<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 June 30, 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    No X
                                               ---   ---

     At July 31, 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                                             i

           Condensed Balance Sheets as of June 30, 2005,
             September 30, 2004 and June 30, 2004                           1

           Condensed Statements of Income for the three and
             nine months ended June 30, 2005 and 2004                       2

           Condensed Statements of Cash Flows for the
             nine months ended June 30, 2005 and 2004                       3

           Notes to Condensed Financial Statements                        4 - 14

  Item 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations                         15 - 21

  Item 3.  Quantitative and Qualitative Disclosures About Market Risk    21 - 22

  Item 4.  Controls and Procedures                                         23

PART II OTHER INFORMATION


  Item 6.  Exhibits                                                        24

  Signatures                                                               25

</TABLE>

<PAGE>
                              UGI UTILITIES, INC.

                            CONDENSED BALANCE SHEETS
                                  (unaudited)
                             (Thousands of dollars)


<Table>
<Caption>
                                                                                    June 30,     September 30,     June 30,
                                                                                      2005           2004            2004
                                                                                    ---------    -------------     ---------
<S>                                                                                 <C>          <C>               <C>
ASSETS
------

   Current assets:
        Cash and cash equivalents                                                    $    653        $     21       $  2,266
        Accounts receivable (less allowances for doubtful accounts
            of $7,222, $3,374 and $6,459, respectively)                                57,511          38,897         47,127
        Accrued utility revenues                                                        8,503           9,742          8,070
        Inventories                                                                    39,198          65,177         32,746
        Deferred income taxes                                                          15,661           6,658         11,757
        Prepaid expenses                                                                3,054           3,455          2,960
        Other current assets                                                              679           5,268          1,463
                                                                                     --------        --------       --------
            Total current assets                                                      125,259         129,218        106,389

   Property, plant and equipment, at cost (less accumulated depreciation and
        amortization of $327,961, $313,030 and $309,687, respectively)                644,882         631,264        622,354

   Regulatory assets                                                                   66,778          65,060         62,997
   Other assets                                                                        29,012          29,664         31,860
                                                                                     --------        --------       --------
        Total assets                                                                 $865,931        $855,206       $823,600
                                                                                     ========        ========       ========

LIABILITIES  AND  STOCKHOLDER'S  EQUITY
---------------------------------------
   Current liabilities:
        Current maturities of long-term debt                                         $ 50,000        $ 20,000       $ 20,000
        Current maturities of preferred shares subject to mandatory
            redemption, without par value                                                   -          20,000          1,000
        Bank loans                                                                     49,500          60,900         30,100
        Accounts payable                                                               23,243          60,073         41,061
        Accounts payable - related parties                                             15,616           2,634            786
        Accrued income taxes                                                           12,264           2,111         15,040
        Deferred fuel costs                                                            19,082           7,862         16,621
        Other current liabilities                                                      35,665          44,170         32,922
                                                                                     --------        --------       --------
            Total current liabilities                                                 205,370         217,750        157,530

   Long-term debt                                                                     187,060         197,151        197,181
   Deferred income taxes                                                              164,732         157,561        154,975
   Deferred investment tax credits                                                      7,290           7,589          7,688
   Other noncurrent liabilities                                                        17,691          15,124         14,890
   Preferred shares subject to mandatory redemption, without par value                      -               -         19,000
                                                                                     --------        --------       --------
            Total liabilities                                                         582,143         595,175        551,264

   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                                                             145,896         121,454        133,419
        Accumulated other comprehensive loss                                           (2,140)         (1,455)          (388)
                                                                                     --------        --------       --------
            Total common stockholder's equity                                         283,788         260,031        272,336
                                                                                     --------        --------       --------
        Total liabilities and stockholder's equity                                   $865,931        $855,206       $823,600
                                                                                     ========        ========       ========
</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               Nine Months Ended
                                                                            June 30,                        June 30,
                                                                  -----------------------------   ------------------------------
                                                                      2005            2004              2005             2004
                                                                  -------------   -------------   -------------    -------------


<S>                                                             <C>              <C>             <C>               <C>

Revenues                                                           $ 111,534       $ 118,717         $ 576,469        $ 557,618
                                                                   ---------       ---------         ---------        ---------

Costs and expenses:
   Cost of sales - gas, fuel and purchased power                      65,244          74,751           372,033          356,887
   Operating and administrative expenses                              21,698          21,559            70,239           68,197
   Operating and administrative expenses - related parties             3,995           2,072             9,612            7,890
   Taxes other than income taxes                                       3,152           3,110            10,079            9,763
   Depreciation and amortization                                       6,019           5,436            17,785           16,906
   Other income, net                                                  (1,242)           (493)           (4,486)          (1,534)
                                                                   ---------       ---------         ---------        ---------
                                                                      98,866         106,435           475,262          458,109
                                                                   ---------       ---------         ---------        ---------

Operating income                                                      12,668          12,282           101,207           99,509
Interest expense                                                       4,394           4,399            13,543           13,460
                                                                   ---------       ---------         ---------        ---------
Income before income taxes                                             8,274           7,883            87,664           86,049
Income taxes                                                           3,367           3,388            35,083           34,897
                                                                   ---------       ---------         ---------        ---------
Net income                                                         $   4,907       $   4,495         $  52,581        $  51,152
                                                                   =========       =========         =========        =========

</TABLE>



See accompanying notes to condensed financial statements.




                                      -2-
<PAGE>
                               UGI UTILITIES, INC.

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


<TABLE>
<CAPTION>

                                                                        Nine Months Ended
                                                                            June 30,
                                                                   ---------------------------
                                                                       2005           2004
                                                                   ------------   ------------
<S>                                                             <C>                <C>


CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                        $  52,581      $  51,152
  Adjustments to reconcile net income to net cash provided
    by operating activities:
      Depreciation and amortization                                    17,785         16,906
      Deferred income tax (benefit) expense, net                       (3,531)         5,029
      Provision for uncollectible accounts                              7,135          6,688
      Other, net                                                        2,136          2,163
      Net change in:
        Accounts receivable and accrued utility revenues              (24,510)       (24,353)
        Inventories                                                    25,979         21,271
        Deferred fuel costs                                            11,220          2,414
        Accounts payable                                              (23,848)       (13,451)
        Other current assets and liabilities                            6,453          7,891
                                                                    ---------      ---------
     Net cash provided by operating activities                         71,400         75,710
                                                                    ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Expenditures for property, plant and equipment                      (30,355)       (26,602)
  Net costs of property, plant and equipment disposals                   (873)        (1,317)
                                                                    ---------      ---------
     Net cash used by investing activities                            (31,228)       (27,919)
                                                                    ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payment of dividends                                                (28,140)       (35,229)
  Redemption of preferred shares subject to mandatory redemption      (20,000)             -
  Increase in bank loans with maturities of three months or less      (11,400)       (10,600)
  Issuance of debt                                                     60,000              -
  Repayment of debt                                                   (40,000)             -
                                                                    ---------      ---------
     Net cash used by financing activities                            (39,540)       (45,829)
                                                                    ---------      ---------

Cash and cash equivalents increase                                  $     632      $   1,962
                                                                    =========      =========

CASH AND CASH EQUIVALENTS:
  End of period                                                     $     653      $   2,266
  Beginning of period                                                      21            304
                                                                    ---------      ---------
    Increase                                                        $     632      $   1,962
                                                                    =========      =========

</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 nine months ended June 30, 2005 and
     2004:

<TABLE>
<CAPTION>
     --------------------------------------------------------------------------------
                                           Three Months Ended     Nine Months Ended
                                                June 30,              June 30,
                                          -------------------   ---------------------
                                            2005       2004       2005        2004
     --------------------------------------------------------   ---------------------
     <S>                                  <C>         <C>       <C>         <C>
     Net income                           $ 4,907     $ 4,495   $ 52,581    $ 51,152
     Other comprehensive income (loss)     (1,509)      1,612       (685)      1,661
     --------------------------------------------------------   ---------------------
     Comprehensive income                 $ 3,398     $ 6,107   $ 51,896    $ 52,813
     --------------------------------------------------------------------------------
</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 $525 and $1,518 during the three and nine months ended June 30, 2005,
     respectively, and $368 and $1,843 during the three and nine months ended
     June 30, 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   Nine Months Ended
                                                             June 30,           June 30,
                                                       ------------------   ------------------
                                                          2005     2004       2005      2004
     --------------------------------------------------------------------   ------------------
     <S>                                                <C>       <C>       <C>        <C>
     Net income, as reported                            $4,907    $4,495    $52,581    $51,152
     Add:  Stock-based employee compensation
       expense included in reported net income, net
       of related tax effects                              307       215        888      1,079
     Deduct: Total stock-based employee compensation
       expense determined under the fair value method
       for all awards, net of related tax effects         (337)     (218)    (1,042)    (1,153)
     --------------------------------------------------------------------   -------------------
     Pro forma net income                               $4,877    $4,492    $52,427    $51,078
     ------------------------------------------------------------------------------------------
</TABLE>

     RECLASSIFICATIONS. We have reclassified certain prior-year balances to
     conform to the current period presentation.

     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:

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2005:

----------------------------------------------------------------------------------
                                                                Gas      Electric
                                                   Total      Utility    Utility
----------------------------------------------------------------------------------
<S>                                               <C>        <C>         <C>
  Revenues                                        $111,534   $ 89,504    $22,030
  Cost of sales - gas, fuel and purchased power     65,244     54,612     10,632
  Depreciation and amortization                      6,019      5,240        779
  Operating income                                  12,668      7,692      4,976
  Interest expense                                   4,394      3,923        471
  Income before income taxes                         8,274      3,769      4,505
  Total assets at period end                       865,931    768,723     97,208
----------------------------------------------------------------------------------

THREE MONTHS ENDED JUNE 30, 2004:

----------------------------------------------------------------------------------
                                                               Gas      Electric
                                                   Total     Utility     Utility
----------------------------------------------------------------------------------
  Revenues                                        $118,717   $ 97,710    $21,007
  Cost of sales - gas, fuel and purchased power     74,751     65,107      9,644
  Depreciation and amortization                      5,436      4,895        541
  Operating income                                  12,282      6,857      5,425
  Interest expense                                   4,399      3,859        540
  Income before income taxes                         7,883      2,998      4,885
  Total assets at period end                       823,600    735,503     88,097
----------------------------------------------------------------------------------
</TABLE>


                                      -6-
<PAGE>
                               UGI UTILITIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                     ---------------------------------------
                                   (unaudited)
                (Thousands of dollars, except per share amounts)

<TABLE>
<CAPTION>

NINE MONTHS ENDED JUNE 30, 2005:

----------------------------------------------------------------------------------
                                                                Gas      Electric
                                                    Total    Utility     Utility
----------------------------------------------------------------------------------
<S>                                               <C>        <C>         <C>
  Revenues                                        $576,469   $506,584    $69,885
  Cost of sales - gas, fuel and purchased power    372,033    338,500     33,533
  Depreciation and amortization                     17,785     15,470      2,315
  Operating income                                 101,207     84,379     16,828
  Interest expense                                  13,543     12,034      1,509
  Income before income taxes                        87,664     72,345     15,319
  Total assets at period end                       865,931    768,723     97,208
----------------------------------------------------------------------------------

NINE MONTHS ENDED JUNE 30, 2004:

----------------------------------------------------------------------------------
                                                                Gas      Electric
                                                    Total    Utility     Utility
----------------------------------------------------------------------------------
  Revenues                                        $557,618   $490,518    $67,100
  Cost of sales - gas, fuel and purchased power    356,887    325,243     31,644
  Depreciation and amortization                     16,906     14,632      2,274
  Operating income                                  99,509     82,750     16,759
  Interest expense                                  13,460     11,887      1,573
  Income before income taxes                        86,049     70,863     15,186
  Total assets at period end                       823,600    735,503     88,097
----------------------------------------------------------------------------------
</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 AND LONG-TERM DEBT

     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.

     In May 2005, UGI Utilities refinanced $20,000 of its maturing 6.62%
     Medium-Term Notes with proceeds from the issuance of $20,000 of 5.16%
     Medium-Term Notes due in May 2015.

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 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 Postretirement
                                          Pension Benefits            Benefits
                                       ----------------------     --------------------
                                         Three Months Ended        Three Months Ended
                                              June 30,                  June 30,
                                       ----------------------      ------------------
                                          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
     --------------------------------------------------------------------------------

     --------------------------------------------------------------------------------
                                                                 Other Postretirement
                                         Pension Benefits              Benefits
                                       ----------------------    --------------------
                                         Nine Months Ended        Nine Months Ended
                                             June 30,                  June 30,
                                       --------------------      --------------------
                                         2005          2004         2005       2004
     --------------------------------------------------------------------------------
     Service cost                      $  3,270      $ 3,495       $   86     $   90
     Interest cost                        8,994        9,285        1,105      1,092
     Expected return on assets          (11,925)     (12,324)        (357)      (345)
     Amortization of:
       Transition (asset) obligation          -         (984)         507        510
       Prior service cost                   465          498            -          -
       Actuarial loss                       924          864          244        204
     --------------------------------------------------------------------------------
     Net benefit cost                     1,728          834        1,585      1,551
     Change in regulatory assets
       and liabilities                        -            -          740        774
     --------------------------------------------------------------------------------
     Net expense                       $  1,728        $ 834       $2,325     $2,325
     --------------------------------------------------------------------------------
</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 for ERISA funding purposes.
     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. During the nine months ended June 30, 2005, the Company
     contributed approximately $1,900 to the VEBA and expects to contribute
     approximately $2,300 for the twelve months ended September 30, 2005.

                                      -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 pre-tax expense for this plan of $116
     and $332 for the three and nine months ended June 30, 2005, respectively,
     and $104 and $312 for the three and nine months ended June 30, 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


                                      -11-
<PAGE>

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

     Utilities controlled operations of the plants from 1883 to 1941. According
     to the letter, 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 June
     30, 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 June 30, 2005, comprising 4.4 billion cubic feet of natural
     gas, was $33,668.


                                      -12-
<PAGE>

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

7.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In May 2005, the Financial Accounting Standards Board ("FASB") issued SFAS
     No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"). SFAS 154
     replaces APB No. 20, "Accounting Changes" and SFAS No. 3, "Reporting
     Accounting Changes in Interim Financial Statements," and establishes
     retrospective application as the required method for reporting a change in
     accounting principle. SFAS 154 provides guidance for determining whether
     retrospective application of a change in accounting principle is
     impracticable and for reporting a change when retrospective application is
     impracticable. SFAS 154 is effective for accounting changes and corrections
     of errors made in fiscal years beginning after December 15, 2005.

     In March 2005, the FASB issued Interpretation No. 47, "Accounting for
     Conditional Asset Retirement Obligations" ("FIN 47"). It requires an entity
     to recognize a liability for a conditional asset retirement obligation when
     incurred if the liability can be reasonably estimated. FIN 47 clarifies
     that the term "Conditional Asset Retirement Obligation" refers to a legal
     obligation to perform an asset retirement activity in which the timing
     and/or method of settlement are conditional on a future event that may or
     may not be within the control of the entity. FIN 47 also clarifies when an
     entity would have sufficient information to reasonably estimate the fair
     value of an asset retirement obligation. FIN 47 is effective no later than
     the end of fiscal years ending after December 15, 2005. We are currently
     evaluating the impact of FIN 47 but do not expect it to have a material
     effect on our financial position or results of operations.

     In December 2004, the 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. For disclosure regarding
     pro forma net income as if we had determined stock-based compensation under
     the fair value method prescribed by SFAS 123, see Note 1.


                                      -13-
<PAGE>

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

     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. The adoption of SFAS 153
     will not have a material effect on our financial position or results of
     operations.

                                      -14-
<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 June 30, 2005 ("2005 three-month period") with the three months
ended June 30, 2004 ("2004 three-month period") and (2) the nine months ended
June 30, 2005 ("2005 nine-month period") with the nine months ended June 30,
2004 ("2004 nine-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
-------------------------------------------------------------
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------
                                                                                           Increase
 Three Months Ended June 30,                                   2005         2004          (Decrease)
-----------------------------------------------------------------------------------------------------------
 (Millions of dollars)

<S>                                                          <C>        <C>          <C>         <C>

 GAS UTILITY:
   Revenues                                                   $ 89.5       $ 97.7      $(8.2)     (8.4)%
   Total margin (a)                                           $ 34.9       $ 32.6      $ 2.3       7.1%
   Operating income                                           $  7.7       $  6.9      $ 0.8      11.6%
   Income before income taxes                                 $  3.8       $  3.0      $ 0.8      26.7%
   System throughput - bcf                                      15.3         15.5       (0.2)     (1.3)%
   Heating degree days - % warmer than normal                   (6.4)%      (18.7)%        -         -

 ELECTRIC UTILITY:
   Revenues                                                   $ 22.0       $ 21.0      $ 1.0       4.8%
   Total margin (a)                                           $ 10.2       $ 10.2      $   -       0.0%
   Operating income                                           $  5.0       $  5.4      $(0.4)     (7.4)%
   Income before income taxes                                 $  4.5       $  4.9      $(0.4)     (8.2)%
   Distribution sales - gwh                                    222.5        221.5        1.0       0.5%
-----------------------------------------------------------------------------------------------------------

</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 $1.2 million and $1.1 million in the three-month
          periods ended June 30, 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. Although weather in Gas Utility's service territory based upon
heating degree-days was 6.4% warmer than normal during the 2005 three-month
period, weather was 15.1% colder than the prior-year three-month period.
Notwithstanding the colder 2005 three-month period weather and year-over-year
growth in the number of our customers, total distribution system throughput
decreased slightly as slightly higher sales to firm- residential, commercial and
industrial ("retail core-market") customers were more than offset by lower
volumes transported

                                      -15-

<PAGE>

                               UGI UTILITIES, INC.


for firm and interruptible delivery service customers. Although sales to retail
core-market customers increased, persistently high natural gas prices resulted
in price-induced customer conservation. The $8.2 million decrease in Gas Utility
revenues during the 2005 three-month period reflects a $15.6 million decrease in
revenues from low-margin off-system sales partially offset principally by higher
retail core-market revenues reflecting the effects of higher average purchased
gas cost ("PGC") rates and the previously mentioned higher retail core-market
volumes. Gas Utility's cost of gas was $54.6 million in the 2005 three-month
period compared to $65.1 million in the 2004 three-month period reflecting the
impact of the previously mentioned lower off-system sales partially offset by
higher retail core-market purchased gas costs.

Gas Utility total margin in the 2005 three-month period increased $2.3 million
reflecting higher average unit margins from interruptible customers and
increased retail core-market margin resulting from the higher sales.

Gas Utility operating income increased to $7.7 million in the 2005 three-month
period from $6.9 million in the 2004 three-month period principally reflecting
the $2.3 million increase in total margin and a $0.8 million increase in other
income partially offset by higher operating and administrative costs and greater
depreciation expense. Total operating and administrative expenses were $1.9
million higher than the prior-year period principally reflecting higher
employee-related expenses including higher incentive compensation costs. The
increase in Gas Utility income before income taxes reflects the previously
mentioned increase in operating income.

ELECTRIC UTILITY. Electric Utility's 2005 three-month period kilowatt-hour sales
were essentially equal with the prior-year period. Electric Utility revenues
increased $1.0 million in the 2005 three-month period reflecting an increase in
its Provider of Last Resort ("POLR") electric generation rates effective January
1, 2005. Electric Utility's cost of sales increased $1.0 million as a result of
higher per-unit purchased power costs.

Electric Utility total margin in the 2005 three-month period was comparable to
the 2004 three-month period as the increase in POLR electric generation revenues
was substantially offset by the increase in purchased power costs.

Operating income and income before income taxes were lower in the 2005
three-month period primarily reflecting higher operating and administrative
expenses and greater depreciation expense.


                                      -16-

<PAGE>
                               UGI UTILITIES, INC.



2005 NINE-MONTH PERIOD COMPARED WITH 2004 NINE-MONTH PERIOD
-----------------------------------------------------------

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                                           Increase
 Nine Months Ended June 30,                                    2005         2004          (Decrease)
-----------------------------------------------------------------------------------------------------------
 (Millions of dollars)

<S>                                                         <C>         <C>         <C>         <C>

 GAS UTILITY:
   Revenues                                                   $506.6       $490.5      $16.1       3.3%
   Total margin (a)                                           $168.1       $165.3      $ 2.8       1.7%
   Operating income                                           $ 84.4       $ 82.8      $ 1.6       1.9%
   Income before income taxes                                 $ 72.3       $ 70.9      $ 1.4       2.0%
   System throughput - bcf                                      69.2         70.0       (0.8)     (1.1)%
   Heating degree days - % colder (warmer) than normal           0.0%        (2.0)%        -         -

 ELECTRIC UTILITY:
   Revenues                                                   $ 69.9       $ 67.1      $ 2.8       4.2%
   Total margin (a)                                           $ 32.5       $ 31.8      $ 0.7       2.2%
   Operating income                                           $ 16.8       $ 16.8      $   -       0.0%
   Income before income taxes                                 $ 15.3       $ 15.2      $ 0.1       0.7%
   Distribution sales - gwh                                    753.7        747.2        6.5       0.9%
-----------------------------------------------------------------------------------------------------------

</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 $3.9 million and $3.6 million in the nine-month
          periods ended June 30, 2005 and 2004, respectively.

GAS UTILITY. Weather in Gas Utility's service territory during the 2005
nine-month period was approximately normal compared with weather that was 2.0%
warmer than normal in the 2004 nine-month period. Notwithstanding the slightly
colder weather and year-over-year customer growth, total distribution system
throughput decreased 0.8 bcf or 1.1% as persistently high natural gas prices
resulted in price-induced customer conservation principally in our retail
core-market. During the quarter ended June 30, 2005, the Company revised its
heating degree day statistics for the first and second fiscal quarters of 2005
due to a measurement error caused by an equipment malfunction. On an adjusted
basis, weather was 3.0% warmer than normal during the three months ended
December 31, 2004 (versus 0.5% colder than normal as previously reported), and
3.6% colder than normal during the three months ended March 31, 2005 (versus
5.7% colder than normal as previously reported). For the six months ended March
31, 2005, weather was 0.9% colder than normal (versus 3.6% colder than normal as
previously reported). The adjusted statistics did not have an effect on the
Company's results of operations or the discussion of those results included in
the Company's "Management's Discussion and Analysis of Results of Operations"
for the periods described above, other than to lessen the estimated effects of
price-induced conservation on throughput from our retail core-market customers
for all the periods affected. The decrease in retail core-market throughput
during the 2005 nine-month period was partially offset by higher interruptible
delivery service volumes. The increase in Gas Utility revenues during the 2005
nine-month period principally is a result of a $52.4 million increase in retail
core-market revenues and higher revenues from interruptible customers partially
offset by a $40.6 million 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 $338.5 million in

                                      -17-

<PAGE>
                               UGI UTILITIES, INC.


the 2005 nine-month period compared to $325.2 million in the 2004 nine-month
period reflecting the effects of the higher average PGC rates partially offset
by the effects on cost of sales from the lower off-system sales.

The $2.8 million increase in Gas Utility total margin principally reflects
greater margin generated from the higher interruptible delivery service volumes
and higher average interruptible delivery service unit margins. The increased
interruptible unit margins reflect an increase in the spread between prices for
natural gas and alternative fuels, principally oil.

Gas Utility operating income increased $1.6 million during the 2005 nine-month
period as the previously mentioned $2.8 million increase in total margin and a
$2.9 million increase in other income were partially offset by higher operating
and administrative costs and a $0.8 million increase in depreciation expense.
Other income increased due in large part to the absence of costs recorded in the
prior-year nine-month period related to settling a regulatory claim resulting
from the discontinuance of natural gas service to certain customers and higher
other non-tariff income. Operating and administrative expenses increased $3.3
million in the 2005 nine-month period principally reflecting higher employee
compensation and benefits expense including greater incentive compensation
expenses, the absence of environmental insurance settlements received in the
prior-year period and, to a lesser extent, greater uncollectible accounts
expense. These increases in expenses were 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
partially offset by the effects of slightly higher interest expense.

ELECTRIC UTILITY. Electric Utility's 2005 nine-month period kilowatt-hour sales
were slightly higher than the prior-year period on weather that was slightly
colder than the prior year. The increase in Electric Utility revenues
principally reflects higher POLR rates. Electric Utility's cost of sales
increased $1.9 million reflecting higher per-unit purchased power costs and, to
a lesser extent, the higher kilowatt-hour sales.

Electric Utility total margin in the 2005 nine-month period increased $0.7
million principally as a result of the previously mentioned increase in POLR
rates and the slight increase in kilowatt-hour sales partially offset by the
higher purchased power costs. Operating income and income before income taxes in
the 2005 nine-month period were comparable with the prior-year reflecting the
previously mentioned increase in total margin offset by increased operating and
administrative expenses, most notably related to increased distribution system
maintenance.


                                      -18-

<PAGE>
                               UGI UTILITIES, INC.

                        FINANCIAL CONDITION AND LIQUIDITY

FINANCIAL CONDITION

The Company's total debt outstanding at June 30, 2005 totaled $286.6 million
(including $49.5 million in bank loans) compared with $278.1 million (including
$60.9 million in bank loans) at September 30, 2004. In May 2005, we refinanced
$20 million of our maturing 6.62% Medium-Term Notes that were due in May 2005
through the issuance of $20 million of 5.16% Medium-Term Notes due in May 2015.
In addition, we expect to refinance the $50 million of Medium-Term Notes due in
December 2005 with new Medium-Term Notes.

The Company has revolving credit commitments under which it may borrow up to
$110 million. These agreements expire in June 2007 and June 2008. At June 30,
2005, borrowings under these agreements totaled $49.5 million. UGI Utilities
filed a shelf registration statement with the U.S. Securities and Exchange
Commission covering a total of $125 million of debt securities. The registration
statement was declared effective on June 27, 2005.

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 $71.4 million during
the nine months ended June 30, 2005 compared with $75.7 million during the
prior-year nine-month period. Cash flow from operating activities before changes
in operating working capital was $76.1 million in the 2005 nine-month period
compared to $81.9 million in the prior-year nine-month period principally
reflecting lower non-cash deferred income tax expense partially offset slightly
by higher operating results. Changes in operating working capital used $4.7
million of operating cash flow during the 2005 nine-month period compared with
$6.2 million used during the prior-year nine-month period principally reflecting
changes in accounts payable and higher net overcollections of deferred fuel
costs.

INVESTING ACTIVITIES. Cash used by investing activities was $31.2 million in the
2005 nine-month period compared with $27.9 million in the prior-year period.
Expenditures for property, plant and equipment were $30.4 million in the 2005
nine-month period compared with $26.6 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 nine-month period
reflecting slightly greater proceeds from the sale of property.

FINANCING ACTIVITIES. Cash used by financing activities was $39.5 million in the
2005 nine-month period compared with $45.8 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 nine-month periods, we paid
dividends of

                                      -19-

<PAGE>

                               UGI UTILITIES, INC.


$28.1 million and $35.2 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 nine-month
period, we had net repayments of short-term borrowings of $31.4 million ($11.4
million with maturities of three months or less) compared to net repayments of
$10.6 million in the prior-year period. UGI Utilities borrowed and repaid $20
million associated with a short-term loan that matured March 1, 2005. As
previously mentioned, in May 2005, we refinanced $20 million of our maturing
6.62% Medium-Term Notes through the issuance of $20 million of 5.16% Medium-Term
Notes.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 154, "Accounting Changes and
Error Corrections" ("SFAS 154"). SFAS 154 replaces APB No. 20, "Accounting
Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
Statements" and establishes retrospective application as the required method for
reporting a change in accounting principle. SFAS 154 provides guidance for
determining whether retrospective application of a change in accounting
principle is impracticable and for reporting a change when retrospective
application is impracticable. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.

In March 2005, the FASB issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"). It requires an entity to
recognize a liability for a conditional asset retirement obligation when
incurred if the liability can be reasonably estimated. FIN 47 clarifies that the
term "Conditional Asset Retirement Obligation" refers to a legal obligation to
perform an asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not be within the
control of the entity. FIN 47 also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal years
ending after December 15, 2005. We are currently evaluating the impact of FIN 47
but do not expect it to have a material effect on our financial position or
results of operations.

In December 2004, the FASB issued 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

                                      -20-

<PAGE>
                               UGI UTILITIES, INC.


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. For disclosure regarding pro forma net income as if we had determined
stock-based compensation under the fair value method prescribed by SFAS 123, see
Note 1 to the 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. The
adoption of SFAS 153 will not have a material effect on our financial position
or results of operations.

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-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 to a level
that is not greater than 7.5% above the 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

                                      -21-

<PAGE>
                               UGI UTILITIES, INC.

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 June 30,
2005. At June 30, 2005, the fair value of our electricity price swap was a gain
of $3.9 million. An adverse change in electricity prices of ten percent would
result in a $1.2 million decrease in the fair value of the swap. At June 30,
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 $4.3
million. An adverse change in interest rates on ten-year U.S. treasury notes of
ten percent would result in a $2.1 million decrease in the fair value of these
interest rate protection agreements.

                                      -22-


<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.


                                      -23-

<PAGE>
                               UGI UTILITIES, INC.



                            PART II OTHER INFORMATION





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 June 30, 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 June 30, 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 June 30, 2005, pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002.


                                      -24-

<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:  August 8, 2005                           By:  /s/ John C. Barney
---------------------                           -----------------------
                                                John C. Barney
                                                Senior Vice President - Finance
                                                (Principal Financial Officer)



                                      -25-
<PAGE>
                              UGI UTILITIES, INC.

                                  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 June 30, 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 June 30, 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 June 30, 2005, pursuant to Section 906 of the Sarbanes-Oxley Act
        of 2002.