<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, 2004

                                       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 Act). Yes [X] No [ ]

      At July 31, 2004, there were 26,781,785 shares of UGI Utilities, Inc.
Common Stock, par value $2.25 per share, outstanding, all of which were held,
beneficially and of record, by UGI Corporation.
<PAGE>

                              UGI UTILITIES, INC.

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                         PAGES
                                                                                         -----
<S>                                                                                      <C>
PART I FINANCIAL INFORMATION

      Item 1.    Financial Statements

                 Condensed Consolidated Balance Sheets as of June 30, 2004,
                     September 30, 2003 and June 30, 2003                                  1

                 Condensed Consolidated Statements of Income for the three
                     and nine months ended June 30, 2004 and 2003                          2

                 Condensed Consolidated Statements of Cash Flows for the
                     nine months ended June 30, 2004 and 2003                              3

                 Notes to Condensed Consolidated Financial Statements                    4 - 12

      Item 2.    Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                                13 - 20

      Item 3.    Quantitative and Qualitative Disclosures About Market Risk             20 - 21

      Item 4.    Controls and Procedures                                                  21

PART II OTHER INFORMATION

      Item 1.    Legal Proceedings                                                        22

      Item 6.    Exhibits and Reports on Form 8-K                                       22 - 23

      Signatures                                                                          24
</TABLE>

                                      -i-
<PAGE>

                              UGI UTILITIES, INC.

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

<TABLE>
<CAPTION>
                                                                                 June 30,    September 30,    June 30,
                                                                                  2004           2003           2003
                                                                                ---------    -------------   ----------
<S>                                                                             <C>           <C>            <C>
ASSETS
    Current assets:
         Cash and cash equivalents                                              $   2,266     $      304     $    1,708
         Accounts receivable (less allowances for doubtful accounts
              of $6,459, $3,275 and $6,671, respectively)                          47,127         30,101         49,261
         Accrued utility revenues                                                   8,070          7,431          7,940
         Inventories                                                               32,746         54,017         27,530
         Deferred income taxes                                                     12,398         10,375         18,668
         Prepaid expenses and other current assets                                  4,423          5,552          3,049
                                                                                ---------     ----------     ----------
              Total current assets                                                107,030        107,780        108,156

    Property, plant and equipment, at cost (less accumulated depreciation
         and amortization of $309,867, $296,871 and $296,794, respectively)       622,354        610,987        599,266

    Regulatory assets                                                              62,997         60,253         60,062
    Other assets                                                                   31,860         30,028         29,423
                                                                                ---------     ----------     ----------
         Total assets                                                           $ 824,241     $  809,048     $  796,907
                                                                                =========     ==========     ==========

LIABILITIES AND STOCKHOLDER'S EQUITY
    Current liabilities:
         Current maturities of long-term debt                                   $  20,000     $        -     $   50,000
         Current maturities of preferred shares subject to mandatory
              redemption, without par value                                         1,000              -              -
         Bank loans                                                                30,100         40,700          2,300
         Accounts payable                                                          41,847         55,298         40,731
         Accrued income taxes                                                      15,040            479         20,064
         Deferred fuel refunds                                                     16,621         14,734         31,554
         Other current liabilities                                                 37,200         41,700         38,961
                                                                                ---------     ----------     ----------
              Total current liabilities                                           161,808        152,911        183,610

    Long-term debt                                                                197,181        217,271        172,298
    Deferred income taxes                                                         155,616        144,176        138,003
    Deferred investment tax credits                                                 7,688          7,987          8,086
    Other noncurrent liabilities                                                   10,612         11,951         13,559
    Preferred shares subject to mandatory redemption, without par value            19,000         20,000              -
                                                                                ---------     ----------     ----------
              Total liabilities                                                   551,905        554,296        515,556

    Commitments and contingencies (note 4)

    Preferred shares subject to mandatory redemption, without par value                 -              -         20,000

    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                                                79,046         79 046         78,057
         Retained earnings                                                        133,419        117,496        126,107
         Accumulated other comprehensive loss                                        (388)        (2,049)        (3,072)
                                                                                ---------     ----------     ----------
              Total common stockholder's equity                                   272,336        254,752        261,351
                                                                                ---------     ----------     ----------
         Total liabilities and stockholder's equity                             $ 824,241     $  809,048     $  796,907
                                                                                =========     ==========     ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                     - 1 -
<PAGE>

                              UGI UTILITIES, INC.

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

<TABLE>
<CAPTION>
                                                                        Three Months Ended           Nine Months Ended
                                                                              June 30,                    June 30,
                                                                      ------------------------    -----------------------
                                                                         2004          2003          2004         2003
                                                                      ----------    ----------    ----------    ---------
<S>                                                                   <C>           <C>           <C>           <C>
Revenues                                                              $  118,717    $  121,546    $  557,618    $ 559,193
                                                                      ----------    ----------    ----------    ---------
Costs and expenses:
       Cost of sales - gas, fuel and purchased power                      74,751        76,489       356,887      350,100
       Operating and administrative expenses                              21,559        25,303        68,197       71,185
       Operating and administrative expenses - related parties             2,072         2,528         7,890        7,498
       Taxes other than income taxes                                       3,110         2,832         9,763        9,200
       Depreciation and amortization                                       5,436         5,304        16,906       15,958
       Other income, net                                                    (493)         (915)       (1,534)      (7,032)
                                                                      ----------    ----------    ----------    ---------
                                                                         106,435       111,541       458,109      446,909
                                                                      ----------    ----------    ----------    ---------

Operating income                                                          12,282        10,005        99,509      112,284
Interest expense                                                           4,399         3,903        13,460       12,379
                                                                      ----------    ----------    ----------    ---------
Income before income taxes                                                 7,883         6,102        86,049       99,905
Income taxes                                                               3,388         2,462        34,897       40,152
                                                                      ----------    ----------    ----------    ---------
Net income                                                                 4,495         3,640        51,152       59,753
Dividends on preferred shares subject to mandatory redemption                  -           388             -        1,163
                                                                      ----------    ----------    ----------    ---------
Net income after dividends on preferred shares subject to
       mandatory redemption                                           $    4,495    $    3,252    $   51,152    $  58,590
                                                                      ==========    ==========    ==========    =========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                     - 2 -
<PAGE>

                              UGI UTILITIES, INC.

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

<TABLE>
<CAPTION>
                                                                         Nine Months Ended
                                                                             June 30,
                                                                      ------------------------
                                                                         2004         2003
                                                                      ----------    ----------
<S>                                                                   <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                         $   51,152    $   59,753
   Adjustments to reconcile net income to net cash provided
    by operating activities:
      Depreciation and amortization                                       16,906        15,958
      Deferred income taxes, net                                           5,029       (11,836)
      Provision for uncollectible accounts                                 6,688         7,470
      Other, net                                                           2,163         1,071
      Net change in:
         Accounts receivable and accrued utility revenues                (24,353)      (19,972)
         Inventories                                                      21,271        10,885
         Deferred fuel costs                                               2,414        35,858
         Accounts payable                                                (13,451)      (15,022)
         Other current assets and liabilities                              7,891        22,050
                                                                      ----------    ----------
    Net cash provided by operating activities                             75,710       106,215
                                                                      ----------    ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Expenditures for property, plant and equipment                        (26,602)      (25,742)
   Net costs of property, plant and equipment disposals                   (1,317)         (832)
                                                                      ----------    ----------
    Net cash used by investing activities                                (27,919)      (26,574)
                                                                      ----------    ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Payment of dividends                                                  (35,229)      (25,551)
   Cash portion of UGID dividend                                               -        (2,572)
   Repayment of long-term debt                                                 -       (26,000)
   Bank loans decrease                                                   (10,600)      (34,900)
   Capital contribution from UGI                                               -         5,000
                                                                      ----------    ----------
    Net cash used by financing activities                                (45,829)      (84,023)
                                                                      ----------    ----------
   Cash and cash equivalents increase (decrease)                      $    1,962    $   (4,382)
                                                                      ==========    ==========

CASH AND CASH EQUIVALENTS:
   End of period                                                      $    2,266    $    1,708
   Beginning of period                                                       304         6,090
                                                                      ----------    ----------
    Increase (decrease)                                               $    1,962    $   (4,382)
                                                                      ==========    ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                     - 3 -
<PAGE>

                              UGI UTILITIES, INC.
              NOTES TO CONDENSED CONSOLIDATED 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; owns
      and operates an electricity distribution utility ("Electric Utility") in
      northeastern Pennsylvania; and prior to the June 2003 distribution to UGI
      of UGI Development Company ("UGID") and UGID's subsidiaries and 50%-owned
      joint-venture affiliate Hunlock Creek Energy Ventures ("Energy Ventures"),
      owned interests in Pennsylvania-based electricity generation assets
      through UGID. We refer to Gas Utility, Electric Utility and UGID (prior to
      its distribution to UGI) collectively as "the Company" or "we," and
      Electric Utility and UGID collectively as "Electric Operations."

      Our condensed consolidated financial statements include the accounts of
      UGI Utilities and, prior to their distribution to UGI, UGID and its
      subsidiaries. We eliminate all significant intercompany accounts and
      transactions when we consolidate. Our investment in Energy Ventures was
      accounted for under the equity method. Gas Utility and Electric Utility
      are subject to regulation by the Pennsylvania Public Utility Commission
      ("PUC"). UGID was granted "Exempt Wholesale Generator" status by the
      Federal Energy Regulatory Commission.

      In June 2003, the Company dividended all of the common stock of UGID to
      UGI. The net book value of the assets and liabilities of UGID and its
      subsidiaries totaling $15,407 (including $2,572 of cash) was eliminated
      from the consolidated balance sheet and reflected as a dividend from
      retained earnings. The results of operations of UGID and its subsidiaries
      did not have a material effect on the Company's results of operations for
      the three- or nine-month periods ended June 30, 2003.

      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,
      2003 condensed consolidated 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, 2003 ("Company's 2003 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.

                                       -4-

<PAGE>

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

      COMPREHENSIVE INCOME. The following table presents the components of
      comprehensive income for the three and nine months ended June 30, 2004 and
      2003:

<TABLE>
<CAPTION>

                                              Three Months Ended      Nine Months Ended
                                                   June 30,                June 30,
                                              ------------------      -----------------
                                              2004         2003        2004       2003
                                             -------     -------     --------   --------
<S>                                          <C>         <C>         <C>        <C>
Net income                                   $ 4,495     $ 3,640     $ 51,152   $ 59,753
Other comprehensive income (loss)              1,612        (524)       1,661       (298)
                                             -------     -------     --------   --------
Comprehensive income                         $ 6,107     $ 3,116     $ 52,813   $ 59,455
                                             -------     -------     --------   --------
</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.

      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.

      PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION. Beginning July 1, 2003,
      the Company accounts for its preferred shares subject to mandatory
      redemption in accordance with Statement of Financial Accounting Standards
      ("SFAS") No. 150, "Accounting for Certain Financial Instruments with
      Characteristics of Both Liabilities and Equity" ("SFAS 150"). SFAS 150
      establishes guidelines on how an issuer classifies and measures certain
      financial instruments with characteristics of both liabilities and equity.
      The adoption of SFAS 150 results in the Company presenting its preferred
      shares subject to mandatory redemption in the liabilities section of the
      balance sheet and reflecting dividends paid on these shares as a component
      of interest expense for periods presented after June 30, 2003. Because
      SFAS 150 specifically prohibits the restatement of financial statements
      prior to its adoption, prior period amounts have not been reclassified
      (see Note 6).

                                       -5-

<PAGE>

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

2.    SEGMENT INFORMATION

      The Company has two reportable segments: (1) Gas Utility and (2) Electric
      Operations. 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 2003 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 Operations. There are no significant intersegment
      transactions. In addition, all of our reportable segments' revenues are
      derived from sources within the United States. Financial information by
      business segment follows:

      THREE MONTHS ENDED JUNE 30, 2004:

<TABLE>
<CAPTION>
                                                                   Gas        Electric
                                                    Total        Utility    Operations (a)
                                                  ---------     ---------   --------------
<S>                                               <C>           <C>         <C>
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                          824,241       736,035        88,206
</TABLE>

      THREE MONTHS ENDED JUNE 30, 2003:

<TABLE>
<CAPTION>
                                                                   Gas        Electric
                                                    Total        Utility    Operations (a)
                                                  ---------     ---------   --------------
<S>                                               <C>           <C>         <C>
Revenues                                          $ 121,546     $  99,683     $  21,863
Cost of sales - gas, fuel and purchased power        76,489        65,213        11,276
Depreciation and amortization                         5,304         4,541           763
Operating income                                     10,005         5,544         4,461
Interest expense                                      3,903         3,434           469
Income before income taxes                            6,102         2,110         3,992
Total assets at period end                          796,907       711,236        85,671
</TABLE>


      (a) Electric Operations comprises Electric Utility and, for the three
          months ended June 30, 2003, UGID and its consolidated subsidiaries
          prior to their transfer to UGI.

                                       -6-

<PAGE>

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

      NINE MONTHS ENDED JUNE 30, 2004:

<TABLE>
<CAPTION>
                                                                   Gas           Electric
                                                    Total        Utility      Operations (a)
                                                  ---------     ---------     --------------
<S>                                               <C>           <C>           <C>
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                          824,241       736,035          88,206
</TABLE>

      NINE MONTHS ENDED JUNE 30, 2003:

<TABLE>
<CAPTION>
                                                                   Gas           Electric
                                                    Total        Utility      Operations (a)
                                                  ---------     ---------     --------------
<S>                                               <C>           <C>           <C>
Revenues                                          $ 559,193     $ 484,678       $  74,515
Cost of sales - gas, fuel and purchased power       350,100       312,582          37,518
Depreciation and amortization                        15,958        13,618           2,340
Operating income                                    112,284        94,107          18,177
Interest expense                                     12,379        10,654           1,725
Income before income taxes                           99,905        83,453          16,452
Total assets at period end                          796,907       711,236          85,671
</TABLE>

      (a) Electric Operations comprises Electric Utility and, for the nine
          months ended June 30, 2003, UGID and its consolidated subsidiaries
          prior to their transfer to UGI.

3.    DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS

      In December 2003, the Financial Accounting Standards Board ("FASB") issued
      SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and
      Other Postretirement Benefits" ("SFAS 132"). As required by SFAS 132, the
      Company is providing the following supplemental disclosures regarding the
      UGI Utilities defined benefit pension plan and its postretirement health
      and life insurance plan.

      We sponsor a defined benefit pension plan ("UGI Utilities Pension Plan")
      for employees of UGI, UGI Utilities, and certain of UGI's other wholly
      owned subsidiaries. In addition, we provide postretirement health care
      benefits to certain retirees and a limited number of active employees
      meeting certain age and service requirements, and postretirement life
      insurance benefits to nearly all domestic active and retired employees.

                                       -7-

<PAGE>

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

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

<TABLE>
<CAPTION>
                                                     Pension Benefits           Other Postretirement Benefits
                                                     ----------------           -----------------------------
                                                Three Months Ended June 30,      Three Months Ended June 30,
                                                    2004           2003             2004            2003
                                                  ---------     ---------         ---------       --------
<S>                                               <C>           <C>               <C>             <C>
Service cost                                      $   1,165     $   1,013         $      30       $     27
Interest cost                                         3,095         3,001               364            374
Expected return on assets                            (4,108)       (4,162)             (115)          (104)
Amortization of:
      Transition (asset) obligation                    (328)         (378)              170            170
      Prior service cost                                166           161                 -              -
      Actuarial loss                                    288            54                68             51
                                                  ---------     ---------         ---------       --------
Net benefit cost (income)                               278          (311)              517            518
Change in regulatory assets
      and liabilities                                     -             -               258            256
                                                  ---------     ---------         ---------       --------
Net expense (income)                              $     278     $    (311)        $     775       $    774
                                                  ---------     ---------         ---------       --------
</TABLE>

<TABLE>
<CAPTION>
                                                     Pension Benefits           Other Postretirement Benefits
                                                     ----------------           -----------------------------
                                                 Nine Months Ended June 30,       Nine Months Ended June 30,
                                                     2004         2003              2004            2003
                                                  ---------     ---------         ---------       --------
<S>                                               <C>           <C>               <C>             <C>
Service cost                                      $   3,495     $   3,039         $      90       $     82
Interest cost                                         9,285         9,003             1,092          1,123
Expected return on assets                           (12,324)      (12,486)             (345)          (311)
Amortization of:
      Transition (asset) obligation                    (984)       (1,134)              510            510
      Prior service cost                                498           483                 -              -
      Actuarial loss                                    864           162               204            153
                                                  ---------     ---------         ---------       --------
Net benefit cost (income)                               834          (933)            1,551          1,557
Change in regulatory assets
      and liabilities                                     -             -               774            768
                                                  ---------     ---------         ---------       --------
Net expense (income)                              $     834     $    (933)        $   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 ended September 30, 2004. Pursuant to orders
      previously issued by the PUC, UGI Utilities has established a Voluntary
      Employees' Beneficiary Association ("VEBA") trust to fund the UGI
      Utilities' postretirement obligations and to pay retiree health care and
      life insurance benefits by depositing into the VEBA the annual amount of
      postretirement benefits costs determined under SFAS No. 106, "Employers
      Accounting for Postretirement Benefits Other Than Pensions." The
      difference between the annual amount calculated and the amount included in
      UGI Utilities rates is deferred for future recovery from, or refund to,
      ratepayers. The Company expects to contribute approximately $2,300 to the
      VEBA during the year ended September 30, 2004, subject to the actuarial
      impact, if any, of the Medicare Prescription Drug Improvement and
      Modernization Act of 2003 (as more fully

                                       -8-

<PAGE>

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

      described in Note 5 to Condensed Consolidated Financial Statements).
      Through June 30, 2004, the Company has made contributions of approximately
      $1,788 to the VEBA in respect of the year ended September 30, 2004.

      The net benefit cost of our unfunded and non-qualified supplemental
      executive retirement plan includes the following components:

<TABLE>
<CAPTION>
                                       Three Months Ended June 30,      Nine Months Ended June 30,
                                        2004                 2003        2004                2003
                                        ----                 ----        ----                ----
<S>                                    <C>                  <C>         <C>                 <C>
Service cost                           $  13                $ (2)       $  39               $  (6)
Interest cost                             50                  41          150                 123
Amortization of:
       Transition obligation              13                  13           39                  39
       Prior service cost                 (1)                 (1)          (3)                 (3)
       Actuarial loss                     29                  16           87                  48
                                       -----                ----        -----               -----
Net benefit cost                       $ 104                $ 67        $ 312               $ 201
                                       -----                ----        -----               -----
</TABLE>

4.    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 (1) MGPs were
      formerly operated by it or owned or operated by its former subsidiaries
      and (2) either environmental agencies or private 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

                                       -9-

<PAGE>

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

      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
      Citizens may be required to pay to the City for cleaning up tar deposits
      in the Penobscot River. 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. UGI Utilities believes that it
      has good defenses to the claim and is defending the suit.

      AGL previously informed UGI Utilities that it was investigating
      contamination that appeared to be related to MGP operations at a site
      owned by AGL in Savannah, Georgia. A former subsidiary of UGI Utilities'
      operated the MGP in the early 1900s. AGL has recently informed UGI
      Utilities that it has begun remediation of MGP wastes at the site and
      believes that the total cost of remediation could be as high as $55,000.
      AGL has stated an intention to make a claim 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. In
      November 2003, the court granted UGI Utilities' motion for summary
      judgment in part, dismissing all claims premised on a disregard of the
      separate corporate form of UGI Utilities' former subsidiaries and

                                      -10-

<PAGE>

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

      dismissing claims premised on UGI Utilities' operation of three of the
      MGPs under operating leases with ConEd's predecessors. In March 2004, the
      court granted summary judgment on the remaining claims 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 a MGP site it owns in Sag Harbor, New York. KeySpan
      believes that UGI Utilities is responsible for approximately 50% of these
      costs as a result of UGI Utilities' alleged direct ownership and operation
      of the plant from 1885 to 1902. UGI Utilities is in the process of
      reviewing the information provided by KeySpan and is investigating this
      claim.

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

5.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

      In December 2003, the FASB revised Financial Interpretation No. 46,
      "Consolidation of Variable Interest Entities" ("FIN 46"), which was
      originally issued in January 2003 and clarifies Accounting Research
      Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was effective
      immediately for variable interest entities created or obtained after
      January 31, 2003. For variable interests created or acquired before
      February 1, 2003, FIN 46 was effective beginning with our interim period
      ended March 31, 2004. The Company has not created or obtained any variable
      interest entities after January 31, 2003. If certain conditions are met,
      FIN 46 requires the primary beneficiary to consolidate

                                      -11-

<PAGE>

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

      certain variable interest entities. The adoption of FIN 46 did not have
      any impact on the Company's financial position or results of operations.

      On December 8, 2003, the Medicare Prescription Drug, Improvement and
      Modernization Act of 2003 (the "Act") was signed into law. Among other
      things, the Act provides for a prescription drug benefit to Medicare
      beneficiaries on a voluntary basis beginning in 2006. To encourage
      employers to continue to offer retiree prescription drug benefits, the Act
      provides for a tax-free subsidy to employers who offer a prescription drug
      benefit that is at least actuarially equivalent to the standard benefit
      offered under the Act.

      The Company provides postretirement health care benefits principally to
      certain of its retirees and a limited number of active employees meeting
      certain age and service requirements. These postretirement benefits
      include certain retiree prescription drug benefits. Pursuant to orders
      previously issued by the PUC, UGI Utilities has established a VEBA trust
      to fund the UGI Utilities' postretirement obligations and to pay retiree
      health care and life insurance benefits 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 in UGI Utilities' rates is deferred for future recovery from, or
      refund to, ratepayers.

      In May 2004, the FASB issued Staff Position No. FAS 106-2, "Accounting and
      Disclosure Requirements Related to the Medicare Prescription Drug,
      Improvement and Modernization Act of 2003" ("FSP 106-2"). FSP 106-2 is
      effective for periods beginning after June 15, 2004. Therefore, the
      Condensed Consolidated Financial Statements and accompanying footnotes do
      not reflect the effects of the Act. However, under the current ratemaking
      described above, any increases or decreases in postretirement benefit
      costs resulting from the Act will not affect our reported results. In
      addition, because of the limited number of participants in the
      postretirement medical benefits program and the current level of
      postretirement medical benefits, we do not believe the Act will have a
      material effect on the Company's cash flows.

6.    SUBSEQUENT EVENT - REDEMPTION OF SERIES PREFERRED STOCK

      On July 27, 2004, UGI Utilities' Board of Directors approved the
      redemption on October 1, 2004 of all 200,000 shares of the $7.75 Series
      Preferred Stock at a price of $100 per share together with full cumulative
      dividends. Currently, we intend to fund the redemption of the $7.75 Series
      Preferred Stock with proceeds from the issuance of Medium-Term Notes.

                                      -12-
<PAGE>

                               UGI UTILITIES, INC.

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

                           FORWARD-LOOKING STATEMENTS

Information contained within this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Quarterly
Report may contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Such statements use forward-looking words such as "believe," "plan,"
"anticipate," "continue," "estimate," "expect," "may," "will," or other similar
words. These statements discuss plans, strategies, events or developments that
we expect or anticipate will or may occur in the future.

A forward-looking statement may include a statement of the assumptions or bases
underlying the forward-looking statement. We believe that we have chosen these
assumptions or bases in good faith and that they are reasonable. However, we
caution you that actual results almost always vary from assumed facts or bases,
and the differences between actual results and assumed facts or bases can be
material, depending on the circumstances. When considering forward-looking
statements, you should keep in mind the following important factors which could
affect our future results and could cause those results to differ materially
from those expressed in our forward-looking statements: (1) adverse weather
conditions resulting in reduced demand; (2) price volatility and availability of
oil, electricity and natural gas and the capacity to transport them to market
areas; (3) changes in laws and regulations, including safety, tax and accounting
matters; (4) competitive pressures from the same and alternative energy sources;
(5) liability for environmental claims; (6) customer conservation measures and
improvements in energy efficiency and technology resulting in reduced demand;
(7) adverse labor relations; (8) large customer, counterparty or supplier
defaults; (9) liability for personal injury and property damage arising from
explosions and other catastrophic events, including acts of terrorism, resulting
from operating hazards and risks incidental to generating and distributing
electricity and transporting, storing and distributing natural gas, including
liability in excess of insurance coverage; (10) political, regulatory and
economic conditions in the United States; and (11) interest rate fluctuations
and other capital market conditions.

These factors are not necessarily all of the important factors that could cause
actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. We undertake no obligation to
update publicly any forward-looking statement whether as a result of new
information or future events except as required by federal securities laws.

                                      -13-

<PAGE>

                               UGI UTILITIES, INC.

                        ANALYSIS OF RESULTS OF OPERATIONS

The following analyses compare our results of operations for (1) the three
months ended June 30, 2004 ("2004 three-month period") with the three months
ended June 30, 2003 ("2003 three-month period") and (2) the nine months ended
June 30, 2004 ("2004 nine-month period") with the nine months ended June 30,
2003 ("2003 nine-month period"). Results of operations in the 2004 three- and
nine-month periods comprise those of Electric Utility. Results of operations in
the 2003 three- and nine-month periods comprise those of Electric Utility and
UGID prior to its transfer to UGI in June 2003 (see Note 1 to Condensed
Consolidated Financial Statements). Our analyses of results of operations should
be read in conjunction with the segment information included in Note 2 to the
Condensed Consolidated Financial Statements.

2004 THREE-MONTH PERIOD COMPARED WITH 2003 THREE-MONTH PERIOD

<TABLE>
<CAPTION>
                                                                                  Increase
Three Months Ended June 30,                         2004         2003            (Decrease)
---------------------------                      ---------     --------          ----------
(Millions of dollars)
<S>                                              <C>           <C>           <C>           <C>
GAS UTILITY:
     Revenues                                    $    97.7     $   99.7      $  (2.0)       (2.0)%
     Total margin (a)                            $    32.6     $   34.5      $  (1.9)       (5.5)%
     Operating income                            $     6.9     $    5.5      $   1.4        25.5%
     Income before income taxes                  $     3.0     $    2.1      $   0.9        42.9%
     System throughput - bcf                          15.5         15.0          0.5         3.3%
     Heating degree days - % (warmer) colder
         than normal                                 (18.7)%       16.3%           -           -

ELECTRIC OPERATIONS (b):
     Revenues                                    $    21.0     $   21.9      $  (0.9)       (4.1)%
     Total margin (a)                            $    10.2     $    9.5      $   0.7         7.4%
     Operating income                            $     5.4     $    4.5      $   0.9        20.0%
     Income before income taxes                  $     4.9     $    4.0      $   0.9        22.5%
     Distribution sales - gwh                        221.5        216.3          5.2         2.4%
</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 Operations' total margin represents total revenues less cost of
      sales and revenue-related taxes, i.e. Electric Utility gross receipts
      taxes, of $1.1 million in each of the three month-periods ended June 30,
      2004 and 2003. For financial statement purposes, revenue-related taxes are
      included in "taxes other than income taxes" on the Condensed Consolidated
      Statements of Income.

(b)   Electric Operations comprises Electric Utility and, for the three months
      ended June 30, 2003, UGID and its consolidated subsidiaries.

GAS UTILITY. Weather in Gas Utility's service territory during the 2004
three-month period based upon heating degree days was 18.7% warmer than normal
compared with weather that was 16.3% colder than normal in the 2003 three-month
period. Notwithstanding the warmer weather, total distribution system throughput
increased 0.5 bcf or 3.3% reflecting higher volumes transported for delivery
service customers and the volume effects of year-over-year firm-

                                      -14-

<PAGE>

                               UGI UTILITIES, INC.

residential, commercial and industrial ("retail core-market") customer growth.
The decrease in Gas Utility revenues during the 2004 three-month period
principally reflects a $7.9 million decrease in revenues from retail core-market
customers as a result of lower retail core-market sales partially offset by an
increase in revenues from off-system sales. Retail core-market average purchased
gas cost ("PGC") rates were slightly higher during the 2004 three-month period.
Gas Utility cost of gas was $65.1 million in the 2004 three-month period
compared to $65.2 million in the 2003 three-month period reflecting the effects
of the previously mentioned lower retail core-market sales substantially offset
by the effects of the higher off-system sales and higher average PGC rates.

The decline in Gas Utility total margin reflects a $2.2 million decline in
retail core-market total margin resulting from the lower volumes sold partially
offset by higher commercial and industrial delivery service total margin
reflecting greater volumes transported.

Gas Utility operating income increased $1.4 million in the 2004 three-month
period principally reflecting a $3.8 million decline in operating and
administrative expenses partially offset by the previously mentioned decline in
total margin. The decrease in operating and administrative expenses is due in
large part to the absence of costs related to settling an environmental claim
recorded in the prior-year three-month period and, to a lesser extent, lower
stock-based incentive compensation costs in the current-year three-month period.
The increase in Gas Utility income before income taxes reflects the previously
mentioned higher operating income offset by a $0.5 million increase in interest
expense in the 2004 three-month period principally as a result of including
dividends paid on preferred shares subject to mandatory redemption as a
component of interest expense in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial
Instruments with the Characteristics of Both Liabilities and Equity" ("SFAS
150").

ELECTRIC OPERATIONS. Electric Utility's 2004 three-month period kilowatt-hour
sales were slightly higher than in the prior-year period due in large part to
greater air conditioning sales partially offset by the adverse effects of warmer
spring weather on heating-related sales. Temperatures based upon the number of
heating degree days in the 2004 three-month period were approximately 22.9%
warmer than in the prior-year period.

The decline in Electric Operations revenues in the 2004 three-month period
principally reflects the absence of revenues from UGID's electricity generation
business partially offset by the effects of the increased Electric Utility
sales. In June 2003, UGID and its subsidiaries were dividended to UGI (see Note
1 to Condensed Consolidated Financial Statements). Electric Operations' cost of
sales declined $1.6 million in the 2004 three-month period principally
reflecting the absence of costs related to UGID's operations.

Electric Operations total margin in the 2004 three-month period increased $0.7
million principally as a result of the increased Electric Utility sales
partially offset by the absence of margin related to UGID's operations.
Operating income and income before income taxes were higher in the 2004
three-month period principally reflecting the increase in total margin, lower
Electric Utility operating and administrative expenses, and the absence of
operating expenses related to UGID's operations.

                                      -15-
<PAGE>
                              UGI UTILITIES, INC.

2004 NINE-MONTH PERIOD COMPARED WITH 2003 NINE-MONTH PERIOD

<TABLE>
<CAPTION>
                                                                                          Increase
Nine Months Ended June 30,                                2004          2003             (Decrease)
--------------------------                              ----------   -----------   -----------------------
(Millions of dollars)
<S>                                                     <C>          <C>           <C>              <C>
GAS UTILITY:
 Revenues                                               $    490.5   $     484.7   $         5.8      1.2%
 Total margin (a)                                       $    165.3   $     172.1   $        (6.8)    (4.0)%
 Operating income                                       $     82.8   $      94.1   $       (11.3)   (12.0)%
 Income before income taxes                             $     70.9   $      83.5   $       (12.6)   (15.1)%
 System throughput - bcf                                      70.0          70.7            (0.7)    (1.0)%
 Heating degree days - % (warmer) colder
  than normal                                                 (2.0)%         8.3%              -        -

ELECTRIC OPERATIONS (b):
 Revenues                                               $     67.1   $      74.5   $        (7.4)    (9.9)%
 Total margin (a)                                       $     31.8   $      33.4   $        (1.6)    (4.8)%
 Operating income                                       $     16.8   $      18.2   $        (1.4)    (7.7)%
 Income before income taxes                             $     15.2   $      16.5   $        (1.3)    (7.9)%
 Distribution sales - gwh                                    747.2         741.8             5.4      0.7%
</TABLE>

(a)   Gas Utility's total margin represents total revenues less cost of sales.
      Electric Operations' total margin represents total revenues less cost of
      sales and revenue-related taxes, i.e. Electric Utility gross receipts
      taxes, of $3.6 million in each of the nine-month periods ended June 30,
      2004 and 2003.

(b)   Electric Operations comprises Electric Utility and, for the nine months
      ended June 30, 2003, UGID and its consolidated subsidiaries.

GAS UTILITY. Weather in Gas Utility's service territory during the 2004
nine-month period was 2.0% warmer than normal compared with weather that was
8.3% colder than normal in the 2003 nine-month period. Total distribution system
throughput decreased 0.7 bcf or 1.0% as the adverse effects of the warmer
weather on heating-related sales to retail core-market customers were partially
offset by greater volumes transported for delivery service customers and the
volume effects of year-over-year retail core-market customer growth. The
increase in Gas Utility revenues during the 2004 nine-month period includes a
$15.6 million increase in revenues from off-system sales partially offset by
lower retail core-market and delivery service revenues. The decline in retail
core-market revenues reflects the effects of the reduced retail core-market
volumes partially offset by higher average PGC rates. Gas Utility cost of gas
was $325.2 million in the 2004 nine-month period compared to $312.6 million in
the 2003 nine-month period reflecting greater cost of gas associated with the
higher off-system sales and the higher average PGC rates partially offset by the
effects of the lower retail core-market volumes sold.

Gas Utility total margin declined $6.8 million principally reflecting a $5.1
million decline in retail core-market margin and also reflecting the effects of
lower volumes transported for small weather-sensitive delivery service
customers.

                                     - 16 -

<PAGE>

                              UGI UTILITIES, INC.

Gas Utility operating income declined $11.3 million in the 2004 nine-month
period principally reflecting the previously mentioned decline in total margin,
lower other income, and a $1.0 million increase in depreciation expense
partially offset by a decrease in operating and administrative expenses. Other
income declined $4.9 million due in large part to a $2.9 million decline in
non-tariff service income and costs related to settling a regulatory claim
resulting from the discontinuance of natural gas service to certain customers.
Operating and administrative expenses decreased $1.4 million due in large part
to the absence of costs related to settling an environmental claim recorded in
the prior-year nine-month period and lower distribution system maintenance
expenses partially offset by increases in provisions for injuries and damages
claims and higher compensation and benefits expenses. The decrease in Gas
Utility income before income taxes reflects the decline in operating income and
higher interest expense in the 2004 nine-month period principally as a result of
including dividends paid on preferred shares subject to mandatory redemption as
a component of interest expense in accordance with SFAS 150.

ELECTRIC OPERATIONS. Electric Utility's 2004 nine-month period kilowatt-hour
sales were slightly higher than in the 2003 nine-month period due in large part
to greater air conditioning sales partially offset by the adverse effects of
warmer winter weather on heating-related sales. Temperatures based upon heating
degree days in the 2004 nine-month period were approximately 7.4% warmer than in
the prior-year period.

The decline in Electric Operations revenues in the 2004 nine-month period
principally reflects the absence of revenues from UGID's electricity generation
business partially offset by the effects of the increased Electric Utility
sales. Electric Operations' cost of sales declined $5.8 million in the 2004
nine-month period principally reflecting the absence of $6.2 million of costs
related to UGID's operations offset by $0.4 million of higher Electric Utility
purchased power costs.

Electric Operations total margin in the 2004 nine-month period declined $1.6
million principally reflecting the absence of $1.9 million of total margin
related to UGID's operations partially offset by a $0.3 million increase in
Electric Utility total margin as a result of the higher Electric Utility sales.
Operating income and income before income taxes were lower in the 2004
nine-month period principally reflecting the decline in total margin.

                        FINANCIAL CONDITION AND LIQUIDITY

FINANCIAL CONDITION

The Company's total debt outstanding at June 30, 2004 totaled $247.3 million
(including $30.1 million in bank loans) compared with $258.0 million (including
$40.7 million in bank loans) at September 30, 2003.

The Company has revolving credit commitments under which it may borrow up to
$110 million. These agreements expire in June 2006 and 2007. At June 30, 2004
borrowing under these agreements totaled $30.1 million. In addition, UGI
Utilities has an uncommitted arrangement with a major bank under which it may
borrow up to $20 million. At June 30, 2004, there were no borrowings outstanding
under this agreement. Amounts outstanding under the revolving

                                     - 17 -

<PAGE>

                              UGI UTILITIES, INC.

credit agreements and the uncommitted arrangement are classified as bank loans
on the Condensed Consolidated Balance Sheets. UGI Utilities also has a shelf
registration statement with the SEC under which it may issue up to an additional
$40 million of Medium-Term Notes or other debt securities. On July 27, 2004, UGI
Utilities' Board of Directors approved the redemption on October 1, 2004 of all
200,000 shares of the $7.75 Series Preferred Stock at a price of $100 per share
together with full cumulative dividends. Currently, we intend to fund the
redemption of the $7.75 Series Preferred Stock with proceeds from the issuance
of Medium-Term Notes.

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 its
revolving credit agreements to manage these seasonal cash flow needs. Cash
provided by operating activities was $75.7 million during the nine months ended
June 30, 2004 compared with $106.2 million in the prior-year period. Cash flow
from operating activities before changes in operating working capital was $81.9
million in the 2004 nine-month period compared to $72.4 million in the
prior-year nine-month period. Changes in operating working capital used $6.2
million of operating cash flow during the 2004 nine-month period compared with
$33.8 million provided during the prior-year nine-month period. The decline in
operating cash flow during the 2004 nine-month period principally reflects
significantly lower net overcollections of deferred fuel costs and lower net
income, partially offset by higher noncash deferred income tax expense and
greater cash flow from changes in inventories.

INVESTING ACTIVITIES. Cash used by investing activities was $27.9 million in the
2004 nine-month period compared with $26.6 million in the prior-year period.
Expenditures for property, plant and equipment were $26.6 million in the 2004
nine-month period compared with $25.7 million recorded in the prior-year period
principally reflecting higher Electric Utility capital expenditures. Net costs
of property, plant and equipment disposals were higher in the 2004 nine-month
period as the prior-year amount reflected greater proceeds from the sale of
property.

FINANCING ACTIVITIES. Cash used by financing activities was $45.8 million in the
2004 nine-month period compared with $84.0 million in the prior-year period.
Financing activity cash flows are primarily the result of issuances and
repayments of long-term debt, net borrowings under revolving credit agreements,
dividends on common and, prior to the adoption of SFAS 150, preferred shares and
capital contributions from UGI. During the 2004 and 2003 nine-month periods, we
paid dividends of $35.2 million and $24.4 million, respectively, to UGI.
Although, we paid dividends of $1.2 million on our preferred shares subject to
mandatory redemption during both nine-month periods, dividends paid on preferred
shares subject to mandatory redemption during the nine months ended June 30,
2004 are reflected in cash flow from operations as a result of the application
of SFAS 150 (see "Preferred Shares Subject to Mandatory Redemption" below).
During the 2004 nine-month period, we had net repayments of $10.6 million under
our bank loans compared to net

                                     - 18 -

<PAGE>

                              UGI UTILITIES, INC.

repayments of $34.9 million in the prior-year period. The prior-year period also
reflects the repayment of $26.0 million of maturing long-term debt.

PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION

Beginning July 1, 2003, the Company accounts for its preferred shares subject to
mandatory redemption in accordance with SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS 150"). SFAS 150 establishes guidelines on how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. The adoption of SFAS 150 results in the Company presenting its
preferred shares subject to mandatory redemption in the liabilities section of
the balance sheet and reflecting dividends paid on these shares as a component
of interest expense for periods presented after June 30, 2003. Because SFAS 150
specifically prohibits the restatement of financial statements prior to its
adoption, prior period amounts have not been reclassified. As previously
mentioned, on July 27, 2004 UGI Utilities' Board of Directors approved the
redemption on October 1, 2004 of all 200,000 shares of the $7.75 Series
Preferred Stock.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2003, the Financial Accounting Standards Board ("FASB") revised
Financial Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN 46"), which was originally issued in January 2003 and clarifies Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was
effective immediately for variable interest entities created or obtained after
January 31, 2003. For variable interests created or acquired before February 1,
2003, FIN 46 was effective beginning with our interim period ended March 31,
2004. If certain conditions are met, FIN 46 requires the primary beneficiary to
consolidate certain variable interest entities. The Company has not created or
obtained any variable interest entities after January 31, 2003. The adoption of
FIN 46 did not have any impact on the Company's financial position or results of
operations.

On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") was signed into law. Among other things,
the Act provides for a prescription drug benefit to Medicare beneficiaries on a
voluntary basis beginning in 2006. To encourage employers to continue to offer
retiree prescription drug benefits, the Act provides for a tax-free subsidy to
employers who offer a prescription drug benefit that is at least actuarially
equivalent to the standard benefit offered under the Act.

The Company provides postretirement health care benefits principally to certain
of its retirees and a limited number of active employees meeting certain age and
service requirements. These postretirement benefits include certain retiree
prescription drug benefits. Pursuant to orders issued by the Pennsylvania Public
Utility Commission ("PUC"), UGI Utilities has established a Voluntary Employees'
Beneficiary Association ("VEBA") trust to fund the UGI Utilities' postretirement
benefit obligations and to pay retiree health care and life insurance benefits
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

                                     - 19 -

<PAGE>

                              UGI UTILITIES, INC.

difference between the annual amount calculated and the amount included in UGI
Utilities' rates is deferred for future recovery from, or refund to, ratepayers.

In May 2004, the FASB issued Staff Position No. FAS 106-2, "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003" ("FSP-106-2"). FSP 106-2 is effective for periods
beginning after June 15, 2004. Therefore, the Condensed Consolidated Financial
Statements and accompanying footnotes do not reflect the effects of the Act.
However, under the current ratemaking described above, any increases or
decreases in postretirement benefit costs resulting from the Act will not affect
our reported results. In addition, because of the limited number of participants
in the postretirement medical benefits program and the current level of
postretirement medical benefits, we do not believe the Act will have a material
effect on the Company's cash flows.

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.

Electric Utility purchases its power needs from electricity 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 and January 1, 2006, POLR generation
rates for all metered customers may increase up to 4.5% and 7.5%, respectively,
of total rates in effect on December 31, 2004. Currently, Electric Utility's
fixed-price contracts with electricity 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
results. In order to reduce this non-performance risk, Electric Utility has
diversified its purchases across several suppliers and entered into bilateral
collateral arrangements with certain of them. At June 30, 2004, the fair value
of our electricity price swap was a gain of $1.7 million. Fair value reflects
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,
2004. An adverse change in electricity prices of ten percent would result in a
$0.9 million decrease in the fair value of the swap.

Our variable-rate debt includes borrowings under our revolving credit agreements
and the uncommitted arrangement with a major bank. These agreements provide for
interest rates on

                                     - 20 -

<PAGE>

                              UGI UTILITIES, INC.

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. At June
30, 2004, the fair value of our unsettled interest rate protection agreements,
which have been designated and qualify as cash flow hedges, was a gain of $1.2
million. An adverse change in interest rates on ten-year U.S. treasury notes of
ten percent would result in a $2.4 million decrease in the fair value of these
interest rate protection agreements.

ITEM  4. CONTROLS AND PROCEDURES

(a)   Evaluation of Disclosure Controls and Procedures

      The Company's management, with the participation of the Company's Chief
      Executive Officer and Chief Financial Officer, evaluated the effectiveness
      of the Company's disclosure controls and procedures as of the end of the
      period covered by this report. Based on that evaluation, the Chief
      Executive Officer and Chief Financial Officer concluded that the Company's
      disclosure controls and procedures as of the end of the period covered by
      this report were designed and functioning effectively to provide
      reasonable assurance that the information required to be disclosed by the
      Company in reports filed under the Securities Exchange Act of 1934, as
      amended, is recorded, processed, summarized and reported within the time
      periods specified in the SEC's rules and forms. The Company believes that
      a controls system, no matter how well designed and operated, cannot
      provide absolute assurance that the objectives of the controls system are
      met, and no evaluation of controls can provide absolute assurance that all
      control issues and instances of fraud, if any, within a company have been
      detected.

(b)   Change in Internal Control over Financial Reporting

      No change in the Company's internal control over financial reporting
      occurred during the Company's most recent fiscal quarter that has
      materially affected, or is reasonably likely to materially affect, the
      Company's internal control over financial reporting.

                                     - 21 -

<PAGE>

                              UGI UTILITIES, INC.

                            PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

      Sag Harbor, New York. By letter dated June 24, 2004, KeySpan Energy
("KeySpan") informed UGI Utilities, Inc. ("Utilities") that KeySpan has spent
$2.3 million and expects to spend another $11 million to clean up a manufactured
gas plant site it owns in Sag Harbor, New York. KeySpan believes that Utilities
is responsible for approximately 50% of these costs as a result of Utilities'
alleged direct ownership and operation of the plant from 1885 to 1902. Utilities
is in the process of reviewing the information provided by KeySpan and is
investigating this claim.

      Connecticut Gas Plants. 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 Utilities for past and future remediation costs related to
manufactured gas plant operations on thirteen sites owned by the Northeast
Companies in nine cities in the State of Connecticut. The Northeast Companies
allege that 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 million and complete remediation costs for all sites
could total $182 million. The Northeast Companies seek an unspecified fair and
equitable allocation of these costs to Utilities. Utilities is in the process of
reviewing the information provided by Northeast Companies and is investigating
this claim.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   List of Exhibits:

            10.1  UGI Utilities, Inc. Severance Plan for Exempt Employees in
                  Salary Grades 34-37 and Salary Grades 18-23, as amended
                  December 16, 2003.

            10.2  UGI Corporation 2004 Omnibus Equity Compensation Plan,
                  effective as of January 1, 2004. (Incorporated by reference to
                  Exhibit 99.1 of UGI Corporation's Registration Statement No.
                  333-118147).

            10.3  UGI Corporation 2000 Stock Incentive Plan Amended and Restated
                  as of December 16, 2003. (Incorporated by reference to Exhibit
                  10.2 of UGI Corporation's Quarterly Report on Form 10-Q for
                  the period ended June 30, 2004).

            10.4  UGI Corporation Senior Executive Employee Severance Pay Plan,
                  as amended December 16, 2003. (Incorporated by reference to
                  Exhibit 10.3 of UGI Corporation's Quarterly Report on Form
                  10-Q for the period ended June 30, 2004).

            12.1  Computation of ratio of earnings to fixed charges.

                                     - 22 -

<PAGE>

                              UGI UTILITIES, INC.

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

            31.1  Certification by the Chief Executive Officer relating to the
                  Registrant's Report on Form 10-Q for the quarter ended June
                  30, 2004, 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, 2004, 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, 2004, pursuant to Section
                  906 of the Sarbanes-Oxley Act of 2002.

      (b)   The Company furnished information in a Current Report on Form 8-K
            during the third quarter of fiscal year 2004 as follows:

<TABLE>
<CAPTION>
DATE                          ITEM NUMBER(s)                               CONTENT
----                          --------------                               -------
<S>                           <C>                      <C>
April 28, 2004                     12                  Press Release reporting financial results for the
                                                       fiscal quarter ended March 31, 2004.
</TABLE>

-------------------------------

*     This Exhibit shall not be deemed "filed" for purposes of Section 18 of the
      Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
      otherwise subject to liability under that section, nor shall it be deemed
      incorporated by reference in any filing under the Securities Act of 1933,
      as amended, or the Exchange Act, except as expressly set forth by specific
      reference in such filing.

                                     - 23 -

<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 13, 2004                   By:  /s/ John C. Barney
                                               -----------------------
                                          John C. Barney
                                          Senior Vice President - Finance
                                          (Principal Financial Officer)

                                     - 24 -

<PAGE>
                               UGI UTILITIES, INC.

                                  EXHIBIT INDEX

10.1  UGI Utilities, Inc. Severance Plan for Exempt Employees in Salary Grades
      34-37 and Salary Grades 18-23, as amended December 16, 2003.

10.2  UGI Corporation 2004 Omnibus Equity Compensation Plan, effective as of
      January 1, 2004. (Incorporated by reference to Exhibit 99.1 of UGI
      Corporation's Registration Statement No. 333-118147).

10.3  UGI Corporation 2000 Stock Incentive Plan Amended and Restated as of
      December 16, 2003. (Incorporated by reference to Exhibit 10.2 of UGI
      Corporation's Quarterly Report on Form 10-Q for the period ended June 30,
      2004).

10.4  UGI Corporation Senior Executive Employee Severance Pay Plan, as amended
      December 16, 2003. (Incorporated by reference to Exhibit 10.3 of UGI
      Corporation's Quarterly Report on Form 10-Q for the period ended June 30,
      2004).

12.1  Computation of ratio of earnings to fixed charges

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

31.1  Certification by the Chief Executive Officer relating to the Registrant's
      Report on Form 10-Q for the quarter ended June 30, 2004, 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, 2004, 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, 2004, pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.

----------------------

*     This Exhibit shall not be deemed "filed" for purposes of Section 18 of the
      Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
      otherwise subject to liability under that section, nor shall it be deemed
      incorporated by reference in any filing under the Securities Act of 1933,
      as amended, or the Exchange Act, except as expressly set forth by specific
      reference in such filing.
<PAGE>
                               UGI UTILITIES INC.
        COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - EXHIBIT 12.1
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                   Nine
                                                  Months
                                                  Ended            Year Ended September 30,
                                                 June 30,   -----------------------------------------
                                                   2004      2003       2002        2001       2000
                                                 --------   --------   --------   --------   --------
<S>                                              <C>        <C>        <C>        <C>        <C>
EARNINGS:
Earnings before income taxes                     $ 86,049   $100,212   $ 73,665   $ 79,568   $ 82,882
Interest expense                                   13,285     17,412     16,365     18,724     18,135
Amortization of debt discount and expense             175        244        287        264        218
Estimated interest component of rental expense      1,080      1,434      1,563      1,541      1,318
                                                 --------   --------   --------   --------   --------
                                                 $100,589   $119,302   $ 91,880   $100,097   $102,553
                                                 ========   ========   ========   ========   ========

FIXED CHARGES:
Interest expense                                 $ 13,285   $ 17,412   $ 16,365   $ 18,724   $ 18,135
Amortization of debt discount and expense             175        244        287        264        218
Allowance for funds used during
      construction (capitalized interest)               8          7         19         12         17
Estimated interest component of rental expense      1,080      1,434      1,563      1,541      1,318
                                                 --------   --------   --------   --------   --------
                                                 $ 14,548   $ 19,097   $ 18,234   $ 20,541   $ 19,688
                                                 ========   ========   ========   ========   ========

Ratio of earnings to fixed charges                   6.91       6.25       5.04       4.87       5.21
                                                 ========   ========   ========   ========   ========
</TABLE>

<PAGE>

                               UGI UTILITIES INC.
           COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
                  AND PREFERRED STOCK DIVIDENDS - EXHIBIT 12.2
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                 Nine
                                                                 Months
                                                                 Ended            Year Ended September 30,
                                                                June 30,   -----------------------------------------
                                                                  2004       2003       2002       2001       2000
                                                                --------   --------   --------   --------   --------
<S>                                                             <C>        <C>        <C>        <C>        <C>
EARNINGS:
Earnings before income taxes                                    $ 86,049   $100,212   $ 73,665   $ 79,568   $ 82,882
Interest expense                                                  13,285     17,412     16,365     18,724     18,135
Amortization of debt discount and expense                            175        244        287        264        218
Estimated interest component of rental expense                     1,080      1,434      1,563      1,541      1,318
                                                                --------   --------   --------   --------   --------
                                                                $100,589   $119,302   $ 91,880   $100,097   $102,553
                                                                ========   ========   ========   ========   ========

COMBINED FIXED CHARGES AND PREFERRED
      STOCK DIVIDENDS:
Interest expense                                                $ 13,285   $ 17,412   $ 16,365   $ 18,724   $ 18,135
Amortization of debt discount and expense                            175        244        287        264        218
Allowance for funds used during
      construction (capitalized interest)                              8          7         19         12         17
Estimated interest component of rental expense                     1,080      1,434      1,563      1,541      1,318
Preferred stock dividend requirements                                  -      1,163      1,550      1,550      1,550
Adjustment required to state preferred stock
      dividend requirements on a pretax basis                          -        753      1,012        995        968
                                                                --------   --------   --------   --------   --------
                                                                $ 14,548   $ 21,013   $ 20,796   $ 23,086   $ 22,206
                                                                ========   ========   ========   ========   ========
Ratio of earnings to combined fixed charges
      and preferred stock dividends                                 6.91       5.68       4.42       4.34       4.62
                                                                ========   ========   ========   ========   ========
</TABLE>