Letter to Shareholders

    It appears that New York State has turned the economic corner and is finally
 headed uphill again.  A new, energized state government with a revised view
 of business and taxes has made real strides to improve the state's economic
 climate.  Taxes and worker's compensation insurance costs have been cut,
 business expansion and job development is the order of the day while
 unemployment and welfare costs have declined.  The City of Corning and the
 Southern Finger Lakes region in general are participants in this revival.
    In the past several years the region surrounding Corning has developed into
 a major shopping hub and tourist center.  Major initiatives are underway to
 vastly enrich and expand the tourist market.  Equally as important to our
 Company are the many sizable business expansion projects that are now in
 various stages of construction and development.  So much is going on, in
 fact, that two sections of this report are devoted to outlining these
 developments.  While the economy of our service territory has been some-
 what stagnant in the past decade, we have been relatively successful in ex-
 panding our markets by building pipelines to adjacent villages,  connecting
 to schools, residences and businesses.  These major new local developments
 will bring new plants, businesses and residential construction into our
 back yard without major construction expenditures on our part.
    As difficult as it has been for the Company to develop new revenue sources,
 we have been able to sustain a moderate level of growth in our customer
 base and in net earnings while maintaining a stable, reasonable rate
 structure.  The year ended September 30, 1997 proved to be our most
 successful year to date, producing earnings of $1.64 per share.  Dividends
 paid of $1.28 per share brought our payout ratio down to a more favorable
 78 percent allowing for an increase in equity to $11.32 per share.  It is
 important to note the Company has been able to capitalize on various in-
 centive mechanisms along with continued good performance by the Appliance
 subsidiary to achieve this level of earnings.  For example, the Company
 increased its capacity assignment revenues by one third in the past year to
 $1.6 million thus returning nearly $1.4 million to customers through
 reduced rates while improving pre-tax earnings by $242,000.
    Serious ongoing efforts have been made throughout the past several years to
 reduce the gas lost on the system which can create large expenses.  We have
 aggressively been upgrading electronic gas measurement equipment at all
 major delivery points and have completed a program to install temperature
 correcting meters wherever meters are located outdoors.  During the year we
 purchased a computerized, electronic meter tester which will allow us to
 adjust our meters with pinpoint accuracy.  We have stepped up our progam
 to detect leakage and ititiate repairs.  These efforts have resulted in lower
 level of gas lost on the system.  Additionally, this accomplishment has
 also increased gross earnings due to an incentive mechanism that the state
 initiated several years ago.
    The Company's wholly owned Appliance Subsidiary also contributed $222,000
 to consolidated net earnings.  While this is not quite up to the level of the
 prior year, we are well positioned for growth in 1998.  Freestanding gas
 fireplace units and insert fireplace units are extremely popular with our
 customers.  All three of our stores' display areas have been recently
 redesigned to emphasize gas fired fireplaces.  The rental business remains
 strong with continued growth in the rental of water treatment equipment.

    Utility companies in New York State remain a prime source of tax revenue
 collection.  In fiscal 1997 the Company paid a total of $2,400,000 in
 various state and federal taxes.  Taxes on property and the gross revenue
 tax are the primary sources of the overall burden.  The good news is that
 the state has finally agreed to gradually reduce the 3.5 percent gross
 revenue tax down to 2.5 percent by January 1, 2000.  There are ongoing
 discussions at the state capital that this reduction is not as progressive
 as it should be if the state is toachieve its goal of significantly
 reducing energy costs in order to improve its business development agenda.
 Legislation has also been enacted which will eventually result in a
 decrease in property taxes. 
    Late in September, 1997, the Company completed a long-term debt financing
 in the amount of $4.7 million.  These funds were obtained as a senior note
 with interest at 7.9 percent over a 20 year term.  This financing allowed
 the Company to reduce short-term debt in the amount of $3.1 million and to
 retire a 10 percent bond with a balance of $1.6 million.  Savings of over
 $200,000 were achieved on the bond retirement while the entire package
 served to strengthen the capitalization structure.
    While legislators, politicians and consumers across the nation and
 particularly in New York voice their concern regarding energy costs, our
 rates continue to be competitive.  It is true that regulated energy utility
 rates are generally high in New York State, particularly electric costs,
 and that affirmative action needs to be taken to reduce these costs.  This
 is not necessarily true for natural gas rates charged by many of the New
 York utility companies.  According to a recent American Gas Association
 study, retail prices for natural gas for all consuming sectors were on
 average 18 percent lower in 1996 than in 1987, when the effects of
 wellhead price deregulation began to appear.  The wellhead price of natural
 gas increased only slightly during the past decade, from $2.21 per thousand
 cubic feet in 1987 to $2.24 in 1996, although volatility during that period
 was significant.  The average retail price for the typical residential
 consumer in Corning's service territory was $6.15 per Mcf five years ago,
 in December 1992, compared with rates of only $5.99 per Mcf going into
 the winter of 1997-8.  The Company's rate structure positions us to compete
 for our residential and commercial business and to maintain our industrial
 loads in this new arena of deregulation.

    Our record of paying dividends to shareholders extends to 45 years of
 consecutive quarterly payments with the February, 1998 dividend.  This
 payment of 32.5 cents per common share brings the annualized payout to
 $1.30 per share.  Once again, we recognize and appreciate the work and
 dedication of our team of employees who pull together each day to produce
 quality results and satisfied customers.  We all look forward with
 enthusiasm toward the completion of the many exciting projects underway in
 the Corning area which will provide our Company with an increased and more
 viable base upon which we will build our future. 

Thomas K. Barry
Chairman of the Board,
President & CEO