key suppliers and third-party providers. Although
none of our products or services are directly date sensitive, as a utility
company we are dependent upon other companies whose IT and non-IT systems may
not be Y2K compliant. We rely on these companies for the supply and
transportation of natural gas and the generation of electricity beyond that
which we generate ourselves. If key third parties cannot provide products or
services because of their own Y2K problems, it could have a material adverse
impact on our operations. The extent of such impact would depend upon the
duration of disruption and our costs to find alternative sources of products and
services, among others. We expect to complete our evaluation of key supplier and
third-party readiness by March 31, 1999.

While we have directed our focus on resolving our Y2K issues and expect our
critical IT and non-IT systems to be Y2K compliant by March 31, 1999, we are in
the process of developing contingency plans. We anticipate the major elements of
these contingency plans will be based upon the use of manual back-up systems,
additional staffing, and alternative supply sources. These contingency plans
attempt to mitigate the impact of third-party Y2K noncompliance. However, they
cannot assure that business disruptions caused by key suppliers or third party
providers will not have a material adverse impact on our operations. We expect
the business contingency plans to be completed by March 31, 1999. In addition to
the business risks noted above, there are other Y2K risks which are beyond our
control, any of which could have a material adverse impact on our operations.
Such risks include the failure of utility and telecommunication companies to
provide service and the failure of financial institutions to process
transactions.

Incremental costs associated with our Y2K efforts have not had a material effect
on our results of operations. Estimated future costs to modify IT and non-IT
systems are expected to be less than $.5 million and will be financed through
internally generated funds. We expense Y2K costs as incurred.


                                      -14-
<PAGE>   17
                               UGI UTILITIES, INC.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposures are market prices for natural gas and electric
power and changes in long-term interest rates.

Although Gas Utility is subject to changes in the price of natural gas, the
current regulatory framework allows Gas Utility to recover prudently incurred
gas costs from its customers. Consequently, there currently is limited commodity
price risk associated with Gas Utility due to the current rate-making structure.

Because the sources and costs of our electric power vary from period to period
and because we no longer defer the difference between actual power costs and
amounts included in our rates, Electric Utility's quarterly results may be more
volatile in the future. In addition, future financial results will likely depend
upon a number of factors including the number of our customers who choose
alternative electricity suppliers and our success in producing or purchasing
electricity at competitive market prices. If our costs to produce or purchase
power exceed the amounts we are able to charge our customers, Electric Utility's
results would be adversely affected.


                            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 did not file any Current Reports on Form 8-K
                  during the fiscal quarter ended December 31, 1998.


                                      -15-
<PAGE>   18
                                   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 11, 1999                 By: J. C. Barney
------------------------                ----------------------------------------
                                        J. C. Barney, Vice President -
                                        Finance and Accounting
                                        (Principal Financial Officer)


                                      -16-
<PAGE>   19
                      UGI UTILITIES, INC. AND SUBSIDIARIES

                                  EXHIBIT INDEX


12.1     Computation of ratio of earnings to fixed charges

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

27       Financial Data Schedule