CORNING NATURAL GAS CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements 

For the Years Ended September 30, 2000 and 1999

Summary of Significant Accounting Policies

Corning Natural Gas Corporation (the Company) is a gas distribution company providing gas on a commodity and transportation basis to its customers in the Southern Tier of New York State. The Company follows the Uniform System of Accountsprescribed by the Public Service Commission of the State of New York (PSC) which has jurisdiction over and sets rates for New York State gas distribution companies. The Company's regulated operations meet the criteria and accordingly, follow theaccounting and reporting of Statement of Financial Accounting Standards No. 71 (SFAS 71) *Accounting for the Effects of Certain Types of Regulation.* The Company's financial statements contain the use of estimates and assumptions for reporting certain assets, liabilities, revenue and expenses and actual results could differ from theestimates. The more significant accounting policies of the Company are summarized below.

**Principles of Consolidation and Presentation**
The consolidated financial statements include the Company and its wholly owned subsidiary, the Corning Natural Gas Appliance Corporation. The Corning Natural Gas Appliance Corporation owns four businesses which have been established as New YorkState limited liability subsidiary corporations, as follows: Tax Center International, LLC; The Foodmart Plaza, LLC; Corning Realty Associates, LLC and Corning Mortgage, LLC. In fiscal 1999, the Corning Natural Gas Appliance Corporation completed thepurchase of Ambrose and Shoemaker Better Homes and Gardens Real Estate, which was merged into Corning Realty Associates. In fiscal 2000, Corning Mortgage, LLC was formed. There is only one month of operations in the fiscal year ended September 30, 2000.During 2000, Corning Mortgage entered into a joint venture with Choice One Lending, detailed in Note 1 (f). Hereinafter the Appliance Corporation and its limited liability subsidiary corporations are collectively referred to as "Appliance Corporation".All significant inter-company accounts and transactions have been eliminated in consolidation. The results of the Appliance Corporation are reported separately as unregulated operations in the consolidated statements of income. Shared expenses areallocated to the Appliance Corporation.

It is the Company's policy to reclassify amounts in the prior year financial statements to conform with the current years presentation.
**Property, Plant and Equipment**
Utility plant is stated at the historical cost of construction. Those costs include payroll, fringe benefits, materials and supplies and transportation costs. The Company charges normal repairs to maintenance expense. The Appliance Corporationcapitalizes the cost of appliances and the original installation to rented gas appliances. Subsequent repairs are expensed. Property and equipment acquired pursuant to the acquisitions discussed in note 2 were initially recorded at estimated fair marketvalue.
**Depreciation**
The Company provides for depreciation for accounting purposes using a straight-line method based on the estimated economic lives of property, which ranges from 3 to 55 years for all assets except utility plant. The depreciation rate used forutility plant, expressed as an annual percentage of depreciable property, was 2.7% in 2000 and 1999. At the time utility properties are retired, the original cost plus costs of removal less salvage, are charged to accumulated depreciation.
**(d) Revenue and Natural Gas Purchased**
		 The Company records revenues from residential and commercial customers based on meters read on a cycle basis throughout each month, while certain large industrial and utility customers' meters are read at the end of each month. Pursuantto the most recent rate order, capacity assignment revenue is recorded at a rate of 15% of the amount received from released capacity and is recognized upon notification of capacity release from the pipeline company while the remaining 85% is returned tocustomers through reduced gas cost. The Company secured a weather normalization clause in the last major rate filing as protection against severe weather fluctuations. This affects space heating customers and is activated when degree days are 2% greateror less than a 30 year average. As a result, the effect on revenue fluctuations in weather related gas sales is somewhat neutralized.

		 Gas purchases are recorded on readings of suppliers' meters as of the end of the month. The Company's rate tariffs include a Gas Adjustment Clause (GAC) which adjusts rates to reflect changes in gas costs from levels established in the ratesetting process. In order to match such costs and revenue, the PSC has provided for an annual reconciliation of recoverable GAC costs with applicable revenue billed. Any excess or deficiency in GAC revenue billed is deferred and the balance at thereconciliation date is either refunded to or recovered from customers over a subsequent 12-month period.

		 Real estate commissions are recognized at closing while professional services revenues are recognized as services are performed.
**Marketable Securities**
	 Marketable securities, which are intended to fund the Company's deferred compensation plan, are classified as available for sale at September 30, 2000 and 1999. Such securities are reported at fair value based on quoted market prices, withunrealized gains and losses, net of the related income tax effect, excluded from earnings, and reported as a component of accumulated other comprehensive income in stockholders' equity until realized. The cost of securities sold was determined using thespecific identification method.

	

A summary of the marketable securities at September 30, 2000 and 1999 is as follows:

Net

				Market		Cost	Unrealized	Unrealized	Unrealized

				Value		Basis	 Gains	 Losses	 Gains
2000		 $ 1,334,094 $1,135,389 $249,278 $ (50,573) $198,705

1999		 $ 1,021,696 $ 923,389 $130,511 $ (32,204) $ 98,307
**(f) Investments in Joint Venture**
Corning Mortgage, a subsidiary of The Corning Natural Gas Appliance Corporation holds a 50% equity interest in a joint venture, Choice One Lending which began operations in August, 2000. Investment by the Company in the joint venture is recordedusing the equity method of accounting. The Company's pro-rate share of the results of operations of the joint venture was a loss of $20,206 in 2000.
**(g) Inventories**
Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out basis.
**Federal Income Tax**
The Company uses the asset and liability method to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax ratesexpected to be in effect when such amounts are realized or settled. In addition, such deferred tax assets and liabilities will be adjusted for the effects of enacted changes in tax laws and rates.
**Dividends**
	Dividends are accrued when declared by the Board of Directors. Dividends declared were $598,000 or $1.30 per share in 2000 and $747,500 or $1.63 per share in 1999. Dividends paid were $598,000 or $1.30 per share in 2000 and 1999.

	Under the most restrictive long-term debt covenants, the Company may not declare or pay annual dividends except to the extent that consolidated net worth exceeds $2,000,000.
**Goodwill**
Goodwill represents the excess of purchase price over the fair value of the identified net assets of acquired businesses. Goodwill is amortized over 15 years, the estimated period of benefit, on a straight-line basis. Goodwill in excess ofassociated expected operating cash flows is considered to be impaired and is written down to fair value, which is determined based on undiscounted future cash flows.
**Accounting for Impairment**
	SFAS 121, *Accounting for the Impairment of Long-Lived Assets to be Disposed Of* establishes accounting standards to account for the impairment of long-lived assets, and certain identifiable intangibles. Under SFAS 121 the Company reviewsassets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. SFAS 121 also requires that a rate regulated enterprise recognize an impairment when regulatory assets are no longer probable ofrecovery. No impairment losses were incurred for the years ended September 30, 2000 and 1999.

 
**Comprehensive Income**
	SFAS No. 130, *Reporting Comprehensive Income*. SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Under SFAS No. 130, the Company'scomprehensive income consists of net income and net unrealized gains (losses) on securities and is presented in the consolidated statements of stockholders' equity. SFAS No. 130 requires only additional disclosures in the consolidated financial statements; it does not affect the Company's financial position or results of operations. 
**Accounting for Derivatives and Hedging Activities**
In June 1998, June 1999 and June 2000 the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 133, *"Accounting for Derivative Instruments and Hedging Activities"*, SFAS No. 137, *"Accounting for Derivative Instruments and Hedging Activities - Deferral of the**Effective Date of FASB Statement No. 133"* and SFAS No. 138, *"Accounting for Certain**Derivative Instruments**and Certain Hedging Activities, an Amendment of FASB**Statement No. 133"*. These Statements establishaccounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. TheseStatements require that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met.

	Special accounting for qualifying hedges allows a derivate's gains and losses to offset related results on the hedged item in the statement of operations, and requires that the Company must formally document, designate and assess the effectivenessof transactions that receive hedge accounting. This accounting is effective for the Company beginning in 2001. We are currently determining the impact of SFAS 133 on our consolidated results of operations and financial position. This statement should haveno impact on consolidated cash flows.

									

(**n)Revenue Recognition**
In December 1999, the Securities Exchange Commission("SEC") issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" defining revenue recognition guidelines. The Company is currently assessing the impact of theguidelines on its consolidated financial statements.

			

 
Acquisitions

	In December 1998, the Corning Natural Gas Appliance Corporation acquired a local real estate company, Ambrose and Shoemaker Better Homes and Gardens Real Estate (Ambrose and Shoemaker) for $1,636,589, including direct acquisition costs fundedthrough cash of $579,923, a $608,333 five year promissory note to the seller, and the remaining $448,333 payable over three years.

	The purchase price for this acquisition, including direct acquisition costs, was allocated to assets acquired based upon the estimated fair values, with the excess of the consideration over such estimated fair values recorded as goodwill, as follows:

							 

Property, plant and equipment			 25,000

Goodwill						 1,611,589
							 1,636,589

							 =======

	The following summarized unaudited pro forma financial information assumes the acquisition had occurred on October 1, 1999 and reflects interest expense and goodwill amortization, net of applicable taxes, related to the acquistion:

							September 30

							1999(unaudited)

Total revenues						$23,623,000

Net Income						 457,900

Basic and diluted earnings per common share 1.00

 
**Information About Operating Segments**
	The Company's reportable segments have been determined based upon the nature of the products and services offered, customer base, availability of discrete internal financial information, homogeneity of products, delivery channel and otherfactors.

	The Corning Natural Gas Corporation (the Gas Company) is a gas distribution company providing gas on a commodity and transportation basis to its customers in the Southern Tier of New York State. The Appliance Corporation sells, rents and servicesprimarily gas burning appliances. The Tax Center provides tax preparation, accounting and payroll services to approximately 1,000 clients. Corning Realty is a residential and commercial real estate business with approximately 80 agents operating in threeneighboring counties. Foodmart Plaza is a retail complex consisting of eight tenants under multi-year leases anchored by a major supermarket. Corning Mortgage is a mortgage service company working closely with the realty relationship.

	The following table reflects the results of the segments consistent with the Company's internal financial reporting process. The following results are used in part, by management, both in evaluating the performance of, and in allocating resourcesto, each of the segments.

 

 

 

 

Gas
Appliance
Tax
Corning
Foodmart
Corning
Company
Corporation
Center
Realty
Plaza
Mortgage
Consolidated
Revenue:
2000
$16,496,841 
$2,514,971 
$364,203 
$4,558,721 
$389,364 
($20,206)
$24,303,894 
1999
16,276,170
2,222,214
274,855
3,922,879
272,268
N/A
22,968,386
Net Income(Loss):(1)
2000
85,652
255,844
84,857
(33,434)
100,066
-21,533
471,452
1999
219,670
179,611
75,490
-77,289
40,466
N/A
437,948
Interest Income:
2000
1,846
94,695
N/A
N/A
N/A
N/A
96,541
1999
1,991
58,569
N/A
N/A
N/A
N/A
60,760
Interest Expense:
2000
1,081,362
16,831
1,767
78,088
73,571
7,103
1,258,722
1999
955,130
N/A
2,372
77,313
76,697
N/A
1,111,512
Total Assets:(2)
2000
23,035,108
2,150,502
188,522
2,015,860
1,311,921
N/A
28,701,913
1999
20,493,744
2,690,298
190,264
1,939,511
1,203,168
N/A
26,516,985
Depreciation and amortization:
2000
503,248
237,896
11,730
180,927
31,157
N/A
964,958
1999
503,248
237,896
11,730
180,927
31,157
N/A
964,958
Income Tax Expense:
2000
12,077
57,923
30,244
13,392
41,797
(7,706)
147,707
1999
42,835
135,369
44,846
(27,402)
26,595
N/A
222,243
(1)Before elimination of intercompany interest.

(2)Total assets include property, plant and equipment, accounts receivable, inventories, cash and other amounts specifically related to each identified segment. All other assets of the Company not specifically related to a segment as of September 30,2000 & 1999 totaled $624,599 and ($3,214) respectivially.

Interest income and expense have been displayed in the segment in which it has been earned or incurred. Segment interest expense other than the Gas Company is included within unregulated expenses in the consolidated statements of income.
**Major Customers**
	The Company has three major customers, Corning Incorporated, New York State Electric & Gas (NYSEG) and Bath Electric Gas & Water Systems (BEGWS). The loss of any of these customers could have a significant impact on the Company'sfinancial results. In addition, a significant portion of capacity assignment revenue is generated from Corning Inc. Total revenue and deliveries to these customers were as follows:

	

						Deliveries		 Revenue
					 Mcf % of Total Amount % of Total
Corning Inc.

Year ended September 30, 2000		2,135,000	27		$ 836,000	 5

Year ended September 30, 1999		2,107,000	26		$ 728,000	 4

NYSEG

Year ended September 30, 2000		2,414,000	30		$ 275,000	 2

Year ended September 30, 1999		2,518,000	31		$ 274,000	 2

BEGWS

Year ended September 30, 2000		 740,000	 9		$1,770,000	11

Year ended September 30, 1999		 691,000	 8		$1,657,000	10
Regulatory Matters

	Certain costs are deferred and recognized as expenses when they are reflected in rates and recovered from customers as permitted by SFAS 71. These costs are shown as deferred debits and other assets. Such costs arise from the traditionalcost-of-service rate setting approach whereby all prudently incurred costs are generally recoverable through rates. Deferral of these costs is appropriate while the Company's rates are regulated under a cost-of-service approach.
	In a purely competitive environment, such costs might not have been incurred or deferred. Accordingly, if the Company's rate setting were changed from a cost-of-service approach and it was no longer allowed to defer these costs under SFAS 71,certain of these assets may not be fully recoverable. However, the Company cannot predict the impact, if any, of competition and continues to operate in a cost-of-service based regulatory environment. Accordingly, the Company believes that accountingunder SFAS 71 is still appropriate.
	Below is a summarization of the Company's regulatory assets as of September 30, 2000 and 1999:
								 2000	         1999
Deferred pension and other			                         $ ---          $ 196,707

Deferred debits - accounting for income taxes		          1,016,661      1,016,661

Unrecovered gas costs				                      1,362,394           ---
Total-regulatory assets				                    $2,379,055      $1,213,368

						                    ====================

Deferred pension and other 	Approximately $0 and $84,000 of these balances represent costs in excess of the amounts currently recoverable through rates at September 30, 2000 and 1999, respectively. The PSC requires such excess costs to bedeferred. Remaining balances represent miscellaneous regulatory assets.

Deferred debits - accounting for income taxes	These amounts represent the expected future recovery from ratepayers of the tax consequences of temporary differences between the financial reporting basis and tax basis of assets and liabilities.

Unrecovered gas costs	These costs are recoverable over future years and arise from an annual reconciliation of certain gas revenue and costs (as described in Note 1).

The Company expects that its regulatory assets will be fully recoverable from customers.
**Long-Term Debt**
A summary of long-term debt at September 30, 2000 and 1999 follows:

							                	 2000               1999

Unsecured senior note - 7.9%, due serially with annual payments of

$355,000 beginning in 2006 through 2016 and $795,500 due in 2017	              $4,700,000        $4,700,000 

First mortgage bonds - 8.25%, series all due 2018, secured by

substantially all utility plant			 	                                3,100,000         3,100,000 

Unsecured senior note - 9.83%, due serially with annual payments of

$100,000 beginning in 2007 through 2015 and $700,000 due in 2016                           1,600,000          1,600,000 

Mortgage note - 8.02% monthly installments through April 2008	                  890,347             912,044 

Unsecured promissory note - 6.5% monthly installments through April 2006            128,597             146,643 

Note payable - 6.5% monthly installments through January 2004 secured

by assets of Corning Realty					                   407,796            520,128

Note payable - 7.75% monthly installments through January 2009 secured

by assets of Corning Realty				                	   395,864            447,215 	
Mortgage note payable - 9.24% monthly installments through 2010	                   102,093                  -

Note payable - at the prime rate, 9.5% at September 2000	                                   125,000                  -

Note payable - at the prime rate, 9.5% at September 2000                               	    70,000                    -

Earned out payable - 3.93% of Ambrose & Shoemaker revenues	                  284,059	            448,333
Total long-term debt					                              11,803,756       11,874,363 

Less current installments				 	                                   374,335            367,048 
Long-term debt less current installments			                             $11,429,421    $11,507,315 

								               ========     ========

The aggregate maturities of long-term debt for each of the five years subsequent to September 30, 2000 are as follows:

	2001	$374,335	2002	$394,206	2003	$ 242,681

	2004	$132,342	2005	$106,671	2006	and thereafter	$10,553,521
**Lines of Credit**
	The Company has lines of credit with local banks to borrow up to $7,500,000 on a short-term basis. Borrowings outstanding under these lines were $5,175,359 and $2,165,000 at September 30, 2000 and 1999, respectively. The maximum amountoutstanding during the year ended September 30, 2000 and 1999 was $5,175,359 and $2,840,000 respectively. The lines of credit are unsecured and payable on demand with interest at rates which range from the prime rate (9.50% on September 30, 2000) to theprime rate less 3/4%. The weighted average interest rates on outstanding borrowings during fiscal 2000 and 1999 were 7.62% and 7.24% respectively.
**Federal Income Taxes**
Federal income tax expense (benefit) for the years ended September 30 is as follows:

						 2000	 1999 		
	Utility Operations:		

	 Current				 $(142,745)	$ (86,529)

	 Deferred				    148,708	  123,251

	 Investment Tax Credits	                    6,114	      6,113
					                        12,077	     42,835

					               =======      =======

Unregulated Operations:

	 Current				 $ 117,321 	 197,244

	 Deferred		                              18,309 	 (17,836)
						    135,630	 179,408
	 Total Federal Income Tax Expense	 $ 147,707     $ 222,243

						   ======      =======

		Actual federal income tax expense differs from the expected federal tax expense (computed by applying the federal corporate tax rate of 34% to income before federal income tax expense) as follows:

				 	 2000	             1999
Expected tax expense			$210,514	$224,465

Investment tax credits			      6,114	      6,113

Other, net				   (68,921)	     (8,335)
					$147,707	$ 222,243

					 ======            ======

	The tax effects of temporary differences that result in deferred income tax assets and liabilities at September 30 are as follows:

				                                        2000		 1999
	Deferred income tax assets: 

	 Unbilled revenue				 $ 26,741		$ 21,118

	 Deferred compensation reserve		 312,661		 272,371

	 Post-retirement benefit obligations		 257,334		 202,063

	 Allowance for uncollectible accounts		   32,980 	               32,980

	 Inventories				               59,308		   32,420

	 Other				                         109,604		   18,575
	 Total deferred income tax assets		 798,628		   579,527
	Deferred income tax liabilities:

	 Property, plant and equipment, principally due to 

	 differences in depreciation	 	          2,263,177		2,215,658

	 Pension benefit obligations			 524,540		   449,707

	 Deficiency of GAC revenue billed	             329,047		     94,405

	 Other					             250,961 	               221,837
	 Total deferred income tax liabilities	          3,367,725	            2,981,607
	 Net deferred income tax liability                   $2,569,097	         $ 2,402,080

						         =======                       =======

	Beginning January 1, 2000, the regulated operations of the company became subject to state income tax. Based on the results of these regulated operations, and because of the state's prescribed method regarding how the new tax rules are to beadopted, the effect of this tax on the results of 2000 operations is immaterial.

 

 
**Pension and Other Post-retirement Benefit Plans**
	In 1997, the Company established a trust to fund a deferred compensation plan for certain officers. The fair market value of assets in the trust was $1,334,094 and $1,021,696 at September 30, 2000 and 1999, respectively, and the planliability, which is included in deferred compensation, post-retirement benefits and other credits on the balance sheet, was $919,590 and $801,091 at September 30, 2000 and 1999, respectively. The assets of the trust are available to general creditors inthe event of insolvency. 

	The Company has defined benefit pension plans covering substantially all of its employees. The benefits are based on years of service and the employee's highest average compensation during a specified period. The Company makes annual contributionsto the plans equal to amounts determined in accordance with the funding requirements of the Employee Retirement Security Act of 1974. Contributions are intended to provide for benefits attributed for service to date, and those expected to be earned in thefuture.

	In addition to the Company's defined benefit pension plans, the Company offers post-retirement benefits comprised of medical and life coverages to its employees who meet certain age and service criteria. Currently, the retirees under age 65 pay60% of their health care premium until Medicare benefits commence at age 65. After age 65, Medicare supplemental coverage is offered with Company payment on the premium. For participants who retire on or after September 2, 1992, the Company cost, asstated above, shall not exceed $150 per month. In addition, the Company offers limited life insurance coverage to active employees and retirees. The post-retirement benefit plan is not funded. The Company accrues the cost of providing post-retirementbenefits during the active service period of the employee.

	The following table shows reconciliations of the Company's pension and post-retirement plan benefits as of September 30:

				                     Pension Benefits	       Post-retirement Benefits
					     20001999	      2000		 1999						

Change in benefit obligations

Benefit obligation at beginning of year	            $7,632,638     $8,445,196            $ 893,062             $1,062,666

Service cost				 247,226          283,700                 22,852	     23,994

Interest cost			                 577,004	        541,895	      66,621	     69,986

Participant contributions			      -	             -                       51,107	     18,786

Actuarial gain (loss)			 385,698      (1,269,615                (9,868)	 ( 246,840)

Benefits paid			               (378,513)       ( 459,727)           (111,851)	   ( 84,358)

Amendments			                      -	          91,189                    -                           48,828
Benefit obligation at end of year                         $8,464,053     $7,632,638           $ 911,923                $ 893,062

				 =======================================================

Change in plan assets

Fair value of plan assets at beginning of year                   $10,528,613	  $9,658,264         $ -                       $ -

	 Actual return on plan assets			 923,389	   1,138,844             -                          -

	 Company contributions			 206,676	      191,232           60,744	        65,572

	 Participant contributions			       - 	       -	             51,107                18,786

	 Benefits paid			               (378,513)     (459,727)          (111,851)	      (84,358)
	 Benefit obligation			          $11,280,165 $10,528,613           $ -	         $ -

					 =======================================================

	 Funded status			              2,816,112	   2,864,283	(911,923)    (893,062)

	 Unrecognized actuarial loss (gain)	             (1,726,788)  (2,328,796)             (376,814  ) (407,718)

	 Unrecognized PSC adjustment		 292,427	      332,762                     -                  -

	 Unrecognized prior service cost 		 738,674        838,691                 37,978        43,403

	 Unrecognized net transition asset (obligation)    ( 286,446)    ( 325,956)	   745,250     802,250
	 Prepaid (accrued) benefit cost	           $ 1,833,979	 1,380,984             $ (505,509) $ (455,127)

				 	 =======================================================

	Weighted average assumptions as of

	 September 30, 2000 and 1999			

	 Discount rate			                 8.00%		 7.75%	  8.00%         7.75%

	 Expected return on assets			 8.00%		 8.00%

	 Rate of compensation increase	 	 5.00%		 5.00%

	For measurement purposes, a 9.5% annual rate of increase in the per capita cost of covered benefits (health care cost trend rate) was assumed for 2000. The rate is assumed to decrease gradually to 5% by the year 2013 and remain at thatlevel thereafter. A 1% increase in the actual health care cost trend would result in approximately a 3.4% increase in the service and interest cost components of the annual net periodic post-retirement benefit cost and a 3.4% increase in the accumulatedpost-retirement benefit obligation. A 1% decrease in the actual health care cost trend would result in approximately a 3.0% decrease in the service and interest cost components of the annual net periodic post-retirement benefit cost and a 3.0% decrease inthe accumulated post-retirement benefit obligation.

				 Pension Benefits	 Post-retirement Benefits
					 2000		 1999		 2000		 1999	

	Components of net periodic benefit cost	

	Service cost 			 $ 247,226	$ 285,161	$ 22,852		$ 23,994

	Interest cost 			 577,004	                  543,856	                   66,621		   69,986

	Expected return on plan assets	 (826,613)	 (764,699)	       -                               -

	Amortization of prior service		 484,642	                  100,017	                    5,425		     5,425 

	Amortization of transition obligation	 (161,247)	 ( 39,510)	  57,000		   57,000

	Amortization of PSC adjustment	   196,825	    40,335	 -		                       -

	Amortization of unrecognized actuarial

	 gain (loss)		             (1,338,600)                ( 180,288)               ( 40,772)	                (17,875)
	Net periodic benefit cost (benefit)       $ (820,763)               $( 15,128)             $(111,126  )	$138,530

				 =======================================================

	For ratemaking and financial statement purposes, pension expense represents the amount approved by the PSC in the Company's most recently approved rate case. Pension expense for ratemaking and financial statement purposes was approximately$39,000 for the years ended September 30, 2000 and 1999. The difference between the pension expense (benefit) for ratemaking and financial statement purposes, and the amount computed above has been deferred and is not included in the prepaid pension costnoted above. Such balances equal $0 and $84,000 as of September 30, 2000 and 1999, respectively.

	The PSC has allowed the Company to recover incremental cost associated with post-retirement benefits through rates on a current basis. Due to the timing differences between the Company's rate case filings and financial reporting period, aregulatory liability of $364,635 and $262,924 has been recognized at September 30, 2000 and 1999 respectively.

	
**Rentals Under Operating Leases**
	Foodmart Plaza receives income from the rental of retail store space under operating leases. The following is a schedule of minimum future non-cancellable rentals (excluding amounts representing executory costs such as taxes, maintenance andinsurance) of operating leases as of September 30, 2000:

					2001	$210,756

					2002	 145,141

					2003	 6,400

	 

	Total minimum future rentals		$362,297

						 ======

	All leases contain renewal options at the end of their respective lease terms.

 

 
**(10)	Commitments**
The Company has agreements with seven pipeline companies providing for pipeline capacity for terms that extend through 2006. These agreements require the payment of a demand charge for contracted capacity at Federal Energy Regulatory Commissionapproved rates. Purchased gas costs incurred under these pipelines capacity agreements during 2000 and 1999 amounted to $3,759,627 and $3,599,300, respectively. The Company also has short-term gas purchase agreements averaging three months in length, withprices tied to various indices. The Company does not anticipate these agreements to be significantly in excess of normal capacity requirements.