##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 OR
 o
    
    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.
  Pennsylvania
    
    23-1174060(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 Yes þ No o
 Yes
o No
o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 Yes o No þ




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##### 



UGI UTILITIES, INC. AND SUBSIDIARIES
 TABLE OF CONTENTS
 PAGESPart
I Financial InformationItem 1.
Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of June 30, 2010,
September 30, 2009 and June 30, 2009
    
    
    1Condensed Consolidated Statements of Income for the three and
nine months ended June 30, 2010 and 2009
    
    
    2Condensed Consolidated Statements of Cash Flows for the three
and nine months ended June 30, 2010 and 2009
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4 - 20Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    21 - 27Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27 - 28Item 4T. Controls and Procedures
    
    
    28Part
II Other InformationItem 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 6. Exhibits
    
    
    30Signatures
    
    
    31Exhibit 10.1Exhibit 10.2Exhibit 12.1Exhibit 31.1Exhibit 31.2Exhibit 32
   -i-




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##### Table of Contents



June 30,
    
    
    September 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    38,055
    
    
    $
    13,523
    
    
    $
    6,758Restricted cash
    
    
    3,639
    
    
    
    
    
    
    
    46,485Accounts receivable (less allowances for doubtful accounts of $17,297,
$11,384 and $22,818, respectively)
    
    
    90,280
    
    
    
    74,286
    
    
    
    112,992Accounts receivable  related parties
    
    
    4,395
    
    
    
    3,378
    
    
    
    1,698Accrued utility revenues
    
    
    9,736
    
    
    
    20,980
    
    
    
    21,176Inventories
    
    
    67,611
    
    
    
    196,598
    
    
    
    106,250Deferred income taxes
    
    
    21,483
    
    
    
    24,905
    
    
    
    36,330Regulatory assets
    
    
    6,316
    
    
    
    19,584
    
    
    
    28,788Derivative financial instruments
    
    
    612
    
    
    
    867
    
    
    
    1,006Prepaid expenses & other current assets
    
    
    18,450
    
    
    
    5,167
    
    
    
    5,244Total current assets
    
    
    260,577
    
    
    
    359,288
    
    
    
    366,727Property, plant and equipment, at cost (less accumulated depreciation and
amortization of $727,484, $692,082 and
$691,592, respectively)
    
    
    1,369,530
    
    
    
    1,364,795
    
    
    
    1,352,309Goodwill
    
    
    180,145
    
    
    
    180,145
    
    
    
    176,906Regulatory assets
    
    
    135,397
    
    
    
    121,960
    
    
    
    112,706Other assets
    
    
    4,205
    
    
    
    4,049
    
    
    
    10,008Total assets
    
    $
    1,949,854
    
    
    $
    2,030,237
    
    
    $
    2,018,656LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank loans
    
    $
    
    
    
    $
    154,000
    
    
    $
    110,000Accounts payable
    
    
    49,500
    
    
    
    53,265
    
    
    
    42,779Accounts payable  related parties
    
    
    6,039
    
    
    
    8,746
    
    
    
    8,927Deferred fuel refunds
    
    
    16,576
    
    
    
    30,846
    
    
    
    13,512Derivative financial instruments
    
    
    828
    
    
    
    
    
    
    
    42,473Other current liabilities
    
    
    110,360
    
    
    
    110,966
    
    
    
    140,603Total current liabilities
    
    
    183,303
    
    
    
    357,823
    
    
    
    358,294Long-term debt
    
    
    640,000
    
    
    
    640,000
    
    
    
    640,000Deferred income taxes
    
    
    222,568
    
    
    
    168,830
    
    
    
    152,920Deferred investment tax credits
    
    
    5,400
    
    
    
    5,670
    
    
    
    5,762Pension and postretirement benefit obligations
    
    
    143,987
    
    
    
    150,499
    
    
    
    140,687Other noncurrent liabilities
    
    
    70,797
    
    
    
    61,372
    
    
    
    58,708Total liabilities
    
    
    1,266,055
    
    
    
    1,384,194
    
    
    
    1,356,371Commitments and contingencies (note 8)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
    
    
    
    60,259Additional paid-in capital
    
    
    467,571
    
    
    
    467,160
    
    
    
    466,990Retained earnings
    
    
    235,955
    
    
    
    201,710
    
    
    
    216,991Accumulated other comprehensive loss
    
    
    (79,986
    )
    
    
    (83,086
    )
    
    
    (81,955
    )Total common stockholders equity
    
    
    683,799
    
    
    
    646,043
    
    
    
    662,285Total liabilities and stockholders equity
    
    $
    1,949,854
    
    
    $
    2,030,237
    
    
    $
    2,018,656
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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    175,021
    
    
    $
    208,300
    
    
    $
    1,014,497
    
    
    $
    1,236,252Costs and expenses:Cost of sales  gas, fuel and purchased power
(excluding depreciation shown below)
    
    
    98,864
    
    
    
    129,533
    
    
    
    642,252
    
    
    
    862,743Operating and administrative expenses
    
    
    40,515
    
    
    
    43,633
    
    
    
    133,369
    
    
    
    151,556Operating and administrative expenses  related parties
    
    
    2,792
    
    
    
    2,976
    
    
    
    10,549
    
    
    
    12,114Taxes other than income taxes
    
    
    4,167
    
    
    
    4,244
    
    
    
    13,589
    
    
    
    13,870Depreciation
    
    
    12,728
    
    
    
    12,156
    
    
    
    37,847
    
    
    
    36,269Amortization
    
    
    709
    
    
    
    619
    
    
    
    2,087
    
    
    
    1,580Other income, net
    
    
    (1,133
    )
    
    
    (1,304
    )
    
    
    (5,185
    )
    
    
    (6,008
    )158,642
    
    
    
    191,857
    
    
    
    834,508
    
    
    
    1,072,124Operating income
    
    
    16,379
    
    
    
    16,443
    
    
    
    179,989
    
    
    
    164,128Interest expense
    
    
    10,481
    
    
    
    10,821
    
    
    
    31,842
    
    
    
    33,010Income before income taxes
    
    
    5,898
    
    
    
    5,622
    
    
    
    148,147
    
    
    
    131,118Income taxes
    
    
    2,294
    
    
    
    2,509
    
    
    
    58,768
    
    
    
    52,125Net income
    
    $
    3,604
    
    
    $
    3,113
    
    
    $
    89,379
    
    
    $
    78,993
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##### Table of Contents



Nine Months EndedJune 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    89,379
    
    
    $
    78,993Adjustments to reconcile net income to net cash from operating activities:Depreciation and amortization
    
    
    39,934
    
    
    
    37,849Deferred income taxes, net
    
    
    49,532
    
    
    
    (9,805
    )Provision for uncollectible accounts
    
    
    13,273
    
    
    
    20,747Other, net
    
    
    11,330
    
    
    
    11,408Net change in:Accounts receivable and accrued utility revenues
    
    
    (19,040
    )
    
    
    (46,404
    )Inventories
    
    
    128,987
    
    
    
    77,606Deferred fuel and power costs
    
    
    (1,002
    )
    
    
    40,214Accounts payable
    
    
    (6,472
    )
    
    
    (29,742
    )Storage agreements security deposits
    
    
    3,500
    
    
    
    19,000Other current assets
    
    
    (13,029
    )
    
    
    (1,281
    )Other current liabilities
    
    
    (12,755
    )
    
    
    26,685Net cash provided by operating activities
    
    
    283,637
    
    
    
    225,270CASH FLOWS FROM INVESTING ACTIVITIES:Expenditures for property, plant and equipment
    
    
    (44,484
    )
    
    
    (56,068
    )Net costs of property, plant and equipment disposals
    
    
    (1,848
    )
    
    
    (1,866
    )Acquisition of CPG, net of cash acquired
    
    
    
    
    
    
    (298,671
    )Proceeds from sale of CPG propane business assets
    
    
    
    
    
    
    32,269Increase in restricted cash
    
    
    (3,639
    )
    
    
    (12,448
    )Net cash used by investing activities
    
    
    (49,971
    )
    
    
    (336,784
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payment of dividends
    
    
    (55,134
    )
    
    
    (46,211
    )Issuance of long-term debt
    
    
    
    
    
    
    108,000(Decrease) increase in bank loans
    
    
    (154,000
    )
    
    
    53,000Net cash (used) provided by financing activities
    
    
    (209,134
    )
    
    
    114,789Cash and cash equivalents increase
    
    $
    24,532
    
    
    $
    3,275CASH AND CASH EQUIVALENTS:End of period
    
    $
    38,055
    
    
    $
    6,758Beginning of period
    
    
    13,523
    
    
    
    3,483Increase
    
    $
    24,532
    
    
    $
    3,275
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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 
 Notes to Condensed Consolidated Financial Statements
   1.
    
    Nature of Operations
 UGI Utilities, Inc., a wholly owned subsidiary of UGI Corporation (UGI), and its wholly
owned subsidiaries UGI Penn Natural Gas, Inc. (PNG) and UGI Central Penn Gas, Inc. (CPG)
own and operate natural gas distribution utilities primarily located in eastern,
northeastern and central Pennsylvania. UGI Utilities also owns and operates an electric
distribution utility in northeastern Pennsylvania (Electric Utility). UGI Utilities,
Inc.s natural gas distribution utility is referred to herein as UGI Gas; PNGs natural
gas distribution utility is referred to herein as PNG Gas; and CPGs natural gas
distribution utility is referred to herein as CPG Gas. UGI Gas, PNG Gas and CPG Gas are
collectively referred to as Gas Utility. PNG also has a heating, ventilation and
air-conditioning service business (UGI Penn HVAC Services, Inc.) which operates
principally in the PNG Gas service territory.
 Gas Utility is subject to regulation by the Pennsylvania Public Utility Commission (PUC)
and the Maryland Public Service Commission, and Electric Utility is subject to regulation by
the PUC. The term UGI Utilities is used sometimes as an abbreviated reference to UGI
Utilities, Inc., or to UGI Utilities, Inc. and its subsidiaries. Our condensed consolidated
financial statements include the accounts of UGI Utilities and its subsidiaries
(collectively, we or the Company). We eliminate all significant intercompany accounts
when we consolidate.
 2.
    
    Significant Accounting Policies
 Basis of Presentation.The accompanying condensed consolidated financial statements are
unaudited and have been prepared in accordance with the rules and regulations of the U.S.
Securities and Exchange Commission (SEC). They include all adjustments which we consider
necessary for a fair statement of the results for the interim periods presented. Such
adjustments consisted only of normal recurring items unless otherwise disclosed. The
September 30, 2009 condensed consolidated balance sheet data were derived from audited
financial statements but do not include all disclosures required by accounting principles
generally accepted in the United States of America (GAAP). These financial statements
should be read in conjunction with the financial statements and related notes included in
our Annual Report on Form 10-K for the year ended September 30, 2009 (Companys 2009 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, 2010 and 2009:
 Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    3,604
    
    
    $
    3,113
    
    
    $
    89,379
    
    
    $
    78,993Other comprehensive income (loss)
    
    
    1,034
    
    
    
    170
    
    
    
    3,100
    
    
    
    (38,177
    )Comprehensive income
    
    $
    4,638
    
    
    $
    3,283
    
    
    $
    92,479
    
    
    $
    40,816
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 Other comprehensive income (loss) includes reclassifications of losses on interest rate
protection agreements and actuarial gains and losses on postretirement benefit plans, net of
reclassifications to net income. On December 31, 2008, we merged two of our defined benefit
pension plans that we sponsored. As a result of the merger, at December 31, 2008, the
Company was required under GAAP to remeasure the combined plans assets and obligations and
record the funded status in our Condensed Consolidated Balance Sheet. The associated
after-tax charge to other comprehensive loss of $38,688 is included in the table above for
the nine months ended June 30, 2009.
 Restricted Cash.Restricted cash represents those cash balances in our futures brokerage
accounts which are restricted from withdrawal.
 Reclassifications.We have reclassified certain prior-year period balances to conform to
the current-period presentation.
 Use of Estimates.We make estimates and assumptions when preparing financial statements in
conformity with GAAP. 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.
 Income Taxes.As a result of settlements with tax authorities, in December 2009 and December
2008 the Company reduced its unrecognized tax benefits. The reductions decreased income tax
expense for the nine months ended June 30, 2010 and 2009 by $290 and $490, respectively.
 The Company received Internal Revenue Service (IRS) consent to change its tax method of
accounting for capitalizing certain repairs and maintenance costs associated with its Gas
Utility and Electric Utility assets beginning with the tax year ended September 30, 2009.
The filing of the Companys Fiscal 2009 tax
returns using the new tax method resulted in federal and state income tax benefits totaling
approximately $30,200 which has been, or will be, used to offset Fiscal 2010 federal and
state income tax liabilities. The filing of UGI Utilities Fiscal 2009 stand alone
Pennsylvania income tax return also produced an approximate $43,400 state net operating loss
(NOL) carryforward, resulting in a net deferred tax benefit of approximately $2,800.
 Under current Pennsylvania state income tax law, the NOL stated above can be carried forward
by UGI Utilities for 20 years and used to reduce future Pennsylvania taxable income. Because
the Company believes that it is more likely than not that it will fully utilize this state
NOL prior to its expiration, no valuation allowance has been recorded.
 The Companys determination of what constitutes a capital cost versus ordinary expense as it
relates to the new tax method will likely be reviewed upon audit by the IRS and may be
subject to subsequent adjustment. Accordingly, the status of this tax return position is
uncertain at this time. In accordance with accounting guidance regarding uncertain tax
positions, the Company has added $3,927 to its liability for unrecognized tax benefits
related to this tax method. However, because this tax matter relates only to the timing of
tax deductibility, we have recorded an offsetting deferred tax asset of an equal amount.
 The previously discussed
change in tax method did not affect the Companys net income (loss) for any periods
presented. For further information regarding the regulatory impact of
this change, see Note 6.
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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 3.
    
    Accounting Changes
 Adoption of New Accounting Standards
 Intangible Asset Useful Lives.Effective October 1, 2009, we adopted new accounting guidance
which amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset under GAAP.
The intent of the new guidance is to improve the consistency between the useful life of a
recognized intangible asset under GAAP relating to intangible asset accounting and the
period of expected cash flows used to measure the fair value of the asset under GAAP
relating to business combinations and other applicable accounting literature. The new
guidance must be applied prospectively to intangible assets acquired after the effective
date. The adoption of the new guidance did not impact our financial statements.
 Business Combinations.Effective October 1, 2009, we adopted new guidance on accounting for
business combinations. The new
guidance applies to all transactions or other events in which an entity obtains control of
one or more businesses. The new guidance establishes, among other things, principles and
requirements for how the acquirer (1) recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest
in the acquiree; (2) recognizes and measures the goodwill acquired in a business combination
or gain from a bargain purchase; and (3) determines what information with respect to a
business combination should be disclosed. The new guidance applies prospectively to business
combinations for which the acquisition date is on or after October 1, 2009. Among the more
significant changes in accounting for acquisitions are (1) transaction costs are generally
expensed (rather than being included as costs of the acquisition); (2) contingencies,
including contingent consideration, are generally recorded at fair value with subsequent
adjustments recognized in operations (rather than as adjustments to the purchase price); and
(3) decreases in valuation allowances on acquired deferred tax assets are recognized in
operations (rather than as decreases in goodwill). The new guidance did not have an impact
on our financial statements.
 Fair Value Measurements.In January 2010, the Financial Accounting Standards Board (FASB)
issued new guidance with respect to fair value measurements disclosures. The new guidance
requires additional disclosure related to transfers between Levels 1 and 2 and separate
disclosures about purchases, sales, issuances, and settlements related to Level 3. The new
guidance clarifies existing disclosure guidance about inputs and valuation techniques for
fair value measurements and levels of disaggregation. We apply fair value measurements to
certain assets and liabilities, principally commodity and interest rate derivative
instruments. The new disclosures and clarifications of existing disclosures are effective
for interim and annual reporting periods beginning after December 15, 2009 except for the
disclosures about purchases, sales, issuances, and settlements in the roll forward of
activity in Level 3 fair value measurements. Those disclosures are effective for fiscal
years beginning after December 15, 2009 (Fiscal 2011) and interim periods thereafter. The
adoption of the new guidance that became effective during Fiscal 2010 did not have a
material effect on our disclosures.
  - 6 -




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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 New Accounting Standards Not Yet Adopted
 Enhanced Disclosures of Postretirement Plan Assets.In December 2008, the FASB issued new
guidance requiring more detailed disclosures about employers postretirement plan assets,
including employers investment strategies, major categories of plan assets, concentrations
of risk within plan assets, and valuation techniques used to measure the fair value of plan
assets. The provisions of this annual disclosure guidance are effective for fiscal years
ending after December 15, 2009 (Fiscal 2010). Because this new guidance relates to
disclosure only, it will not impact the financial statements.
 4.
    
    Segment Information
 We have 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 2009 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.
 UGI Penn HVAC Services, Inc. does not meet the quantitative thresholds for separate business
segment reporting under GAAP and has been included in Other.
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 Financial information by business segment follows:
 Three Months Ended June 30, 2010:
 Reportable SegmentsGas
    
    
    ElectricTotal
    
    
    Utility
    
    
    Utility
    
    
    OtherRevenues
    
    $
    175,021
    
    
    $
    149,043
    
    
    $
    25,377
    
    
    $
    601Cost of sales
    
    $
    98,864
    
    
    $
    83,050
    
    
    $
    15,814
    
    
    $
    Depreciation and amortization
    
    $
    13,437
    
    
    $
    12,445
    
    
    $
    992
    
    
    $
    Operating income (loss)
    
    $
    16,379
    
    
    $
    13,733
    
    
    $
    2,666
    
    
    $
    (20
    )Interest expense
    
    $
    10,481
    
    
    $
    9,994
    
    
    $
    487
    
    
    $
    Income (loss) before income taxes
    
    $
    5,898
    
    
    $
    3,739
    
    
    $
    2,179
    
    
    $
    (20
    )Total assets (at period end)
    
    $
    1,949,854
    
    
    $
    1,829,427
    
    
    $
    120,427
    
    
    $
    Goodwill (at period end)
    
    $
    180,145
    
    
    $
    180,145
    
    
    $
    
    
    
    $
    Capital expenditures
    
    $
    18,314
    
    
    $
    16,043
    
    
    $
    2,271
    
    
    $
    
 Three Months Ended June 30, 2009:
 Reportable SegmentsGas
    
    
    ElectricTotal
    
    
    Utility
    
    
    Utility
    
    
    OtherRevenues
    
    $
    208,300
    
    
    $
    176,937
    
    
    $
    30,741
    
    
    $
    622Cost of sales
    
    $
    129,533
    
    
    $
    109,828
    
    
    $
    19,705
    
    
    $
    Depreciation and amortization
    
    $
    12,775
    
    
    $
    11,757
    
    
    $
    1,018
    
    
    $
    Operating income
    
    $
    16,443
    
    
    $
    12,948
    
    
    $
    3,373
    
    
    $
    122Interest expense
    
    $
    10,821
    
    
    $
    10,379
    
    
    $
    442
    
    
    $
    Income before income taxes
    
    $
    5,622
    
    
    $
    2,569
    
    
    $
    2,931
    
    
    $
    122Total assets (at period end)
    
    $
    2,018,656
    
    
    $
    1,900,874
    
    
    $
    116,155
    
    
    $
    1,627Goodwill (at period end)
    
    $
    176,906
    
    
    $
    176,906
    
    
    $
    
    
    
    $
    Capital expenditures
    
    $
    19,237
    
    
    $
    18,146
    
    
    $
    1,091
    
    
    $
    
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 Nine Months Ended June 30, 2010:
 Reportable SegmentsGas
    
    
    ElectricTotal
    
    
    Utility
    
    
    Utility
    
    
    OtherRevenues
    
    $
    1,014,497
    
    
    $
    922,247
    
    
    $
    90,929
    
    
    $
    1,321Cost of sales
    
    $
    642,252
    
    
    $
    584,243
    
    
    $
    58,009
    
    
    $
    Depreciation and amortization
    
    $
    39,934
    
    
    $
    36,960
    
    
    $
    2,974
    
    
    $
    Operating income
    
    $
    179,989
    
    
    $
    168,573
    
    
    $
    11,118
    
    
    $
    298Interest expense
    
    $
    31,842
    
    
    $
    30,498
    
    
    $
    1,344
    
    
    $
    Income before income taxes
    
    $
    148,147
    
    
    $
    138,075
    
    
    $
    9,774
    
    
    $
    298Total assets (at period end)
    
    $
    1,949,854
    
    
    $
    1,829,427
    
    
    $
    120,427
    
    
    $
    Goodwill (at period end)
    
    $
    180,145
    
    
    $
    180,145
    
    
    $
    
    
    
    $
    Capital expenditures
    
    $
    44,484
    
    
    $
    40,582
    
    
    $
    3,902
    
    
    $
    
 Nine Months Ended June 30, 2009:
 Reportable SegmentsGas
    
    
    ElectricTotal
    
    
    Utility
    
    
    Utility
    
    
    OtherRevenues
    
    $
    1,236,252
    
    
    $
    1,130,099
    
    
    $
    104,780
    
    
    $
    1,373Cost of sales
    
    $
    862,743
    
    
    $
    795,675
    
    
    $
    67,068
    
    
    $
    Depreciation and amortization
    
    $
    37,849
    
    
    $
    34,893
    
    
    $
    2,956
    
    
    $
    Operating income
    
    $
    164,128
    
    
    $
    149,848
    
    
    $
    13,837
    
    
    $
    443Interest expense
    
    $
    33,010
    
    
    $
    31,731
    
    
    $
    1,279
    
    
    $
    Income before income taxes
    
    $
    131,118
    
    
    $
    118,117
    
    
    $
    12,558
    
    
    $
    443Total assets (at period end)
    
    $
    2,018,656
    
    
    $
    1,900,874
    
    
    $
    116,155
    
    
    $
    1,627Goodwill (at period end)
    
    $
    176,906
    
    
    $
    176,906
    
    
    $
    
    
    
    $
    Capital expenditures
    
    $
    56,068
    
    
    $
    52,530
    
    
    $
    3,538
    
    
    $
    
 5.
    
    Inventories
 Inventories comprise the following:
 June 30,
    
    
    September 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2009Gas Utility natural gas
    
    $
    60,272
    
    
    $
    189,747
    
    
    $
    99,012Materials, supplies and other
    
    
    7,339
    
    
    
    6,851
    
    
    
    7,238Total inventories
    
    $
    67,611
    
    
    $
    196,598
    
    
    $
    106,250
 From time to time UGI Utilities enters into storage contract administrative agreements
(SCAAs) pursuant to which it has, among other things, released certain storage and
transportation contracts for the terms of the storage agreements. At June 30, 2010, UGI
Utilities had three SCAAs, one that is scheduled to expire in October 2010 and two that are
scheduled to expire in October 2012 (see Note 9).
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 Pursuant to the SCAAs, UGI Utilities has, among other things, released certain storage and
transportation contracts for the terms of the SCAAs. UGI Utilities also transferred certain
associated storage inventories upon commencement of the SCAAs, will receive a transfer of
storage inventories at the end of the SCAAs, and makes payments associated with refilling
storage inventories during the terms of the SCAAs.
 The historical cost of natural gas storage inventories released under these agreements,
which represent a portion of Gas Utilitys total natural gas storage inventories, and any
exchange receivable (representing amounts of natural gas inventories used by the other
parties to the agreements but not yet replenished) are included in the caption Gas Utility
natural gas in the table above. The carrying value of gas storage inventories released
under these agreements at June 30, 2010, September 30, 2009 and June 30, 2009, comprising
6.4 billion cubic feet (bcf), 9.0 bcf, and 5.0 bcf of natural gas, was $35,322, $77,948
and $43,683, respectively. In conjunction with the SCAAs, at June 30, 2010, September 30,
2009 and June 30, 2009, UGI Utilities held a total of $22,500, $19,000 and $19,000,
respectively, of security deposits received from its SCAAs counterparties which amounts are
included in other current liabilities on the Condensed Consolidated Balance Sheets.
 6.
    
    Regulatory Assets and Liabilities and Regulatory Matters
 For a description of the Companys regulatory assets and liabilities other than those
described below, see Note 5 to the Companys 2009 Annual Report. UGI Utilities does not
recover a rate of return on its regulatory assets. The following regulatory assets and
liabilities associated with Gas Utility and Electric Utility are included in our
accompanying Condensed Consolidated Balance Sheets:
 June 30,
    
    
    September 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2009Regulatory assets:Income taxes recoverable
    
    $
    95,334
    
    
    $
    79,492
    
    
    $
    76,645Postretirement benefits
    
    
    1,688
    
    
    
    2,473
    
    
    
    3,017Recoverable costs  CPG Gas
postretirement benefit plans
    
    
    8,572
    
    
    
    8,572
    
    
    
    5,545Environmental costs
    
    
    24,328
    
    
    
    26,877
    
    
    
    20,583Deferred fuel and power costs
    
    
    6,316
    
    
    
    19,584
    
    
    
    28,788Other
    
    
    5,475
    
    
    
    4,546
    
    
    
    6,916Total regulatory assets
    
    $
    141,713
    
    
    $
    141,544
    
    
    $
    141,494Regulatory liabilities:Postretirement benefits
    
    $
    10,261
    
    
    $
    9,310
    
    
    $
    9,971Environmental overcollections
    
    
    8,354
    
    
    
    8,720
    
    
    
    9,724Deferred fuel refunds
    
    
    16,576
    
    
    
    30,846
    
    
    
    13,512State tax benefits 
distribution system repairs
    
    
    10,983
    
    
    
    
    
    
    
    Total regulatory liabilities
    
    $
    46,174
    
    
    $
    48,876
    
    
    $
    33,207
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 Deferred fuel and power  costs and refunds.Gas Utilitys tariffs and, commencing
January 1, 2010 Electric Utilitys default service tariffs, contain clauses which permit
recovery of all prudently incurred purchased gas and power costs through the application of
purchased gas cost (PGC) rates in the case of Gas Utility and default service (DS) rates
in the case of Electric Utility. The clauses provide for periodic adjustments to PGC and DS
rates for differences between the total amount of purchased gas and electric generation
supply costs collected from customers and recoverable costs incurred. Net undercollected
costs are classified as a regulatory asset and net overcollections are classified as a
regulatory liability.
 Gas Utility uses derivative financial instruments to reduce volatility in the cost of gas it
purchases for firm- residential, commercial and industrial (retail core-market) customers.
Realized and unrealized gains or losses on natural gas derivative financial instruments are
included in deferred fuel costs or refunds. Unrealized losses on such contracts at June 30,
2010 and June 30, 2009 were $(558) and $(42,473), respectively. There were no such
unrealized gains or losses at September 30, 2009.
 In order to reduce volatility associated with a substantial portion of its electric
transmission congestion costs, Electric Utility obtains financial transmission rights
(FTRs). FTRs are derivative financial instruments that entitle the holder to receive
compensation for electricity transmission congestion charges when there is insufficient
electricity transmission capacity on the electric transmission grid. Because Electric
Utility is entitled to fully recover its default service costs commencing January 1, 2010
through DS rates, realized and unrealized gains or losses on FTRs associated with periods
beginning January 1, 2010 are included in deferred fuel and power  costs or refunds.
Unrealized gains on FTRs at June 30, 2010 were not material.
 State Income Tax Benefits  Distribution System Repairs.As previously mentioned in Note 2
to condensed consolidated financial statements, the Company received IRS consent to change
its tax method of accounting for capitalizing certain repairs and maintenance costs
associated with its Gas Utility and Electric Utility assets beginning with the tax year
ended September 30, 2009. This regulatory liability represents Pennsylvania state income
tax benefits, net of federal income tax expense, resulting from the deduction for income tax
purposes of these repairs and maintenance expenses which expenses are capitalized for
regulatory and GAAP reporting purposes. The state tax benefits
associated with these repairs and maintenance deductions will be reflected as a reduction to
income tax expense over the remaining tax lives of the related book assets.
 7.
    
    Defined Benefit Pension and Other Postretirement Plans
 We currently sponsor two defined benefit pension plans (Pension Plans) for employees hired
prior to January 1, 2009 of UGI Utilities, PNG, CPG, UGI and certain of UGIs other wholly
owned domestic subsidiaries. In addition, we provide postretirement health care benefits to
certain retirees and a limited number of active employees, and postretirement life insurance
benefits to nearly all active and retired employees.
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 Net periodic pension expense and other postretirement benefit costs relating to our
employees include the following components:
 Pension Benefits
    
    
    Other Postretirement BenefitsThree Months Ended
    
    
    Three Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Service cost
    
    $
    1,745
    
    
    $
    1,321
    
    
    $
    40
    
    
    $
    33Interest cost
    
    
    5,284
    
    
    
    3,813
    
    
    
    212
    
    
    
    211Expected return on assets
    
    
    (5,858
    )
    
    
    (4,262
    )
    
    
    (126
    )
    
    
    (130
    )Amortization of:Prior service cost (benefit)
    
    
    9
    
    
    
    6
    
    
    
    (102
    )
    
    
    (87
    )Actuarial loss
    
    
    1,333
    
    
    
    950
    
    
    
    89
    
    
    
    30Net benefit cost
    
    
    2,513
    
    
    
    1,828
    
    
    
    113
    
    
    
    57Change in associated
regulatory liabilities
    
    
    
    
    
    
    
    
    
    
    736
    
    
    
    803Net expense
    
    $
    2,513
    
    
    $
    1,828
    
    
    $
    849
    
    
    $
    860
 Pension Benefits
    
    
    Other Postretirement BenefitsNine Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Service cost
    
    $
    5,235
    
    
    $
    3,741
    
    
    $
    121
    
    
    $
    99Interest cost
    
    
    15,852
    
    
    
    11,532
    
    
    
    635
    
    
    
    633Expected return on assets
    
    
    (17,575
    )
    
    
    (12,994
    )
    
    
    (378
    )
    
    
    (391
    )Amortization of:Prior service cost (benefit)
    
    
    27
    
    
    
    19
    
    
    
    (305
    )
    
    
    (260
    )Actuarial loss
    
    
    3,999
    
    
    
    2,089
    
    
    
    268
    
    
    
    89Net benefit cost
    
    
    7,538
    
    
    
    4,387
    
    
    
    341
    
    
    
    170Change in associated
regulatory liabilities
    
    
    
    
    
    
    
    
    
    
    2,208
    
    
    
    2,410Net expense
    
    $
    7,538
    
    
    $
    4,387
    
    
    $
    2,549
    
    
    $
    2,580
 Pension Plans assets are held in trust and consist principally of equity and fixed
income mutual funds. It is our general policy to fund amounts for pension benefits equal to
at least the minimum contribution required by ERISA. Based upon current
assumptions, the Company estimates that it will be required to contribute approximately
$9,500 to the Pension Plans during the next twelve months. Pursuant to orders previously
issued by the PUC, UGI Utilities has established a Voluntary Employees Beneficiary
Association (VEBA) trust to fund and pay UGI Gas and Electric Utilitys postretirement
health care and life insurance benefits referred to above by depositing into the VEBA the
annual amount of postretirement benefit costs determined under GAAP for postretirement
benefits other than pensions. The difference between the annual amount calculated and the
amount included in UGI Gas and Electric Utilitys rates is deferred for future recovery
from, or refund to, ratepayers. Amounts contributed to the VEBA by UGI Utilities were not
material during the nine months ended June 30, 2010, nor are they expected to be material
for all of Fiscal 2010.
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 We also sponsor an unfunded and non-qualified defined benefit supplemental executive
retirement plan. Net benefit costs associated with this plan for all periods presented were
not material.
 8.
    
    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, by the early 1950s UGI Utilities divested all of its utility
operations other than certain Pennsylvania operations, including those which now constitute
UGI Gas 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 UGI
Gas is currently permitted to include in rates, through future base rate proceedings, a
five-year average of such prudently incurred remediation costs. At June 30, 2010, neither
UGI Gas undiscounted nor its accrued liability for environmental investigation and cleanup
costs was material.
 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 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.
 South Carolina Electric & Gas Company v. UGI Utilities, Inc.On September 22, 2006, South
Carolina Electric & Gas Company (SCE&G), a subsidiary of SCANA Corporation, filed a
lawsuit against UGI Utilities in the District Court of South Carolina seeking contribution
from UGI Utilities for past and future remediation costs related to the operations of a
former MGP located in Charleston, South Carolina. SCE&G asserts that the plant operated from
1855 to 1954 and alleges that through control of a subsidiary that owned the plant UGI
Utilities controlled operations of the plant from 1910 to 1926 and is liable for
approximately 25% of the costs associated with the site. SCE&G asserts that it has spent
approximately $22,000 in remediation costs and paid $26,000 in third-party claims relating
to the site and estimates that future response costs, including a claim by the United States
Justice Department for natural resource damages, could be as high as $14,000. Trial took
place in March 2009 and the courts decision is pending.
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 Frontier Communications Company v. UGI Utilities, Inc. et al.In April 2003, Citizens
Communications Company, now known as Frontier Communications Company (Frontier), served a
complaint naming UGI Utilities as a third-party defendant in a civil action pending in the
United States District Court for the District of Maine. In that action, the City of Bangor,
Maine (City) sued Frontier to recover environmental response costs associated with MGP
wastes generated at a plant allegedly operated by Frontiers predecessors at a site on the
Penobscot River. Frontier subsequently joined UGI Utilities and ten other third-party
defendants alleging that the third-party defendants are responsible for an equitable share
of any costs Frontier would be required to pay to the City for cleaning up tar deposits in
the
Penobscot River. Frontier alleged that through ownership and control of a subsidiary, Bangor
Gas Light Company, UGI Utilities and its predecessors owned and operated the plant from 1901
to 1928. Frontier made similar allegations of control against another third-party defendant,
CenterPoint Energy Resources Corporation (CenterPoint), whose predecessor owned the Bangor
subsidiary from 1928 to 1944. Frontiers third-party claims were stayed pending a resolution
of the Citys suit against Frontier, which was tried in September 2005. On June 27, 2006,
the court issued an order finding Frontier responsible for 60% of the cleanup costs, which
were estimated at $18,000. On February 14, 2007, Frontier and the City entered into a
settlement agreement pursuant to which Frontier agreed to pay $7,600. Frontier subsequently
filed the current action against the original third-party defendants, repeating its claims
for contribution. On September 22, 2009, the court granted summary judgment in favor of
co-defendant CenterPoint. UGI Utilities believes that it also has good defenses and has
filed a motion for summary judgment with respect to Frontiers claims.
 Sag Harbor, New York Matter.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. By letter dated June 6, 2006,
KeySpan reported that the New York Department of Environmental Conservation has approved a
remedy for the site that is estimated to cost approximately $10,000. KeySpan believes that
the cost could be as high as $20,000. UGI Utilities is in the process of reviewing the
information provided by KeySpan and is investigating this claim.
 Yankee Gas Services Company and Connecticut Light and Power Company v. UGI Utilities, Inc.
On September 11, 2006, UGI Utilities received a complaint filed by Yankee Gas Services
Company and Connecticut Light and Power Company, subsidiaries of Northeast Utilities
(together the Northeast Companies), in the United States District Court for the District
of Connecticut seeking contribution from UGI Utilities for past and future remediation costs
related to MGP operations on thirteen sites owned by the Northeast Companies in nine cities
in the State of Connecticut. The Northeast Companies allege that UGI Utilities controlled
operations of the plants from 1883 to 1941 through control of former subsidiaries that owned
the MGPs. The Northeast Companies estimated that remediation costs for all of the sites
could total
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 approximately $215,000 and asserted that UGI Utilities is responsible for
approximately $103,000 of this amount. The Northeast Companies subsequently withdrew their claims with respect to three of
the sites and UGI Utilities acknowledged that it had operated one of the sites, Waterbury
North, pursuant to a lease. In April 2009, the court conducted a trial to determine whether
UGI Utilities operated any of the nine remaining sites that were owned and operated by
former subsidiaries. On May 22, 2009, the court granted judgment in favor of UGI Utilities
with respect to all nine sites. The Northeast Companies are expected to complete additional
environmental investigations at Waterbury North by the end of 2010, after which there will
be a second phase of the trial to determine what, if any, contamination at Waterbury North
is related to UGI Utilities period of operation. The Northeast Companies previously
estimated that remediation costs at Waterbury North could total $25,000.
 We cannot predict with certainty the final results of any of the environmental claims or
legal actions described above. However, it is reasonably possible that some of them could be
resolved unfavorably to us and result in losses in excess of recorded amounts. We are unable
to estimate any possible losses in excess of recorded amounts. 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. In
addition to the matters described above, there are other pending claims and legal actions
arising in the normal course of our businesses. While the results of these other pending
claims and legal actions cannot be predicted with certainty, we believe, after consultation
with counsel, the final outcome of such other matters will not have a significant effect on
our consolidated financial position, results of operations or cash flows.
 9.
    
    Related Party Transactions
 UGI provides certain financial and administrative services to UGI Utilities. UGI bills UGI
Utilities monthly for all direct expenses incurred by UGI on behalf of UGI Utilities and an
allocated share of indirect corporate expenses incurred or paid with respect to services
provided to UGI Utilities. The allocation of indirect UGI corporate expenses to UGI
Utilities utilizes a weighted, three-component formula comprising revenues, operating
expenses and net assets employed and considers UGI Utilities relative percentage of such
items to the total of such items for all UGI operating subsidiaries for which general and
administrative services are provided. Management believes that this allocation method is
reasonable and equitable to UGI Utilities and this allocation method has been accepted by
the PUC in past rate case proceedings and management audits as a reasonable method of
allocating such expenses. These billed expenses are classified as operating and
administrative expenses  related parties in the Condensed Consolidated Statements of
Income. In addition, UGI Utilities provides limited administrative services to UGI and
certain of UGIs subsidiaries, principally payroll-related services. Amounts billed to these
entities by UGI Utilities for all periods presented were not material.
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 From time to time, UGI Utilities is a party to SCAAs with UGI Energy Services, Inc., a
second-tier wholly owned subsidiary of UGI (Energy Services). At June 30, 2010, UGI
Utilities was a party to a three-year SCAA with Energy Services expiring October 31, 2012
and, during the periods covered by the financial statements, was a party to other one-year
SCAAs with Energy Services. Under all of the SCAAs, UGI Utilities has, among other things,
and subject to recall for operational purposes, released certain storage and transportation
contracts to Energy Services for the terms of the SCAAs. UGI Utilities also transferred
certain associated storage inventories upon the commencement of the SCAAs, receives a
transfer of storage inventories at the end of the SCAAs, and makes payments associated with
refilling storage inventories during the term of the SCAAs. Energy Services, in turn,
provides a firm delivery service and makes certain payments to UGI Utilities for its various
obligations under the SCAAs. UGI Utilities incurred costs associated with Energy Services
SCAAs totaling $6,783 and $14,362 during the three and nine months ended June 30, 2010,
respectively, and $18,144 and $38,005 during the three and nine months ended June 30, 2009,
respectively. In conjunction with the SCAAs, UGI Utilities received security deposits from
Energy Services. The amount of such security deposits, which amounts are included in other
current liabilities on the Condensed Consolidated Balance Sheets, was $7,500, $15,000 and
$15,000 as of June 30, 2010, September 30, 2009 and June 30, 2009, respectively.
 The volumes and carrying amounts of gas storage inventories released under Energy Services
SCAAs at June 30, 2010, September 30, 2009 and June 30, 2009 are as follows: at June 30,
2010, gas storage inventories comprising approximately 2.2 bcf of natural gas totaling
$12,140; at September 30, 2009, gas storage inventories comprising approximately 7.7 bcf of
natural gas totaling $67,436; and at June 30, 2009, gas storage inventories comprising
approximately 4.2 bcf of natural gas totaling $36,951.
 UGI Utilities has gas supply and delivery service agreements with Energy Services pursuant
to which Energy Services provides certain gas supply and related delivery service to Gas
Utility during the months of November through March. In addition, from time to time, Gas
Utility purchases natural gas or pipeline capacity from Energy Services. The aggregate
amount of these transactions (exclusive of transactions pursuant to the SCAAs) during the
three and nine months ended June 30, 2010 totaled $3,905 and $25,941, respectively. During
the nine months ended June 30, 2009, such transactions totaled $23,064.
 From time to time, the Company sells natural gas or pipeline capacity to Energy Services.
During the three and nine months ended June 30, 2010, revenues associated with such sales to
Energy Services totaled $15,489 and $43,074, respectively. During the three and nine months
ended June 30, 2009, such revenues totaled $3,625 and $24,438, respectively. Also from time
to time, the Company purchases natural gas or pipeline capacity from Energy Services (in
addition to the transactions already described above). During the three and nine months
ended June 30, 2010, the aggregate amount of such purchases totaled $7,145 and $22,034,
respectively. During the three and nine months ended June 30, 2009, such transactions
totaled $2,409 and $12,549, respectively. These transactions did not have a material effect
on the Companys financial position, results of operations or cash flows.
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 10.
    
    Fair Value Measurements
 Derivative Financial Instruments
 The following table presents our financial assets and financial liabilities that are
measured at fair value on a recurring basis for each of the fair value hierarchy levels,
including both current and noncurrent portions, as of June 30, 2010, September 30, 2009 and
June 30, 2009:
 QuotedPrices inActiveMarkets for
    
    
    SignificantIdentical
    
    
    OtherAssets and
    
    
    Observable
    
    
    UnobservableLiabilities
    
    
    Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalJune 30, 2010:Derivative financial instruments:Assets
    
    $
    315
    
    
    $
    297
    
    
    $
    
    
    
    $
    612Liabilities
    
    $
    (828
    )
    
    $
    
    
    
    $
    
    
    
    $
    (828
    )September 30, 2009:Derivative financial instruments:Assets
    
    $
    102
    
    
    $
    765
    
    
    $
    
    
    
    $
    867Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    June 30, 2009:Derivative financial instruments:Assets
    
    $
    4
    
    
    $
    1,002
    
    
    $
    
    
    
    $
    1,006Liabilities
    
    $
    (42,473
    )
    
    $
    
    
    
    $
    
    
    
    $
    (42,473
    )
 The fair values of our Level 1 exchange-traded derivative contracts are based upon
actively-quoted market prices for identical assets and liabilities. The fair values of the
remainder of our derivative financial instruments, which are designated as Level 2, are
generally based upon recent market transactions and related market indicators.
 Other Financial Instruments
 The carrying amounts of financial instruments included in current assets and current
liabilities (excluding unsettled derivative instruments and current maturities of long-term
debt) approximate their fair values because of their short-term nature. The carrying amount
and estimated fair value of our long-term debt at June 30, 2010 were $640,000 and $734,356,
respectively. The carrying amount and estimated fair value of our long-term debt at June 30,
2009 were $640,000 and $657,832, respectively. We estimate the fair value of long-term debt
by using current market rates and by discounting future cash flows using rates available for
similar type debt.
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 11.
    
    Disclosures About Derivative Instruments, Hedging Activities and Financial Instruments
 We are exposed to certain market risks related to our ongoing business operations.
Management uses derivative financial and commodity instruments, among other things, to
manage these risks. The primary risks managed by derivative instruments are (1) commodity
price risk and (2) interest rate risk. Although we use derivative financial and commodity
instruments to reduce market risk associated with forecasted transactions, we do not use
derivative financial and commodity instruments for speculative or trading purposes. The use
of derivative instruments is controlled by our risk management and credit policies which
govern, among other things, the derivative instruments we can use, counterparty credit
limits and contract authorization limits. Because most of our commodity derivative
instruments are generally subject to regulatory ratemaking mechanisms, we have limited
commodity price risk associated with our Gas Utility or Electric Utility operations.
 Commodity Price Risk
 Gas Utilitys tariffs contain clauses that permit recovery of all of the prudently incurred
costs of natural gas it sells to retail core-market customers. As permitted and agreed to by
the PUC pursuant to Gas Utilitys annual PGC filings, Gas Utility currently uses New York
Mercantile Exchange (NYMEX) natural gas futures and option contracts to reduce commodity
price volatility associated with a portion of the natural gas it purchases for its retail
core-market customers.
 In order to reduce volatility associated with a substantial portion of its electric
transmission congestion costs, Electric Utility obtains FTRs through an annual PJM
Interconnection (PJM) allocation process and by purchases of FTRs at monthly PJM auctions.
FTRs are derivative financial instruments that entitle the holder to receive compensation
for electricity transmission congestion charges that result when there is insufficient
electricity transmission capacity on the electric transmission grid. PJM is a regional
transmission organization that coordinates the movement of wholesale electricity in all or
parts of 14 eastern and midwestern states.
 At June 30, 2010 and 2009, the volume of natural gas associated with our unsettled NYMEX
natural gas futures contracts totaled 11.3 million dekatherms and 8.2 million dekatherms,
respectively. The volume of transmission congestion that is subject to FTRs at
June 30, 2010 and 2009 totaled 739.3 million kilowatt-hours and 1,277.0 million
kilowatt-hours, respectively.
 With respect to natural gas futures and option contracts associated with Gas Utility, gains
and losses on unsettled natural gas futures contracts and gains on natural gas option
contracts are recorded in deferred fuel costs on the Condensed Consolidated Balance Sheets
in accordance with the FASBs guidance in Accounting Standards Codification (ASC) 980
related to rate-regulated entities and reflected in cost of sales through the PGC mechanism.
Because Electric Utility is entitled to fully recover its default service costs commencing
January 1, 2010 pursuant to a January 22, 2009 settlement of its default service rate filing
with the PUC, gains and losses on FTRs associated with periods beginning on or after January
1, 2010 are recorded in regulatory assets and liabilities in accordance with ASC 980 and
reflected in cost of sales through the DS recovery mechanism (see Note 6). Gains and losses
associated with periods prior to January 1, 2010 are reflected in cost of sales.
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 In order to reduce operating expense volatility, UGI Utilities from time to time enters into
NYMEX gasoline futures and swap contracts for a portion of gasoline volumes expected to be
used in the operation of its vehicles and equipment. The volumes of gasoline under these
contracts were not material for all periods presented.
 Interest Rate Risk
 Our long-term debt typically is issued at fixed rates of interest. As these long-term debt
issues mature, we typically refinance such debt with new debt having interest rates
reflecting then-current market conditions. In order to reduce market rate risk on the
underlying benchmark rate of interest associated with near- to medium-term forecasted
issuances of fixed-rate debt, from time to time we enter into interest rate protection
agreements (IRPAs). We account for IRPAs as cash flow hedges. Changes in the fair values
of IRPAs are recorded in accumulated other comprehensive income (AOCI), to the extent
effective in offsetting changes in the underlying interest rate risk, until earnings are
affected by the hedged interest expense. At June 30, 2010 there were no unsettled IRPA
contracts outstanding. The amount of net losses associated with IRPAs expected to be
reclassified into earnings during the next twelve months is $1,165.
 Derivative Financial Instrument Credit Risk
 Our natural gas exchange-traded futures contracts are guaranteed by the NYMEX and have
limited credit risk. These contracts generally require cash deposits in margin accounts. At
June 30, 2010 and 2009, Gas Utilitys restricted cash in brokerage accounts totaled $3,639
and $46,485, respectively. We generally do not have credit-risk-related contingent features
in our derivative contracts.
 The following table provides information regarding the balance sheet location and fair
values of derivative assets and liabilities existing as of June 30, 2010 and 2009:
 As of June 30:
 Derivative Assets
    
    
    Derivative (Liabilities)Balance Sheet
    
    Fair Value
    
    
    Balance Sheet
    
    Fair ValueLocation
    
    2010
    
    
    2009
    
    
    Location
    
    2010
    
    
    2009Derivatives Accounted for
Under ASC 980:Commodity contracts
    
    Derivative financial instruments
    
    $
    287
    
    
    $
    
    
    
    Derivative financial
instruments
    
    $
    (828
    )
    
    $
    (42,473
    )Derivatives Not Designated as
Hedging Instruments:Commodity contracts
    
    Derivative financial instruments
    
    
    325
    
    
    
    1,006Total Derivatives
    
    
    
    $
    612
    
    
    $
    1,006
    
    
    
    
    $
    (828
    )
    
    $
    (42,473
    )
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 During the three and nine months ended June 30, 2010 and 2009, the amount of IRPA net
losses included in AOCI that were reclassified into net income, and the impact on net income
from changes in the fair value of FTRs not accounted for under ASC 980 and gasoline futures
and swap contracts, were not material.
 We are also a party to a number of contracts that have elements of a derivative instrument.
These contracts include, among others, binding purchase orders, contracts which provide for
the purchase and delivery of natural gas and electricity, and service contracts that require
the counterparty to provide commodity storage, transportation or capacity service to meet
our normal sales commitments. Although many of these contracts have the requisite elements
of a derivative instrument, these contracts qualify for normal purchase and normal sale
exception accounting under GAAP because they provide for the delivery of products or
services in quantities that are expected to be used in the normal course of operating our
business and the price in the contract is based on an underlying that is directly associated
with the price of the product or service being purchased or sold.
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UGI UTILITIES, INC. AND SUBSIDIARIES
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
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UGI UTILITIES, INC. AND SUBSIDIARIES
 ANALYSIS OF RESULTS OF OPERATIONS
  2010 three-month period compared with 2009 three-month period
 IncreaseThree Months Ended June 30,
    
    2010
    
    
    2009
    
    
    (Decrease)(Millions of dollars)Gas Utility:Revenues
    
    $
    149.0
    
    
    $
    176.9
    
    
    $
    (27.9
    )
    
    
    (15.8
    )%Total margin (a)
    
    $
    66.0
    
    
    $
    67.1
    
    
    $
    (1.1
    )
    
    
    (1.6
    )%Operating income
    
    $
    13.7
    
    
    $
    12.9
    
    
    $
    0.8
    
    
    
    6.2
    %Income before income taxes
    
    $
    3.7
    
    
    $
    2.6
    
    
    $
    1.1
    
    
    
    42.3
    %System throughput  bcf
    
    
    28.0
    
    
    
    25.8
    
    
    
    2.2
    
    
    
    8.5
    %Heating degree days  % (warmer) than normal (b)
    
    
    (26.4
    )%
    
    
    (6.5
    )%
    
    
    
    
    
    
    Electric Utility:Revenues
    
    $
    25.4
    
    
    $
    30.7
    
    
    $
    (5.3
    )
    
    
    (17.3
    )%Total margin (a)
    
    $
    8.1
    
    
    $
    9.4
    
    
    $
    (1.3
    )
    
    
    (13.8
    )%Operating income
    
    $
    2.7
    
    
    $
    3.4
    
    
    $
    (0.7
    )
    
    
    (20.6
    )%Income before income taxes
    
    $
    2.2
    
    
    $
    2.9
    
    
    $
    (0.7
    )
    
    
    (24.1
    )%Distribution sales  gwh
    
    
    218.6
    
    
    
    209.8
    
    
    
    8.8
    
    
    
    4.2
    %
 bcf  billions of cubic feet. gwh  millions of kilowatt-hours.(a)
    
    Gas Utilitys total margin represents total revenues less total cost of sales. Electric
Utilitys total margin represents total revenues less total cost of sales and revenue-related
taxes, i.e. Electric Utility gross receipts taxes, of $1.4 million and $1.7 million during the
three-month periods ended June 30, 2010 and 2009, respectively. For financial statement
purposes, revenue-related taxes are included in Taxes other than income taxes in the
Condensed Consolidated Statements of Income.(b)
    
    Deviation from average heating degree days for the 15-year period 1990-2004 based upon
weather statistics provided by the National Oceanic and Atmospheric Administration (NOAA)
for airports located within Gas Utilitys service territory. Gas Utility
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UGI UTILITIES, INC. AND SUBSIDIARIES
    Electric Utility
   - 23 -




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UGI UTILITIES, INC. AND SUBSIDIARIES
  2010 nine-month period compared with 2009 nine-month period
 IncreaseNine Months Ended June 30,
    
    2010
    
    
    2009
    
    
    (Decrease)(Millions of dollars)Gas Utility:Revenues
    
    $
    922.2
    
    
    $
    1,130.1
    
    
    $
    (207.9
    )
    
    
    (18.4
    )%Total margin (a)
    
    $
    338.0
    
    
    $
    334.4
    
    
    $
    3.6
    
    
    
    1.1
    %Operating income
    
    $
    168.6
    
    
    $
    149.8
    
    
    $
    18.8
    
    
    
    12.6
    %Income before income taxes
    
    $
    138.1
    
    
    $
    118.1
    
    
    $
    20.0
    
    
    
    16.9
    %System throughput  bcf
    
    
    124.9
    
    
    
    126.4
    
    
    
    (1.5
    )
    
    
    (1.2
    )%Heating degree days  % (warmer) colder
than normal (b)
    
    
    (4.5
    )%
    
    
    3.9
    %
    
    
    
    
    
    
    Electric Utility:Revenues
    
    $
    90.9
    
    
    $
    104.8
    
    
    $
    (13.9
    )
    
    
    (13.3
    )%Total margin (a)
    
    $
    27.9
    
    
    $
    32.0
    
    
    $
    (4.1
    )
    
    
    (12.8
    )%Operating income
    
    $
    11.1
    
    
    $
    13.8
    
    
    $
    (2.7
    )
    
    
    (19.6
    )%Income before income taxes
    
    $
    9.8
    
    
    $
    12.6
    
    
    $
    (2.8
    )
    
    
    (22.2
    )%Distribution sales  gwh
    
    
    723.8
    
    
    
    735.8
    
    
    
    (12.0
    )
    
    
    (1.6
    )%
 bcf  billions of cubic feet. gwh  millions of kilowatt-hours.(a)
    
    Gas Utilitys total margin represents total revenues less total cost of sales.
Electric Utilitys total margin represents total revenues less total cost of sales and
revenue-related taxes, i.e. Electric Utility gross receipts taxes, of $5.0 million and $5.7
million during the nine-month periods ended June 30, 2010 and 2009, respectively. For
financial statement purposes, revenue-related taxes are included in Taxes other than
income taxes in the Condensed Consolidated Statements of Income.(b)
    
    Deviation from average heating degree days for the 15-year period 1990-2004 based
upon weather statistics provided by the National Oceanic and Atmospheric Administration
(NOAA) for airports located within Gas Utilitys service territory. Gas Utility
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UGI UTILITIES, INC. AND SUBSIDIARIES
   Electric Utility
   FINANCIAL CONDITION AND LIQUIDITY
    - 25 -




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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
  Income Taxes  Change in Tax Accounting for Utility Repairs and Maintenance Expenses.
   Operating activities
  Investing activities
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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 Financing activities.
 
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    - 27 -




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UGI UTILITIES, INC. AND SUBSIDIARIES
    
 ITEM 4T.
    
    CONTROLS AND PROCEDURES
 (a)
    
    Evaluation of Disclosure Controls and ProceduresThe 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 (i) recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commissions rules and forms, and
(ii) accumulated and communicated to our management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.(b)
    
    Change in Internal Control over Financial ReportingNo 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.
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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 
 PART II OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
 Yankee Gas Services Company and Connecticut Light and Power Company v. UGI Utilities,
Inc.
 
 ITEM 1A.
    
    RISK FACTORS
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##### Table of Contents



UGI UTILITIES, INC. AND SUBSIDIARIES
 
 ITEM 6.
    
    EXHIBITS
  Incorporation by Reference
 ExhibitNo.
    
    Exhibit
    
    Registrant
    
    Filing
    
    Exhibit10.1
    
    Gas Supply and
Delivery Service
Agreement between
UGI Utilities, Inc.
and UGI Energy
Services, Inc.
effective as of May
1, 200710.2
    
    SST Service
Agreement No. 79133
dated November 1,
2004 between
Columbia Gas
Transmission
Corporation and UGI
Utilities, Inc.10.3
    
    UGI Corporation
2009 Deferral Plan
as Amended and
Restated Effective
June 1, 2010
    
    UGI
    
    Form 10-Q
(6/30/10)
    
    
    10.112.1
    
    Computation of ratio of earnings to
fixed charges31.1
    
    Certification by
the Chief Executive
Officer relating to
the Registrants
Report on Form 10-Q
for the quarter
ended June 30,
2010, pursuant to
Section 302 of the
Sarbanes-Oxley Act
of 200231.2
    
    Certification by
the Chief Financial
Officer relating to
the Registrants
Report on Form 10-Q
for the quarter
ended June 30,
2010, pursuant to
Section 302 of the
Sarbanes-Oxley Act
of 200232
    
    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,
2010, pursuant to
Section 906 of the
Sarbanes-Oxley Act
of 2002
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UGI UTILITIES, INC. AND SUBSIDIARIES
 
   UGI Utilities, Inc.
(Registrant)Date:  August 6, 2010
    By:
    /s/ Donald E. BrownDonald E. BrownVice President  Finance and
Chief Financial Officer  - 31 -




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UGI UTILITIES, INC. AND SUBSIDIARIES
 
 EXHIBIT INDEX
 10.1
    
    
    Gas Supply and Delivery Service Agreement between UGI Utilities, Inc. and UGI
Energy Services, Inc. effective as of May 1, 200710.2
    
    
    SST Service Agreement No. 79133 dated November 1, 2004 between Columbia Gas
Transmission Corporation and UGI Utilities, Inc.12.1
    
    
    Computation of ratio of earnings to fixed charges31.1
    
    
    Certification by the Chief Executive Officer relating to the Registrants Report
on Form 10-Q for the quarter ended June 30, 2010, pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    
    Certification by the Chief Financial Officer relating to the Registrants Report
on Form 10-Q for the quarter ended June 30, 2010, pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232
    
    
    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, 2010,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002