<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                  For the quarterly period ended March 31, 2006

                                       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)

<TABLE>
<S>                                                          <C>
          Pennsylvania                                            23-1174060
(State or other jurisdiction of                                (I.R.S. Employer
 incorporation or organization)                              Identification No.)
</TABLE>

                               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 a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer       Accelerated filer       Non-accelerated filer  X
                        ---                     ---                         ---

     Indicated by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes       No   X
                                                -----    -----

     At April 30, 2006, there were 26,781,785 shares of UGI Utilities, Inc.
Common Stock, par value $2.25 per share, outstanding, all of which were held,
beneficially and of record, by UGI Corporation.

<PAGE>

                               UGI UTILITIES, INC.

                                TABLE OF CONTENTS

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

      Item 1.  Financial Statements

               Condensed Balance Sheets as of March 31, 2006,
                  September 30, 2005 and March 31, 2005                     1

               Condensed Statements of Income for the three and six
                  months ended March 31, 2006 and 2005                      2

               Condensed Statements of Cash Flows for the
                  six months ended March 31, 2006 and 2005                  3

               Notes to Condensed Financial Statements                    4 - 14

      Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                    15 - 22

      Item 3.  Quantitative and Qualitative Disclosures About Market
                  Risk                                                   23 - 24

      Item 4.  Controls and Procedures                                      25

PART II OTHER INFORMATION

      Item 1.  Legal Proceedings                                            25

      Item 1A. Risk Factors                                                 26

      Item 6.  Exhibits                                                     26

      Signatures                                                            27
</TABLE>


                                      -i-

<PAGE>

                               UGI UTILITIES, INC.

                            CONDENSED BALANCE SHEETS
                                   (unaudited)
                             (Thousands of dollars)

<TABLE>
<CAPTION>
                                                                           March 31,   September 30,   March 31,
                                                                              2006          2005          2005
                                                                           ---------   -------------   ---------
<S>                                                                        <C>         <C>             <C>
ASSETS
   Current assets:
      Cash and cash equivalents                                             $  3,582      $  2,686     $  2,008
      Accounts receivable (less allowances for doubtful accounts
         of $8,909, $4,562 and $7,448, respectively)                         121,363        48,597      101,852
      Accounts receivable - related parties                                    2,984         1,063        1,492
      Accrued utility revenues                                                32,876        10,360       27,418
      Inventories                                                             28,254        71,584        8,934
      Deferred income taxes                                                    8,790        12,484       15,396
      Derivative financial instruments                                         1,814         5,688        2,613
      Prepaid expenses and other current assets                                4,895         3,875        4,381
                                                                            --------      --------     --------
         Total current assets                                                204,558       156,337      164,094
   Property, plant and equipment, at cost (less accumulated depreciation
      and amortization of $341,126, $330,329 and $323,100, respectively)     665,213       655,322      639,487
   Regulatory assets                                                          61,956        61,334       66,171
   Other assets                                                               29,608        30,680       29,678
                                                                            --------      --------     --------
      Total assets                                                          $961,335      $903,673     $899,430
                                                                            ========      ========     ========
LIABILITIES AND STOCKHOLDER'S  EQUITY
   Current liabilities:
      Current maturities of long-term debt                                  $     --      $ 50,000     $ 70,000
      Bank loans                                                             123,300        81,200       39,200
      Accounts payable                                                        55,129        38,430       55,905
      Accounts payable - related parties                                       5,259        14,371        7,338
      Employee compensation and benefits accrued                               6,794         9,007        8,219
      Customer deposits and refunds                                           14,272        20,064       12,183
      Deferred fuel refunds                                                    7,504        17,370       23,973
      Accrued income taxes                                                    11,456            --       21,418
      Electric supplier collateral deposits                                       --        13,500        5,400
      Other current liabilities                                               12,449        15,444       14,382
                                                                            --------      --------     --------
         Total current liabilities                                           236,163       259,386      258,018
   Long-term debt                                                            237,000       187,030      167,090
   Deferred income taxes                                                     161,248       160,920      162,877
   Deferred investment tax credits                                             6,998         7,193        7,390
   Other noncurrent liabilities                                               16,077        14,213       13,337
                                                                            --------      --------     --------
         Total liabilities                                                   657,486       628,742      608,712
   Commitments and contingencies (note 5)
   Common stockholder's equity:
      Common Stock, $2.25 par value (authorized - 40,000,000 shares;
         issued and outstanding - 26,781,785 shares)                          60,259        60,259       60,259
      Additional paid-in capital                                              80,622        80,622       79,773
      Retained earnings                                                      161,467       133,807      151,317
      Accumulated other comprehensive income (loss)                            1,501           243         (631)
                                                                            --------      --------     --------
         Total common stockholder's equity                                   303,849       274,931      290,718
                                                                            --------      --------     --------
      Total liabilities and stockholder's equity                            $961,335      $903,673     $899,430
                                                                            ========      ========     ========
</TABLE>

See accompanying notes to condensed financial statements.


                                       -1-

<PAGE>

                               UGI UTILITIES, INC.

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

<TABLE>
<CAPTION>
                                                      Three Months Ended     Six Months Ended
                                                          March 31,             March 31,
                                                     -------------------   -------------------
                                                       2006       2005       2006       2005
                                                     --------   --------   --------   --------
<S>                                                  <C>        <C>        <C>        <C>
Revenues                                             $321,645   $281,454   $565,318   $464,935
                                                     --------   --------   --------   --------
Costs and expenses:
   Cost of sales - gas, fuel and purchased power      238,193    189,200    409,439    306,789
   Operating and administrative expenses               27,459     25,776     49,445     48,541
   Operating and administrative expenses - related
      parties                                           3,992      2,522      4,718      5,617
   Taxes other than income taxes                        3,720      3,739      6,982      6,927
   Depreciation and amortization                        6,295      5,966     12,483     11,766
   Other income, net                                   (1,220)    (1,419)    (3,181)    (3,244)
                                                     --------   --------   --------   --------
                                                      278,439    225,784    479,886    376,396
                                                     --------   --------   --------   --------
Operating income                                       43,206     55,670     85,432     88,539
Interest expense                                        5,320      4,622     10,956      9,148
                                                     --------   --------   --------   --------
Income before income taxes                             37,886     51,048     74,476     79,391
Income taxes                                           14,857     20,340     29,522     31,717
                                                     --------   --------   --------   --------
Net income                                           $ 23,029   $ 30,708   $ 44,954   $ 47,674
                                                     ========   ========   ========   ========
</TABLE>

See accompanying notes to condensed financial statements.


                                       -2-

<PAGE>

                               UGI UTILITIES, INC.

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

<TABLE>
<CAPTION>
                                                                      Six Months Ended
                                                                          March 31,
                                                                    --------------------
                                                                       2006       2005
                                                                    ---------   --------
<S>                                                                 <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                       $  44,954   $ 47,674
   Adjustments to reconcile net income to net cash used
      by operating activities:
      Depreciation and amortization                                    12,483     11,766
      Deferred income taxes, net                                        2,351     (5,464)
      Provision for uncollectible accounts                              6,980      6,548
      Other, net                                                          780      1,073
      Net change in:
         Accounts receivable and accrued utility revenues            (104,183)   (88,671)
         Inventories                                                   43,330     56,243
         Deferred fuel costs                                           (9,866)    14,827
         Accounts payable                                               7,587      2,264
         Other current assets and liabilities                          (5,913)    15,094
                                                                    ---------   --------
      Net cash (used) provided by operating activities                 (1,497)    61,354
                                                                    ---------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Expenditures for property, plant and equipment                     (21,878)   (19,287)
   Net costs of property, plant and equipment disposals                  (535)      (568)
                                                                    ---------   --------
      Net cash used by investing activities                           (22,413)   (19,855)
                                                                    ---------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Payment of dividends                                               (17,294)   (17,812)
   Redemption of preferred shares subject to mandatory redemption          --    (20,000)
   Increase in bank loans with maturities of
      three months or less                                            112,100    (21,700)
   Repayments of debt including bank loans with maturities
      greater than three months                                      (120,000)        --
   Issuance of debt                                                    50,000     20,000
                                                                    ---------   --------
      Net cash provided (used) by financing activities                 24,806    (39,512)
                                                                    ---------   --------
   Cash and cash equivalents increase                               $     896   $  1,987
                                                                    =========   ========
CASH AND CASH EQUIVALENTS:
   End of period                                                    $   3,582   $  2,008
   Beginning of period                                                  2,686         21
                                                                    ---------   --------
      Increase                                                      $     896   $  1,987
                                                                    =========   ========
</TABLE>

See accompanying notes to condensed financial statements.


                                      -3-

<PAGE>

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

1.   BASIS OF PRESENTATION

     UGI Utilities, Inc. ("UGI Utilities"), a wholly owned subsidiary of UGI
     Corporation ("UGI"), owns and operates a natural gas distribution utility
     ("Gas Utility") in parts of eastern and southeastern Pennsylvania and an
     electricity distribution utility ("Electric Utility") in northeastern
     Pennsylvania. We refer to Gas Utility and Electric Utility collectively as
     "the Company" or "we." Gas Utility and Electric Utility are subject to
     regulation by the Pennsylvania Public Utility Commission ("PUC").

     The accompanying condensed financial statements are unaudited and have been
     prepared in accordance with the rules and regulations of the U.S.
     Securities and Exchange Commission ("SEC"). They include all adjustments
     which we consider necessary for a fair statement of the results for the
     interim periods presented. Such adjustments consisted only of normal
     recurring items unless otherwise disclosed. The September 30, 2005
     condensed balance sheet data was derived from audited financial statements,
     but does not include all disclosures required by accounting principles
     generally accepted in the United States of America. These financial
     statements should be read in conjunction with the financial statements and
     the related notes included in our Annual Report on Form 10-K for the year
     ended September 30, 2005 ("Company's 2005 Annual Report"). Due to the
     seasonal nature of our businesses, the results of operations for interim
     periods are not necessarily indicative of the results to be expected for a
     full year.

     COMPREHENSIVE INCOME. The following table presents the components of
     comprehensive income for the three and six months ended March 31, 2006 and
     2005:

<TABLE>
<CAPTION>
                             Three Months Ended    Six Months Ended
                                  March 31,           March 31,
                             ------------------   -----------------
                                2006      2005      2006      2005
                              -------   -------   -------   -------
<S>                          <C>        <C>       <C>       <C>
Net income                    $23,029   $30,708   $44,954   $47,674
Other comprehensive income        144     1,494     1,258       824
                              -------   -------   -------   -------
Comprehensive income          $23,173   $32,202   $46,212   $48,498
                              -------   -------   -------   -------
</TABLE>

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

     EQUITY-BASED COMPENSATION. Under UGI's 2004 Omnibus Equity Compensation
     Plan ("OECP"), certain key employees of UGI Utilities may be granted stock
     options and other equity-based awards ("Units") of UGI Common Stock. Such
     awards typically vest ratably over a period of years (generally three
     years). There are certain change of control and retirement eligibility
     conditions that, if met, generally result in an acceleration of vesting.
     Stock options for UGI Common Stock generally can be exercised no later than
     ten years from the grant date. Effective October 1, 2005, the Company
     adopted Statement of Financial Accounting Standards ("SFAS") No. 123
     (revised 2004), "Share-Based Payment" ("SFAS 123R"). Prior to October 1,
     2005, as permitted, we applied the provisions of Accounting Principles
     Board ("APB") Opinion No. 25, "Accounting for Stock Issued to


                                      -4-

<PAGE>

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

     Employees" ("APB 25"), in recording compensation expense for grants of
     stock, stock options and other equity instruments to employees. Under APB
     25, the Company did not record any compensation expense for stock options,
     but provided the required pro forma disclosures as if we had determined
     compensation expense under the fair value method prescribed by the
     provisions of SFAS No. 123. Under SFAS 123R, all equity-based compensation
     cost is measured on the grant date or at period end based on the fair value
     of that award and is recognized in the income statement over the requisite
     service period.

     As permitted by the standard, under the modified prospective approach,
     effective October 1, 2005, we began recording compensation expense for
     awards that were not vested as of that date and we did not restate any of
     the prior periods. We used the Black-Scholes option-pricing model to
     estimate the fair value of each option prior to adoption of SFAS 123R and
     continue to use this model. The adoption of SFAS 123R resulted in
     compensation expense associated with stock options of $145 ($85 after-tax)
     and $188 ($110 after-tax) during the three and six months ended March 31,
     2006, respectively. As of March 31, 2006, there was $529 of unrecognized
     compensation cost related to non-vested stock options that is expected to
     be recognized over a weighted average period of 2.1 years. Assuming no
     significant change in the level of future stock option grants to UGI
     Utilities' employees, we do not believe that compensation expense
     associated with stock options will have a material impact on our financial
     position, results of operations or cash flows.

     Both prior to and after the adoption of SFAS 123R, we measured and recorded
     compensation cost of Units awarded that can be settled at UGI's option in
     cash or shares of Common Stock, or a combination of both, based upon their
     fair value as of the end of each period. The fair value of Units is
     dependent upon UGI's stock price and its performance in comparison to a
     group of peer companies. The fair value of these awards is expensed over
     requisite service periods.

     We recorded total net pre-tax equity-based compensation expense (benefit)
     of $431 and $(190) during the three and six months ended March 31, 2006,
     respectively. The total net after-tax equity-based compensation expense
     (benefit) recorded during the three and six months ended March 31, 2006 was
     $252 and $(111), respectively. The net equity-based compensation benefit
     recorded during the six months ended March 31, 2006 is principally due to
     changes in the fair value of awards made under the OECP, largely resulting
     from changes in the price of UGI's stock.


                                      -5-

<PAGE>

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

     The following table illustrates the effects on net income as if we had
     applied the provisions of SFAS 123R to all equity-based compensation awards
     for the comparable periods prior to the adoption of SFAS 123R.

<TABLE>
<CAPTION>
                                                         Three Months Ended   Six Months Ended
                                                              March 31,           March 31,
                                                                2005                2005
                                                         ------------------   ----------------
<S>                                                      <C>                  <C>
Net income, as reported                                       $30,708             $47,674
Add: Equity-based employee compensation
     expense included in reported net income, net
     of related tax effects                                       136                 581
Deduct: Total equity-based employee compensation
        expense determined under the fair value method
        for all awards, net of related tax effects               (215)               (705)
Pro forma net income                                          $30,629             $47,550
</TABLE>

     During the six months ended March 31, 2006, a portion of vested Unit awards
     were settled in shares of UGI Common Stock and $384 in cash. As of
     March 31, 2006, there was a total of $782 of unrecognized compensation
     expense associated with 66,234 Unit awards that are expected to be
     recognized over a weighted average period of 2.1 years. At March 31,
     2006, total liabilities of $828 associated with Unit awards are reflected
     in other current liabilities and other noncurrent liabilities in the
     Condensed Balance Sheet.

     The following table illustrates the number of unvested Unit awards:

<TABLE>
<CAPTION>
                                         Number of     Average Fair
                                         UGI Units   Value (per Unit)
                                         ---------   ----------------
<S>                                      <C>         <C>
Non-vested awards - September 30, 2005     27,182         $30.19
Granted                                    19,500
Vested                                    (13,557)
Non-vested awards - March 31, 2006         33,125         $23.29
</TABLE>

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

     USE OF ESTIMATES. We make estimates and assumptions when preparing
     financial statements in conformity with accounting principles generally
     accepted in the United States of America. These estimates and assumptions
     affect the reported amounts of assets and liabilities, revenues and
     expenses, as well as the disclosure of contingent assets and liabilities.
     Actual results could differ from these estimates.

2.   SEGMENT INFORMATION

     We have two reportable segments: (1) Gas Utility and (2) Electric Utility.
     The accounting policies of our two reportable segments are the same as
     those described in the Significant Accounting Policies note contained in
     the Company's 2005 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


                                      -6-

<PAGE>

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

     either Gas Utility or Electric Utility. There are no significant
     intersegment transactions. In addition, all of our reportable segments'
     revenues are derived from sources within the United States. Financial
     information by business segment follows:

THREE MONTHS ENDED MARCH 31, 2006:

<TABLE>
<CAPTION>
                                                              Gas     Electric
                                                  Total     Utility    Utility
                                                --------   --------   --------
<S>                                             <C>        <C>        <C>
Revenues                                        $321,645   $296,218   $ 25,427
Cost of sales - gas, fuel and purchased power    238,193    222,989     15,204
Depreciation and amortization                      6,295      5,468        827
Operating income                                  43,206     39,918      3,288
Interest expense                                   5,320      4,591        729
Income before income taxes                        37,886     35,327      2,559
Total assets at period end                       961,335    853,262    108,073
</TABLE>

THREE MONTHS ENDED MARCH 31, 2005:

<TABLE>
<CAPTION>
                                                              Gas     Electric
                                                  Total     Utility    Utility
                                                --------   --------   --------
<S>                                             <C>        <C>        <C>
Revenues                                        $281,454   $255,861    $25,593
Cost of sales - gas, fuel and purchased power    189,200    177,283     11,917
Depreciation and amortization                      5,966      5,176        790
Operating income                                  55,670     48,541      7,129
Interest expense                                   4,622      4,037        585
Income before income taxes                        51,048     44,504      6,544
Total assets at period end                       899,430    802,188     97,242
</TABLE>


                                      -7-

<PAGE>

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

SIX MONTHS ENDED MARCH 31, 2006:

<TABLE>
<CAPTION>
                                                              Gas     Electric
                                                  Total     Utility    Utility
                                                --------   --------   --------
<S>                                             <C>        <C>        <C>
Revenues                                        $565,318   $516,017   $ 49,301
Cost of sales - gas, fuel and purchased power    409,439    382,909     26,530
Depreciation and amortization                     12,483     10,843      1,640
Operating income                                  85,432     75,608      9,824
Interest expense                                  10,956      9,700      1,256
Income before income taxes                        74,476     65,908      8,568
Total assets at period end                       961,335    853,262    108,073
</TABLE>

SIX MONTHS ENDED MARCH 31, 2005:

<TABLE>
<CAPTION>
                                                              Gas     Electric
                                                  Total     Utility    Utility
                                                --------   --------   --------
<S>                                             <C>        <C>        <C>
Revenues                                        $464,935   $417,080    $47,855
Cost of sales - gas, fuel and purchased power    306,789    283,888     22,901
Depreciation and amortization                     11,766     10,230      1,536
Operating income                                  88,539     76,687     11,852
Interest expense                                   9,148      8,110      1,038
Income before income taxes                        79,391     68,577     10,814
Total assets at period end                       899,430    802,188     97,242
</TABLE>


                                      -8-

<PAGE>

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

3.   LONG-TERM DEBT

     In December 2005, UGI Utilities refinanced $50,000 of its maturing 7.14%
     Medium-Term Notes with proceeds from the issuance of $50,000 of 5.64%
     Medium-Term Notes due in December 2015. These Medium-Term Notes were issued
     pursuant to the Company's $125,000 shelf registration statement with the
     SEC.

4.   DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS

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

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

<TABLE>
<CAPTION>

                                                      Other Postretirement
                                   Pension Benefits         Benefits
                                     Three Months      Three Months Ended
                                   Ended March 31,          March 31,
                                  -----------------   --------------------
                                    2006      2005        2006    2005
                                  -------   -------      -----   -----
<S>                               <C>       <C>       <C>        <C>
Service cost                      $ 1,309   $ 1,090      $  32   $  29
Interest cost                       3,220     2,998        204     368
Expected return on assets          (4,444)   (3,975)      (152)   (119)
Amortization of:
   Transition obligation               --        --         --     169
   Prior service cost (benefit)       196       155        (55)     --
   Actuarial loss                     427       308         48      81
                                  -------   -------      -----   -----
Net benefit cost                      708       576         77     528
Change in regulatory and other
   assets and liabilities             (93)       --        698     247
                                  -------   -------      -----   -----
Net expense                       $   615   $   576      $ 775   $ 775
                                  -------   -------      -----   -----
</TABLE>

<TABLE>
<CAPTION>
                                                      Other Postretirement
                                   Pension Benefits         Benefits
                                   Six Months Ended     Six Months Ended
                                      March 31,             March 31,
                                  -----------------   --------------------
                                    2006      2005       2006     2005
                                  -------   -------     ------   ------
<S>                               <C>       <C>       <C>        <C>
Service cost                      $ 2,620   $ 2,180     $   65   $   57
Interest cost                       6,442     5,996        408      737
Expected return on assets          (8,892)   (7,950)      (305)    (238)
Amortization of:
   Transition obligation               --        --         --      338
   Prior service cost (benefit)       392       310       (110)      --
   Actuarial loss                     854       616         96      163
                                  -------   -------     ------   ------
Net benefit cost                    1,416     1,152        154    1,057
Change in regulatory and other
   assets and liabilities            (182)       --      1,396      493
                                  -------   -------     ------   ------
Net expense                       $ 1,234   $ 1,152     $1,550   $1,550
                                  -------   -------     ------   ------
</TABLE>


                                       -9-

<PAGE>

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

     UGI Utilities Pension Plan assets are held in trust and consist principally
     of equity and fixed income mutual funds. The Company does not believe it
     will be required to make any contributions to the UGI Utilities Pension
     Plan during the year ending September 30, 2006. Pursuant to orders
     previously issued by the PUC, UGI Utilities has established a Voluntary
     Employees' Beneficiary Association ("VEBA") trust to fund and pay UGI
     Utilities' postretirement health care and life insurance benefits referred
     to above by depositing into the VEBA the annual amount of postretirement
     benefit costs determined under SFAS No. 106, "Employers' Accounting for
     Postretirement Benefits Other Than Pensions." The difference between the
     annual amount calculated and the amount included in UGI Utilities rates is
     deferred for future recovery from, or refund to, ratepayers. During the six
     months ended March 31, 2006, the Company made contributions of
     approximately $360 to the VEBA and expects to contribute a total of
     approximately $750 during the twelve months ending September 30, 2006.

     We also sponsor an unfunded and non-qualified supplemental executive
     retirement income plan. We recorded pre-tax expense for this plan of $105
     and $201 for the three and six months ended March 31, 2006, respectively,
     and $108 and $216 for the three and six months ended March 31, 2005,
     respectively.

5.   COMMITMENTS AND CONTINGENCIES

     From the late 1800s through the mid-1900s, UGI Utilities and its former
     subsidiaries owned and operated a number of manufactured gas plants
     ("MGPs") prior to the general availability of natural gas. Some
     constituents of coal tars and other residues of the manufactured gas
     process are today considered hazardous substances under the Superfund Law
     and may be present on the sites of former MGPs. Between 1882 and 1953, UGI
     Utilities owned the stock of subsidiary gas companies in Pennsylvania and
     elsewhere and also operated the businesses of some gas companies under
     agreement. Pursuant to the requirements of the Public Utility Holding
     Company Act of 1935, UGI Utilities divested all of its utility operations
     other than those which now constitute Gas Utility and Electric Utility.

     UGI Utilities does not expect its costs for investigation and remediation
     of hazardous substances at Pennsylvania MGP sites to be material to its
     results of operations because Gas Utility is currently permitted to include
     in rates, through future base rate proceedings, prudently incurred
     remediation costs associated with such sites. UGI Utilities has been
     notified of several sites outside Pennsylvania on which private parties
     allege MGPs were formerly owned or operated by it or owned or operated by
     its former subsidiaries. Such parties are investigating the extent of
     environmental contamination or performing environmental remediation. UGI
     Utilities is currently litigating three claims against it relating to
     out-of-state sites. We accrue environmental investigation and cleanup costs
     when it is probable that a liability exists and the amount or range of
     amounts can be reasonably estimated.


                                      -10-

<PAGE>

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

     Management believes that under applicable law UGI Utilities should not be
     liable in those instances in which a former subsidiary owned or operated an
     MGP. There could be, however, significant future costs of an uncertain
     amount associated with environmental damage caused by MGPs outside
     Pennsylvania that UGI Utilities directly operated, or that were owned or
     operated by former subsidiaries of UGI Utilities, if a court were to
     conclude that (1) the subsidiary's separate corporate form should be
     disregarded or (2) UGI Utilities should be considered to have been an
     operator because of its conduct with respect to its subsidiary's MGP.

     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. Citizens
     alleges that UGI Utilities and its predecessors owned and operated the MGP
     from 1901 to 1928. Studies conducted by the City and Citizens suggest that
     it could cost up to $18,000 to clean up the river. Citizens' third-party
     claims have been stayed pending a resolution of the City's suit against
     Citizens, which was tried in September 2005 and has not yet been decided.
     UGI Utilities believes that it has good defenses to the claim and is
     defending the suit.

     By letter dated July 29, 2003, Atlanta Gas Light Company ("AGL") served UGI
     Utilities with a complaint filed in the United States District Court for
     the Middle District of Florida in which AGL alleges that UGI Utilities is
     responsible for 20% of approximately $8,000 incurred by AGL in the
     investigation and remediation of a former MGP site in St. Augustine,
     Florida. UGI Utilities formerly owned stock of the St. Augustine Gas
     Company, the owner and operator of the MGP. In March 2005, the court
     granted UGI Utilities' motion for summary judgment dismissing AGL's
     complaint. AGL has appealed.

     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 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 not filed suit
     against UGI Utilities for a share of these costs. UGI Utilities believes
     that it will have good defenses to any action that may arise out of this
     site.

     On September 20, 2001, Consolidated Edison Company of New York ("ConEd")
     filed suit against UGI Utilities in the United States District Court for
     the Southern District of New York, seeking contribution from UGI Utilities
     for an allocated share of response costs associated with investigating and
     assessing gas plant related contamination at former MGP sites in
     Westchester County, New York. The complaint alleges that UGI Utilities
     "owned


                                      -11-

<PAGE>

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

     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.

     The trial court granted UGI Utilities' motion for summary judgment and
     dismissed ConEd's complaint. The grant of summary judgment was entered
     April 1, 2004. ConEd appealed and on September 9, 2005 a panel of the
     Second Circuit Court of Appeals affirmed in part and reversed in part the
     decision of the trial court. The appellate panel affirmed the trial court's
     decision dismissing claims that UGI Utilities was liable under CERCLA as an
     operator of MGPs owned and operated by its former subsidiaries. The
     appellate panel reversed the trial court's decision that UGI Utilities was
     released from liability at three sites where UGI Utilities operated MGPs
     under lease. On October 7, 2005, UGI Utilities filed for reconsideration of
     the panel's order. On January 17, 2006, the Second Circuit denied UGI
     Utilities' request for reconsideration of the panel's order.

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

     By letter dated August 5, 2004, Yankee Gas Services Company and Connecticut
     Light and Power Company, subsidiaries of Northeast Utilities, (together the
     "Northeast Companies"), demanded contribution from UGI Utilities for past
     and future remediation costs related to MGP operations on thirteen sites
     owned by the Northeast Companies in nine cities in the State of
     Connecticut. The Northeast Companies allege that UGI Utilities controlled
     operations of the plants from 1883 to 1941. By letter dated March 17, 2006,
     the Northeast Companies estimated that remediation costs for all of the
     sites would total approximately $215,000 and claimed that UGI Utilities is
     responsible for approximately $103,000 of this amount. Based on information
     supplied by the Northeast Companies and UGI Utilities' own investigation,
     UGI Utilities believes that it may have operated one of the sites,
     Waterbury North, under lease for a portion of its operating history. UGI
     Utilities is reviewing the Northeast Companies' estimate that remediation
     costs at Waterbury North could total $23,000. UGI Utilities believes that
     it will have good defenses to any action that may arise out of the
     remaining sites.

     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 and result in losses in excess of recorded
     amounts. We are unable to estimate any possible losses in excess of
     recorded amounts. Although we currently believe, after consultation with
     counsel, that damages or settlements, if any, recovered by the plaintiffs
     in such claims or actions will not have a


                                      -12-

<PAGE>

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

     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.

6.   RELATED PARTY TRANSACTIONS

     UGI provides certain financial and administrative services to UGI
     Utilities. UGI bills UGI Utilities monthly for all direct and for an
     allocated share of indirect corporate expenses incurred or paid on behalf
     of UGI Utilities. These billed expenses are classified as operating and
     administrative expenses - related parties in the Condensed Statements of
     Income. In addition, UGI Utilities provides limited administrative services
     to UGI and certain of UGI's subsidiaries, principally payroll related
     services. Amounts billed to these entities by UGI Utilities for all periods
     presented were not material.

     Effective December 1, 2004, following a competitive bidding process, UGI
     Utilities entered into a Storage Contract Administrative Agreement
     ("Storage Agreement") with Energy Services, Inc., a second-tier wholly
     owned subsidiary of UGI ("Energy Services"). The Storage Agreement was
     initially scheduled to expire on October 31, 2005, but effective November
     1, 2005, UGI Utilities and Energy Services agreed to extend the Storage
     Agreement through October 31, 2008. Under the Storage Agreement, Energy
     Services provides a firm natural gas delivery service to UGI Utilities. UGI
     Utilities has released certain gas transportation and storage contracts
     through October 31, 2008 and transferred associated gas storage inventories
     to Energy Services. UGI Utilities may recall such released transportation
     and storage contracts without penalty if recalled to meet operational
     requirements, and if not recalled, the releases will terminate at the end
     of the term of the Storage Agreement. In exchange for the ability to
     utilize these assets, Energy Services pays a monthly fee to UGI Utilities.
     During the three and six months ended March 31, 2006, UGI Utilities
     incurred costs associated with purchases of natural gas storage inventories
     from Energy Services pursuant to the Storage Agreement totaling $267 and
     $10,565, respectively, and incurred associated pipeline transportation and
     storage capacity charges of $5,479 and $10,914, respectively.

     UGI Utilities reflects the historical cost of the gas storage inventories
     and any exchange receivable from Energy Services (representing amounts of
     natural gas inventories used but not yet replenished by Energy Services) on
     its balance sheet under the caption "Inventories." The carrying value of
     these gas storage inventories at March 31, 2006, comprising approximately
     2.8 billion cubic feet of natural gas, was $25,410.

     UGI Utilities has a Gas Supply and Delivery Service Agreement with Energy
     Services pursuant to which Energy Services provides certain gas supply and
     related delivery service to Gas Utility during the peak heating-season
     months of November to March. In addition, from time to time, Gas Utility
     purchases natural gas or pipeline capacity from Energy Services. The
     aggregate amount of these transactions (exclusive of Storage Agreement
     transactions) during the three months ended March 31, 2006 and 2005,
     totaled


                                      -13-

<PAGE>

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

     $5,664 and $5,865, respectively, and during the six months ended March 31,
     2006 and 2005, totaled $8,935 and $8,066, respectively.

     From time to time, the Company sells natural gas or pipeline capacity to
     Energy Services. During the three and six month periods ended March 31,
     2006 and 2005, these transactions did not have a material effect on the
     Company's financial position, results of operations or cash flows.


                                      -14-

<PAGE>

                               UGI UTILITIES, INC.

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

FORWARD-LOOKING STATEMENTS

Information contained in 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 due
to high energy prices and improvements in energy efficiency and technology
resulting in reduced demand; (7) adverse labor relations; (8) large customer,
counterparty or supplier defaults; (9) increased uncollectible accounts expense;
(10) 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; (11) political, regulatory and
economic conditions in the United States; and (12) reduced access to capital
markets and interest rate fluctuations.

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 the federal securities laws.


                                      -15-

<PAGE>

                               UGI UTILITIES, INC.

                        ANALYSIS OF RESULTS OF OPERATIONS

The following analyses compare our results of operations for (1) the three
months ended March 31, 2006 ("2006 three-month period") with the three months
ended March 31, 2005 ("2005 three-month period") and (2) the six months ended
March 31, 2006 ("2006 six-month period") with the six months ended March 31,
2005 ("2005 six-month period"). Our analyses of results of operations should be
read in conjunction with the segment information included in Note 2 to the
Condensed Financial Statements.

2006 THREE-MONTH PERIOD COMPARED WITH 2005 THREE-MONTH PERIOD

<TABLE>
<CAPTION>
                                                                    Increase
Three Months Ended March 31,                  2006      2005       (Decrease)
----------------------------                 ------    ------   ----------------
(Millions of dollars)
<S>                                          <C>       <C>      <C>      <C>
GAS UTILITY:
   Revenues (a)                              $296.2    $255.9   $ 40.3    15.7%
   Total margin (a) (b)                      $ 73.2    $ 78.6   $ (5.4)   (6.9)%
   Operating income                          $ 39.9    $ 48.5   $ (8.6)  (17.7)%
   Income before income taxes                $ 35.3    $ 44.5   $ (9.2)  (20.7)%
   System throughput - bcf (a)                 27.1      31.0     (3.9)  (12.6)%
   Heating degree days - % (warmer) colder
      than normal (c)                         (13.0)%     2.7%      --      --
ELECTRIC UTILITY:
   Revenues (a)                              $ 25.4    $ 25.6   $ (0.2)   (0.8)%
   Total margin (a) (b)                      $  8.8    $ 12.3   $ (3.5)  (28.5)%
   Operating income                          $  3.3    $  7.1   $ (3.8)  (53.5)%
   Income before income taxes                $  2.6    $  6.5   $ (3.9)  (60.0)%
   Distribution sales - gwh (a)               268.4     282.1    (13.7)   (4.9)%
</TABLE>

bcf - billions of cubic feet. gwh - millions of kilowatt-hours.

(a) Beginning in Fiscal 2006, Gas Utility and Electric Utility adjusted their
methods of estimating unbilled sales volumes and associated revenues for service
provided through the end of the month by more closely correlating such estimated
sales volumes to distribution system sendout data. The Company believes that the
new methods of estimating unbilled sales volumes results in a more accurate
quarterly estimate of unbilled revenues and associated total margin. The change
in the method of estimating Gas Utility's unbilled sales volumes resulted in a
0.3 bcf decrease in retail core-market volumes sold and associated decreases in
Gas Utility revenues and total margin of $5.8 million and $1.1 million,
respectively, for the three months ended March 31, 2006. In addition, the change
in the method of estimating Electric Utility's unbilled sales volumes resulted
in a 3.3 gwh decrease in distribution system sales and associated decreases in
Electric Utility revenues and total margin of $0.3 million, for the three months
ended March 31, 2006.

(b) Gas Utility's total margin represents total revenues less cost of sales.
Electric Utility's total margin represents total revenues less total cost of
sales and revenue-related taxes, i.e. Electric Utility gross receipts taxes, of
$1.4 million in both of the three-month periods ended March 31, 2006 and 2005.
For financial statement


                                      -16-

<PAGE>

                              UGI UTILITIES, INC.

purposes, revenue-related taxes are included in "Taxes other than income taxes"
on the Condensed Statements of Income.

(c) Deviation from average heating degree days based upon weather statistics
provided by the National Oceanic and Atmospheric Administration ("NOAA") for
four airports located within our service territory. The 2005 three-month period
degree day statistics have been restated to reflect the current-year,
four-location average from the previous single location statistic.

GAS UTILITY. Weather in Gas Utility's service territory based upon heating
degree-days was 13.0% warmer than normal during the 2006 three-month period and
2.7% colder than normal in the prior-year three-month period.

Notwithstanding year-over-year growth in the number of Gas Utility's customers,
total distribution system throughput decreased 12.6% in the 2006 three-month
period reflecting a 2.6 bcf decrease in sales to firm- residential, commercial
and industrial ("retail core-market") customers and lower volumes transported
for firm and interruptible delivery service customers. The decrease in
distribution system throughput largely reflects the effects of significantly
warmer than normal weather and, to a lesser extent, continued effects of
customer conservation resulting from significantly higher natural gas prices.

Notwithstanding the decline in distribution system throughput, Gas Utility
revenues increased $40.3 million during the 2006 three-month period principally
reflecting a $28.0 million increase in retail core-market revenues, the result
of higher average purchased gas cost ("PGC") rates, and a $15.1 million increase
in revenues from low-margin off-system sales partially offset by the lower
volumes sold. Increases or decreases in retail core-market customer revenues and
cost of sales result principally from changes in retail core-market volumes and
the level of gas costs collected through the PGC recovery mechanism. Under this
recovery mechanism, Gas Utility records the cost of gas associated with sales to
retail core-market customers at amounts included in PGC rates. The difference
between actual gas costs and the amount included in rates is deferred on the
balance sheet as a regulatory asset or liability and represents amounts to be
collected from or refunded to customers in a future period. As a result of the
PGC recovery mechanism, increases or decreases in the cost of gas associated
with retail core-market customers have no direct effect on retail core-market
margin. Gas Utility's cost of gas was $223.0 million in the 2006 three-month
period compared to $177.3 million in the 2005 three-month period reflecting the
impact of the previously mentioned higher retail core-market purchased gas costs
and greater costs associated with the higher off-system sales.

Gas Utility total margin in the 2006 three-month period decreased $5.4 million
reflecting decreased retail core-market margin principally resulting from the
lower sales to retail core-market customers and lower volumes transported for
delivery service customers. These declines were partially offset by higher total
margin from interruptible customers and customer assistance tariff revenues.

Gas Utility operating income decreased to $39.9 million in the 2006 three-month
period from $48.5 million in the 2005 three-month period principally reflecting
the previously mentioned


                                      -17-

<PAGE>

                              UGI UTILITIES, INC.

$5.4 million decrease in total margin and a $2.8 million increase in total
operating and administrative expenses. Total operating and administrative
expenses were higher than the prior-year period predominately due to (1)
increased required environmental remediation reserves, (2) higher stock-based
incentive compensation costs, including such costs allocated by UGI, and (3)
higher customer assistance expenses reflecting the effects of an expansion of
our customer assistance program.

The decrease in Gas Utility income before income taxes reflects the previously
mentioned decrease in operating income and an increase in interest expense
principally attributable to higher short-term debt outstanding and higher
short-term interest rates.

ELECTRIC UTILITY. Electric Utility's 2006 three-month period kilowatt-hour sales
were 4.9% lower than in the prior-year period which is largely attributable to
9% warmer than normal weather in Electric Utility's service area compared to 7%
colder than normal in the prior-year three-month period (based upon heating
degree day statistics). Electric Utility revenues decreased slightly in the 2006
three-month period largely reflecting the effects of the decreased sales
partially offset by an increase in its Provider of Last Resort ("POLR") revenues
of 3% effective January 1, 2006. Electric Utility's cost of sales increased to
$15.2 million in the 2006 three-month period from $11.9 million in the 2005
three-month period reflecting higher per unit purchased power costs partially
offset by the effects of the lower sales.

Electric Utility total margin in the 2006 three-month period decreased $3.5
million compared to the 2005 three-month period principally reflecting the
higher per unit purchased power costs and the effects of the lower sales.

Operating income decreased in the 2006 three-month period reflecting the
decrease in total margin and an increase in operating and administrative
expenses that reflects, in part, higher stock-based incentive compensation
costs. The decrease in income before income taxes principally reflects the lower
operating income and higher interest expense on short-term debt.


                                      -18-

<PAGE>

                              UGI UTILITIES, INC.

2006 SIX-MONTH PERIOD COMPARED WITH 2005 SIX-MONTH PERIOD

<TABLE>
<CAPTION>
                                                                           Increase
Six Months Ended March 31,                           2006      2005       (Decrease)
--------------------------                          ------    ------    -------------
(Millions of dollars)
<S>                                                 <C>       <C>       <C>
GAS UTILITY:
   Revenues (a)                                     $516.0    $417.1    $98.9    23.7%
   Total margin (a) (b)                             $133.1    $133.2    $(0.1)   (0.1)%
   Operating income                                 $ 75.6    $ 76.7    $(1.1)   (1.4)%
   Income before income taxes                       $ 65.9    $ 68.6    $(2.7)   (3.9)%
   System throughput - bcf (a)                        50.1      53.9     (3.8)   (7.1)%
   Heating degree days - % warmer than normal (c)      8.2%      0.4%      --      --

ELECTRIC UTILITY:
   Revenues (a)                                     $ 49.3    $ 47.9    $ 1.4     2.9%
   Total margin (a) (b)                             $ 20.1    $ 22.3    $(2.2)   (9.9)%
   Operating income                                 $  9.8    $ 11.9    $(2.1)  (17.6)%
   Income before income taxes                       $  8.6    $ 10.8    $(2.2)  (20.4)%
   Distribution sales - gwh (a)                      526.4     531.2     (4.8)   (0.9)%
</TABLE>

(a) Beginning in Fiscal 2006, Gas Utility and Electric Utility adjusted their
methods of estimating unbilled sales volumes and associated revenues for service
provided through the end of the month by more closely correlating such estimated
sales volumes to distribution system sendout data. The Company believes that the
new methods of estimating unbilled sales volumes results in a more accurate
quarterly estimate of unbilled revenues and associated total margin. The change
in the method of estimating unbilled sales volumes did not have a material
effect on Gas Utility or Electric Utility sales volumes, revenues or margin for
the six months ended March 31, 2006.

(b) Gas Utility's total margin represents total revenues less cost of sales.
Electric Utility's total margin represents total revenues less total cost of
sales and revenue-related taxes, i.e. Electric Utility gross receipts taxes, of
$2.7 million in both of the six-month periods ended March 31, 2006 and 2005. For
financial statement purposes, revenue-related taxes are included in "Taxes other
than income taxes" on the Condensed Statements of Income.

(c) Deviation from average heating degree days based upon weather statistics
provided by the National Oceanic and Atmospheric Administration ("NOAA") for
four airports located within our service territory. The 2005 three-month period
degree day statistics have been restated to reflect the current-year,
four-location average from the previous single location statistic.

GAS UTILITY. Weather in Gas Utility's service territory based upon heating
degree-days was 8.2% warmer than normal during the 2006 six-month period and
approximately normal in the prior-year six-month period.

Notwithstanding year-over-year growth in the number of our customers, total
distribution system throughput decreased 3.8 bcf due to lower volumes
transported for firm and interruptible delivery service customers and a decrease
in sales to retail core-market customers reflecting the warmer weather and
price-induced customer conservation.


                                      -19-

<PAGE>

                              UGI UTILITIES, INC.

Gas Utility revenues increased $98.9 million during the 2006 six-month period
principally reflecting a $76.7 million increase in retail core-market revenues,
the result of higher average PGC rates, and a $23.0 million increase in revenues
from low-margin off-system sales. Gas Utility's cost of gas was $382.9 million
in the 2006 six-month period compared to $283.9 million in the 2005 six-month
period reflecting the impact of the previously mentioned higher retail
core-market purchased gas costs and greater costs associated with the higher
off-system sales.

Gas Utility total margin in the 2006 six-month period was comparable to the
prior-year six-month period as the decrease in margin largely associated with
lower sales to retail-core market customers was offset by higher total margin
from interruptible customers.

Gas Utility operating income decreased $1.1 million in the 2006 six-month period
compared to the 2005 six-month period principally reflecting increased
depreciation expense and $0.3 million of increased operating and administrative
expenses. Total operating and administrative expenses were slightly higher than
the prior-year period predominately reflecting increased required environmental
remediation reserves and higher uncollectible accounts and customer assistance
expenses largely offset by lower stock-based incentive compensation costs,
including such costs allocated by UGI, and lower distribution system maintenance
expenses resulting, in part, from the mild heating-season weather.

The decrease in Gas Utility income before income taxes reflects the previously
mentioned decrease in operating income and an increase in interest expense
attributable to higher short-term debt outstanding and higher short-term
interest rates.

ELECTRIC UTILITY. Electric Utility's 2006 six-month period kilowatt-hour sales
decreased 0.9% compared to the prior-year period. Electric Utility revenues
increased $1.4 million in the 2006 six-month period largely reflecting higher
POLR electric generation rates partially offset by the effects of the lower
sales. Electric Utility's cost of sales increased to $26.5 million in the 2006
six-month period from $22.9 million in the 2005 six-month period reflecting
higher per unit purchased power costs partially offset by the effects of lower
sales.

Electric Utility total margin in the 2006 six-month period decreased $2.2
million compared to the 2005 six-month period principally reflecting the higher
per unit purchased power costs partially offset by the increase in POLR electric
generation rates.

Operating income decreased in the 2006 six-month period principally reflecting
the decrease in total margin. The decrease in income before income taxes
principally reflects the lower operating income and higher interest expense on
short-term debt.


                                      -20-

<PAGE>

                               UGI UTILITIES, INC.

                        FINANCIAL CONDITION AND LIQUIDITY

FINANCIAL CONDITION

The Company's total debt outstanding at March 31, 2006 totaled $360.3 million
(including $123.3 million in bank loans) compared with $318.2 million (including
$81.2 million in bank loans) at September 30, 2005. In December 2005, we
refinanced $50 million of maturing 7.14% Medium-Term Notes with proceeds from
the issuance of $50 million of 5.64% Medium-Term Notes due 2015.

The Company has revolving credit agreements under which it may borrow up to $110
million. These agreements expire in June 2007 through June 2008. From time to
time, UGI Utilities makes short-term borrowings under uncommitted arrangements
with major banks in order to meet liquidity needs. At March 31, 2006, UGI
Utilities had $55 million in short-term borrowings outstanding under these
uncommitted arrangements and $68.3 million in borrowings outstanding under the
revolving credit agreements. Short-term borrowings, including borrowings under
revolving credit agreements, are classified as bank loans on the Condensed
Balance Sheets. During the six months ended March 31, 2006 and 2005, average
daily bank loan borrowings were $119.8 million and $61.6 million, respectively,
and peak bank loan balances were $175.9 million and $90.4 million, respectively.
The increase in average and peak bank loan borrowings during the 2006 six-month
period reflects, in large part, borrowings to fund increased working capital
resulting from higher natural gas prices. UGI Utilities also has a shelf
registration statement with the Securities and Exchange Commission under which
it may issue up to an additional $75 million of Medium-Term Notes or other debt
securities.

CASH FLOWS

OPERATING ACTIVITIES. Due to the seasonal nature of UGI Utilities' businesses,
cash flows from operating activities are generally strongest during the second
and third fiscal quarters when customers pay for gas and electricity consumed
during the peak heating season months. Conversely, operating cash flows are
generally at their lowest levels during the first and fourth fiscal quarters
when the Company's investment in working capital, principally accounts
receivable and inventories, is generally greatest. UGI Utilities uses short-term
borrowings, primarily borrowings under its revolving credit agreements as well
as borrowings under uncommitted arrangements, to manage these seasonal cash flow
needs.

Cash used by operating activities was $1.5 million for the six months ended
March 31, 2006 compared with cash provided by operating activities of $61.4
million in the prior-year six-month period. The significant decrease in cash
flow from operating activities reflects a $69.0 million decrease in cash flow
from changes in operating working capital, principally greater cash required to
fund accounts receivable and inventories, a decrease in cash flow as a result of
purchased gas cost undercollections during the period and a refund of $13.5
million in electricity supplier collateral deposits. The greater cash
requirements to fund working capital principally reflect the


                                      -21-

<PAGE>

                               UGI UTILITIES, INC.

effects of higher natural gas costs in the 2006 six-month period and higher
natural gas storage inventory volumes at the end of the 2006 six-month period.
Cash flow from operating activities before changes in operating working capital
was $67.5 million in the 2006 six-month period compared with $61.6 million for
the 2005 six-month period. The higher amount in the 2006 six-month period
principally reflects lower noncash deferred income tax expense.

INVESTING ACTIVITIES. Cash used by investing activities was $22.4 million in the
2006 six-month period compared to cash used by investing activities of $19.9
million in the 2005 six-month period. An increase in 2006 six-month period
capital expenditures principally reflects greater in information system capital
expenditures and greater Electric Utility capital expenditures principally
associated with substation improvements.

FINANCING ACTIVITIES. Cash provided by financing activities was $24.8 million in
the 2006 six-month period compared with cash used by financing activities of
$39.5 million in the 2005 six-month period. Financing activity cash flows are
primarily the result of issuances and repayments of long-term debt, net
short-term borrowings including borrowings under revolving credit agreements and
other uncommitted arrangements, cash dividends to UGI, and capital contributions
from UGI. During the 2006 and 2005 six-month periods, we paid dividends to UGI
totaling $17.3 million and $17.8 million, respectively. During the 2006
six-month period, net bank loan borrowings totaled $42.1 million compared with
net bank loan repayments of $21.7 million in the prior-year six-month period.
Included in the 2006 six-month period bank loan borrowings are repayments of two
$35 million borrowings having initial maturities greater than three months. The
increase in short-term borrowings in the 2006 six-month period reflects
borrowings needed to finance the higher working capital requirements resulting
from the previously mentioned higher natural gas costs. In December 2005, we
refinanced $50 million of 7.14% maturing Medium-Term Notes through the issuance
of $50 million of 5.64% Medium-Term Notes due in 2015.

UGI'S PG ENERGY ACQUISITION

On January 26, 2006, UGI signed a definitive agreement to acquire the natural
gas utility assets of PG Energy from Southern Union Company for approximately
$580 million in cash, subject to certain adjustments. PG Energy serves
approximately 158,000 customers in thirteen counties in northeastern and central
Pennsylvania. The proposed transaction is subject to PUC approval and is
expected to close during the fourth fiscal quarter ending September 30, 2006. We
anticipate that we will acquire and operate, through a subsidiary, the regulated
assets of PG Energy immediately following UGI's completion of the acquisition.
We expect to fund the purchase price and related costs with a combination of
equity and long-term debt.


                                      -22-

<PAGE>

                               UGI UTILITIES, INC.

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 amounts actually collected from customers through PGC rates 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 any associated gains, 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 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, Electric Utility
increased its POLR generation rates for all metered customers by a total 7.5% of
its total rates in effect on December 31, 2004 (an increase of 4.5% effective
January 1, 2005 and an additional increase of 3% effective January 1, 2006).
Currently, Electric Utility's fixed-price power and capacity contracts with
electricity suppliers mitigate a substantial portion of its commodity price risk
associated with POLR service rate limits in effect through December 31, 2006.
Electric Utility has initiated discussions with various parties to establish
POLR rates for periods beginning January 1, 2007. On April 17, 2006, Electric
Utility filed a proposal with the PUC to establish POLR rates that are
reflective of market prices. No resolution has been reached regarding the level
or structure of the proposed rates. With respect to its existing fixed-price
power and capacity contracts, should any of the counterparties fail to provide
electric power or capacity under the terms of such contracts, any increases in
the cost of replacement power or capacity could negatively impact Electric
Utility results. In order to reduce the risk associated with non-performance,
Electric Utility has diversified its purchases across several suppliers and
entered into bilateral collateral arrangements with certain of them. Electric
Utility has and may enter into electric price swap agreements to reduce the
volatility in the cost of a portion of its anticipated electricity requirements.

Our variable-rate debt includes short-term borrowings, including borrowings
under our revolving credit agreements. These agreements provide for interest
rates on borrowings that are indexed to short-term market interest rates. Our
long-term debt is typically issued at fixed rates of interest based upon market
rates for debt having similar terms and credit ratings. As these long-term debt
issues mature, we expect to refinance such debt with new debt having an interest
rate that is more or less than the refinanced debt. In order to reduce interest
rate risk associated with near-term issuances of fixed-rate debt, we may enter
into interest rate protection agreements.


                                      -23-

<PAGE>

                               UGI UTILITIES, INC.

The fair values of our unsettled market risk sensitive derivative instruments
reflect the estimated amount that we would expect to receive or pay to terminate
the contract based upon quoted market prices of comparable contracts at March
31, 2006. At March 31, 2006, the fair value of our electricity price swap was a
gain of $7.2 million. An adverse change in electricity prices of ten percent
would result in a $1.5 million decrease in the fair value of the swap. At March
31, 2006, the fair value of our unsettled interest rate protection agreements,
which have been designated and qualify as cash flow hedges, was a gain of $0.5
million. An adverse change in interest rates on ten-year U.S. treasury notes of
ten percent would result in a $0.4 million decrease in the fair value of these
interest rate protection agreements.


                                      -24-

<PAGE>

                               UGI UTILITIES, INC.

ITEM 4. CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures

     The Company's management, with the participation of the Company's Chief
     Executive Officer and Chief Financial Officer, evaluated the effectiveness
     of the Company's disclosure controls and procedures as of the end of the
     period covered by this report. Based on that evaluation, the Chief
     Executive Officer and Chief Financial Officer concluded that the Company's
     disclosure controls and procedures as of the end of the period covered by
     this report were designed and functioning effectively to provide reasonable
     assurance that the information required to be disclosed by the Company in
     reports filed under the Securities Exchange Act of 1934, as amended, is (i)
     recorded, processed, summarized and reported within the time periods
     specified in the Securities and Exchange Commission's rules and forms, and
     (ii) accumulated and communicated to our management, including the Chief
     Executive Officer and Chief Financial Officer, as appropriate to allow
     timely decisions regarding disclosure.

(b)  Change in Internal Control over Financial 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.

                           PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Connecticut Gas Plants Matter. 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. By letter dated March 17,
2006, the Northeast Companies estimated that remediation costs for all of the
sites would total approximately $215 million and claimed that UGI Utilities is
responsible for approximately $103 million of this amount. Based on information
supplied by the Northeast Companies and UGI Utilities' own investigation, UGI
Utilities believes that it may have operated one of the sites, Waterbury North,
under lease for a portion of its operating history. UGI Utilities is reviewing
the Northeast Companies' estimate that remediation costs at Waterbury North
could total $23 million. UGI Utilities believes that it will have good defenses
to any action that may arise out of the remaining sites.


                                      -25-

<PAGE>

                               UGI UTILITIES, INC.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the fiscal year ended September 30, 2005,
which could materially affect our business, financial condition or future
results. The risks described in our Annual Report on Form 10-K are not the only
risks facing the Company. Other unknown or unpredictable factors could also have
material adverse effects on future results.

ITEM 6. EXHIBITS

     The exhibits filed as part of this report are as follows:

<TABLE>
<CAPTION>
EXHIBIT NO.                                 EXHIBIT
-----------                                 -------
<S>           <C>
   12.1       Computation of ratio of earnings to fixed charges.

   31.1       Certification by the Chief Executive Officer relating to the
              Registrant's Report on Form 10-Q for the quarter ended March 31,
              2006, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

   31.2       Certification by the Chief Financial Officer relating to the
              Registrant's Report on Form 10-Q for the quarter ended March 31,
              2006, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

   32         Certification by the Chief Executive Officer and the Chief
              Financial Officer relating to the Registrant's Report on Form 10-Q
              for the quarter ended March 31, 2006, pursuant to Section 906 of
              the Sarbanes-Oxley Act of 2002.
</TABLE>


                                      -26-

<PAGE>

                               UGI UTILITIES, INC.

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        UGI Utilities, Inc.
                                        (Registrant)


Date: May 8, 2006                       By: /s/ John C. Barney
                                            ------------------------------------
                                            John C. Barney
                                            Senior Vice President - Finance
                                            (Principal Financial Officer)


                                      -27-

<PAGE>

                               UGI UTILITIES, INC.

                                  EXHIBIT INDEX

<TABLE>
<S>    <C>
12.1   Computation of ratio of earnings to fixed charges.

31.1   Certification by the Chief Executive Officer relating to the Registrant's
       Report on Form 10-Q for the quarter ended March 31, 2006, pursuant to
       Section 302 of the Sarbanes-Oxley Act of 2002.

31.2   Certification by the Chief Financial Officer relating to the Registrant's
       Report on Form 10-Q for the quarter ended March 31, 2006, pursuant to
       Section 302 of the Sarbanes-Oxley Act of 2002.

32     Certification by the Chief Executive Officer and the Chief Financial
       Officer relating to the Registrant's Report on Form 10-Q for the quarter
       ended March 31, 2006, pursuant to Section 906 of the Sarbanes-Oxley Act
       of 2002.
</TABLE>