<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 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, 1999
                                                 -------------

       [ ]      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 1-1098
                                                 ------

                              COLUMBIA ENERGY GROUP

             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

                        Delaware                       13-1594808
             --------------------------------------------------------
             (State or other jurisdiction of         (IRS Employer
              incorporation or organization)      Identification No.)

             13880 Dulles Corner Lane, Herndon, VA     20171-4600
             ------------------------------------------------------
             (Address of principal executive offices)  (Zip Code)

        Registrant's telephone number, including area code (703) 561-6000
                                                           --------------

              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 has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X  No
                         ---   ---

              Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock, $0.01
Par Value: 82,013,792 shares outstanding at June 30, 1999.


<PAGE>   2

                     COLUMBIA ENERGY GROUP AND SUBSIDIARIES
                           FORM 10-Q QUARTERLY REPORT

                       FOR THE QUARTER ENDED JUNE 30, 1999

                                TABLE OF CONTENTS

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

Item 1        Financial Statements

                  Statements of Consolidated Income                               3

                  Consolidated Balance Sheets                                     4

                  Statements of Consolidated Cash Flows                           6

                  Statements of Consolidated Common Stock Equity                  7

                  Statements of Consolidated Comprehensive Income                 7

                  Notes                                                           8

Item 2        Management's Discussion and Analysis of

                  Financial Condition and Results of Operations                  12

Item 3        Quantitative and Qualitative Disclosures About Market Risk         36


PART II       OTHER INFORMATION
-------       -----------------

Item 1        Legal Proceedings                                                  36

Item 2        Changes in Securities and Use of Proceeds                          37

Item 3        Defaults Upon Senior Securities                                    37

Item 4        Submission of Matters to a Vote of Security Holders                37

Item 5        Other Information                                                  38

Item 6        Exhibits and Reports on Form 8-K                                   40

              Signature                                                          42
</TABLE>


                                       2
<PAGE>   3

                         PART I - FINANCIAL INFORMATION
                          ITEM 1 - FINANCIAL STATEMENTS

Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME (unaudited)

<TABLE>
<CAPTION>
                                                                     Three Months                             Six Months
                                                                    Ended June 30,                          Ended June 30,
                                                          ---------------------------------      ----------------------------------
                                                             1999                  1998              1999                  1998
                                                          -----------          ------------      ------------          ------------
                                                                       (millions, except per share amounts)
<S>                                                       <C>                  <C>               <C>                   <C>
NET REVENUES
    Energy sales                                          $  1,487.6           $   1,147.4       $   3,747.8           $   2,745.4
    Less:  Products purchased                                1,294.7                 936.8           3,191.6               2,156.0
                                                          -----------          ------------      ------------          ------------

    Gross Margin                                               192.9                 210.6             556.2                 589.4

    Transportation                                             144.9                 121.5             355.6                 282.7
    Production gas sales                                         9.5                  11.7              19.9                  29.1
    Other                                                       49.2                  41.8             116.1                 106.9
                                                          -----------          ------------      ------------          ------------
Total Net Revenues                                             396.5                 385.6           1,047.8               1,008.1
                                                          -----------          ------------      ------------          ------------

OPERATING EXPENSES
    Operation and Maintenance                                  231.8                 216.9             479.9                 423.0
    Settlement of gas supply charges                             -                     -               (29.8)                  -
    Depreciation and depletion                                  58.4                  52.8             135.2                 126.0
    Other taxes                                                 42.0                  45.0             125.6                 134.0
                                                          -----------          ------------      ------------          ------------
Total Operating Expenses                                       332.2                 314.7             710.9                 683.0
                                                          -----------          ------------      ------------          ------------

OPERATING INCOME                                                64.3                  70.9             336.9                 325.1
                                                          -----------          ------------      ------------          ------------

OTHER INCOME (DEDUCTIONS)
    Interest income and other, net                               6.5                   3.2              10.7                   5.5
    Interest expense and related charges                       (40.6)                (38.5)            (81.7)                (80.1)
                                                          -----------          ------------      ------------          ------------
Total Other Income (Deductions)                                (34.1)                (35.3)            (71.0)                (74.6)
                                                          -----------          ------------      ------------          ------------

INCOME BEFORE INCOME TAXES                                      30.2                  35.6             265.9                 250.5
Income Taxes                                                     4.1                  12.8              89.4                  80.2
                                                          -----------          ------------      ------------          ------------

NET INCOME                                                $     26.1           $      22.8       $     176.5           $     170.3
                                                          ===========          ============      ============          ============

BASIC EARNINGS PER SHARE OF COMMON STOCK                  $     0.32           $      0.27       $      2.13           $      2.04
DILUTED EARNINGS PER SHARE OF COMMON STOCK                $     0.32           $      0.27       $      2.12           $      2.03

DIVIDENDS PAID PER SHARE OF COMMON STOCK                  $    0.225           $      0.20       $     0.425           $      0.37

BASIC AVERAGE COMMON SHARES OUTSTANDING (thousands)           82,345                83,335            82,809                83,299
DILUTED AVERAGE COMMON SHARES (thousands)                     82,755                83,726            83,153                83,690
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.


                                       3
<PAGE>   4


                         PART I - FINANCIAL INFORMATION
                    ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)


Columbia Energy Group and Subsidiaries
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        As of
                                                             ---------------------------
                                                               June 30,      December 31,
                                                                 1999           1998
                                                             -----------     -----------
                                                             (unaudited)
ASSETS                                                               (millions)
<S>                                                          <C>             <C>
PROPERTY, PLANT AND EQUIPMENT
    Gas utility and other plant, at original cost            $  7,825.7      $  7,687.8
    Accumulated depreciation                                   (3,661.6)       (3,592.3)
                                                             -----------     -----------
    Net Gas Utility and Other Plant                             4,164.1         4,095.5
                                                             -----------     -----------
    Gas and oil producing properties, full cost method
       United States cost center                                  754.0           714.1
       Canadian cost center                                         7.2             5.0
    Accumulated depletion                                        (240.6)         (225.4)
                                                             -----------     -----------
    Net Gas and Oil Producing Properties                          520.6           493.7
                                                             -----------     -----------
Net Property, Plant and Equipment                               4,684.7         4,589.2
                                                             -----------     -----------

INVESTMENTS AND OTHER ASSETS                                      222.5           122.1
                                                             -----------     -----------

CURRENT ASSETS
    Cash and temporary cash investments                           189.5            26.3
    Accounts receivable, net                                      852.4         1,004.9
    Gas inventory                                                 124.4           186.0
    Other inventories - at average cost                            86.2            26.8
    Prepayments                                                    78.2           115.9
    Regulatory assets                                              58.5            59.5
    Underrecovered gas costs                                       20.2            24.5
    Deferred property taxes                                        38.1            80.0
    Exchange gas receivable                                       220.3           187.4
    Other                                                         117.3            69.2
                                                             -----------     -----------
Total Current Assets                                            1,785.1         1,780.5
                                                             -----------     -----------

REGULATORY ASSETS                                                 373.1           391.4
DEFERRED CHARGES                                                  137.2            85.5
                                                             -----------     -----------

TOTAL ASSETS                                                 $  7,202.6      $  6,968.7
                                                             ===========     ===========
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.


                                       4
<PAGE>   5

                         PART I - FINANCIAL INFORMATION
                    ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)

Columbia Energy Group and Subsidiaries
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                          As of
                                                                   -------------------------------------------------------
                                                                        June 30,                        December 31,
                                                                          1999                              1998
                                                                   ---------------------             ---------------------
                                                                      (unaudited)
<S>                                                                <C>                               <C>
CAPITALIZATION AND LIABILITIES                                                          (millions)
CAPITALIZATION
    Common stock equity                                             $            2,071.0              $            2,005.3
    Long-term debt                                                               1,950.6                           2,003.1
                                                                   ---------------------             ---------------------
Total Capitalization                                                             4,021.6                           4,008.4
                                                                   ---------------------             ---------------------

CURRENT LIABILITIES
    Short-term debt                                                                174.5                             144.8
    Accounts and drafts payable                                                    674.3                             710.7
    Accrued taxes                                                                  141.3                             205.9
    Accrued interest                                                                28.9                              17.3
    Estimated rate refunds                                                          58.7                              59.2
    Supplier obligations                                                             -                                72.4
    Overrecovered gas costs                                                         54.9                              34.3
    Transportation and exchange gas payable                                        405.6                             134.2
    Other                                                                          371.0                             312.9
                                                                   ---------------------             ---------------------
Total Current Liabilities                                                        1,909.2                           1,691.7
                                                                   ---------------------             ---------------------

OTHER LIABILITIES AND DEFERRED CREDITS
    Deferred income taxes, noncurrent                                              682.5                             655.3
    Investment tax credits                                                          33.4                              34.1
    Postretirement benefits other than pensions                                    102.8                             103.7
    Regulatory liabilities                                                          42.5                              44.0
    Deferred revenue                                                               183.9                             191.4
    Other                                                                          226.7                             240.1
                                                                   ---------------------             ---------------------
Total Other Liabilities and Deferred Credits                                     1,271.8                           1,268.6
                                                                   ---------------------             ---------------------
TOTAL CAPITALIZATION AND LIABILITIES                                $            7,202.6              $            6,968.7
                                                                   =====================             =====================
</TABLE>


                                       5
<PAGE>   6

                         PART I - FINANCIAL INFORMATION
                    ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)

Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS (unaudited)

<TABLE>
<CAPTION>
                                                                                                 Six Months
                                                                                               Ended June 30,
                                                                                 -----------------------------------------------
                                                                                        1999                          1998
                                                                                 -----------------             -----------------
                                                                                                  (millions)
<S>                                                                              <C>                           <C>
OPERATING ACTIVITIES
   Net income                                                                     $         176.5               $         170.3
   Adjustments for items not requiring (providing) cash:
      Depreciation and depletion                                                            135.2                         126.0
      Deferred income taxes                                                                  32.5                          34.3
      Earnings from equity investment, net of distributions                                  (7.5)                         (3.7)
      Other - net                                                                           (43.0)                         (3.3)
                                                                                 -----------------             -----------------
                                                                                            293.7                         323.6
   Change in components of working capital:
      Accounts receivable                                                                   152.5                         123.1
      Gas inventory                                                                          61.6                          96.7
      Prepayments                                                                            37.7                          28.6
      Accounts payable                                                                      (13.8)                        (25.0)
      Accrued taxes                                                                         (64.6)                        (31.0)
      Accrued interest                                                                       11.6                           3.4
      Estimated rate refunds                                                                 (0.5)                        (14.7)
      Estimated supplier obligations                                                        (40.7)                         (1.3)
      Under/Overrecovered gas costs                                                          24.9                          11.3
      Exchange gas receivable/payable                                                       238.5                          15.9
      Other working capital                                                                   1.0                          21.6
                                                                                 -----------------             -----------------
Net Cash from Operations                                                                    701.9                         552.2
                                                                                 -----------------             -----------------

INVESTMENT ACTIVITIES
   Capital expenditures                                                                    (206.9)                       (163.4)
   Other investments - net                                                                 (176.9)                         (8.5)
                                                                                 -----------------             -----------------
Net Investment Activities                                                                  (383.8)                       (171.9)
                                                                                 -----------------             -----------------

FINANCING ACTIVITIES
   Retirement of long-term debt                                                             (52.4)                         (0.9)
   Dividends paid                                                                           (35.1)                        (31.1)
   Issuance of common stock                                                                   3.7                           5.4
   Issuance (repayment) of short-term debt                                                   29.7                        (281.4)
   Purchase of treasury stock                                                               (79.9)                          -
   Other financing activities                                                               (20.9)                        (53.3)
                                                                                 -----------------             -----------------
Net Financing Activities                                                                   (154.9)                       (361.3)
                                                                                 -----------------             -----------------
Increase in cash and temporary cash investments                                             163.2                          19.0
Cash and temporary cash investments at beginning of year                                     26.3                          28.7
                                                                                 -----------------             -----------------
CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 *                                  $         189.5               $          47.7
                                                                                 =================             =================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
   Cash paid for interest                                                                    71.5                          74.5
   Cash paid for income taxes (net of refunds)                                               67.9                          32.0
</TABLE>

The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.

* The Corporation considers all highly liquid short-term investments to be cash
equivalents.


                                       6
<PAGE>   7

                         PART I - FINANCIAL INFORMATION
                    ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)

Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY

<TABLE>
<CAPTION>
                                                                                 As of
                                                                -----------------------------------------
                                                                     June 30,              December 31,
                                                                       1999                    1998
                                                                -----------------       -----------------
                                                                  (unaudited)

                                                                              (millions)
<S>                                                                 <C>                     <C>
Common stock, $.01 par value, authorized
   200,000,000 shares, outstanding 82,013,792
   and 83,511,878 shares, respectively*                              $       0.8             $     835.1

Additional paid in capital*                                              1,599.8                   761.8

Retained earnings                                                          550.9                   409.5

Unearned employee compensation                                              (0.6)                   (0.9)

Accumulated other comprehensive income                                       -                      (0.2)

Treasury stock, at cost (1,539,800 shares held as of
  June 30, 1999)                                                           (79.9)                    -
                                                              --------------------   ---------------------

TOTAL COMMON STOCK EQUITY                                            $   2,071.0             $   2,005.3
                                                              ====================   =====================
</TABLE>


*   As described in Note 5, the par value of the common stock was reduced from
    $10 to $.01 per share and the number of authorized shares of common stock
    increased from 100 million to 200 million effective May 19, 1999.


Columbia Energy Group and Subsidiaries
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                        For the year to date
                                                                            period ended
                                                              --------------------------------------------
                                                                    June 30,              December 31,
                                                                      1999                    1998
                                                              --------------------   ---------------------
                                                                  (unaudited)

                                                                                (millions)
<S>                                                                   <C>                     <C>
COMPREHENSIVE INCOME

    Net income                                                           $   176.5               $   269.2
    Other Comprehensive Income:
      Foreign currency translation adjustment                                  0.2                    (0.2)
                                                               --------------------   ---------------------
COMPREHENSIVE INCOME                                                     $   176.7               $   269.0
                                                               ====================   =====================
</TABLE>


The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.


                                       7
<PAGE>   8

                         PART I - FINANCIAL INFORMATION
                    ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)

Columbia Energy Group and Subsidiaries

NOTES

1.     Basis of Accounting Presentation

       The accompanying unaudited consolidated financial statements for Columbia
       Energy Group (Columbia) reflect all normal recurring adjustments that are
       necessary, in the opinion of management, to present fairly the results of
       operations in accordance with generally accepted accounting principles.

       The accompanying financial statements should be read in conjunction with
       the consolidated financial statements and notes thereto included in
       Columbia's 1998 Annual Report on Form 10-K and 1999 First Quarter Form
       10-Q. Income for interim periods may not be indicative of results for the
       calendar year due to weather variations and other factors. Certain
       reclassifications have been made to the 1998 financial statements to
       conform to the 1999 presentation.

2.     Diluted Average Common Shares Computation

       Financial Accounting Standards Board Statement of Financial Accounting
       Standards No. 128, "Earnings Per Share" (SFAS No. 128) requires dual
       presentation of basic and diluted earnings per share (EPS) by entities
       with complex capital structures. Basic EPS includes no dilution and is
       computed by dividing income available to common stockholders by the
       weighted-average number of common shares outstanding for the period.
       Diluted EPS reflects the potential dilution if certain securities are
       converted into common stock.

       The numerator in calculating both basic and diluted earnings per share
       for each year is reported net income. The computation of diluted average
       common shares follows:

<TABLE>
<CAPTION>
                                                                   Three Months                          Six Months
                                                                  Ended June 30,                       Ended June 30,
                                                             -------------------------           -------------------------
       Diluted Average Common Shares Computation               1999              1998              1999              1998
       -------------------------------------------------------------------------------------------------------------------
       <S>                                                   <C>               <C>               <C>               <C>
       Denominator (thousands)
         Basic average common shares outstanding             82,345            83,335            82,809            83,299
         Dilutive potential common shares - options             410               391               344               391
       -------------------------------------------------------------------------------------------------------------------
         DILUTED AVERAGE COMMON SHARES                       82,755            83,726            83,153            83,690
       -------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       8
<PAGE>   9

                         PART I - FINANCIAL INFORMATION
                    ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)

3.     Business Segment Information

       Columbia manages its operations in five primary business segments:
       transmission and storage; distribution; exploration and production;
       marketing; and propane, power generation and LNG. The following tables
       provide information concerning these major business segments. Revenues
       include intersegment sales to affiliated subsidiaries, which are
       eliminated when consolidated. Affiliated sales are recognized on the
       basis of prevailing market or regulated prices. Operating income is
       derived from revenues and expenses directly associated with each segment.

<TABLE>
<CAPTION>
                                                           Three Months                  Six Months
                                                          Ended June 30,               Ended June 30,
                                                      ----------------------       -----------------------
       ($ in millions)                                  1999           1998          1999           1998
       ----------------------------------------------------------------------------------------------------
       <S>                                            <C>            <C>           <C>            <C>
       REVENUES
            Transmission and Storage
               Unaffiliated                             116.5          120.4         280.6          268.6
               Intersegment                              66.3           64.7         155.5          161.4
       ----------------------------------------------------------------------------------------------------
               TOTAL                                    182.8          185.1         436.1          430.0
       ----------------------------------------------------------------------------------------------------
            Distribution
               Unaffiliated                             316.7          310.6       1,334.1        1,102.2
               Intersegment                               2.7            1.7           3.4           11.8
       ----------------------------------------------------------------------------------------------------
               TOTAL                                    319.4          312.3       1,337.5        1,114.0
       ----------------------------------------------------------------------------------------------------
            Exploration and Production
               Unaffiliated                              13.1           15.3          28.1           36.5
               Intersegment                              18.4           17.1          33.9           33.3
       ----------------------------------------------------------------------------------------------------
               TOTAL                                     31.5           32.4          62.0           69.8
       ----------------------------------------------------------------------------------------------------
            Marketing
               Unaffiliated                           1,211.9          864.6       2,533.5        1,721.0
               Intersegment                               3.1            8.6          11.1           17.6
       ----------------------------------------------------------------------------------------------------
               TOTAL                                  1,215.0          873.2       2,544.6        1,738.6
       ----------------------------------------------------------------------------------------------------
            Propane, Power Generation and LNG
               Unaffiliated                              42.0           15.8          82.0           45.7
               Intersegment                              (0.4)          (0.2)         (0.1)           0.1
       ----------------------------------------------------------------------------------------------------
               TOTAL                                     41.6           15.6          81.9           45.8
       ----------------------------------------------------------------------------------------------------
            Adjustments and eliminations
               Intersegment                             (90.1)         (91.8)       (203.8)        (224.1)
       ----------------------------------------------------------------------------------------------------
               TOTAL                                    (90.1)         (91.8)       (203.8)        (224.1)
       ----------------------------------------------------------------------------------------------------
            CONSOLIDATED                              1,700.2        1,326.8       4,258.3        3,174.1
       ----------------------------------------------------------------------------------------------------
       OPERATING INCOME (LOSS)
            Transmission and Storage                     55.9           58.8         200.1          176.6
            Distribution                                 16.6           13.4         146.8          133.5
            Exploration and Production                    6.9            8.5          12.5           22.9
            Marketing                                   (10.5)          (7.6)        (32.0)         (13.1)
            Propane, Power Generation and LNG            (0.5)          (0.2)          8.6            7.3
            Corporate                                    (4.1)          (2.0)          0.9           (2.1)
       ----------------------------------------------------------------------------------------------------
            CONSOLIDATED                                 64.3           70.9         336.9          325.1
       ----------------------------------------------------------------------------------------------------
</TABLE>

4.     Treasury Stock

       In February 1999, Columbia's board of directors (Board of Directors or
       Columbia's Board) approved a repurchase program for up to $100 million of
       its common stock, through February 29, 2000. The repurchase program
       authorizes Columbia to make purchases in the open market or otherwise.
       The timing and terms of purchases, and the number of shares actually
       purchased,


                                       9
<PAGE>   10


                         PART I - FINANCIAL INFORMATION
                    ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)

       is determined by management based on market conditions and other factors.
       Purchased shares are held in treasury and are available for general
       corporate purposes or resale at a future date, or may be retired.
       Treasury stock purchases are accounted for under the cost method, whereby
       the cost of the acquired stock is recorded as treasury stock. As of June
       30, 1999, Columbia had purchased 1,539,800 common shares at a cost of
       $79.9 million.

       In July 1999, Columbia's Board authorized a $400 million increase in the
       company's open market share repurchase program, bringing the total amount
       available under the program to approximately $420 million as of July 15,
       1999. The Board of Directors authorized the repurchase program through
       July 14, 2000.

5.     Common Stock - Amendments

       At Columbia's Annual Meeting of Shareholders on May 19, 1999, the
       shareholders voted to approve an amendment of Columbia's Restated
       Certificate of Incorporation to increase the authorized number of shares
       of common stock from 100 million to 200 million and decrease the par
       value of common stock from $10 to $.01 per share. This change resulted in
       a transfer during the second quarter of 1999 of $834.3 million from the
       Common Stock account to the Additional Paid In Capital account.

6.     Debt Repurchase

       During May 1999, Columbia repurchased $52.45 million of its 7.62% Series
       G debentures due November 28, 2025, at a price of approximately 99% of
       par value. The net impact of the early extinguishment of such debt was
       immaterial.

7.     Risk Management Activities

       Columbia has adopted a policy that provides for commodity trading
       activities to help ensure stable cash flow, favorable prices and margins
       as well as to help capture any long-term increases in value. Effective
       January 1, 1999, Columbia adopted Financial Accounting Standards Board
       Emerging Issues Task Force Issue No. 98-10, "Accounting for Contracts
       Involved in Energy Trading and Risk Management Activities" (EITF 98-10).
       The market value of the open physical and financial positions at June 30,
       1999, reflected a gain of approximately $12.8 million, which Columbia
       recorded in income through the first half of 1999.

8.     Bankruptcy Matters

       On November 28, 1995, Columbia and its wholly-owned subsidiary, Columbia
       Gas Transmission Corporation (Columbia Transmission) emerged from Chapter
       11 protection of the United States Bankruptcy Code under the jurisdiction
       of the United States Bankruptcy Court for the District of Delaware
       (Bankruptcy Court). Both Columbia and Columbia Transmission had operated
       under Chapter 11 protection from July 31, 1991, until emergence.

       During the first quarter of 1999, Columbia Transmission resolved its last
       remaining producer claim in its bankruptcy proceeding. The improvement to
       Columbia's first quarter 1999 consolidated net income was $20.6 million.
       The settlement was approved by the Bankruptcy Court on April 12, 1999 and
       on April 26, 1999, Columbia Transmission distributed the producer
       holdback amounts in accordance with its Plan of Reorganization and a
       producer settlement. There remain four non-producer claims to be
       resolved, all of which are being litigated outside of the Bankruptcy
       Court. Columbia believes adequate reserves have been established for
       resolution of the remaining non-producer claims.


                                       10
<PAGE>   11

                         PART I - FINANCIAL INFORMATION
                    ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)

9.     Unsolicited Tender Offer

       On June 25, 1999, NiSource Inc., an Indiana corporation (NiSource),
       through its wholly-owned subsidiary, CEG Acquisition Corp., a Delaware
       corporation (collectively, the "Bidder"), disclosed in a Tender Offer
       Statement on Schedule 14D-1 an offer to purchase all of the outstanding
       shares of Columbia's common stock at a price per share of $68.00 (Offer
       Price) net to the seller in cash, upon the terms and subject to the
       conditions set forth in the Offer to Purchase, dated June 25, 1999 and in
       the related Letter of Transmittal (together, the "Offer"). The Offer is
       subject to numerous conditions. Twelve conditions and numerous other
       sub-conditions must be satisfied or waived before Bidder is obligated to
       consummate the Offer.

       In response to NiSource's unsolicited tender offer, Columbia's Board
       voted to reject the Offer and set forth a number of factors, including
       the separate opinions of Morgan Stanley & Co., Inc. and Salomon Smith
       Barney Inc. that the Offer Price is inadequate from a financial point of
       view to Columbia's stockholders. The decision of the Board of Directors
       and the factors considered in the analysis of the Offer are discussed
       more fully in the Solicitation/Recommendation Statement filed by Columbia
       on Schedule 14D-9 with the Securities and Exchange Commission on July 6,
       1999.

       The Offer is currently set to expire on October 15, 1999, unless further
       extended. Columbia has retained the services of independent financial and
       legal advisors to assist it in connection with the Offer. As of the date
       of this report, Columbia is not in discussions with Bidder or any other
       potential buyer regarding the consensual sale of Columbia, or a
       substantial portion of Columbia's assets.

       In connection with the Tender Offer, NiSource has commenced litigation
       against Columbia and five purported shareholder class actions have also
       been filed (Refer to Part II-Other Information, Item 1C. Legal
       Proceedings). At this time, the outcome of these proceedings is
       uncertain.


                                       11
<PAGE>   12

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                       OPERATING INCOME (LOSS) BY SEGMENT

<TABLE>
<CAPTION>
                                                          Three Months                            Six Months
                                                         Ended June 30,                          Ended June 30,
                                                ------------------------------           ------------------------------
                                                    1999               1998                 1999                1998
                                                -----------         ----------           -----------         ----------
                                                                               (millions)
<S>                                            <C>                   <C>                  <C>                  <C>
Transmission and Storage                          $ 55.9               $ 58.8              $ 200.1              $ 176.6

Distribution                                        16.6                 13.4                146.8                133.5

Exploration and Production                           6.9                  8.5                 12.5                 22.9

Marketing                                          (10.5)                (7.6)               (32.0)               (13.1)

Propane, Power Generation and LNG                   (0.5)                (0.2)                 8.6                  7.3

Corporate                                           (4.1)                (2.0)                 0.9                 (2.1)
                                                -----------         ----------           -----------           ----------

   CONSOLIDATED                                   $ 64.3               $ 70.9              $ 336.9              $ 325.1
                                                ===========         ==========           ===========           ==========
</TABLE>


                  DEGREE DAYS (DISTRIBUTION SERVICE TERRITORY)

<TABLE>
<CAPTION>
                                                          Three Months                            Six Months
                                                         Ended June 30,                          Ended June 30,
                                                ------------------------------           ------------------------------
                                                    1999               1998                  1999               1998
                                                -----------         ----------           -----------         ----------

<S>                                                 <C>               <C>                 <C>                  <C>
Actual                                               483                518                  3,261               2,837

Normal                                               580                580                  3,527               3,527

% Colder (warmer) than normal                        (17)               (11)                    (8)                (20)

% Colder (warmer) than prior period                   (7)               (38)                    15                 (20)
</TABLE>


                                       12
<PAGE>   13


                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                              CONSOLIDATED RESULTS

Forward-Looking Statements

The Management's Discussion and Analysis, including statements regarding market
risk sensitive instruments and in the section "Impact of Year 2000 on Computer
and Other Systems," contains "forward-looking statements," within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Investors and prospective investors
should understand that many factors govern whether any forward-looking statement
contained herein will be or can be achieved. Any one of those factors could
cause actual results to differ materially from those projected. These
forward-looking statements include, but are not limited to, statements
concerning Columbia's plans, proposed acquisitions, objectives, expected
performance, expenditures and recovery of expenditures through rates, stated on
either a consolidated or segment basis, and any and all underlying assumptions
and other statements that are other than statements of historical fact. From
time to time, Columbia may publish or otherwise make available forward-looking
statements of this nature. All such subsequent forward-looking statements,
whether written or oral and whether made by or on behalf of Columbia, are also
expressly qualified by these cautionary statements. All forward-looking
statements are based on assumptions that management believes to be reasonable;
however, there can be no assurance that actual results will not differ
materially. Realization of Columbia's objectives and expected performance is
subject to a wide range of risks and can be adversely affected by, among other
things, competition, weather, fluctuations in supply and demand for energy
commodities, successful consummation of proposed acquisitions, actual operating
experience of acquired assets, Columbia's ability to integrate acquired
operations into our operations, impact of the year 2000 on computer, operating
and other systems, the regulatory process, regulatory and legislative changes as
well as changes in general economic, capital and commodity market conditions,
many of which are beyond the control of Columbia. In addition, the relative
contributions to profitability by each segment, and the assumptions underlying
the forward-looking statements relating thereto, may change over time. With
respect to Columbia's year 2000 program, the dates on which Columbia believes it
will be completed are based on management's best estimates, which were derived
utilizing numerous assumptions of future events. However, there can be no
guarantee that these estimates will be achieved, or that there will not be a
delay in, or increased costs associated with, the implementation of the year
2000 program. Specific factors that might cause differences between the
estimates and actual results include, but are not limited to, the availability
and cost of personnel trained in these areas, the ability to timely locate and
correct all relevant computer codes for both information technology (IT) and
non-IT systems, the nature and amount of programming and testing required to
upgrade or replace IT and non-IT systems, timely responses to, and corrections
by, third-parties and suppliers, the ability to implement interfaces between,
and among, IT and non-IT systems for which remediation or an upgrade is
performed, the nature and amount of testing, verification and reporting required
by relevant government regulatory authorities, including federal and state
utility regulatory bodies, and other similar uncertainties.

With respect to any references made to ratings assigned to Columbia's debt
securities, there can be no assurance that Columbia will be successful in
maintaining its credit quality, or that such credit ratings will continue for
any given period of time, or that they will not be revised downward or withdrawn
entirely by the rating agencies. Credit ratings reflect only the views of the
rating agencies, whose methodology and the significance of their ratings may be
obtained from them.

Second Quarter Results

                                   Net Income

Columbia reported second quarter 1999 net income of $26.1 million, or $0.32 per
share, an increase of $3.3 million, or $0.05 per share, over the same period in
1998. The increase was primarily attributable to a


                                       13
<PAGE>   14

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                        CONSOLIDATED RESULTS (CONTINUED)

reduction in tax expense, as discussed below, that increased net income $6.9
million, as well as improved results from the distribution operations. Partially
offsetting these improvements were higher expenses associated with expanding
Columbia's retail marketing operations and $2.7 million related to an offer made
to acquire Consolidated Natural Gas Company in April 1999 that was later
withdrawn.

                                    Revenues

Total second quarter 1999 net revenues (operating revenues less associated
products purchased costs) were $396.5 million, a $10.9 million increase over the
same period last year. The improvement largely reflected increased
transportation services for the distribution segment and higher net revenues for
the marketing segment due to increased natural gas and power sales.

                                    Expenses

For the three months ended June 30, 1999, operating expenses of $332.2 million
were $17.5 million higher than the same period last year. The increase primarily
reflected a $14.9 million increase in operation and maintenance costs due in
large part to additional staffing levels and expanding the retail operations in
the marketing segment. Generally higher costs in the distribution operations
also contributed to the increase in operation and maintenance expense.
Depreciation expense in the current period was higher than 1998's second quarter
due to increased plant in service and additional computer equipment and software
in the marketing segment. Other taxes decreased $3 million primarily reflecting
lower property taxes for the distribution segment.

                            Other Income (Deductions)

Other Income (Deductions), which includes interest income and other interest
expense, reduced income by $34.1 million for the second three months of 1999
compared to a reduction to income of $35.3 million in the same period of 1998.
Interest income was up $3.3 million primarily due to increased interest on
temporary cash investments reflecting higher short-term investment balances in
the current period. Interest expense reflected an increase of $2.1 million over
the same period in 1998 due to an increase in short-term borrowings.

                                  Income Taxes

For the three months ended June 30, 1999, income tax expense of $4.1 million
decreased $8.7 million from the same period last year. The period-to-period
decrease primarily reflected a 1999 second quarter reduction in tax expense for
state net operating loss carryforwards and lower pre-tax income.

Six Month Results

                                   Net Income

Columbia's net income for the first half of 1999 was $176.5 million, or $2.13
per share, an increase of $6.2 million, or $0.09 per share, over the same period
in 1998. This increase reflected weather for the first six months of 1999 that
was 15 percent colder than the record warm weather in the same period of 1998.
Weather for the first six months of 1999 was still eight percent warmer than
normal. This improvement was tempered by the impact of higher operating
expenses, weak natural gas prices that reduced the price received for gas
production, depressed gross margins and higher costs related to additional
investments and staffing in the marketing segment.

Other items affecting net income during the first half of both years included
the favorable effect of a settlement on the last remaining producer issue
stemming from Columbia's bankruptcy proceedings that concluded in 1995, which
improved 1999 net income by $20.6 million. In 1998, net income benefited from a
$15.9 million reduction in postretirement benefit costs that reflected the
purchase of insurance for a portion of those liabilities.


                                       14
<PAGE>   15

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                        CONSOLIDATED RESULTS (CONTINUED)

                                    Revenues

For the six months ended June 30, 1999, net revenues of $1,047.8 million
increased $39.7 million over the same period in 1998, primarily reflecting the
impact of this year's colder weather, increased transportation services and
higher net revenues for propane and petroleum products attributable to recent
acquisitions. Reduced prices for natural gas production partially offset these
improvements.

                                    Expenses

Operating expenses for the first half of 1999 were $710.9 million, an increase
of $27.9 million over the same period last year. Operation and maintenance
expense increased $56.9 million due to the effect of a $24.8 million favorable
adjustment recorded last year for the reduction in postretirement benefit costs,
mentioned above, and higher costs incurred by the marketing segment in 1999 for
additional staffing and building its infrastructure. Also increasing operation
and maintenance expense were additional costs associated with the growth in the
propane operations attributable to recent acquisitions. The settlement of gas
supply charges reduced operating expenses by $29.8 million reflecting the
bankruptcy-related producer settlement mentioned above.

                            Other Income (Deductions)

Other Income (Deductions) reduced income by $71 million for the first half of
1999 compared to a $74.6 million reduction to income in the same period last
year. Other income increased $5.2 million due to a $2.9 million gain on the sale
of Columbia Energy Resources, Inc.'s (Columbia Resources) surface coal property
and higher interest income on temporary investments. Interest expense reflected
an increase of $1.6 million over the prior period due to an increase in
short-term borrowings.

                                  Income Taxes

Income tax expense of $89.4 million for the 1999 first half rose $9.2 million
from the year-earlier period, primarily due to higher income in 1999. Income
benefited as a result of tax planning initiatives in the 1998 first quarter and
to a lesser extent in the 1999 second quarter.

Liquidity and Capital Resources

A significant portion of Columbia's operations, most notably in the distribution
segment, are subject to seasonal fluctuations in cash flow. During the heating
season, which is primarily from November through March, cash receipts from sales
and transportation services typically exceed cash requirements. Conversely,
during the remainder of the year, cash on hand, together with external
short-term and long-term financing, as needed, is used to purchase gas to place
in storage for heating season deliveries, perform necessary maintenance of
facilities, make capital improvements in plant and expand service.

Net cash from operations for the first half of 1999 was $701.9 million, an
increase of $149.7 million over the same period last year. This increase
primarily reflects working capital changes, which included an increase in
short-term transportation payable and exchange gas for volumes received in the
first half of 1999 that will be settled later in the year.

Columbia satisfies its liquidity requirements primarily through internally
generated funds and from the sale of commercial paper, which is supported by two
unsecured bank revolving credit facilities that total $1.35 billion (Credit
Facilities). The Credit Facilities consist of a $450 million 364-day revolving
credit facility, with a one-year term loan option, that expires in March 2000
and a $900 million five-year revolving credit facility that expires in March
2003 and provides for the issuance of up to $300 million of letters of credit.


                                       15
<PAGE>   16

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                        CONSOLIDATED RESULTS (CONTINUED)

Interest rates on borrowings under the Credit Facilities are based upon the
London Interbank Offered Rate, Certificate of Deposit rates or other short-term
interest rates. In addition, the 364-day facility has a utilization fee if
borrowings exceed a certain level. The interest rate margins and facility fee on
the commitment amounts are based on Columbia's public debt ratings. In 1998,
Moody's Investors Service, Inc. (Moody's) and Fitch Investors Service (Fitch)
each upgraded their rating of Columbia's long-term debt to A3 and A,
respectively. Columbia's long-term debt rating is BBB+ by Standard & Poor's
Ratings Group (S&P). Under the Credit Facilities, higher debt ratings result in
lower facility fees and interest rate margins on borrowings. Columbia's
commercial paper ratings are F-1 by Fitch, P-2 by Moody's and A-2 by S&P.
Recently, these three credit agencies announced that they were reviewing
Columbia's recent developments for a possible ratings change.

As of June 30, 1999, Columbia had approximately $124 million of letters of
credit issued, of which approximately $45 million were issued under the Credit
Facilities. At the end of the second quarter of 1999, Columbia had $174.5
million of commercial paper outstanding, which included $71 million of
borrowings to effectuate a deposit made in anticipation of completing the
acquisition of National Propane Partners, L.P. and over $60 million for other
propane acquisitions.

During 1998, Columbia entered into fixed-to-floating interest rate swap
agreements to modify the interest characteristics of $300 million of its
outstanding long-term debt. As a result of these transactions, that portion of
Columbia's long-term debt is now subject to fluctuations in interest rates. This
allows Columbia to benefit from a lower interest rate environment. In order to
maintain a balance between fixed and floating interest rates, Columbia is
targeting average floating rate debt exposure for 10-20% of its outstanding
long-term debt.

Columbia has an effective shelf registration statement on file with the U.S.
Securities and Exchange Commission for the issuance of up to $1 billion in
aggregate of debentures, common stock or preferred stock in one or more series.
Currently, Columbia has remaining $750 million available under the shelf
registration.

At its February 1999 meeting, Columbia's Board of Directors (Board of Directors
or Columbia's Board) authorized the purchase of up to $100 million of Columbia's
common stock through February 29, 2000, in the open market or otherwise. In July
1999, Columbia's Board authorized the purchase of an additional $400 million of
common stock through July 14, 2000. The source of funds for repurchases consists
of available funds and/or borrowings. Through June 30, 1999, 1,539,800 common
shares have been repurchased under this program at a cost of approximately $80
million, leaving approximately $420 million available. The timing and terms of
additional purchases, and the number of shares actually purchased, will be
determined by management based on market conditions and other factors. Purchased
shares will be held in treasury to be made available for general corporate
purposes, or resale at a future date or they may be retired.

Management believes that its sources of funding are sufficient to meet
short-term and long-term liquidity needs of Columbia.


                                       16
<PAGE>   17

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                        CONSOLIDATED RESULTS (CONTINUED)

Unsolicited Tender Offer

On June 25, 1999, NiSource Inc., an Indiana corporation (NiSource), through its
wholly-owned subsidiary, CEG Acquisition Corp., a Delaware corporation
(collectively, the "Bidder"), disclosed in a Tender Offer Statement on Schedule
14D-1 (Schedule 14D-1) an offer to purchase all of the outstanding shares of
Columbia's common stock at a price per share of $68.00 (Offer Price) net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated June 25, 1999, and in the related Letter of Transmittal
(together, the "Offer"). The Offer is subject to numerous conditions. Twelve
conditions and numerous other sub-conditions must be satisfied or waived before
Bidder is obligated to consummate the Offer.

In response to NiSource's unsolicited tender offer, Columbia's Board voted to
reject the Offer and set forth a number of factors, including the separate
opinions of Morgan Stanley & Co., Inc. and Salomon Smith Barney Inc. that the
Offer Price is inadequate from a financial point of view to Columbia's
stockholders. The decision of the Board of Directors and the factors considered
in the analysis of the Offer are discussed more fully in the
Solicitation/Recommendation Statement filed by Columbia on Schedule 14D-9 with
the Securities and Exchange Commission on July 6, 1999.

The Offer is currently set to expire on October 15, 1999, unless further
extended. Columbia has retained the services of independent financial and legal
advisors to assist it in connection with the Offer. As of the date of this
report, Columbia is not in discussions with Bidder or any other potential buyer
regarding the consensual sale of Columbia, or a substantial portion of
Columbia's assets.

Market Risk Exposure

Subsidiaries in Columbia's exploration and production, marketing and propane
operations are exposed to market risk due primarily to fluctuations in commodity
prices. In order to help minimize this risk, Columbia has adopted a policy that
provides for commodity trading activities to help ensure stable cash flow,
favorable prices and margins as well as to help capture any long-term increases
in value. Financial instruments authorized for use by Columbia for commodity
trading include futures, swaps and options. Columbia Energy Services Corporation
(Columbia Energy Services) utilizes financial instruments to help assure
adequate margins on the purchase and resale of natural gas and electric power.
Columbia Resources utilizes financial instruments to fix prices for a portion of
its future production volumes. These positions of Columbia Resources are hedged
in the marketplace through Columbia Energy Services. Columbia Propane
Corporation (Columbia Propane) utilizes financial instruments to help protect
the value of its inventories.

In July 1999, a newly appointed president and chief executive officer of
Columbia Energy Services reduced the level of trading activity at Columbia
Energy Services while an ongoing evaluation is conducted to restructure the
trading operations. During this period, trading activity will focus on managing
physical assets and better aligning these operations with the needs in gas and
power sales. As a result, Columbia Energy Services no longer engages in open
position trading in power and further trading in weather derivatives has been
curtailed. Positions in natural gas, electric power and weather derivatives
continue to be controlled within predetermined limits as provided by Columbia's
senior management. Columbia's policy prohibits any Columbia subsidiary from
entering into trading positions that are not effectively connected with its
business. The risks associated with these trading activities are managed
consistent with policies approved by Columbia's Board of Directors. Market risks
are monitored by an independent risk control group operating separately from the
area that creates or actively manages these risk exposures in compliance
with Columbia's stated risk management policies.

Columbia measures the market risk in its portfolios on a daily basis and employs
multiple risk control


                                       17
<PAGE>   18

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                        CONSOLIDATED RESULTS (CONTINUED)

mechanisms to mitigate market risk including value-at-risk measures using a
variance/covariance methodology and volumetric limits.

Columbia utilizes mark-to-market accounting for its gas and power marketing
operations and marks all physical and financial positions to market in
accordance with generally accepted accounting principals.

Columbia also utilizes fixed-to-floating interest rate swap agreements to modify
the interest characteristics of a portion of its outstanding long-term debt. As
a result of these transactions, $300 million of Columbia's long-term debt is now
subject to fluctuations in interest rates.

Impact of Year 2000 on Computer and Other Systems

The Year 2000 issue is a worldwide concern because many existing computer
programs and certain computer hardware were initially designed without
considering the impact of the change to the Year 2000. If not corrected, certain
computer, operating and other systems could fail or create erroneous results.

Columbia is evaluating its IT and non-IT systems to determine if they are Year
2000 compliant and, if these systems are not Year 2000 compliant, what
corrective action is necessary. IT and non-IT systems that are currently being
identified, tested and, as necessary, corrected or replaced with compliant
systems include: 1) mission critical processes that relate to the safety or
dependability of Columbia's natural gas delivery system and other core business
operations; 2) customer billing, vendor payment, shareholder records and payroll
systems; and 3) other processes relevant to Columbia's continued operations.
Embedded chips and other non-IT hardware that are found to not be Year 2000
compliant are being replaced or upgraded as appropriate. To ensure timely
completion of all phases of the Year 2000 project, Columbia is utilizing
external consultants with relevant Year 2000 expertise on certain aspects of the
project.

Columbia's Year 2000 program is divided into phases that provide for the timely
assessment, remediation and testing of IT and non-IT systems as appropriate. The
assessment phase, which was completed at the end of 1998, covers the inventory
of systems and the determination as to where potential problems may exist. If a
system can not be determined to be either compliant or date sensitive, it is
deemed non-compliant and scheduled for inclusion in the remediation/testing
phases. The remediation phase was for the correction of any Year 2000 compliance
issues through repair or replacement and has been completed for IT systems and
non-IT systems. The testing phase for IT and non-IT systems, which is designed
to provide assurance that the remediation effort has been successful, is
substantially complete. Critical devices were tested regardless of whether a
manufacturer/vendor has indicated that the device was Year 2000 compliant. To
further test Columbia's Year 2000 readiness, Columbia will conduct drills in
late August and early September 1999, that will simulate operations during the
loss of key public services. Columbia currently has in place general contingency
plans in the event that a computer system, facility or process fails; however,
Columbia continues its evaluation of the need for special contingency plans in
the event that a Year 2000 problem should arise in spite of Columbia's efforts
to ensure Year 2000 compliance. Where appropriate, specific Year 2000
contingency plans are being developed for those systems that are essential to
Columbia's ongoing businesses. Year 2000 contingency plans involve having
alternate suppliers, processes or personnel on stand-by for essential processes.
Columbia's planning for the Year 2000 contingency phase for mission critical
processes began on January 1, 1999, and is substantially complete.

In addition to the evaluation of its own systems, Columbia performs a Year 2000
readiness review in connection with its evaluation of potential acquisitions to
determine that the potential acquisition's systems either are or will be Year
2000 compliant in a timely manner. Recent acquisitions are scheduled to be Year
2000 ready by mid-October 1999.


                                       18
<PAGE>   19

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                        CONSOLIDATED RESULTS (CONTINUED)

Another area of concern is Columbia's exposure from third parties that may not
be Year 2000 compliant. Columbia continues the process of contacting third
parties with which it conducts business to obtain assurance that they will be
Year 2000 compliant, utilizing letters and, where appropriate, questionnaires.
Columbia has mailed letters to nearly all of its significant vendors and service
providers and has verbally communicated with many of their strategic customers
to determine whether or not interfaces with such entities are vulnerable to Year
2000 problems and whether the products and services purchased from or by such
entities are Year 2000 compliant. Columbia has received responses from a high
percentage of these third parties with many of the companies indicating that
they expect to address all of their significant Year 2000 issues on a timely
basis. Where Columbia is not comfortable with the Year 2000 readiness of any
third parties, Columbia is developing appropriate contingency plans to address
their potential impact on Columbia's operations.

The total estimated cost of assessing, testing and remediating Columbia's IT and
non-IT systems for Year 2000 compliance, along with the cost of developing
contingency plans, is approximately $16 million. The bulk of Columbia's Year
2000 project budget has been applied to the remediation and testing phases. This
estimate does not include costs that will be incurred by Columbia related to the
acquisitions that may close subsequent to the date of this report. The total
cost of Columbia's IT and non-IT systems Year 2000 compliance efforts combined
with any incremental Year 2000 costs incurred relating to the acquisitions
discussed elsewhere in this report that are expected to close during 1999, are
not expected to be material. The estimated total cost of the Year 2000 project
represents management's assessment, based on information currently available,
scope of the project, work already completed and estimated remaining work. The
expenditures necessary to become Year 2000 compliant will be satisfied through
Columbia's cash flow from operations.

As part of its normal operations, Columbia continuously operates in a
safety-conscious, high-reliability environment and has numerous back-up systems
in place. As a result of the extensive planning that has been incorporated into
Columbia's current contingency plans and the Year 2000 project, management
believes that the most reasonably likely worst case Year 2000 scenario would
involve minor failures that were not detected and corrected during the project.
These failures should not be of the type that could result in the disruption of
services and will, in all likelihood, be corrected quickly. However, the failure
of Columbia or a key third party supplier to correct a material Year 2000
problem could result in an interruption in, or a failure of, certain normal
business activities or operations including Columbia's ability to deliver
energy. For such a failure to be material, numerous back-up systems or processes
would also have to fail. For example, an interruption in electric service along
Columbia's pipeline system could impact the operation of one or more compressor
stations or other field facilities and equipment. This impact, if coupled with
the failure of critical back-up systems and processes, could materially and
adversely affect Columbia's operations, liquidity and financial condition. Due
to the general uncertainty inherent in the Year 2000 issue, due in part to the
uncertainty of the Year 2000 readiness of third party suppliers and customers,
Columbia is unable to determine at this time whether the consequences of any
likely Year 2000 failures will have a material impact on Columbia's operations,
liquidity or financial condition.

Capital Expenditures

Primarily as a result of recent acquisitions, including the acquisition of
National Propane Partners, L.P. in July 1999, capital expenditures for 1999 are
now expected to be approximately $1 billion, an increase of $350 million over
the estimate reported in Columbia's 1998 Annual Report on Form 10-K.


                                       19
<PAGE>   20

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                      TRANSMISSION AND STORAGE OPERATIONS

<TABLE>
<CAPTION>
                                                      Three Months                                 Six Months
                                                     Ended June 30,                               Ended June 30,
                                             --------------------------------           ----------------------------------
                                                 1999                1998                    1999                 1998
                                             ------------        ------------           -------------        -------------
                                                                             (millions)
<S>                                          <C>                  <C>                      <C>                 <C>
OPERATING REVENUES
    Transportation revenues                      $ 134.5             $ 134.5                 $ 316.9              $ 314.6
    Storage revenues                                43.7                45.7                    94.0                 92.3
    Other revenues                                   4.6                 4.9                    25.2                 23.1
                                             -------------        ------------             -----------          -----------
Total Operating Revenues                           182.8               185.1                   436.1                430.0
                                             -------------        ------------             -----------          -----------

OPERATING EXPENSES
    Operation and maintenance                       86.6                89.0                   183.5                174.5
    Settlement of gas supply charges                 -                   -                     (29.8)                 -
    Depreciation                                    26.9                24.0                    53.6                 50.0
    Other taxes                                     13.4                13.3                    28.7                 28.9
                                             -------------        ------------             -----------          -----------
Total Operating Expenses                           126.9               126.3                   236.0                253.4
                                             -------------        ------------             -----------          -----------

OPERATING INCOME                                  $ 55.9              $ 58.8                 $ 200.1              $ 176.6
                                             =============        ============             ===========          ===========


THROUGHPUT (BCF)
Transportation
    Columbia Transmission
        Market area                                164.4               166.9                   558.4                523.6
    Columbia Gulf
        Mainline                                   149.5               151.1                   296.9                281.8
        Short-haul                                  58.0                59.4                   108.6                121.6
        Intrasegment eliminations                 (145.6)             (147.4)                 (284.3)              (272.4)
                                             -------------        ------------             -----------          -----------
Total Throughput                                   226.3               230.0                   679.6                654.6
                                             =============        ============             ===========          ===========
</TABLE>


                                       20
<PAGE>   21


                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                 TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)

Proposed Millennium Pipeline Project

The proposed Millennium Pipeline Project (Millennium Project), in which Columbia
Transmission is participating and will serve as developer and operator, will
transport western gas supplies to northeast and mid-Atlantic markets. The
442-mile pipeline will connect to TransCanada Pipe Lines Ltd. at a new Lake Erie
export point and transport approximately 700,000 Mcf per day. Nine shippers have
signed agreements for the available capacity. A filing with the Federal Energy
Regulatory Commission (FERC), requesting approval of the Millennium Project, was
made on December 22, 1997. This filing began the extensive review process,
including opportunities for public review, communication and comment. The
Millennium Project sponsors have announced that the proposed in-service date is
expected to be November 1, 2000.

The current sponsors of the proposed Millennium Project are Columbia
Transmission, Westcoast Energy, Inc., TransCanada Pipe Lines Ltd., and MCN
Energy Group, Inc.

Market Expansion Project

Columbia Transmission continued construction of its Market Expansion project
that expands its pipeline and storage system to meet increased customer demands.
The final phase of storage service began in April 1999, and the final phase of
transportation service will begin in November 1999. Upon completion, the
expansion will add approximately 500,000 Mcf per day of firm service to 23
customers.

The New York State Electric & Gas Corporation (NYSEG) filed an appeal with the
U. S. Court of Appeals for the District of Columbia Circuit, primarily to
challenge the FERC's approval of rolled-in pricing for the Market Expansion
project service levels. On June 4, 1999, the U.S. Court of Appeals for the
District of Columbia dismissed the appeal filed by NYSEG. Because Columbia
Transmission will not seek to recover the costs of the Market Expansion Project
until its next rate case, the court concluded that NYSEG's appeal was premature.
NYSEG did not seek rehearing of the Court's dismissal.

Columbia Gulf Mainline Capacity Proceeding

In 1993, the FERC directed Columbia Gulf Transmission Company (Columbia Gulf) to
show cause as to why it had not sought FERC abandonment authorization to reduce
capacity on its mainline facility. Since that time, Columbia Gulf has responded
to various information requests from the FERC. In an August 8, 1997 order, the
FERC approved a settlement between Columbia Gulf and FERC's enforcement staff
requiring Columbia Gulf to conduct a 30-day open season on additional firm
mainline capacity up to its certificated design. Although certain of Columbia
Gulf's customers challenged the terms of the settlement, Columbia Gulf concluded
the open season on December 15, 1997, which resulted in requests for capacity
that exceeded the capacity specified in Columbia Gulf's FERC certificate. On
December 24, 1998, the FERC issued an order rejecting challenges and reaffirmed
the settlement. On January 25, 1999, a petition for clarification or rehearing
and a separate petition for rehearing of the FERC's December 24, 1998 order were
filed in this proceeding. On February 19, 1999, the FERC issued a tolling order
giving itself additional time to act on the January 25, 1999 petitions. In late
February 1999, five parties appealed the December 24, 1998 and August 8, 1997
FERC orders to the Court of Appeals for the District of Columbia. On June 2,
1999, the U.S. Court of Appeals for the D.C. Circuit dismissed the appeals as
premature.

Proposed East Lateral Expansion and SunStar Pipeline Projects

Columbia Gulf announced plans in September 1998, to consider an expansion of its
onshore East Lateral system at Grand Isle, Louisiana. The expansion of the East
Lateral would provide additional capacity to shippers from Grand Isle. The
expansion, which will add approximately 600,000 Mcf per day of incremental


                                       21
<PAGE>   22

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                 TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)

firm transportation capacity, would be accomplished by adding new facilities and
expanding existing facilities. The proposed SunStar Pipeline Project, in which
Columbia Gulf is participating and will serve as the developer and operator,
will transport gas from the deep water areas of the Gulf of Mexico to Columbia
Gulf's onshore lateral at Grand Isle. This offshore pipeline project of
approximately 56 miles will have capacity of 660,000 Mcf per day and is
complementary to the expansion of the East Lateral facilities, mentioned above.

Columbia Gulf conducted open seasons in the fall of 1998 to obtain binding
commitments from interested parties for the additional capacity from the East
Lateral Expansion and the SunStar Pipeline Project. Based on the open season
interest, Columbia Gulf is reevaluating the design parameters of the proposed
pipelines and continuing its negotiations with potential shippers who are
drilling prospects in the proposed service area of the Gulf of Mexico.

Volunteer Pipeline

On April 14, 1999, Columbia Gulf, MCN Energy Group, Inc. and AGL Resources, Inc.
announced the start of an open season offering approximately 250,000 Mcf of
capacity in a proposed 24-inch natural gas pipeline extending approximately 160
miles from an interconnection near Portland, Tennessee to an interconnection
near Chattanooga, Tennessee. The pipeline, to be called the Volunteer Pipeline
(Volunteer), anticipates additional interconnections with several pipeline
companies including Columbia Gulf.

Volunteer recently concluded the open season where nearly a dozen companies
requested more than 440,000 Mcf per day of capacity. Potentially expandable to
approximately 500,000 Mcf per day, Volunteer expects to provide firm natural gas
transportation from the mid-continent into the Atlanta and other southeastern
markets.

Subsequent to the open season, AGL Resources, Inc. withdrew its participation in
the project. Volunteer expects to file an application with the FERC in 2000 and
to be in service by November 2001. Columbia Gulf will serve as operator of the
new pipeline facilities.

Sale of Facilities

Major facility sales activities to date in 1999 include: 1) 750 miles of
gathering facilities sold to Columbia Resources in January 1999; 2)
approximately 341 miles of certain natural gas pipeline and associated property
and facilities, known as the Project Penny System, sold to Norse Pipeline, LLC
in June 1999, and 3) approximately 230 miles of pipeline in Ohio is planned to
be sold to a third party as set forth in a letter of intent dated June 7, 1999.

Lomak Petroleum, Inc. appealed the FERC orders authorizing the
Project Penny System sale. The appeal is currently pending in the US
Court of Appeals for the District of Columbia Circuit.

Excluding the above referenced sales, there are approximately 800 miles of
gathering lines remaining to be sold.

The sale of these assets will not have a material impact on Columbia's financial
results.

Columbia Transmission's Phase II Rate Proceeding

Columbia Transmission's rate case settlement, approved by the FERC in April
1997, provided for a hearing to address environmental cost recovery that was
excluded from the settlement. The procedural schedule established by the
presiding Administrative Law Judge provided for a hearing to commence in the
fall of 1998.


                                       22
<PAGE>   23

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                 TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)

However, at the request of Columbia Transmission and other active parties, the
schedule was suspended in May 1998, in order to afford the parties an
opportunity to pursue settlement discussions. As a result of these discussions,
the active parties reached an agreement in principle on the overall components
of an environmental settlement. The comprehensive agreement in principle
includes such major components as Columbia Transmission's total allowed recovery
of environmental remediation program costs and the disposition of any proceeds
received by Columbia Transmission from insurance carriers and others. Columbia
Transmission filed the stipulation and agreement with the FERC on April 5, 1999.
Subsequent to the filing of initial comments and reply comments, on May 20,
1999, the Administrative Law Judge certified the settlement to FERC as
unopposed. However, based on statements in the initial comments filed with the
Administrative Law Judge, the FERC found that it was unclear whether two
parties, the Public Service Commission of the State of New York and the Public
Service Commission of the Commonwealth of Kentucky (Joint States), were
contesting the settlement or not. By order dated August 2, 1999, the FERC
directed the Joint States to notify the FERC and the other parties within
fifteen days of the issuance of the order whether the Joint States are
contesting the settlement. Management expects that the settlement will
ultimately be approved by FERC. If approved, the settlement would not have a
material effect on the consolidated financial results.

Throughput

Columbia Transmission's throughput consists of transportation and storage
services for local distribution companies and other customers within its market
area, which covers fifteen northeastern, mid-Atlantic, midwestern and southern
states and the District of Columbia. Throughput for Columbia Gulf reflects
mainline transportation services from Rayne, Louisiana, to Leach, Kentucky and
short-haul transportation services from the Gulf of Mexico to Rayne, Louisiana.

Throughput for the transmission and storage segment totaled 226.3 Bcf and 679.6
Bcf for the second quarter and first half of 1999, respectively. For the second
quarter, this represents a minor decrease of 3.7 Bcf primarily due to certain
short-term transportation contracts not being renewed in 1999. Colder weather in
1999 and increased transportation services from Columbia Transmission's market
expansion project resulted in a 25 Bcf increase in throughput for the first half
of 1999 over the same period last year.

Operating Revenues

Total operating revenues were $182.8 million for the second quarter of 1999, a
decrease of $2.3 million from the same period in 1998. After adjusting for
certain revenues that are fully offset in operating expense, revenues improved
$2.6 million primarily due to increased transportation services from Columbia
Transmission's market expansion project.

For the first half of 1999, operating revenues were $436.1 million, an increase
of $6.1 million over the six months ended June 30, 1998, due in large part to
additional revenues from Columbia Transmission's market expansion project. Both
periods included the sale of storage base gas that was part of Columbia
Transmission's overall 1997 rate settlement. In the first quarter of 1999,
approximately 6.9 Bcf was sold for a gain of $14.4 million and in the same
period in 1998, approximately 4.7 Bcf of storage base gas was sold for a gain of
$13.4 million.

Operating Income

Operating income for the second quarter was $55.9 million, a decrease of $2.9
million from the same period last year. After adjusting for items that have no
effect on operating income, as mentioned above, the $2.6 million improvement in
revenues was offset by increased operating expenses. Increased operating
expenses


                                       23
<PAGE>   24

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                 TRANSMISSION AND STORAGE OPERATIONS (CONTINUED)

were primarily a result of higher depreciation expense of $2.9 million due in
part to additional plant in service.

For the first half of 1999, operating income for the transmission and storage
segment of $200.1 million increased $23.5 million over the same period last year
reflecting $17.4 million lower operating expenses and $6.1 million higher
operating revenues. Lower operating expenses included the producer contract
settlement recorded in the 1999 first quarter stemming from Columbia's prior
bankruptcy proceedings. Partially offsetting this increase was the effect of a
1998 improvement attributable to a $4.5 million reduction in postretirement
benefit costs.





                                       24
<PAGE>   25

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                            DISTRIBUTION OPERATIONS

<TABLE>
<CAPTION>
                                                        Three Months                                  Six Months
                                                       Ended June 30,                               Ended June 30,
                                                -----------------------------              -------------------------------
                                                   1999               1998                    1999                 1998
                                                ----------         ----------              -----------         -----------
                                                                              (millions)
<S>                                            <C>                 <C>                      <C>                <C>
NET REVENUES
    Sales revenues                                $ 252.7            $ 276.5                 $ 1,163.8           $ 1,020.5
    Less: Cost of gas sold                          155.4              158.3                     822.0               639.8
                                                ----------         ----------               -----------        ------------
    Net Sales Revenues                               97.3              118.2                     341.8               380.7
                                                ----------         ----------               -----------        ------------

    Transportation revenues                          66.7               35.8                     173.7                93.5
    Less: Associated gas costs                        9.0                4.4                      18.9                10.0
                                                ----------         ----------               -----------        ------------
    Net Transportation Revenues                      57.7               31.4                     154.8                83.5
                                                ----------         ----------               -----------        ------------

Net Revenues                                        155.0              149.6                     496.6               464.2
                                                ----------         ----------               -----------        ------------

OPERATING EXPENSES
    Operation and maintenance                        97.2               92.0                     209.6               183.9
    Depreciation                                     17.1               16.7                      53.1                50.5
    Other taxes                                      24.1               27.5                      87.1                96.3
                                                ----------         ----------               -----------        ------------
Total Operating Expenses                            138.4              136.2                     349.8               330.7
                                                ----------         ----------               -----------        ------------

OPERATING INCOME                                   $ 16.6             $ 13.4                   $ 146.8             $ 133.5
                                                ==========         ==========               ===========        ============

THROUGHPUT (BCF)
    Sales
        Residential                                  15.5               20.9                      84.6                92.9
        Commercial                                    5.1                7.1                      28.0                33.7
        Industrial and other                          0.6                0.8                       1.6                 2.4
                                                ----------         ----------               -----------        ------------
    Total Sales                                      21.2               28.8                     114.2               129.0
    Transportation                                   76.9               62.5                     184.8               146.6
                                                ----------         ----------               -----------        ------------
Total Throughput                                     98.1               91.3                     299.0               275.6
Off-System Sales                                      9.2               22.4                     165.5                51.4
                                                ----------         ----------               -----------        ------------
Total Sold and Transported                          107.3              113.7                     464.5               327.0
                                                ==========         ==========               ===========        ============

SOURCES OF GAS FOR THROUGHPUT (BCF)
    Sources of Gas Sold
        Spot market*                                 84.9               57.6                     137.5               119.0
        Producers                                     2.3                2.5                       4.7                 5.4
        Storage withdrawals (injections)            (36.3)             (25.9)                     25.6                37.8
        Other                                       (20.5)              17.0                     111.9                18.2
                                                ----------         ----------               -----------        ------------
    Total Sources of Gas Sold                        30.4               51.2                     279.7               180.4
    Gas received for delivery to customers           76.9               62.5                     184.8               146.6
                                                ----------         ----------               -----------        ------------
Total Sources                                       107.3              113.7                     464.5               327.0
                                                ==========         ==========               ===========        ============
</TABLE>

* Reflects volumes under purchase contracts of less than one year.


                                       25
<PAGE>   26

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                      DISTRIBUTION OPERATIONS (CONTINUED)

Market Conditions

Weather for the first half of 1999 in the market area served by Columbia's
distribution subsidiaries (Distribution) was 8% warmer than normal, but 15%
colder than the record warm weather in the first half of 1998. For the first six
months of 1999, Distribution's weather-sensitive deliveries were up 22 Bcf from
last year.

Regulatory Matters

In April 1999, Columbia Gas of Kentucky, Inc. (Columbia of Kentucky) filed an
application with the Kentucky Public Service Commission (KPSC) seeking approval
to initiate a residential and small commercial transportation program. Under the
terms of the filing, all of Columbia of Kentucky's 140,000 customers would be
eligible to choose a new supplier for gas deliveries commencing in November
1999. In late May 1999, the KPSC issued an order stating that more time was
needed to determine the reasonableness of the proposal and suspending the filing
until April 1, 2000. However, the KPSC could issue a final decision prior to the
end of the suspension period. If its program were approved, Columbia of Kentucky
would be the first utility in Kentucky, gas or electric, to offer a choice of
supplier to all of its customers.

In May 1998, Columbia Gas of Virginia, Inc. (Columbia of Virginia) filed a rate
case with the Virginia State Corporation Commission (VSCC) requesting an annual
revenue increase of $5.3 million over the revenues then being collected, subject
to refund, under a 1997 rate case filing. In April 1999, Columbia of Virginia
amended its May 1998 rate increase application to revise its rate design for
residential and small general service customers, effective January 1, 2000, to
recover most non-gas costs through a monthly fixed charge rather than the
traditional volumetric charge. In June 1999, hearings were held on
cost-of-service and tariff issues in the case. On June 30, 1999, the VSCC staff
and the Virginia Attorney General, representing the interests of residential and
small commercial customers, filed testimony opposing the proposed rate design
and seeking a downward adjustment in Columbia of Virginia's return on equity. A
proposed settlement resolving all of the issues in this case, with the exception
of rate design and return on equity, was filed with the VSCC on July 16, 1999.
The proposed settlement would provide for additional annual revenue of
approximately $4 million. Hearings on the rate design and return on equity
issues were held on July 19 and 20, 1999.

In Pennsylvania, legislation was signed by the governor in June 1999 that will
allow consumers statewide to choose their natural gas supplier. Under the
legislation, Columbia Gas of Pennsylvania, Inc. (Columbia of Pennsylvania), upon
approval of the Pennsylvania Public Utility Commission (PPUC), can offer all of
its 388,000 customers the opportunity to choose a supplier by July 1, 2000.
Before offering choice programs to customers, each Pennsylvania natural gas
utility is required to submit a restructuring plan to the PPUC. The legislation
makes Pennsylvania one of the first states to offer customers both gas and
electric choice on a statewide level. At present, more than 70% of Columbia of
Pennsylvania's customers in seven counties can choose their supplier under a
program approved by the PPUC in 1998. Another major component of the legislation
is the repeal of the gross receipts tax on natural gas use, effective January 1,
2000. The law also provides for a rate freeze until 2001. On August 2, 1999,
Columbia of Pennsylvania filed an expanded statewide restructuring plan with the
PPUC. If approved expeditiously, Columbia of Pennsylvania's expanded
restructuring plan would take effect on November 1, 1999.

Environmental Activity

In early June 1999, Columbia of Pennsylvania was notified by the Environmental
Protection Agency (EPA) Region 5 that it was a Potentially Responsible Party
(PRP) in a removal action pursuant to Section


                                       26
<PAGE>   27

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                      DISTRIBUTION OPERATIONS (CONTINUED)

106 of the Comprehensive Environmental Response Compensation and Liability Act
(CERCLA), also known as Superfund, concerning a site in Wooster, Ohio, known as
7-7 Merger, Inc. Coal tar materials sent by Columbia of Pennsylvania from the
former manufactured gas plant site at York, Pennsylvania to 7-7 Merger, Inc. for
recycling in 1997 are potentially among the materials abandoned by 7-7 Merger,
Inc. at the Wooster site. There are approximately 28 parties that received a
similar notice from EPA. There is no reasonable way to estimate liability at
this time. However, the EPA preliminary estimate of the total costs of response
is $702,000. Based upon the EPA estimate and preliminary cost sharing
discussions among a PRP group, a preliminary estimate of Columbia of
Pennsylvania's costs for the removal action would be approximately $25,000.

Volumes

During the second quarter of 1999, total volumes sold and transported of 107.3
Bcf decreased 6.4 Bcf from last year's second quarter. The decline reflects a
decrease in off-system sales opportunities in the current quarter, which was
only partially offset by the impact of increased industrial activity in oil
refining and electric generation along with residential and commercial customer
growth.

For the first six months of 1999, total volumes sold and transported of 464.5
Bcf increased 137.5 Bcf over the first half of 1998. The improved throughput
reflects this year's colder weather compared to 1998, and a 114.1 Bcf increase
in off-system sales as Distribution took advantage of higher spot prices in
March 1999 to sell gas supplies available due to warmer than normal weather.

Net Revenues

Net revenues for the three months ended June 30, 1999 were $155 million, up $5.4
million over last year's second quarter, primarily due to commercial customers
using additional transportation services. Second quarter results in both years
were hampered by warmer than normal weather.

For the first half of 1999, net revenues were $496.6 million, up $32.4 million
from the first six months of 1998 primarily due to this year's colder weather
and additional transportation services for commercial customers.

Operating Income

Operating income for the three months ended June 30, 1999 of $16.6 million
increased $3.2 million over the same period in 1998 due to the higher net
revenues partially offset by a $2.2 million increase in operating expenses. A
$5.2 million increase in operation and maintenance expense due in part to higher
benefits costs was largely offset by lower other taxes primarily reflecting
reduced property taxes.

For the six months ended June 30, 1999, operating income of $146.8 million
increased $13.3 million over the first half of 1998. The $32.4 million increase
in net revenues over last year was partially offset by $19.1 million in higher
operating expenses. In 1998, operating income benefited from a $15.9 million
reduction in postretirement benefits costs that reflected the purchase of
insurance for a portion of those liabilities. Other changes in operation and
maintenance expense increased $9.8 million over the first half of 1998
reflecting higher benefits costs as well as increased miscellaneous costs.
Depreciation expense rose $2.6 million due to additional plant in service while
other taxes decreased $9.2 million as a result of lower property taxes.


                                       27
<PAGE>   28

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                     EXPLORATION AND PRODUCTION OPERATIONS

<TABLE>
<CAPTION>
                                                            Three Months                           Six Months
                                                           Ended June 30,                        Ended June 30,
                                                         --------------------                 ---------------------
                                                          1999           1998                 1999            1998
                                                         -----          -----                 -----           -----
                                                                                (millions)
<S>                                                     <C>            <C>                   <C>              <C>
    OPERATING REVENUES
        Gas revenues                                     $27.9          $28.8                 $53.8           $62.4
        Other revenues                                     3.6            3.6                   8.2             7.4
                                                         -----          -----                 -----           -----
    Total Operating Revenues                              31.5           32.4                  62.0            69.8
                                                         -----          -----                 -----           -----

    OPERATING EXPENSES
        Operation and maintenance                         13.4           12.4                  26.3            22.8
        Depreciation and depletion                         8.7            8.7                  18.2            18.9
        Other taxes                                        2.5            2.8                   5.0             5.2
                                                         -----          -----                 -----           -----
    Total Operating Expenses                              24.6           23.9                  49.5            46.9
                                                         -----          -----                 -----           -----

    OPERATING INCOME                                      $6.9           $8.5                 $12.5           $22.9
                                                         =====          =====                 =====           =====


    GAS PRODUCTION STATISTICS
    Production (Bcf)
        U.S.                                              10.2           10.2                  20.8            20.1
        Canada                                             0.1            0.1                   0.1             0.1
                                                         -----          -----                 -----           -----
          Total                                           10.3           10.3                  20.9            20.2
                                                         =====          =====                 =====           =====

    Average Price ($ per Mcf)
        U.S.                                              2.69           2.81                  2.56            3.09
        Canada                                            2.24           2.66                  2.41            2.79

    OIL AND LIQUIDS PRODUCTION STATISTICS
    Production (000 Bbls)
        U.S.                                                50             48                    86             106
        Canada                                               2              4                     5               4
                                                         -----          -----                 -----           -----
          Total                                             52             52                    91             110
                                                         =====          =====                 =====           =====

    Average Price ($ per Bbl)
        U.S.                                             12.67          12.66                 11.45           13.45
        Canada                                           19.01          17.37                 15.06           17.56
</TABLE>


                                       28
<PAGE>   29


                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                     EXPLORATION AND PRODUCTION (CONTINUED)

Acquisitions

On June 17, 1999, Columbia Resources purchased the assets of Thornwood Gas, Inc.
and Northeast Gathering System, Inc. The transaction involves a 50% interest in
a 40-mile natural gas gathering pipeline system, eight natural gas wells and
70,000 developed and undeveloped acres. This transaction is the latest in an
ongoing effort by Columbia Resources to expand its production capability and
pipeline infrastructure.

Columbia Resources completed its acquisition on May 12, 1999, of The Wiser Oil
Company's Appalachian Basin production and gathering assets. The transaction is
valued at approximately $28 million. Columbia Resources purchased working
interests in 487 natural gas and oil wells, more than 100,000 net acres of
developed and undeveloped property and a natural gas gathering system. The
assets are located primarily in southeastern Kentucky and central West Virginia.
Current production from the acquired assets on a net revenue basis is
approximately 8 MMcf of natural gas per day. The transaction includes 42.7
billion cubic feet equivalent (Bcfe) of proved reserves, which increases
Columbia Resources' reserve base to approximately 844 Bcfe.

Drilling Activity

On June 15, 1999, Columbia Resources announced that it has successfully
penetrated the Trenton-Black River formation and discovered a potentially
significant natural gas production zone in Roane County, West Virginia. Geologic
characteristics of this well, on a preliminary basis, appear to be similar to
prospects Columbia Resources successfully developed in New York in the
Trenton-Black River formation. Columbia Resources has been successful on 70% of
the wells attempted in this formation in the New York sub-basin where it has
established production from 25 wells. Columbia Resources has scheduled drilling
of an offset well in the fall of 1999, which will attempt to confirm the Roane
County discovery.

Columbia Resources' drilling activity through June 1999 has resulted in the
discovery of 14.7Bcfe of gas and oil reserves throughout the Appalachian Basin.
The Roane County well described above is not included due to additional
engineering required to fully evaluate the reserve additions. Excluding the
Roane County well, through June 1999, 90 wells have been spudded with 71 of
these wells completed. Of the wells completed, 55 gross (49.1 net) have been
successful resulting in a success rate of 77%. Current year drilling performance
compares to a success rate of 73% achieved during the same period of 1998 that
yielded a total of 5.7 net Bcfe.

Columbia Resources has participated in 39 gross wells (32.7 net) during the
second quarter resulting in a success rate of 79%. Reserves developed from these
wells totaled 7.5 net Bcfe. During the same period of 1998, Columbia Resources
completed 25 gross (21.4 net) wells adding reserves of 3.2 net Bcfe.

Gathering Facilities

Effective January 1, 1999, Columbia Resources owned and operated an additional
700 miles of gathering pipelines that were purchased from Columbia Transmission
and, effective April 1, 1999, Columbia Resources is operating an additional 487
wells and a gas gathering system acquired from The Wiser Oil Company.


                                       29
<PAGE>   30

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                     EXPLORATION AND PRODUCTION (CONTINUED)

Volumes

Gas production for the second quarter of 1999 of 10.3 Bcf was unchanged from
last year's second quarter principally due to pipeline and deliverability
constraints. For the six months ended June 30, 1999, gas production increased
0.7 Bcf to 20.9 Bcf.

Operating Revenues

Operating revenues for the three months ended June 30, 1999 of $31.5 million
decreased $0.9 million from the second quarter of 1998 due to a $0.12 per Mcf
drop in average natural gas prices from last year.

For the six months ended June 30, 1999, operating revenues of $62.0 million were
down $7.8 million from the same period last year as a $0.53 per Mcf drop in
average natural gas prices was only partially offset by the increase in gas
production.

Columbia Resources is continuing its strategy of managing the uncertainty of
natural gas prices by hedging a portion of its gas production through October
1999 that was subject to price volatility, using various financial instruments.
These instruments include "no cost collars" with a floor of approximately $2.39
per Mcf and an average ceiling of about $2.59 per Mcf. These collars, when
combined with the previously hedged positions, result in an average price range
of $2.57 per Mcf to $2.67 per Mcf for Columbia Resources' 1999 third quarter
production.

Operating Income

Operating income for the second quarter of 1999 of $6.9 million decreased $1.6
million from the same period in 1998. This decline reflects the decrease in
operating revenues along with an increase of $1.0 million in operation and
maintenance expense due in large part to gathering costs. These higher costs are
primarily the result of Columbia Resources' expanded asset base that includes
additional gathering facilities.

For the first six months of 1999, operating income of $12.5 million declined
$10.4 million from the first half of 1998. This decline was primarily due to the
decline in operating revenues and an increase in operation and maintenance
expense of $3.5 million. These higher costs are due in large part to an expanded
asset base, as discussed above.


                                       30
<PAGE>   31

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                              MARKETING OPERATIONS

<TABLE>
<CAPTION>
                                                    Three Months                               Six Months
                                                   Ended June 30,                            Ended June 30,
                                               ------------------------                 --------------------------
                                                   1999         1998                         1999          1998
                                               -----------  -----------                 -------------  -----------
                                                                          (millions)
<S>                                            <C>              <C>                     <C>              <C>
 OPERATING REVENUES
     Gas revenues                              $ 858.5           $781.7                  $1,993.4         $1,640.8
     Power revenues                              356.5             91.5                     551.2             97.8
                                               -------           ------                  --------         --------
 Total Operating Revenues                      1,215.0            873.2                   2,544.6          1,738.6

 Less: Products purchased                      1,198.7            861.5                   2,522.7          1,715.6
                                               -------           ------                  --------         --------

 Gross Margin                                     16.3             11.7                      21.9             23.0

                                               -------           ------                  --------         --------
 OPERATING EXPENSES
     Operation and maintenance                    23.8             18.0                      47.7             33.5
     Depreciation                                  2.4              0.7                       4.4              1.4
     Other taxes                                   0.6              0.6                       1.8              1.2
                                               -------           ------                  --------         --------
 Total Operating Expenses                         26.8             19.3                      53.9             36.1
                                               -------           ------                  --------         --------

 OPERATING (LOSS)                              $ (10.5)          $ (7.6)                 $  (32.0)        $  (13.1)
                                               =======           ======                  ========         ========


 MARKETING SALES
     Gas (billion cubic feet)                    391.4            347.4                     945.2            711.6
     Power (gigawatt hours)                      9,910            3,048                    17,756            3,353
</TABLE>


                                       31
<PAGE>   32


                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                        MARKETING OPERATIONS (CONTINUED)

As of the end of the second quarter of 1999, Columbia Energy Services' retail
marketing operations served 320,000 gas sales customers compared to 53,300 in
1998's second quarter. Total gas sales for the first half of 1999 increased to
945.2 Bcf, an increase of 33% over the same period last year while power sales
of 17,756 gigawatt hours for the first six months of 1999 were up 14,403
gigawatt hours, or five times, over the same period last year. This growth
resulted in additional customer acquisition and retention costs, as well as
higher expense for other related activities necessary to increase market share
and support a larger customer base.

Four primary businesses comprise Columbia Energy Services. The three businesses
that focus on retail activities are: a) Major Accounts that markets energy
products and services to industrial and commercial clients; b) Mass Markets
which markets energy products and services to residential and small commercial
customers through several channels, and c) an internet based business that
offers a variety of services to energy marketers and consumers. The wholesale
business provides energy products and services to wholesale customers and trades
natural gas, power and weather derivatives and manages the delivery obligations
and risks generated by the retail marketing and wholesale origination business.

Although gross margins showed improvement in the second quarter of 1999,
management continues to be dissatisfied with Columbia Energy Services' overall
operations and results. In July 1999, a newly appointed president and CEO of
Columbia Energy Services reduced the level of trading activity while an ongoing
evaluation is conducted to restructure the trading operations. During this
period trading activity will focus on managing physical assets and better
aligning these operations with the needs in gas and power sales. In addition, in
August 1999, a determination was made to consolidate the Major Accounts and Mass
Markets businesses, and base them in Herndon, Virginia. Such consolidation will
involve a reduction in staff that will result in severance and other costs being
recorded in the third quarter. Moreover, the new CEO of Columbia Energy Services
will be continuing the strategic assessment of all facets of Columbia Energy
Services' businesses, which was begun in the first quarter of 1999, including
ongoing action taken with company personnel and outside consultants to identify
and address infrastructure weaknesses that continue to depress results and
adversely effect operating efficiency.

Gross margins

Gross margins for the second quarter of 1999 were $16.3 million, an increase of
$4.6 million over the same period last year. This improvement was mainly due to
increased natural gas sales attributable to Columbia Energy Services' increased
retail customer base and fees related to gas management activities for third
parties. Tempering this increase were lower power margins that more than offset
a substantial increase in power volumes.

For the six months ended June 30, 1999, gross margins totaled $21.9 million,
down $1.1 million from the same period last year. The decrease was primarily due
to lower gross margins in the first quarter of 1999.

Operating Loss

An operating loss of $10.5 million was recorded in the second quarter of 1999,
which was $2.9 million greater than the loss in the same period in 1998 after
taking into account certain insurance coverages in 1999. The increased loss
reflects higher customer acquisition and retention costs and costs for retail
marketing operations incurred from on-going consulting services to improve the
marketing segment's infrastructure that more than offset the $4.6 million gross
margin increase.


                                       32
<PAGE>   33

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                        MARKETING OPERATIONS (CONTINUED)

For the first half of the year, an operating loss of $32 million was reported
compared to $13.1 million in the same period last year. The increased loss
primarily reflected higher customer acquisition costs related to the retail
marketing operations and higher personnel-related costs arising from a larger
workforce that has grown to approximately 440 employees at the end of the second
quarter, an increase of about 117 employees over the level at the end of June
1998.




                                       33
<PAGE>   34

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

                  PROPANE, POWER GENERATION AND LNG OPERATIONS

<TABLE>
<CAPTION>
                                                         Three Months                       Six Months
                                                        Ended June 30,                    Ended June 30,
                                                      -------------------                ------------------
                                                        1999       1998                    1999      1998
                                                      --------  ---------                --------  --------
                                                                           (millions)
<S>                                                  <C>            <C>                  <C>        <C>
    NET REVENUES
        Propane revenues                               $13.1       $ 9.7                 $45.8       $34.4
        Petroleum revenues                              21.4           -                  21.4           -
                                                       -----       -----                 -----       -----
        Total Propane and Petroleum Revenues            34.5         9.7                  67.2        34.4
        Less: Products purchased                        27.1         5.6                  43.2        18.5
                                                       -----       -----                 -----       -----

        Net Propane and Petroleum Revenues               7.4         4.1                  24.0        15.9

        Power generation                                 1.5         2.3                   3.5         3.8

        Other revenues                                   5.6         3.6                  11.2         7.6
                                                       -----       -----                 -----       -----

    Net Revenues                                        14.5        10.0                  38.7        27.3
                                                       -----       -----                 -----       -----

    OPERATING EXPENSES
        Operation and maintenance                       12.2         8.5                  25.2        16.8
        Depreciation                                     2.2         1.2                   3.6         2.2
        Other taxes                                      0.6         0.5                   1.3         1.0
                                                       -----       -----                 -----       -----
    Total Operating Expenses                            15.0        10.2                  30.1        20.0
                                                       -----       -----                 -----       -----

    OPERATING INCOME (LOSS)                            $(0.5)      $(0.2)                $ 8.6       $ 7.3
                                                       =====       =====                 =====       =====


    PROPANE GALLONS SOLD (MILLIONS)                     16.5        10.0                  55.5        34.8

</TABLE>


                                       34
<PAGE>   35

                         PART I - FINANCIAL INFORMATION
                ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

            PROPANE, POWER GENERATION AND LNG OPERATIONS (CONTINUED)

Acquisitions

                         National Propane Partners, L.P.

On July 19, 1999, Columbia Propane, through its subsidiary, Columbia Propane,
L.P., completed its acquisition of National Propane Partners, L.P. (National
Propane). As part of the merger, Columbia Propane, L.P. acquired all of the
remaining outstanding common units of National Propane for $12 per common unit,
and acquired the general partnership and subordinated unit interests of National
Propane from subsidiaries of Triarc Companies, Inc.

The acquisition of National Propane adds more than 210,000 retail and wholesale
customers in 24 states, 155 full service centers, 101 satellite locations, and
bulk storage facilities with more than 33 million gallons of propane.

                               Trentane Gas, Inc.

On June 16, 1999, Columbia Propane completed its acquisition of Trentane Gas,
Inc. (Trentane Gas). The acquisition of Trentane Gas, a retail propane company
located in north-central Virginia, adds 4,300 customers to Columbia Propane's
customer base.

The Trentane Gas and National Propane acquisitions, together with the
acquisition of Carlos R. Leffler, Inc. (Leffler) in May 1999 that was previously
discussed in the 1999 First Quarter Form 10-Q, raise the total number of
Columbia Propane customers served to nearly 340,000, triple the number of
customers served in 1998.

Environmental Activity

Columbia Propane's primary environmental issues relate to former manufactured
gas plant sites acquired in the acquisition of National Propane for which
accruals were made by National Propane. Investigations are currently underway at
one site. One other known former manufactured gas plant site is inactive. It is
possible that former manufactured gas plant sites exist at two other National
Propane properties. Management does not believe that Columbia Propane's
environmental expenditures will have a material adverse effect on Columbia's
consolidated financial results.

Net Revenues

Net revenues for the second quarter of 1999 increased $4.5 million over the same
period last year to $14.5 million. Columbia Propane's acquisition of propane and
petroleum-related assets from Leffler was the principal reason for the increase
in net revenues.

For the first six months of 1999, net revenues of $38.7 million increased $11.4
million from last year, primarily due to higher propane sales reflecting
acquisitions made in 1998 and the Leffler transaction as well as colder weather
during the first quarter of 1999 compared to the same period in 1998.

Operating Income

The propane, power generation and LNG operations segment reported an operating
loss of $500,000 in the second quarter of 1999, compared to an operating loss of
$200,000 in the same period last year, primarily reflecting higher costs
associated with the recent acquisitions.

Operating income for the first six months of 1999 was $8.6 million, representing
an increase of $1.3 million over the same period in 1998. This improvement
reflected the $11.4 million increase in net revenues, largely offset by higher
costs related to the growth of the propane operations.


                                       35
<PAGE>   36


Item 3.       Quantitative and Qualitative Disclosures About Market Risk

              There have not been any material changes regarding quantitative
              and qualitative disclosures about market risk from the information
              reported in Columbia's 1998 Annual Report on Form 10-K other than
              the information reported on page 17 of the Management's Discussion
              and Analysis under "Market Risk Exposure."

                           PART II - OTHER INFORMATION

Item 1.       Legal Proceedings

              No new reportable matters have arisen and there have been no
              material developments in any legal proceedings reported in
              Columbia's Annual Report on Form 10-K for the year ended December
              31, 1998 or the Quarterly Report on Form 10-Q for the quarter
              ended March 31, 1999, except as follows:

   1.  Other

       A.     Cathodic Protection. The history related to this matter is
              discussed in Columbia's 1998 Annual Report on Form 10-K. On April
              29, 1999, the staff of the Virginia State Corporation Commission
              (VSCC) issued a Notice of Probable Violation, indicating that it
              had discovered numerous "probable violations" of the VSCC's
              pipeline safety regulations. On May 26, 1999, Columbia of Virginia
              submitted a response to the Notice acknowledging that cathodic
              protection deficiencies had occurred, identifying the actions
              taken by the Company to address such deficiencies, and requesting
              an informal conference. Informal conferences with the VSCC staff
              have been held at which the staff has requested additional
              information. Columbia of Virginia is in the process of providing
              the information requested by the staff.

       B.     MarkWest Hydrocarbon, Inc., Arbitration Proceeding, AAA Case No.
              77 181 0035 98 (filed February 13, 1998); Columbia Gas
              Transmission Corp. v. MarkWest Hydrocarbon, Inc., U.S.D.C., S.D.
              W. Va., Case No. 2:98-03622 (filed April 28, 1998). On July 13,
              1999, the parties executed a letter agreement extending the
              "standstill" agreement until the earlier of a ruling by the Panel
              or March 1, 2000.

       C.     NiSource Related Litigation.  NiSource has commenced three
              lawsuits against Columbia and its directors, two in Delaware
              Chancery Court and one in the United States District Court for the
              District of Delaware. NiSource's federal court complaint was filed
              on June 24, 1999 and was amended on July 8, 1999. The federal
              court complaint, among other things (i) alleges that certain
              statements that Columbia has made in connection with NiSource's
              offer to purchase Columbia have been false and misleading in
              violation of the Securities Exchange Act of 1934, as amended; (ii)
              seeks an injunction requiring Columbia to take all actions
              necessary to exempt the NiSource tender offer from the
              requirements of Section 203 of the Delaware General Corporation
              Law, and (iii) seeks injunctive relief prohibiting Columbia from
              taking any defensive actions in response to the Offer.

              The first Chancery Court complaint was filed on June 24, 1999 and
              alleges that Columbia's certificate of incorporation requires 13
              persons to be on the Board and that, therefore, Columbia's current
              12-person Board violates the certificate. The second Chancery
              Court complaint was filed on July 29, 1999 and alleges that the
              Board's actions in response to the Offer, including the announced
              increase in Columbia's share repurchase program, represent a
              breach of the fiduciary duties owed to Columbia stockholders.


                                       36
<PAGE>   37


              Five purported stockholder class actions have been filed against
              Columbia in Delaware Chancery Court. These actions were
              consolidated on July 9, 1999, into one action entitled In re
              Columbia Energy Group Shareholder Litigation and allege, among
              other things, that Columbia and its directors have breached their
              fiduciary duties to Columbia's stockholders by not negotiating
              with NiSource regarding its offer to purchase Columbia and that
              the current Board composition violates Columbia's Certificate of
              Incorporation. This complaint was amended on July 30, 1999, to
              further allege that the announced increase in Columbia's share
              repurchase program represents a breach of the fiduciary duties
              owed to Columbia stockholders. In addition, certain of the
              stockholders who commenced the lawsuits that were consolidated
              into In re Columbia Energy Group Shareholder Litigation also filed
              a complaint in federal court that alleges essentially the same
              claims alleged in the NiSource federal court complaint.

Item 2.       Changes in Securities and Use of Proceeds

               None

Item 3.       Defaults Upon Senior Securities

               None

Item 4.       Submission of Matters to a Vote of Security Holders:

              On May 19, 1999, Columbia held its Annual Meeting of Stockholders.
              On the record date, Columbia had 82,686,897 shares of common stock
              outstanding, each of which was entitled to one vote at the
              meeting. Voted upon and approved by the requisite number of shares
              present in person or by proxy at the meeting was: A) the election
              of four directors each to serve a term of three years; B) the
              election of Arthur Andersen LLP as independent public accountants;
              C) the approval of Amendments to the Restated Certificate of
              Incorporation to increase the authorized number of shares of
              common stock from 100 million to 200 million and to decrease the
              par value of common stock from $10 to $0.01 per share, and D) the
              approval of amendments to the Columbia Energy Group 1996 Long-term
              Incentive Plan.

              A. Election of Directors

<TABLE>
<CAPTION>
                    Name of Director              Votes For          Votes Withheld
                 -----------------------         ------------        --------------
                 <S>                             <C>                 <C>
                 Robert H. Beeby                  73,559,147            621,444
                 Malcolm T. Hopkins               73,415,751            621,444
                 William E. Lavery                73,628,657            621,444
                 Oliver G. Richard III            73,417,245            621,444
</TABLE>

              B. Election of Arthur Andersen LLP as independent public
                 accountants:

                       Votes For           Votes Against          Abstain
                       ---------           -------------          -------
                      73,217,990             621,859              286,794

              C. Approval of Amendments to the Restated Certificate of
                 Incorporation:

                       Votes For           Votes Against          Abstain
                       ---------           -------------          -------
                       67,302,982            5,984,664            838,998

              D. Approval of Amendments to the Columbia Energy Group 1996
                 Long-Term Incentive Plan:

                       Votes For           Votes Against          Abstain
                       ---------           -------------          -------
                       60,969,082           11,946,163            937,864


                                       37
<PAGE>   38

Item 5.       Other Information

              Employment Agreements

              At a special meeting of the Board held on July 14, 1999, after
              consideration of the potentially destabilizing effects of the
              pendency of the Offer on the morale and retention of Columbia's
              employees, Columbia's Board authorized (i) a form of amendment to
              employment agreements for each of Oliver G. Richard III, Peter M.
              Schwolsky and Catherine G. Abbott (Employment Agreement
              Amendments); (ii) a form of change in control agreement for 8 key
              executives of Columbia (Key Executive Agreements); and (iii) a
              form of change in control agreement for 19 additional key
              management personnel of Columbia (Key Management Agreements).

              Pursuant to the terms of the Employment Agreement Amendments, if
              the executive covered by the agreement (the "Executive") (a)
              terminates his/her employment as a result of the occurrence of a
              Change in Control, provided that the executive gives 90-day notice
              of such termination within 180 days of the Change in Control; (b)
              terminates his/her employment for Good Reason during the period
              beginning on the date of the occurrence of a Change in Control and
              ending 36 full calendar months following such date (Coverage
              Period); or (c) has his/her employment terminated by Columbia
              without cause (as defined in the Employment Agreement Amendments)
              during the Coverage Period, Columbia will pay to the Executive in
              cash the following amounts: (i) accrued but unpaid salary and
              accrued but unused vacation; (ii) an amount equal to three times
              the sum of (x) the Executive's base salary at the time of the
              Change in Control, or, if greater, at the time of termination of
              employment, plus (y) the target level of incentive compensation
              under Columbia's Annual Incentive Compensation Plan or any other
              short term or cash bonus incentive plans that the Executive had
              the opportunity to earn in the year in which the Change in Control
              occurred, or, if greater, the incentive compensation for the year
              in which the Change in Control occurred, (iii) a prorated portion
              of the incentive compensation that the Executive could have
              received in the year during which his/her employment is
              terminated; (iv) an amount equal to the excess of (A) the lump-sum
              actuarial equivalent of the benefits under Columbia's (or, for
              Messrs. Richard and Schwolsky, if greater under their previous
              employer's) qualified defined benefit retirement plan and
              Columbia's (or, for Messrs. Richard and Schwolsky, if greater
              under their previous employer's) non-qualified supplemental
              retirement plans that the Executive would have received if his/her
              employment had continued for three years following the date of
              employment termination (Severance Period) based on certain
              assumptions regarding service and compensation, over (B) the
              lump-sum actuarial equivalent of the Executive's actual accrued
              benefit under the qualified defined benefit plan and any
              supplemental retirement plans as of the date of termination; and
              (v) an amount equal to the sum of the additional contributions
              that would have been made or credited during the Severance Period
              by Columbia to the Executive's account(s) under each qualified
              defined contribution plan, and each non-qualified supplemental
              executive savings plan had the Executive's employment continued
              through the Severance Period. In addition, the Executive shall be
              entitled to the following benefits:(i) all unexpired and
              unexercised stock options and value sharing rights previously
              awarded to the Executive shall become immediately vested and
              exercisable, and restrictions on all restricted stock beneficially
              owned by the Executive shall lapse immediately; (ii) certain
              outplacement services; and (iii) for a period of 36 months from
              the month of termination of employment, the Executive and his/her
              covered dependents shall be entitled to all health, welfare, and
              fringe benefits provided by Columbia at the same level of benefits
              and at the same dollar cost to the Executive as is available
              generally to comparable employees of Columbia. If the aggregate
              payments and benefits provided to the Executive pursuant to the
              Employment Agreement Amendments and any other payments and
              benefits provided to the Executive which constitute "parachute
              payments" as defined in Section 280G of the Internal Revenue Code
              ("Parachute Payments") would be subject to the excise tax imposed
              by Section 4999 of the Code, then the Executive shall receive an
              additional payment (Gross-Up Payment)


                                       38
<PAGE>   39


Item 5.       Other Information (continued)

              in an amount such that after payment by the Executive of all taxes
              imposed upon the Gross-Up Payment and any interest or penalties
              imposed with respect to such taxes, the Executive retains from the
              Gross-Up Payment an amount equal to the Excise Tax imposed upon
              the payments and benefits.

              Generally, the Key Executive Agreements provide each key executive
              covered by the agreement (each, a "Key Executive") with benefits
              similar to those provided pursuant to the terms of the Employment
              Agreement Amendments, except that benefits under the Key Executive
              Agreements do not become payable by Columbia upon a voluntary
              termination (or termination without Good Reason) of employment by
              the Key Executive after the occurrence of a Change of Control.

              The Key Management Agreements provide each other key executive or
              manager covered by the agreement (each, a "Key Manager") with
              benefits similar to those provided pursuant to the terms of the
              Key Executive Agreements, except that: (i) the Coverage Period is
              limited to 24 months; (ii) the lump-sum cash severance benefit is
              an amount equal to two times the Key Manager's base salary and
              target incentive compensation; (iii) the Severance Period used to
              calculate certain benefits is limited to two years after the date
              of termination; (iv) the period for health, welfare and fringe
              benefit coverage is limited to 24 months after the month in which
              termination of employment occurred; and (v) the Key Manager is not
              entitled to receive a Gross-Up Payment; instead, Parachute
              Payments are to be reduced to the extent necessary so that no
              portion thereof is subject to Excise Tax.

              "Change of Control" in each of the Employment Agreement
              Amendments, Key Executive Agreements and Key Management Agreements
              is defined as (i) any person (as such term is used in Section
              13(d) of the Securities Exchange Act of 1934(Act)), excluding a
              corporation or other entity owned by all or substantially all of
              the stockholders of Columbia immediately prior to the transaction
              in substantially the same proportions as their ownership of stock
              of Columbia ("Person"), is the beneficial owner, directly or
              indirectly, of 25% or more of the outstanding stock of Columbia
              requiring the filing of a report with the Securities and Exchange
              Commission under Section 13(d) of the Act; (ii) a recommendation
              by the Board of approval of a purchase by any Person of shares
              pursuant to a tender or exchange offer to acquire stock of
              Columbia for cash, securities or any other consideration,
              provided, that, pursuant to the terms of the proposed tender or
              exchange offer, such Person intends to become the beneficial owner
              (as defined in Rule 13d-3 under the Act), directly or indirectly,
              of 25% or more of the outstanding stock of Columbia (calculated as
              provided in Paragraph (d) of Rule 13d-3 under the Act in the case
              of rights to acquire stock); (iii) the approval of the
              shareholders of Columbia of a merger, consolidation, liquidation
              or dissolution of Columbia, or the sale of all or substantially
              all of the assets of Columbia (Business Combination), unless,
              following such Business Combination, all or substantially all of
              the stockholders of Columbia immediately prior to such Business
              Combination beneficially own, directly or indirectly, more than
              60% of, respectively, both the outstanding shares of common stock
              and the combined voting power of the outstanding voting securities
              entitled to vote generally in the election of directors of the
              corporation resulting from such Business Combination; or (iv)
              during any period of 24 consecutive months, individuals who at the
              beginning of such period constitute the Board and any new
              directors whose election by the Board or nomination for election
              by Columbia's shareholders was approved by a vote of at least
              two-thirds of the directors then still in office who either were
              directors at the beginning of the period or whose election or
              nomination for election was previously so approved, cease for any
              reason to constitute a majority of the Board.


                                       39
<PAGE>   40


Item 5.       Other Information (continued)

              "Good Reason" in each of the Employment Agreement Amendments, Key
              Executive Agreements and Key Management Agreements is defined to
              cover the following events, provided that the executive gives
              proper notice to Columbia: (i) Columbia or an affiliate of
              Columbia requiring the executive to be based at any office or
              location more than 50 miles from the executive's current principal
              office and/or Columbia requires the executive to travel on Company
              business to a substantially greater extent than was required of
              the executive immediately prior to the date of Change in Control;
              (ii) a reduction which is more than de minimis in (A) the
              executive's annual rate of base salary or the incentive
              compensation opportunities, or (B) the long-term incentive
              compensation the executive has the opportunity to earn, determined
              in the aggregate if multiple long-term incentive opportunities
              exist; (iii) failure of Columbia to continue in effect any
              employee benefit plan, policy or arrangement, including, but not
              limited to, any retirement, 401(k) life, medical, dental,
              disability, accidental death or travel insurance plan, policy or
              arrangement in which the executive was participating immediately
              prior to the Change in Control, unless Columbia provides the
              executive with a plan or plans that provide substantially similar
              benefits, (iv) Columbia failing to require a successor entity to
              assume and agree to perform Columbia's obligations pursuant to the
              Agreement, or, with respect to the Key Executive Agreements and
              the Employment Agreement Amendments only, (v) a reduction in the
              level of the executive's positions or titles as in effect
              immediately prior to the Change in Control, or any action by
              Columbia, or any successor thereto, which results in a material
              reduction in the executive's authority, duties or
              responsibilities, or with respect to the Employment Agreement
              Amendments only, (vi) Columbia giving notice to the Executive that
              the term of such Executive's employment agreement, as amended by
              the Employment Agreement Amendments, will no longer be
              automatically extended.

Item 6.       Exhibits and Reports on Form 8-K

              Reference is made below to those exhibits which have previously
              been filed with the Commission. Exhibits so referred to are
              incorporated by reference.

               Exhibit
               Number
               ------

                 3-D*      Restated Certificate of Incorporation of Columbia
                           Energy Group, amended and restated effective as of
                           June 1, 1999.

                10-BG      Form of Amendment to Employment Agreement for Oliver
                           G. Richard III, Peter M. Schwolsky and Catherine G.
                           Abbott (incorporated herein by reference to Exhibit
                           (c)(7) to Columbia's Schedule 14D-9/Amendment No. 4,
                           dated July 15, 1999).

                10-BH      Form of Change in Control Agreement for Certain Key
                           Executives (incorporated herein by reference to
                           Exhibit (c)(8) to Columbia's Schedule 14D-9/Amendment
                           No. 4, dated July 15, 1999).

              * Filed herewith


                                       40
<PAGE>   41


Item 6.       Exhibits and Reports on Form 8-K (continued)

                10-BI      Form of Change in Control Agreement for Certain Other
                           Executives and Key Managers (incorporated herein by
                           reference to Exhibit (c)(9) to Columbia's Schedule
                           14D-9/Amendment No. 4, dated July 15, 1999).

                12*        Statements of Ratio of Earnings to Fixed Charges

                27*        Financial Data Schedule

              * Filed herewith

              The following reports on Form 8-K were filed during the second
              quarter of 1999.

<TABLE>
<CAPTION>
                                  Financial
                     Item         Statements
                   Reported        Included            Date of Event            Date Filed
                   --------        --------            -------------            ----------
                   <S>            <C>                 <C>                     <C>
                       5             Yes**               April 15, 1999       April 19, 1999
                       5              No                 April 18, 1999       April 19, 1999
                       5              No              June 7 & 10, 1999        June 11, 1999
                       5              No                  June 24, 1999        June 25, 1999
</TABLE>

              ** Summary of Financial and Operational data for three months
                 ended March 31, 1999.


                                       41
<PAGE>   42


                                    SIGNATURE

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.







                                                 Columbia Energy Group
                                             -----------------------------
                                                      (Registrant)





Date: August 11, 1999                     By:   /s/ Jeffrey W. Grossman
                                             -----------------------------
                                                   Jeffrey W. Grossman
                                             Vice President and Controller
                                             (Principal Accounting Officer
                                             and Duly Authorized Officer)


                                       42