<PAGE>

                                    FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


/x/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended   September 30, 1998   Commission file number:  1-7196

                         CASCADE NATURAL GAS CORPORATION
             (Exact name of Registrant as specified in its charter)

          Washington                                91-0599090
          ----------                                ----------
(State or other jurisdiction of                  (I.R.S. Employer
incorporation or organization)                   Identification No.)

222 Fairview Avenue North                         (206) 624-3900
         ------------------                       --------------
         Seattle, WA  98109                      (Registrant's telephone number
(Address of principal executive offices)          including area code)


           Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class                    Name of Each Exchange on which Registered
-------------------                    -----------------------------------------
Common Stock, Par Value $1 per Share           New York Stock Exchange
Preferred Stock Purchase Rights                New York Stock Exchange

Securities registered pursuant to section 12(g) of the Act:   None

         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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X

         The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant as of the close of business on November
30, 1998, was $200,092,850

         Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

            Title                                          Outstanding
Common Stock, Par Value $1 per Share          11,045,095 as of November 30, 1998

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's definitive proxy statement for its 1999
Annual Meeting of Shareholders are incorporated by reference into Part III,
Items 10, 11, 12, and 13.
<PAGE>

                         CASCADE NATURAL GAS CORPORATION
      ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K
                  For the Fiscal Year Ended September 30, 1998

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                            Page Number
                                                                                            -----------
<S>                                                                                         <C>
Part I
         Item  1 - Business                                                                       3
         Item  2 - Properties                                                                     9
         Item  3 - Legal Proceedings                                                             10
         Item  4 - Submission of Matters to a Vote of Security Holders                           10
         Executive Officers of the Registrant                                                    11

Part II
         Item  5 - Market for Registrant's Common Equity and
                           Related Stockholder Matters                                           12
         Item  6 - Selected Financial Data                                                       13
         Item  7 - Management's Discussion and Analysis of Financial
                           Condition and Results of Operations                                   15
         Item  7a- Quantitative and Qualitative Disclosures about Market Risk                    23
         Item  8 - Financial Statements and Supplementary Data                                   24
         Item  9 - Changes in and Disagreements With Accountants on
                           Accounting and Financial Disclosure                                   44

Part III
         Item 10 - Directors and Executive Officers of the Registrant                            44
         Item 11 - Executive Compensation                                                        44
         Item 12 - Security Ownership of Certain Beneficial Owners
                           and Management                                                        44
         Item 13 - Certain Relationships and Related Transactions                                44

Part IV
         Item 14 - Exhibits, Financial Statement Schedules and
                           Reports on Form 8-K                                                   45

Signatures                                                                                       46

Index to Exhibits                                                                                47
</TABLE>


                                          2
<PAGE>

ITEM 1. BUSINESS.

GENERAL

         Cascade Natural Gas Corporation (Cascade or the Company) was
incorporated under the laws of the state of Washington on January 2, 1953. Its
principal business is the distribution of natural gas to customers in the states
of Washington and Oregon. Approximately 18% of its gas distribution revenues are
from the state of Oregon.

         At September 30, 1998, the Company had 142,645 residential customers,
25,415 commercial customers, 436 firm industrial customers and 20 traditional
interruptible customers, all of which are classified as core customers. In
addition, there were 177 non-core customers. In the twelve month periods ended
September 30, 1998 and September 30, 1997, residential and commercial customers
accounted for 62% and 64% of the operating margin, and 15% and 20% of the total
gas deliveries respectively. The non-core customers (including transportation
service) provided the remaining operating margin and throughput.

STATE REGULATION

         The Company's rates and practices are regulated by the Washington
Utilities and Transportation Commission (WUTC) and the Oregon Public Utility
Commission (OPUC).

         Cascade's gas supply contracts provide for annual review of gas prices
for possible adjustment. To the extent that prices are changed for core
customers, Cascade is able to pass the effect of such changes, subject to
regulatory review, to its customers by means of a periodic purchased gas cost
adjustment (PGA) in each state. Gas price changes occurring between times when
PGA rate changes become effective are deferred for pass through in the next PGA.
Effective December 1998, with respect to such gas supplies delivered to Oregon
customers, 67% of the cost changes between PGA effective dates are so deferred.
The remaining 33% (increase or decrease) is absorbed by the Company.

         The Company is also subject to state regulation with respect to
integrated resource planning, and its most recent update of its Integrated
Resource Plan (IRP) was filed in 1997 with both the WUTC and the OPUC. The IRP
shows the Company's plan for the best set of supply and demand side resources
that minimizes costs and has acceptable levels of deliverability risk over the
twenty-year planning horizon. The IRP also sets forth possible growth scenarios
for core customers and throughput for a twenty-year period. In addition, the IRP
sets forth the Company's demand side management goals of achieving certain
conservation levels in customer usage.

         The IRP also sets forth the Company's supply side management plans
regarding transportation capacity and gas supply acquisition over a twenty-year
period. The Company develops updates of the IRP every two years. These updated
documents take into account input solicited from the public and the WUTC and
OPUC staffs. While the filing of the IRP with both commissions gives the Company
no advance assurance that its acquisitions of pipeline transportation capacity
and gas supplies will be recognized in rates, management believes that the
integrated resource planning process benefits the Company by giving it the
opportunity to obtain input from regulators and the public concurrently with
making these important strategic decisions. Until the Company receives final
regulatory approval of these decisions in the context of the rate making
process, the Company cannot predict with certainty the extent to which the
integrated resource planning process will affect its rates.


                                     3
<PAGE>

NATURAL GAS SUPPLY

         The majority of Cascade's supply of natural gas is transported via
Williams Gas Pipelines - West (Williams), formerly Northwest Pipeline
Corporation. Williams owns and operates a transmission system extending from
points of interconnection with El Paso Natural Gas Company and Transwestern
Pipeline Company near Blanco, New Mexico through the states of New Mexico,
Colorado, Utah, Wyoming, Idaho, Oregon and Washington to the Canadian border
near Sumas, Washington. Natural gas is transported north from the Colorado and
New Mexico area, and south from British Columbia, Canada. The Company is also a
shipper on the Pacific Gas and Electric Gas Transmission Northwest (PG&E GT NW)
system. PG&E GT NW owns and operates a gas transmission line that connects with
the facilities of the Alberta Natural Gas Company, Ltd. at the international
border near Kingsgate, British Columbia and extends through Washington and
central Oregon into California.

         Presently, baseload requirements for Cascade's core market group are
provided by six major gas supply contracts with various expiration dates from
1999 through 2008 and totaling 714,830 therms per day. Approximately 93% of the
gas supplied pursuant to the contracts is from Canadian sources. The remainder
is domestic. These contracts are supplemented by various service agreements to
cover periods of peak demand including three storage agreements. One with
Williams extends to October 31, 2014 and provides for 165,950 therms per day and
a maximum, renewable inventory of 5,973,780 therms. The second with the
Washington Water Power Company (WWP) has a primary term ending April 30, 2001
and entitles Cascade to receive up to 150,000 therms per day and a maximum,
renewable inventory of 4,800,000 therms. A third contract, also with Williams
for liquefied natural gas (LNG) storage is effective through October 31, 2014.
Under this LNG agreement, Cascade is entitled to receive up to 600,000 therms
per day to a maximum inventory of 5,622,000 therms. In addition to withdrawal
and inventory capacity, Cascade maintains a corresponding amount of firm
transportation from the storage facility to the city gate for each of these
agreements.

         In addition to underground and LNG storage, Cascade has entered into
contracts with two of its major industrial customers whereby each customer
agrees to switch to alternate fuel allowing Cascade to reduce firm deliveries to
that customer. Cascade then takes the end-user's firm gas supply and pipeline
capacity to serve its core markets. In return, Cascade reimburses the end-user
for the cost of its alternate fuel and pipeline capacity. Since the end-user is
also a distribution customer of Cascade, the supply is already being delivered
to Cascade's system and is merely diverted to core customers, allowing for even
greater accommodation of late day demand spikes. Because the end-user's response
is dictated by contract and firm gas supply and firm pipeline capacity is
involved, this type of resource is highly flexible and reliable. These peak
shaving agreements which expire in 2014, entitle Cascade to call on 650,000
therms per day up to a seasonal total of 6,000,000 therms. However, Cascade may
explore opportunities to market one of these agreements to potential third
parties during the upcoming year.

         During 1998, Cascade purchased approximately 79% of its gas supplies
from firm gas supply contracts and 21% from 30-day spot market contracts. In
addition, 908.3 million therms of customer purchased supplies were transported
through Cascade facilities.

         Cascade's cost of gas depends primarily on the prices negotiated with
producers and brokers, coupled with the cost of interstate and Canadian pipeline
transportation. Currently core gas is purchased primarily on fixed contracts.
Management believes that this, together with use of storage volumes at a value
determined at the time of injection, provides Cascade with the ability to
mitigate the effects of short term, unexpected spikes in the market price of
natural gas.


                                     4
<PAGE>

OREGON GAS COST ADJUSTMENTS

         Prior to December 1998, in Oregon Cascade was subject to an 80/20%
sharing mechanism for changes in the commodity cost of gas supplies. If actual
commodity gas prices were higher or lower than predicted in the PGA filing, 80%
of the incremental change was passed through to core customers in rates while
Cascade kept or absorbed the remaining 20%. Coupled with the 80/20 sharing was
an Earnings Review Test. Cascade's ability to adjust rates to recover higher
than predicted gas costs was limited to the extent that adjusted operating
results during the relevant period exceeded rate of return ceilings calculated
by the staff of the OPUC. For purposes of the test, adjustments, such as one to
impute normal rather than actual weather, were made to operating results,
consequently limitations on gas cost recovery could be imposed even when actual
earnings were lower than staff's ceiling. Effective December 1st, the Company
and OPUC staff agreed to drop the Earnings Review Test and modify the sharing
mechanism for commodity gas cost changes to a 67/33% split.

         Most of Cascade's current gas supply portfolio for Oregon core
customers is comprised of gas supplies that have a fixed commodity price,
therefore management believes that there will be little risk or opportunity for
the Company under the 67/33% sharing arrangement during the coming year.

         For a description of the customer rate reduction settlement effective
September 1, 1997, see "Regulatory Matters" under Item 7.

FEDERAL ENERGY REGULATORY COMMISSION (FERC) MATTERS

         Cascade is not subject to regulation by the FERC, however FERC actions
can affect the amounts Cascade pays to interstate pipeline companies for
interstate deliveries of natural gas supplies. Several FERC issues are pending
before FERC, or are on appeal before the U.S. Court of Appeals, that may affect
the prices Cascade pays. Since the policies of the WUTC and OPUC provide for
100% pass through of costs subject to FERC regulation, the Company expects that
the final resolution of pending issues will not affect its net earnings.

CURTAILMENT PROCEDURES

         In previous heating seasons, cold weather has required Cascade to
significantly curtail deliveries to its interruptible customers. Cascade has not
curtailed any firm customers, except under force majeure provisions. Cascade's
tariffs effective in Washington and Oregon allow for curtailment of
interruptible services, which are provided at rates lower than for firm
services. In the event of curtailment by Cascade of firm service due to force
majeure, Cascade's tariffs provide that it shall not be liable for damages to
any customer for failure to deliver gas curtailed in accordance with the
provisions of the tariffs. The tariffs provide for appropriate adjustment of the
monthly charges to firm customers curtailed by reason of an insufficient supply
of gas.

TERRITORY SERVED AND FRANCHISES

         The population of communities served by Cascade totals approximately
780,000. Cascade has all the franchises necessary for the distribution of
natural gas in the communities it serves in Washington and Oregon. Under the
laws of those states, incorporated municipalities and counties may grant
non-exclusive franchises for a fixed term of years conferring upon the grantee
certain rights with respect to public streets and highways in the location,
construction, operation, maintenance and removal of gas distribution facilities.

         In the opinion of Cascade's management, none of its franchises contain
any restrictions or requirements which are of a materially burdensome nature,
and such franchises are adequate for the


                                    5
<PAGE>

conduct of Cascade's present business. Franchises expire on various dates 
from 1999 to 2065. Management has not incurred significant difficulties in 
renewing franchises when they expire and does not expect any significant 
problems in the future.

CUSTOMERS

         Residential and commercial customers principally use natural gas for
space heating and water heating. This market is very weather-sensitive. See
"Seasonality," below.

         Agreements with Cascade's principal industrial customers are for fixed
terms of not less than one year and provide for automatic extension from year to
year unless terminated by either party on at least 30-days' notice.

         The principal industrial activities in Cascade's service area include
the production of pulp, paper and converted paper products, plywood, chemical
fertilizers, industrial chemicals, cement, clay and ceramic products, textiles,
refining of crude oil, producing and forming of aluminum, the processing and
canning of many types of vegetable, fruit and fish products, processing of milk
products, meat processing and the drying and curing of wood and agricultural
products, and electric power generation. Electric generation customers represent
a significant portion of industrial revenues. The demand for gas fired
generation is driven in part by the availability of hydroelectric generation.

SEASONALITY

         Weather is an important factor affecting gas revenues because of the
large number of customers using gas for space heating. For the fiscal year ended
September 30, 1998, 67% of operating revenues and 97% of earnings from
operations were derived from the first two quarters (October 1997 through March
1998). Because of the seasonality of space heating revenues, Cascade believes
financial results for interim periods are not indicative of results to be
expected for an entire year. To mitigate the seasonality of space heating
revenues, the Company pursues a marketing strategy of encouraging the
installation of gas water heaters by customers, since they are not as affected
by weather conditions.

COMPETITIVE CONDITIONS

         Cascade operates in a competitive market for natural gas service.
Cascade competes with residual fuel oil and other alternative energy sources for
industrial boiler uses, and oil and electricity for residential and commercial
space heating, and electricity for water heating.

         Competition is primarily based on price. For residential and commercial
space heating use, Cascade continues to maintain a price advantage over oil in
its entire service territory and has an advantage over electricity in the vast
majority of its territory. In the remaining areas of its service territory
served by public electric utilities with their own hydro power supply, Cascade
is almost equal in cost with respect to electricity furnished by those utilities
for space heating and water heating uses. In addition, gas enjoys the advantage
of being the preferred energy choice by builders for new construction.

         Historically, the large volume industrial market was very sensitive to
price fluctuations between the comparable cost of natural gas and alternate
fuels, principally residual fuel oil used in boiler applications. However, the
advent of open access transportation and the restructuring of gas supply and
contractual provisions with these customers have improved the Company's
competitive position. From December 1991 through January 1992 and again from
December 1992 through May 1994, except for a brief period in June 1993, residual
fuel oil prices were lower than natural gas, but Cascade did not experience any
significant loss of sales to alternate fuels during those periods.


                                     6
<PAGE>

         In addition to multiple alternative fuels, the Company competes with
other sellers of natural gas because of the potential for bypass of the
Company's facilities. Bypass refers to actual or prospective customers who
install their own facilities and connect directly to an upstream pipeline and
thereby "bypass" the distribution company's service. The Company has experienced
bypass but has also experienced success in offering competitive rates to reduce
economic incentives to bypass.

         The Bonneville Power Administration ( BPA ) is a major supplier of
hydro-electric power in the Pacific Northwest including Cascade's service area.
BPA significantly influences the electric rates of all classes of customers
including those applications in direct competition with natural gas marketed by
Cascade.

ENVIRONMENTAL

         The Company is subject to federal and state environmental regulation of
its operations and properties through the United States Environmental Protection
Agency, the Washington Department of Ecology and the Oregon Department of
Environmental Quality. Such regulation may, at times, result in the imposition
of liability or responsibility for the clean up or treatment of existing
environmental problems or for the prevention of future environmental problems.

For detailed descriptions of specific environmental issues, see "Environmental
Matters" under Item 7.

CAPITAL EXPENDITURES

         Capital expenditures for fiscal 1999 are budgeted at $23.5 million.
Including the 1999 budget, the Company will have spent over $150,000,000 in new
plant in the five years ending in 1999, which is roughly equal to the amount
expended during the nine year period from 1985 through 1993. Capital
expenditures are primarily used to expand the Company's distribution system to
serve its expanding customer base, as well as to increase deliverability on its
existing system to accommodate increased customer utilization.

         The Company is currently forecasting that capital expenditures will
total approximately $122,000,000 over the next five years, reflecting
expectations that growth in the number of customers will continue at a pace
similar to recent experience but lower spending on system reinforcement.
Management performs quantitative and qualitative analyses to assure that the
Company's goals and strategies are met. The overall objective is to invest
limited capital to generate the highest possible returns within the shortest
possible time, while assuming prudent risk, anticipating customer needs and
complying with the requirements of regulators.

NON-UTILITY SUBSIDIARIES

         Cascade has four non-utility subsidiaries, only two of which are
actively engaged in business at present. Cascade Land Leasing is engaged in the
servicing of loans, that were made to Cascade's gas customers to finance their
purchases of energy-efficient appliances. As of September 1997, the subsidiary
no longer makes new loans. Beginning in November 1998, CGC Resources began
serving as an entity engaged in pipeline capacity management, with the objective
of mitigating gas costs for Cascade. The subsidiaries, which in the aggregate
account for less than 1% of the consolidated assets of the Company, do not
currently have a significant impact on Cascade's financial statements.


                                      7
<PAGE>

PERSONNEL

         At September 30, 1998, Cascade had 481 employees. Of the total
employees, 218 are represented by the International Chemical Workers Union. The
present contract with the union extends to April 1, 1999, and thereafter until
terminated by either party on sixty days' notice. As of September 30, 1998,
three Company executives including the president accepted an early retirement
offer. The Company does not intend to replace these positions, but has instead
restructured management to cover the vacated areas of responsibilities.






















                                    8
<PAGE>

Historical Summary of Operating Statistics
 Fiscal Years Ended September 30

<TABLE>
<CAPTION>

                                                          1998           1997           1996           1995           1994
<S>                                                   <C>            <C>            <C>              <C>            <C>
      
 Natural Gas Deliveries to Customers
(thousands of therms)
      Residential                                       106,454        110,137        101,779         93,524         83,912
      Commercial                                         99,879        107,310        103,433        101,145         95,695
      Industrial and other                            1,124,127        851,357        834,363        768,537        666,698
                                                   ------------   ------------   ------------   ------------     ----------
                                                      1,330,460      1,068,804      1,039,575        963,206        846,305
                                                   ------------   ------------   ------------   ------------     ----------
 Average Number of Customers
      Residential                                       142,537        134,857        127,089        119,633        111,055
      Commercial                                         25,409         24,682         23,741         22,755         21,794
      Industrial and other                                  597            500            482            462            447
                                                   ------------   ------------   ------------   ------------     ----------
                                                        168,543        160,039        151,312        142,850        133,296
                                                   ------------   ------------   ------------   ------------     ----------

 Total Customers at End of Year                         168,693        160,247        152,116        143,372        134,823

 Average Annual Therm Usage per Customer
      Residential                                           747            817            801            782            756
      Commercial                                          3,931          4,348          4,357          4,445          4,391
      Industrial and other                            1,882,960      1,702,714      1,731,044      1,663,500      1,491,494

 Heating Degree Days (normal is 5,669)                    5,031          5,525          5,620          5,607          5,301

 Daily Sendout (thousands of therms)
      Peak day for the year                               5,802          4,832          4,863          3,955          3,341
      Average day for the year                            3,645          2,928          2,840          2,639          2,319

 Employees at End of Year                                   481            484            478            479            473

 Customers Per Employee at End of Year                      351            331            318            299            285
</TABLE>

ITEM 2. PROPERTIES.

         At September 30, 1998, Cascade's utility plant investments included
approximately 4,250 miles of distribution mains ranging in diameter from two
inches to sixteen inches, 240 miles of transmission mains ranging in diameter
from two inches to sixteen inches and 2,741 miles of service lines.

         The distribution and transmission mains are located under public
property such as streets and highways or on private property with the permission
or consent of the individual owner.

         Cascade owns at present twenty-two buildings used for operations,
office space and warehousing in Washington and eight such buildings in Oregon.
It leases an additional five commercial offices. Cascade considers its
properties well maintained and in good operating condition, and adequate for
Cascade's present and anticipated needs. All facilities are substantially
utilized.


                                       9
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

         The information under "Environmental Matters" in Item 7 is incorporated
herein by reference.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.


























                                    10
<PAGE>


EXECUTIVE OFFICERS OF THE REGISTRANT

The Executive Officers of the Company, as of December 1, 1998, are as follows:

<TABLE>
<CAPTION>

                                                                                                 Year
                                                                                                 Became
Name                                        Office                              Age              Officer
--------------------------------------------------------------------------------------------------------
<S>                                 <C>                                         <C>              <C>
W. Brian Matsuyama                  Chairman of the Board,
                                    President and
                                    Chief Executive Officer                     52               1987

Jon T. Stoltz                       Senior Vice President -
                                    Planning, Regulatory
                                    & Consumer Affairs                          51               1981

J. D. Wessling                      Senior Vice President - Finance
                                    and Chief Financial Officer                 55               1995

Larry E. Anderson                   Vice President -
                                    Operations                                  50               1995

King C. Oberg                       Vice President -
                                    Gas Supply                                  57               1993

James E. Haug                       Controller and Chief
                                    Accounting Officer                          49               1981

Larry C. Rosok                      Vice President - Human Resources
                                    and Corporate Secretary                     42               1995
</TABLE>

         None of the above officers is related by blood, marriage or adoption to
any other of the above named officers. Except as discussed below, each of the
above named officers has been employed by the Company in a management capacity
for at least the past five years. None of the above officers hold directorships
in other public corporations. All officers serve at the pleasure of the Board of
Directors.

         J. D. Wessling was employed by the Company on January 6, 1994 as
Director-Finance. From 1989 through 1993, he was chief financial officer for a
retail drug chain based in Phoenix, Arizona. From 1986 to 1989, he was chief
financial officer of a computer distribution company. Prior to that, Mr.
Wessling spent twelve years in the oil and gas industry, seven of which were
with Atlantic Richfield Company where he held various financial positions.


                                     11
<PAGE>

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Common Stock is traded on the New York Stock Exchange under the
symbol CGC. The following table states the per share high and low sales prices
of the Common Stock.

<TABLE>
<CAPTION>
                                        Fiscal 1998                 Fiscal 1997
                                        -----------                 -----------
              Quarter               High           Low          High            Low
              -------               ----           ---          ----            ---
<S>                               <C>            <C>          <C>              <C>
           December 31               19           16-1/2       17-3/8          15-5/8
           March 31               18-9/16         15-1/2       17-1/8          15-1/2
           June 30                17-3/16        15-5/16         17            15-1/4
           September 30            16-1/2         14-5/8      17-11/16         15-7/8
</TABLE>

         At November 30, 1998, there were approximately 7,930 holders of the
Common Stock. The following table shows for the periods indicated the dividends
paid per share on the Common Stock.

<TABLE>
<CAPTION>

                                        Fiscal          Fiscal
                   Quarter               1998            1997 
                   -------               ----            ----
<S>                                  <C>             <C>
                 December 31         $      0.24     $      0.24
                 March 31            $      0.24     $      0.24
                 June 30             $      0.24     $      0.24
                 September 30        $      0.24     $      0.24
</TABLE>


                                     12
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>

(dollars in thousands except per share data)

                                                  Year Ended       Year Ended          Nine Months             Twelve Months
                                                    Sep 30            Sep 30           Ended Sep 30           Ended December 31
                                                    ------            ------           ------------           -----------------
                                                     1998              1997               1996              1995             1994
<S>                                               <C>              <C>                 <C>               <C>             <C>
STATEMENTS OF OPERATIONS:

 Operating Revenues                                  189,656           195,786           127,665           182,744          192,410
 Less: Gas Purchases                                  97,382           104,342            69,679           102,858          118,083
   Revenue Taxes                                      12,037            12,430             8,420            11,480           11,500
                                                  ----------       -----------         ---------         ---------       ----------
 Operating Margin                                     80,237            79,014            49,566            68,406           62,827
                                                  ----------       -----------         ---------         ---------       ----------
 Cost of Operations:
   Operating expenses                                 37,310            35,670            25,058            30,818           30,202
   Depreciation and amortization                      13,470            13,416             9,362            11,733           10,921
   Property and payroll taxes                          4,420             3,989             3,181             4,051            4,039
                                                  ----------       -----------         ---------         ---------       ----------
                                                      55,200            53,075            37,601            46,602           45,162
                                                  ----------       -----------         ---------         ---------       ----------
 Earnings From Operations                             25,037            25,939            11,965            21,804           17,665
                                                  ----------       -----------         ---------         ---------       ----------
 Nonoperating Expense (Income):
   Interest                                           10,132             9,436             7,459             9,938            8,090
   Interest charged to construction                     (550)             (532)             (569)             (394)            (203)
                                                  ----------       -----------         ---------         ---------       ----------
                                                       9,582             8,904             6,890             9,544            7,887
   Amortization of debt issuance expense                 605               612               459               606              593
   Other                                                (388)             (467)               (2)             (586)             (80)
                                                  ----------       -----------         ---------         ---------       ----------
                                                       9,799             9,049             7,347             9,564            8,400
                                                  ----------       -----------         ---------         ---------       ----------

 Earnings Before Income Taxes                         15,238            16,890             4,618            12,240            9,265
 Income Taxes                                          5,694             6,263             1,606             4,508            3,505
                                                  ----------       -----------         ---------         ---------       ----------

 Net Earnings                                          9,544            10,627             3,012             7,732            5,760
 Preferred Dividends                                     497               510               393               539              558
                                                  ----------       -----------         ---------         ---------       ----------
 Net Earnings Available to
   Common Shareholders                             $   9,047         $  10,117         $   2,619         $   7,193        $   5,202
                                                  ----------       -----------         ---------         ---------       ----------
                                                  ----------       -----------         ---------         ---------       ----------
 Common Stock Outstanding (thousands of shares):
   End of year                                        11,045            10,967            10,787             9,144            8,912
   Weighted Average (as restated)                     11,000            10,842             9,249             8,997            8,716


 Net Earnings per Common Share                    ----------       -----------         ---------         ---------       ----------
   (Basic and diluted)                             $    0.82         $    0.93         $    0.28         $    0.80        $    0.60
                                                  ----------       -----------         ---------         ---------       ----------
</TABLE>

 
                                       13
<PAGE>

Item 6. Selected Financial Data. (continued)

<TABLE>
<CAPTION>

(dollars in thousands except per share data)

                                                                          At September 30                      At December 31
                                             -------------------------------------------------------  ------------------------------
                                                   1998               1997               1996               1995               1994
<S>                                          <C>                 <C>           <C>                    <C>                 <C>
RETAINED EARNINGS:
  Beginning of the year                       $   4,553          $   4,901          $   9,297          $  10,806          $  14,076
  Net earnings available to
      common shareholders                         9,047             10,117              2,619              7,193              5,202
  Common dividends                              (10,597)           (10,465)            (7,015)            (8,702)            (8,472)
                                             --------------------------------  ---------------------  ------------------------------
  End of the year                             $   3,003          $   4,553          $   4,901          $   9,297          $  10,806
                                             --------------------------------  ---------------------  ------------------------------
                                             --------------------------------  ---------------------  ------------------------------
CAPITAL STRUCTURE:
  Common shareholders' equity                 $ 111,428          $ 111,662          $ 109,126          $  89,539          $  87,710
  Redeemable preferred stocks                     6,408              6,630              6,851              6,851              7,217
                                             --------------------------------  ---------------------  ------------------------------
  Debt:
      Long-term debt                            110,650            121,150            101,850            102,100            100,000
      Notes Payable and Commercial Paper          6,929             12,900                  -             32,000             14,501
      Current maturities of long-term debt       10,000                  -                  -                  -              5,000
                                             --------------------------------  ---------------------  ------------------------------
                                                127,579            134,050            101,850            134,100            119,501
                                             --------------------------------  ---------------------  ------------------------------
  Total capital                               $ 245,415          $ 252,342          $ 217,827          $ 230,490          $ 214,428
                                             --------------------------------  ---------------------  ------------------------------
                                             --------------------------------  ---------------------  ------------------------------
FINANCIAL RATIOS:
  Return on common shareholders' equity            8.11%              9.16%              7.88%              8.12%              6.00%
  Common stock dividend payout ratio                117%               103%               257%               120%               161%
  Dividends declared per common share         $    0.96          $    0.96          $    0.72          $    0.96          $    0.96
  Fixed charge coverage (before income tax
   deduction):
      Times interest earned                        2.42               2.68               2.17               2.16               2.07
      Times interest and preferred
          dividends earned                         2.26               2.48               2.01               2.00               1.87
  Book value per year-end share
          of common stock                     $   10.09          $   10.18          $   10.12          $    9.79          $    9.84
  Capitalization Ratios at End of Year
      Common shareholders' equity                 45.40%             44.30%             50.10%             39.60%             42.70%
      Preferred stock                              2.60%              2.60%              3.10%              3.30%              3.80%
      Long-term debt (incl. current)              49.20%             48.00%             46.80%             48.40%             41.40%
      Short-term debt                              2.80%              5.10%              0.00%              8.70%             12.10%
                                              --------------------------------------------------------------------------------------
                                                 100.00%            100.00%            100.00%            100.00%            100.00%
                                              --------------------------------------------------------------------------------------
UTILITY PLANT:
  Utility plant - end of year                 $ 433,568          $ 416,365          $ 383,771          $ 362,924          $ 333,863
  Accumulated depreciation                      167,356            160,332            147,599            138,831            127,806
                                              --------------------------------------------------------------------------------------
  Net plant                                   $ 266,212          $ 256,033          $ 236,172          $ 224,093          $ 206,057
                                              --------------------------------------------------------------------------------------
                                              --------------------------------------------------------------------------------------
  Capital expenditures, net
    of contributions in aid                   $  23,780          $  21,626          $  26,053          $  37,637          $  27,251
                                              --------------------------------------------------------------------------------------
                                              --------------------------------------------------------------------------------------
  Total assets                                $ 311,511          $ 307,703          $ 296,381          $ 296,898          $ 273,090
                                              --------------------------------------------------------------------------------------
                                              --------------------------------------------------------------------------------------
</TABLE>


                                        14
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION

         The following is management's assessment of the Company's financial
condition and a discussion of the principal factors that affect consolidated
results of operations for the 12-month periods ended September 30, 1998 and
1997, and the unaudited 12 month period ended September 30, 1996, and cash flows
for the 12-month periods ended September 30, 1998 and 1997, and the nine-month
transition period ended September 30, 1996. As of September 30, 1996, the
Company adopted a fiscal year ending September 30. Previously, the fiscal year
coincided with the calendar year. The September year end is more compatible with
the Company's business cycle, and provides for reporting of a heating season
(October through March) in a single fiscal year.

RESULTS OF OPERATIONS

         Results of operations for the three fiscal periods were as follows:

<TABLE>
<CAPTION>

                                                                  12 months ended September 30
  (THOUSANDS EXCEPT PER SHARE DATA)                          1998              1997              1996*
                                                         -----------       -----------       -----------
<S>                                                      <C>               <C>               <C>
Operating Revenues                                       $ 189,656         $ 195,786         $ 184,572
Less:  Gas purchases                                        97,382           104,342           101,299
       Revenue taxes                                        12,037            12,430            11,692
                                                         -----------       -----------       -----------
Operating Margin                                            80,237            79,014            71,581
                                                         -----------       -----------       -----------
Cost of Operations

 Operating expenses                                         37,310            35,670            32,776
 Depreciation and amortization                              13,470            13,416            12,389
 Property and payroll taxes                                  4,420             3,989             4,115
                                                         -----------       -----------       -----------
                                                            55,200            53,075            49,280
                                                         -----------       -----------       -----------
 Earnings from operations                                   25,037            25,939            22,301
Nonoperating Expense (Income)

 Interest                                                   10,132             9,436            10,101
 Interest charged to construction                             (550)             (532)             (753)
                                                         -----------       -----------       -----------
                                                             9,582             8,904             9,348
 Amortization of debt issuance expense                         605               612               612
 Other                                                        (388)             (467)             (142)
                                                         -----------       -----------       -----------
                                                             9,799             9,049             9,818
                                                         -----------       -----------       -----------
Earnings Before Income Taxes                                15,238            16,890            12,483
Income Taxes                                                 5,694             6,263             4,272
                                                         -----------       -----------       -----------
Net Earnings                                                 9,544            10,627             8,211
Preferred Dividends                                            497               510               524
                                                         -----------       -----------       -----------
Net Earnings Available to

 Common Shareholders                                     $   9,047         $  10,117         $   7,687
                                                         -----------       -----------       -----------
                                                         -----------       -----------       -----------

Weighted Average Shares Outstanding (as restated)           11,000            10,842             9,192

Net Earnings per Common Share - Basic and Diluted        $    0.82         $    0.93         $    0.84
                                                                                            *unaudited
</TABLE>


                                  15
<PAGE>

EARNINGS PER SHARE

         Net earnings of $0.82 per common share for fiscal 1998 were 11.8% less
than the $0.93 per common share reported for fiscal 1997. The decline in
earnings occurred primarily due to lower residential and commercial consumption
per customer. Consumption was primarily affected by warm weather as evidenced by
the 9% fewer degree days in 1998 vs. 1997.

OPERATING MARGIN

         RESIDENTIAL AND COMMERCIAL MARGIN for the fiscal years ended September
30, 1998, 1997, and 1996 were as set forth in the following table:

Residential and Commercial Operating Margins
dollars in thousands)

<TABLE>
<CAPTION>

                                              (12 months ended September 30)
                                            1998            1997            1996
--------------------------------------------------------------------------------
<S>                                     <C>             <C>             <C>
Degree Days                                5,031           5,525           5,620
Average Number of Customers
  Residential                            142,537         134,857         127,089
  Commercial                              25,409          24,682          23,741
Average Therm Usage Per Customer
  Residential                                747             817             801
  Commercial                               3,931           4,348           4,357
Operating Margin
  Residential                           $ 30,436        $ 29,725        $ 26,100
  Commercial                            $ 19,648        $ 20,523        $ 19,794
</TABLE>

         Fiscal 1998 operating margins from sales to residential and commercial
customers were down $164,000, or 0.3% compared to fiscal 1997. Several factors
contributed to this decrease, but most significant was the decline in gas
consumption resulting from warm weather during the 1997 - 1998 winter heating
season. Weather in fiscal 1998, as measured by heating degree days, was
approximately 11% warmer than normal, and 9% warmer than the prior year. The
lower gas consumption depressed margins by an estimated $4 million compared to
1997. This represents approximately $0.23 per share. Also reducing margins by
approximately $700,000 was a September 1, 1997 reduction in rates which passed
on to Oregon customers a part of the benefit of efficiencies and lower capital
costs since Cascade's last general rate case in that state.

         Other factors substantially mitigated these decreases. The 5.3% growth
in the number of customers contributed approximately $2.4 million of margin.
Monthly service charges collected from customers in Washington increased $1.00
on August 1, 1997, and again on August 1, 1998. These service charge increases
contributed approximately $1.4 million of margin. Offsetting the higher service
charges was a reduction in rates charged to industrial and other customers, as
described in subsequent paragraphs. Also affecting the comparison were more
stable wholesale prices of natural gas in fiscal 1998. During the fiscal 1997
heating season, gas supply prices spiked to abnormally high levels. Regulatory
provisions in Oregon require that the Company absorb a portion of such price
variances. During fiscal 1998, more stable prices prevailed, and the Company was
able to earn a small profit from favorable prices. The resulting difference was
an approximate $900,000 margin improvement.


                                   16
<PAGE>

         Fiscal 1997 margins from residential and commercial customers increased
by $4.4 million over the twelve months ended September 30, 1996 (fiscal 1996),
primarily due to 8,709 new customers, new state of Washington tariff rates
effective August 1, 1996, and a moderate increase in the average gas usage per
residential customer. These increases were partially offset by purchased gas
cost increases absorbed in Oregon, and by a rate reduction in Oregon to offset
the effect of lower property tax expense.

         INDUSTRIAL AND OTHER MARGIN in fiscal 1998 increased $1.4 million or
4.8% over fiscal 1997. This improvement is primarily due to greater deliveries
to the Company's electric generation customers. The demand for gas fired
generation is driven in part by the diminished availability of hydroelectric
generation, resulting from last winter's low snowfall in the northwest. The
addition of several smaller industrial customers also contributed to the
improvement in operating margins.

         The comparison of fiscal 1997 to fiscal 1996 operating margin from
industrial and other customers is affected by the charge of $1.3 million,
related to unrecovered gas cost, recorded in the June 1996 quarter. Other than
the effect of this charge, margins increased by $1.8 million, or 6.8%, for
fiscal 1997. These increases are primarily due to the addition of 20 new
customers, including service to a new cogeneration customer that began
commercial operation in June 1996.

         Partially offsetting the margin improvements from industrial customers
for each of the above mentioned years were rate reductions equivalent to the
amount derived from the higher monthly service charges to residential and
commercial customers (see "Residential and Commercial Margin"). This shift in
rate responsibility was allowed in the 1996 agreement with the WUTC in
settlement of the rate case effective August 1, 1996. The settlement provided
for a phased in shift of rate responsibility in three annual increments, on
August 1, 1996, 1997, and 1998.

COST OF OPERATIONS

         Cost of operations, which consists of operating expenses, depreciation
and amortization, and property and payroll taxes, was $55.2 million, $53.1
million, and $49.3 million for the twelve-month periods ended September 30,
1998, 1997, and 1996, respectively.

         OPERATING EXPENSES for fiscal 1998, which are primarily labor and
benefits expenses, increased by $1.7 million, or 4.7%, over fiscal 1997. Labor
expense was higher by $560,000, or 2.4%. Lower credits for labor and other
expenses charged to construction resulted in higher operating expense of
$504,000. Also included in operating expenses was a one-time charge of $369,000,
recorded in the fourth quarter, for the cost of an early retirement opportunity
that was accepted by three of the Company's executives, who retired as of
September 30, 1998. Management restructuring associated with these retirements
is expected to reduce ongoing annual salary and benefits expense by an amount
that will more than offset the one-time charge beginning in fiscal 1999.

         Fiscal 1997 operating expenses increased by $2.9 million, or 8.8%, over
fiscal 1996. Of this increase, $1.3 million is attributable to deferred
recognition of Postretirement Benefits Other than Pensions (PBOP). From January
1993 through July 1996, a portion of PBOP expenses was deferred, in accordance
with a policy statement issued by the WUTC in 1992. Concurrent with the
settlement of the Washington rate case, effective August 1, 1996, ongoing PBOP
expenses are no longer deferred, and amortization of the previously deferred
amounts is also included in operating expenses, resulting in the expense
increase. The new customer rates included recognition of this higher level of
PBOP expenses. In addition, labor costs increased by $990,000, or 4.5%, related
to normal wage and salary rate adjustments, as well as higher compensation
levels commensurate with a more highly skilled work force.


                                     17
<PAGE>

         DEPRECIATION AND AMORTIZATION for fiscal 1998 increased by $54,000 or
0.4% over fiscal 1997. Based on the results of a depreciation study conducted
during 1998, the Company implemented lower depreciation rates effective July 1,
1998. As a result, depreciation expense decreased approximately $500,000,
offsetting the effect of additions to depreciable utility plant to serve a
growing customer base. The new depreciation rates will reduce ongoing annual
depreciation expense by approximately $2 million.

         Depreciation and Amortization for fiscal 1997 increased $1.0 million or
8.3% over fiscal 1996 because of increases in utility plant.

         PROPERTY AND PAYROLL TAXES for fiscal 1998 were higher by $430,000, or
10.8%, compared to fiscal 1997. The increase is primarily related to the timing
of recognition of property tax reductions in Oregon. Beginning in 1991, and
resulting from a voter mandate in 1990 (Ballot Measure 5), Oregon property tax
rates decreased each year for a five year period. For each of those five years,
the Oregon Public Utility Commission required regulated energy utilities to
measure and defer in a regulatory liability account, the effect of the resulting
property tax reductions. Each year from 1994 to 1997, the Company reduced its
customer rates to reflect the lower tax expense incurred, and to refund the
deferred amounts to its customers. Concurrent with the rate reductions, the
Company recorded credits to property tax expense, which amortized the deferrals
in amounts equivalent to the reduced revenue. Accordingly, there was no net
effect on earnings. The amortization was substantially completed in November
1997.

         Property and Payroll Taxes for fiscal 1997 decreased $126,000, or 3.1%,
compared to fiscal 1996. Higher property taxes resulting from increases in
assets were more than offset by reductions in Oregon tax rates mandated by
Ballot Measure 5.

NONOPERATING EXPENSE (INCOME)

         Interest expense for 1998 increased by $696,000 or 7.4% from fiscal
1997. The increase is due primarily to additional amounts of outstanding
long-term debt, partially offset by lower short-term debt and lower interest
accrued on deferred gas cost balances. The comparison of other non-operating
income was affected by the inclusion in 1997 of a $140,000 gain on the sale of a
parcel of land. Additionally, there was less interest income in fiscal 1998
because of lower outstanding appliance loan amounts.

         For fiscal 1997, interest expense decreased $665,000 or 6.6% from 1996.
This is due to lower average amounts of short-term debt outstanding and lower
interest accrual on deferred gas cost balances. Other non-operating income
increased by $325,000 to $467,000. The primary factors resulting in this
increase were a 1997 gain of $140,000 on the sale of a parcel of land, compared
to a 1996 charge of $311,000 relating to valuation reserves against other
assets.

INCOME TAXES

         The decrease in the provision for federal and state income taxes is
primarily attributable to lower pre-tax earnings.


                                     18
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         The seasonal nature of the Company's business creates short-term cash
requirements to finance customer accounts receivable and construction
expenditures. To provide working capital for these requirements, the Company has
a credit commitment of $40 million from three banks, which expires in September
2000. The committed lines also support a money market facility of a similar
amount and a regional commercial paper program. A subsidiary company has a $1.5
million five-year revolving credit facility, that expires in December 2000, used
for non-regulated business, and at September 30, 1998, $650,000 was outstanding.
The Company also has $30 million of uncommitted lines from three banks.

         The balance of Medium-Term Notes at September 30, 1998 was $120
million, including $10 million in current maturities. There is remaining $30
million registered under the Securities Act of 1933 and available for issuance.
Because of the availability of short-term credit and the ability to issue
long-term debt and additional equity, management believes it has adequate
financial flexibility to meet its anticipated cash needs.

OPERATING ACTIVITIES

         Operating activities resulted in positive net cash flow of $38.6
million for fiscal 1998, compared to $46,000 for fiscal 1997. The comparison is
affected primarily by two unusual factors in fiscal 1997. First, cash flow from
operations was significantly depressed during fiscal 1997 due to higher prices
paid for gas during the 1996 - 1997 heating seasons. Gas prices during fiscal
1998 did not experience significant abnormalities.

         Also affecting operating cash flow for fiscal 1997 was the negative
effect from changes in current assets and liabilities. This was primarily
attributable to payment during the first quarter of fiscal 1997 of accounts
payable as of September 30, 1996. This accounts payable balance included amounts
from August 1996 business, which were not settled until after the end of
September. Those amounts would normally have been settled in less than 30 days.

INVESTING ACTIVITIES

         Cash used by investing activities in fiscal 1998 was $22.9 million,
compared to $21.2 million for fiscal 1997. Capital expenditures in 1998 were
lower than in 1997 primarily due to reduced expenditures on major system
reinforcement projects. The year to year comparison of cash used by investing
activities is also affected by an unusually high amount of customer
contributions in aid of construction in 1997, primarily related to expenditures
on a project completed in fiscal 1996.

         Budgeted capital expenditures for fiscal 1999 are approximately $23.5
million, which is expected to be financed approximately 65% from operating
activities, and 35% from debt financing.

FINANCING ACTIVITIES

         Cash used by financing activities in fiscal 1998 was $16.5 million,
while 1997 financing activities provided net cash of $23.7 million. The adverse
operating cash flow in 1997 described under "Operating Activities" contributed
to the need for external financing. The principal financing activity in 1997 was
the issuance of $20 million of new Medium-Term Notes, completed in September. No
external financing was done in fiscal 1998. As of the third quarter of fiscal
1998, the Company is no longer issuing new common stock to its dividend
reinvestment plan or 401(k) plan. Those plans now purchase shares on the open
market.


                                     19
<PAGE>

REGULATORY MATTERS

         For the past eight years, the Company has been able to achieve
normalized results in Oregon greater than its allowed rate of return.
Recognizing that the limitations inherent in traditional utility regulation
could, at some point, inhibit further productivity improvements in that state,
the Company, through a series of discussions with the staff of the OPUC, has
been cooperatively exploring alternatives. Ideally, both shareholders and
customers should be able to benefit fairly from efficiency gains. In September
1997, the Company decreased Oregon rates by $800,000 annually. The lower rates
share with customers some of the benefits of increased productivity and lower
capital costs since the Company's last general rate case in 1990, and can better
serve as a starting point for new methods that it may develop for sharing future
improvements. The new rates are expected to reduce net income by $556,800
annually and to produce an implied return on equity of 11.8% in Oregon.
Currently, Cascade is awaiting Oregon Commission approval of a stipulation that
has been signed by the Company and OPUC staff that will establish an Earnings
Sharing Mechanism. If the mechanism is approved, Cascade will share with its
Oregon customers one third of earning that exceed an ROE ceiling. The ROE
ceiling would be adjusted over time based upon the change in the average US
Treasury 5,7, & 10 year bond rates. Based upon current bond rates, the ROE
ceiling before any sharing would occur is 12.60%.

ENVIRONMENTAL MATTERS

         In 1995, the Company received a claim from a property owner in Eugene,
Oregon requesting that the Company assume responsibility for investigation and
possible clean up of alleged contamination on property previously owned by a
predecessor of Cascade. The predecessor company conducted a manufactured gas
business on the property from approximately 1929 to 1948. Manufactured gas
operations apparently were conducted on the site by several operators beginning
about 1907. The site was used for other purposes beginning in 1949.

         The present owner has retained an environmental consultant, which is
investigating possible contamination on the property. To date the consultant has
reported that it believes contamination is present, which contamination is
consistent with that which might originate from a manufactured gas operation.
There have been no estimates as to possible clean up costs. The consultant's
report has been furnished to the Oregon Department of Environmental Quality
(DEQ). The owner has reached agreement with the DEQ for an intergovernmental
agreement with respect to further investigation and possible remediation of
contamination on the property in the voluntary cleanup program.

         Another northwest utility, which purchased the property from Cascade in
1958, has declined to participate in the site investigation, although it may, as
a onetime owner of the property, bear some share of the responsibility as well.

         The Company has notified its insurance carriers of the claim and is
keeping them advised as to the investigation. On one occasion in the past when
hazardous materials on property formerly owned by a predecessor of the Company
required clean up, the OPUC allowed the clean up costs to be passed on to
customers. In the event the Company is responsible for clean up costs not
covered by insurance, management anticipates asking for reimbursement through
rates for such costs.

         In 1997, a property owner in Washington notified the Company that there
is contamination on his property, and that he believes it comes from a former
manufactured gas site, owned at one time by a predecessor company, which was
merged with Cascade in 1953. The State of Washington Department of Ecology has
categorized this site as a "listed site" ranked in its most hazardous category.
As a former owner of the site, the Company may be strictly liable to the State
of


                                     20
<PAGE>

Washington for investigation and remediation of the contamination of the 
site, but may share that cost or allocate all the cost to others who actually 
caused or contributed to the contamination.

         The Company has retained an environmental consultant, which is
investigating possible contamination at the site. There is evidence of
contamination at the site, and there is also evidence of an oil line across the
site property owned and operated by others, which may be a contributor to the
contamination. There have been no estimates as to possible clean up costs. The
Company is presently investigating title and other government records to
identify other potentially liable parties. The Company is notifying the other
identified parties of the contamination claims, and requesting cooperation and
financial contribution.

         In the event the Company is responsible for clean up costs not covered
by insurance, management anticipates asking the WUTC for reimbursement for such
costs, through rates charged to customers.

YEAR 2000 ISSUES

         The Company has in place an ongoing program to assess and mitigate
risks associated with technology that may not be year 2000 compliant. The
program encompasses the Company's computer-based and non computer-based
resources, as well as obtaining assurance of compliance from key suppliers and
customers with which it has business relationships.

Risks

         The Company has contacted suppliers and customers with whom it has
significant business relationships regarding year 2000 compliance. Although
response to these notifications are not yet complete, the company has not
received indication that any major third party will have significant year 2000
compliance problems that would adversely affect its ability to conduct business
with Cascade.

         The Company has not yet received assurance from interstate pipeline
companies that adequate backup measures are in place in the event of a failure
of computer systems, but management does not believe that a significant risk
exists.

         In the event that internal computer systems fail due to year 2000
compliance problems, business processes that may be interrupted include:
monitoring of gas flow and pressure; measurement of gas receipts from suppliers
and deliveries to customers; processing customer invoices; payments to
suppliers; financial measurement and reporting; internal and external
communications; payroll processing; and various other administrative functions.
Management has not developed estimates of losses that may be incurred in the
event of a failure of one or more of these systems.

         Cascade presently does not anticipate the occurrence of major
interruptions in its business as a result of year 2000 issues. However, it is
possible that disruptions in such services as telecommunications, banking, or
transportation may occur and may have a negative effect on the Company's
operations, business and financial condition.

State of Readiness

         In 1996 the Company began identifying which of its computer systems
required modification or replacement to achieve year 2000 compliance. Management
believes that substantially all mission critical systems have been identified.
Approximately 95% of the Company's personal computers, and embedded building and
office systems have been modified as necessary, tested, and verified to be
compliant. Various vendor based software has been or will be upgraded or
replaced, including financial, meter reading, and SCADA (the system that
monitors natural gas flow through the


                                     21
<PAGE>

distribution system) systems. This work is approximately 30% complete. 
Critical internally developed software, including billing, cash receipts 
processing, and payroll, are expected to be completed and tested by June 
1999. All internal systems are targeted to be fully compliant by August 1999.

Costs of Year 2000 Compliance

         The Company has been using a combination of internal and external
resources to make necessary modifications to existing internally developed
systems. To date, external spending has been less than $100,000, and the Company
intends to complete this process with internal resources. Such costs are charged
to expense as incurred. The cost associated with using internal resources is
viewed primarily as an opportunity cost, resulting in a delay of other planned
system enhancements and replacements intended to enhance operating efficiencies.

         In addition, the Company's capital expenditures to replace
non-compliant vendor based systems sooner than otherwise necessary is expected
to total approximately $1.9 million. Of this amount, approximately $500,000 has
been spent to date. Although year 2000 compliance is the primary motivating
factor for the current schedule for these system replacements, management
anticipates other significant improvements in these systems compared to the old
systems.

         Although the costs and completion dates discussed above are based on
management's best estimates, actual results may differ from expectations.

Contingency Plan

         The Company has developed, and continues to update, a year 2000
contingency plan. The plan addresses backup and recovery procedures and business
processes that are critical to operations. The plan also covers contingency
trigger points, and identifies roles of key individuals in the event of system
failure. Management believes the most likely worst case scenario to be the
possibility that necessary program code modifications of legacy computer systems
may have been overlooked, resulting in system failure. The response to such an
event is the dedication of available programming staff to correct the problem.

FORWARD-LOOKING STATEMENTS

         Statements contained in this report that are not historical in nature
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject to risks
and uncertainties that may cause actual future results to differ materially.
Such risks and uncertainties with respect to the Company include, among others,
its ability to successfully implement internal performance goals, misjudgments
in assessing the Company's year 2000 compliance requirements and risks,
competition from alternative forms of energy, consolidation in the energy
industry, performance issues with key natural gas suppliers, the
capital-intensive nature of the Company's business, regulatory issues, including
the need for adequate and timely rate relief to recover increased capital and
operating costs resulting from customer growth and to sustain dividend levels,
the weather, increasing competition brought on by deregulation initiatives at
the federal and state regulatory levels, the potential loss of large volume
industrial customers due to "bypass" or the shift by such customers to special
competitive contracts at lower per unit margins, exposure to environmental
cleanup requirements, and economic conditions, particularly in the Company's
service area.


                                     22
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Cascade has evaluated its risk related to financial instruments whose
values are subject to market sensitivity. The only such instruments are Company
issued fixed-rate debt obligations. Cascade makes interest and principal
payments on these obligations in the normal course of its business, and does
not plan to redeem these obligations prior to normal maturities. Accordingly,
management believes the Company is not subject to market risk as defined in
Item 305 of Regulation S-K.





















                                     23
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS REPORT

Board of Directors
Cascade Natural Gas Corporation
Seattle, Washington

We have audited the accompanying consolidated balance sheets of Cascade Natural
Gas Corporation and subsidiaries (the Corporation) as of September 30, 1998 and
1997, and the related consolidated statements of net earnings available to
common shareholders, common shareholders' equity, and cash flows for the years
ended September 30, 1998 and 1997, and the nine months ended September 30, 1996.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Cascade Natural Gas Corporation and
subsidiaries as of September 30, 1998 and 1997, and the results of their
operations and their cash flows for the years ended September 30, 1998 and 1997,
and the nine months ended September 30, 1996, in conformity with generally
accepted accounting principles.



DELOITTE & TOUCHE LLP

Seattle, Washington
November 6, 1998


                                     24
<PAGE>

                CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS

<TABLE>
<CAPTION>

(Dollars in thousands except per share data)

                                                          Year Ended        Year Ended       Nine Months Ended
                                                         September 30      September 30        September 30
                                                              1998             1997               1996
                                                                                                (Note 2)
<S>                                                      <C>               <C>               <C>
Operating Revenues                                        $ 189,656         $ 195,786         $ 127,665
  Less
      Gas purchases                                          97,382           104,342            69,679
      Revenue taxes                                          12,037            12,430             8,420
                                                         -----------       ------------      ------------
Operating Margin                                             80,237            79,014            49,566
                                                         -----------       ------------      ------------
Cost of Operations
  Operating expenses                                         37,310            35,670            25,058
  Depreciation and amortization                              13,470            13,416             9,362
  Property and payroll taxes                                  4,420             3,989             3,181
                                                         -----------       ------------      ------------
                                                             55,200            53,075            37,601
                                                         -----------       ------------      ------------

  Earnings from operations                                   25,037            25,939            11,965
                                                         -----------       ------------      ------------
Nonoperating Expense (Income)
  Interest                                                   10,132             9,436             7,459
  Interest charged to construction                             (550)             (532)             (569)
                                                         -----------       ------------      ------------
                                                              9,582             8,904             6,890
  Amortization of debt issuance expense                         605               612               459
  Other                                                        (388)             (467)               (2)
                                                         -----------       ------------      ------------
                                                              9,799             9,049             7,347
                                                         -----------       ------------      ------------

Earnings Before Income Taxes                                 15,238            16,890             4,618
Income Taxes                                                  5,694             6,263             1,606
                                                         -----------       ------------      ------------
Net Earnings                                                  9,544            10,627             3,012
Preferred Dividends                                             497               510               393
                                                         -----------       ------------      ------------

Net Earnings Available to Common Shareholders             $   9,047         $  10,117         $   2,619
                                                         -----------       ------------      ------------
                                                         -----------       ------------      ------------

Net Earnings Per Common Share(basic & diluted)            $    0.82         $    0.93         $    0.28
                                                         -----------       ------------      ------------
                                                         -----------       ------------      ------------

Weighted Average Shares Outstanding ( as restated)           11,000            10,842             9,249
                                                         -----------       ------------      ------------
                                                         -----------       ------------      ------------
</TABLE>

The accompanying  notes are an integral part of these financial statements


                                      25
<PAGE>

                CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                        1998            1997
                                                                       (Dollars in thousands)
<S>                                                               <C>              <C>
ASSETS                                                                   

Utility Plant (Note 3)                                                $433,568        $416,365
    Less accumulated depreciation                                      167,356         160,332
                                                                  --------------   --------------
                                                                       266,212         256,033
    Construction work in progress                                       10,394           9,192
                                                                  --------------   --------------
                                                                       276,606         265,225
                                                                  --------------   --------------
Other Assets
    Investments in non utility property                                    667             668
    Notes receivable, less current maturities                            1,006           1,493
                                                                  --------------   --------------
                                                                         1,673           2,161
                                                                  --------------   --------------
Current Assets
    Cash and cash equivalents                                            2,338           3,162
    Accounts receivable, less allowance of
        $645 and $529 for doubtful accounts                              9,271          11,865
    Current maturities of notes receivable                                 329             536
    Materials, supplies, and inventories                                 6,213           5,886
    Prepaid expenses and other assets                                    5,122           7,382
                                                                  --------------   --------------
                                                                        23,273          28,831
                                                                  --------------   --------------
Deferred Charges                                                         9,959          11,486
                                                                  --------------   --------------
                                                                      $311,511        $307,703
                                                                  --------------   --------------
                                                                  --------------   --------------
COMMON SHAREHOLDERS' EQUITY, PREFERRED STOCKS, AND LIABILITIES
Common Shareholders' Equity
    Common stock, par value $1 per share (Note 4)
        Authorized, 15,000,000 shares; issued and
        outstanding, 11,045,095 and 10,966,732 shares                 $ 11,045        $ 10,967
    Additional paid-in capital                                          97,380          96,142
    Retained earnings                                                    3,003           4,553
                                                                  --------------   --------------
                                                                       111,428         111,662
                                                                  --------------   --------------
Redeemable Preferred Stocks, aggregate redemption
    amount of $6,592 and $6,845 (Note 5)                                 6,408           6,630
                                                                  --------------   --------------


Long-Term Debt (Note 7)                                                110,650         121,150
                                                                  --------------   --------------
Current Liabilities
    Notes payable and commercial paper (Note 6)                          6,929          12,900
    Current maturities of long-term debt                                10,000               -
    Accounts payable                                                    10,206           7,753
    Property, payroll, and excise taxes                                  4,570           3,958
    Dividends and interest payable                                       7,407           6,691
    Other current liabilities                                            3,681           3,680
                                                                  --------------   --------------
                                                                        42,793          34,982
                                                                  --------------   --------------
Deferred Credits and Other
    Gas cost changes                                                    10,330           6,290
    Income taxes (Note 8)                                               17,598          16,080
    Investment tax credits                                               2,523           2,764
    Other                                                                9,781           8,145
                                                                  --------------   --------------
                                                                        40,232          33,279
                                                                  --------------   --------------
 Commitments and Contingencies (Note 10)
                                                                           -               -
                                                                  --------------   --------------
                                                                      $311,511        $307,703
                                                                  --------------   --------------
                                                                  --------------   --------------
</TABLE>


The accompanying  notes are an integral part of these financial statements


                                     26
<PAGE>

             CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>

(Dollars in thousands except per share data)                    Common Stock
                                                                ------------                         Paid-In             Retained
                                                         Shares               Par Value              Capital             Earnings
                                                         ------               ---------              -------             --------
<S>                                                      <C>                  <C>                    <C>                 <C>
Balance, December 31, 1995                                9,144,448           $    9,144             $71,098               $9,297
  Common stock issued:
    Public offering                                       1,487,700                1,488              20,108
    Employee savings plan and
      retirement trust (401(k))                              33,893                   34                 492
    Director stock award plan                                 1,800                    2                  26
    Dividend reinvestment plan                              118,744                  119               1,714
  Cash dividends:
    Common stock, $.96 per share                                                                                           (7,015)
    Preferred stock, senior, $.55 per share                                                                                   (40)
    7.85% cumulative preferred stock,
      $7.85 per share                                                                                                        (353)
  Net earnings                                                                                                              3,012
                                                     ---------------         ------------           ---------            ----------
Balance, December 31, 1996                               10,786,585               10,787              93,438                4,901
  Common stock issued:
    Additional costs of 1996 public offering                                                             (34)
    Employee savings plan and
      retirement trust (401(k))                              51,834                   52                 794
    Director stock award plan                                 3,688                    4                  54
    Dividend reinvestment plan                              124,625                  124               1,887
  Redemption of preferred stock                                                                            3
  Cash dividends:
    Common stock, $.96 per share                                                                                          (10,465)
    Preferred stock, senior, $.55 per share                                                                                   (39)
    7.85% cumulative preferred stock,
      $7.85 per share                                                                                                        (471)
  Net earnings                                                                                                             10,627
                                                     ---------------         ------------           ---------            ----------
Balance, September 30, 1997                              10,966,732               10,967              96,142                4,553
  Common stock issued:
    Employee savings plan and
      retirement trust (401(k))                              25,446                   25                 404
    Dividend reinvestment plan                               52,917                   53                 834
  Cash dividends:
    Common stock, $.96 per share                                                                                          (10,597)
    Preferred stock, senior, $.55 per share                                                                                   (26)
    7.85% cumulative preferred stock,
      $7.85 per share                                                                                                        (471)
  Net earnings                                                                                                              9,544
                                                     ---------------         ------------           ---------            ----------
Balance, September 30, 1998                              11,045,095              $11,045             $97,380               $3,003
                                                     ---------------         ------------           ---------            ----------
                                                     ---------------         ------------           ---------            ----------
</TABLE>


The accompanying  notes are an integral part of these financial statements


                                        27
<PAGE>

                CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                         Year Ended        Year Ended     Nine Months Ended
                                                                        September 30      September 30       September 30
                                                                             1998             1997              1996
<S>                                                                      <C>              <C>               <C>
Operating Activities                                                                                       
  Net earnings                                                           $    9,544       $     10,627      $       3,012
  Adjustments to reconcile net earnings to                                                                 
      net cash provided by operating activities:                                                           
    Depreciation and amortization                                            13,470             13,416              9,362
    Write-down of assets                                                          -                  -                154
    Amortization of gas cost changes                                           (424)            (2,473)             1,308
    Increase (decrease) in deferred income taxes                              1,519               (105)              (276)
    Decrease in deferred investment tax credits                                (241)              (267)              (175)
    Cash provided (used) by changes in operating                                                           
     assets and liabilities:                                                                               
      Accounts receivable                                                     2,596               (221)            14,835
      Income taxes                                                            2,261              1,183             (2,905)
      Inventories                                                              (326)                45                481
      Gas cost changes                                                        4,463            (12,815)             9,336
      Deferred items                                                          2,092              1,710              4,345
      Accounts payable and accrued expenses                                   3,782             (8,115)               281
      Prepaid expenses and other assets                                          (4)            (2,858)              (512)
      Other                                                                    (168)               (81)               (16)
                                                                         ----------        -----------        -----------
  Net cash provided by operating activities                                  38,564                 46             39,230
                                                                         ----------        -----------        -----------
Investing Activities                                                                                       
  Capital expenditures                                                      (25,611)           (29,166)           (26,458)
  Customer contributions in aid of construction                               1,831              7,540                405
  New consumer loans                                                           (337)              (968)              (666)
  Receipts on consumer loans                                                  1,199              1,428              1,511
                                                                         ----------        -----------        -----------
  Net cash used by investing activities                                     (22,918)           (21,166)           (25,208)
                                                                         ----------        -----------        -----------
Financing Activities                                                                                       
  Issuance of common stock                                                      754              1,747             23,155
  Redemption of preferred stock                                                (222)              (216)                 -
  Proceeds from long-term debt, net                                               -             19,850                  -
  Repayment of long-term debt                                                  (500)              (700)              (250)
  Changes in notes payable and commercial paper, net                         (5,971)            12,900            (32,000)
  Dividends paid                                                            (10,531)            (9,842)            (6,581)
                                                                         ----------        -----------        -----------
  Net cash provided (used) by financing activities                          (16,470)            23,739            (15,676)
                                                                         ----------        -----------        -----------
Net Increase (Decrease) in Cash and Cash Equivalents                           (824)             2,619             (1,654)
Cash and Cash Equivalents                                                                                  
  Beginning of year                                                           3,162                543              2,197
                                                                         ----------        -----------        -----------
  End of year                                                              $  2,338           $  3,162           $    543
                                                                         ----------        -----------        -----------
                                                                         ----------        -----------        -----------
Supplemental Cash Flow Information Cash paid during the year for:                                          
    Interest (net of amounts capitalized)                                  $  8,303           $  7,938           $  6,890
    Income taxes                                                           $  1,876           $  5,606           $  1,606
</TABLE>


The accompanying  notes are an integral part of these financial statements


                                   28
<PAGE>

Notes to Consolidated Financial Statements

NOTE 1 - NATURE OF BUSINESS

Cascade Natural Gas Corporation (the Company) is a local distribution company
(LDC) engaged in the distribution of natural gas. The Company's service
territory consists primarily of towns in Washington and Oregon, ranging from the
Canadian border in northwestern Washington to the Idaho border in eastern
Oregon.

As of September 30, 1998, the Company had approximately 168,516 core customers
and 177 non-core customers. Core customers are principally residential and small
commercial and industrial customers who take traditional "bundled" natural gas
service, which includes supply, peaking service, and upstream interstate
pipeline transportation. Sales to core customers account for approximately 17%
of gas deliveries and 67% of operating margin. The Company's sales to its core
residential and commercial customers are influenced by fluctuations in
temperature, particularly during the winter season. A warm winter season will
tend to reduce gas consumption. Over the longer term, these fluctuations tend to
offset each other, as rates charged to customers are developed based on the
assumption of normal weather.

Non-core customers are generally large industrial and institutional customers
who have chosen "unbundled" service, meaning that they select from among several
supply and upstream pipeline transportation options, independent of the
Company's distribution service. The Company's margin from non-core customers is
generally derived only from this distribution service. The principal industrial
activities of its customers include the processing of forest products,
production of chemicals, refining of crude oil, production of aluminum,
generation of electricity, and processing of food.

The Company is subject to regulation of most aspects of its operations by the
Washington Utilities and Transportation Commission (WUTC) and the Oregon Public
Utility Commission (OPUC). It is subject to regulatory risk primarily with
respect to recovery of costs incurred. Various deferred charges and deferred
credits reflect assumptions regarding recovery of certain costs through
amortization during future periods.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company's accounting records and practices conform to the requirements and
uniform system of accounts prescribed by the WUTC and the OPUC.

Change in year-end: Beginning in 1996, the Company changed its fiscal year end
to September 30 to include the fall-winter heating season within a single
financial reporting period. As a result of this change, the reporting period for
1996, unless otherwise noted, is the nine-month transition period ended
September 30, 1996. Because of the seasonal nature of the business, the
nine-month period ended September 30, 1996 is not indicative of a full year with
respect to operations and cash flow.

Principles of consolidation: The consolidated financial statements include the
accounts of Cascade Natural Gas Corporation and its wholly owned subsidiaries:
Cascade Land Leasing Co.; CGC Properties, Inc.; CGC Energy, Inc.; and CGC
Resources, Inc. All intercompany transactions have been eliminated in
consolidation.

Utility plant: Utility plant is stated at the historical cost of construction 
or purchase. These costs include payroll-related costs such as taxes and 
other employee benefits, general and administrative costs, and the estimated 
cost of funds used during construction. Maintenance and repairs of property, 
and replacements and renewals of items deemed to be less than units of 
property, are charged to operations. Units of utility plant retired or 
replaced are credited to property accounts at cost. Such amounts plus removal 
expense, less salvage, are charged to accumulated depreciation. In the case 
of a sale of non-depreciable property or major operating units, the resulting 
gain or loss on the sale is included in other income or expense. Depreciation 
of utility plant is computed using the straight-line method. During 1998, the 
Company conducted a depreciation study resulting in a change in depreciation 
lives effective July 1, 1998. The new asset lives used for computing 
depreciation range from six to seventy years, and the weighted average

                                     29
<PAGE>

annual depreciation rate decreased from approximately 3.5% to 2.9%. The effect
of this change on fiscal 1998 depreciation expense is a decrease of
approximately $500,000, resulting in a positive earnings effect of $0.03 per
share.

Investments: Investments consist primarily of real estate, classified as
non-utility property carried at the lower of cost or estimated net realizable
value.

Notes receivable: Notes receivable includes loans made to customers for the
purchase of energy efficient appliances, which are generally the security for
the loan. Loans are made for terms ranging from one to ten years at interest
rates varying from 6.5% to 12%.

Materials, supplies and inventories: Materials and supplies for construction and
maintenance are recorded at cost. Inventories of natural gas are stated at the
lower of average cost or market.

Regulatory accounts: The Company's financial statements are prepared in
accordance with Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation". This statement
provides for the deferral of certain costs and benefits that would otherwise be
recognized in revenue or expense, if it is probable that future rates will
result in recovery from customers or refund to customers of such amounts. A
regulated enterprise may prepare its financial statements according to the
provisions of SFAS No. 71 only as long as: (i) the enterprise's rates for
regulated services are established by or are subject to approval by an
independent third party regulator; (ii) the regulated rates are designed to
recover the enterprise's cost of providing the regulated services, and (iii) in
view of demand for the regulated services and the level of competition, it is
reasonable to assume that rates set at levels to recover the enterprise's costs
can be charged to and collected from customers. If at some point in the future,
the Company determines that all or a portion of the utility operations no longer
meets the criteria for continued application of SFAS No. 71, the Company would
be required to adopt the provisions of SFAS No. 101, "Regulated
Enterprises-Accounting for the Discontinuation of Application of FASB Statement
No. 71". Adoption of SFAS No. 101 would require the Company to write off the
regulatory assets and liabilities related to those operations not meeting the
criteria of SFAS No. 71.


Regulatory assets (liabilities) at September 30, 1998 and 1997 include the
following:

<TABLE>
<CAPTION>

(dollars in thousands)              1998             1997
-----------------------------------------------------------
<S>                             <C>              <C>
 Unamortized loss on
    reacquired debt             $  5,027         $  5,556
 Gas cost changes                (10,330)          (6,290)
 Deferred income taxes            (3,377)          (3,128)
 Postretirement benefits
    other than pensions            3,186            3,936
 Other, net                          852            1,007
                                --------         --------
Net                             $ (4,642)        $  1,081
                                --------         --------
</TABLE>

Revenue recognition: The Company accrues estimated revenues for gas delivered
but not billed to residential and commercial customers from the meter reading
dates to month end.

Leases: The Company leases mainframe computer equipment and a majority of its
vehicle fleet. These leases are classified as operating leases. The Company's
primary obligation under these leases is for a twelve-month period, with options
to extend the lease thereafter. Commitments beyond one year are not material.
The Company has no capital leases.

Federal income taxes: The Company deducts depreciation computed on an 
accelerated basis for federal income tax purposes, and as a result, 
deductions exceed the amounts included in the financial statements. In 1981, 
the Company elected to record depreciation on 1981 and subsequent utility 
plant additions under the Accelerated Cost Recovery System. This election 
required the Company to provide deferred income


                                    30
<PAGE>

taxes on the difference between depreciation computed for financial statement 
and tax reporting purposes beginning in 1981 (Note 8). This procedure has 
been accepted by the WUTC and the OPUC. It is expected that any future 
increases in federal income taxes resulting from the reversal of accelerated 
depreciation on additions to utility plant in 1980 and prior will be allowed 
in future rate determinations.

Investment tax credits: Investment tax credits were deferred and are amortized
over the life of the property giving rise to the credit.

Cash and cash equivalents: For purposes of reporting cash flows, the Company
accounts for all liquid investments, with a purchased maturity of three months
or less, as cash equivalents.

Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. The Company
has used estimates in measuring certain deferred charges and deferred credits
related to items subject to approval of the WUTC and the OPUC. Estimates are
also used in the development of discount rates and trend rates related to the
measurement of retirement benefit obligations and accrual amounts, and in the
determination of depreciable lives of utility plant.

New Accounting Standards:

FAS NO. 128. As of the first quarter of fiscal 1997, the Company adopted
Statement of Financial Accounting Standards (FAS) No. 128, "EARNINGS PER SHARE."
This statement prescribes the method of calculating and reporting earnings per
share (EPS) amounts. It replaces the presentation of primary EPS with a
presentation of basic EPS. For entities with other than a simple capital
structure, it requires the dual presentation of basic and diluted EPS on the
face of the income statement. Under the Company's capital structure there is no
dilution. As a result the reported EPS represents both basic as well as diluted
EPS. Under the statement, the weighted average number of shares outstanding for
the years ended September 30, 1997 and 1996 have been restated from 10,843,000
to 10,842,000 shares and from 9,266,000 to 9,249,000 shares, respectively. These
restatements did not result in a change in reported EPS.

FAS NO. 129. As of the first quarter of fiscal 1997, the Company adopted FAS No.
129, " DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE." This statement
establishes standards for disclosing information about an entity's capital
structure, including dividend and liquidation preferences, participation rights,
call prices and disclosure of the dates and number of shares issued upon
conversion, exercise, or satisfaction of required conditions during at least the
most recent annual fiscal period and any subsequent interim period presented.
Application of this statement did not require any additional disclosure by the
Company.

FAS NO. 130. In June 1997, the Financial Accounting Standards Board (FASB)
issued FAS No. 130, entitled "REPORTING COMPREHENSIVE INCOME." This standard is
effective for fiscal years beginning after December 15, 1997, and requires
companies to (a) classify items of other comprehensive income by their nature in
a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of a statement of financial position. The
Company does not expect implementation of this standard to have a material
effect on the reporting of its financial information.

FAS NO. 131. In June 1997, the FASB issued FAS No. 131, entitled "DISCLOSURE
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION." This standard is
effective for fiscal years beginning after December 15, 1997, and requires
public enterprises to report financial and descriptive information on the basis
that is used internally for evaluating segment performance and deciding how to
allocate resources to segments. Management views the Company as operating as a
single segment, that of an LDC in the Pacific Northwest. Accordingly,
implementation of this standard will not have a significant impact on reporting
by the Company.


                                    31
<PAGE>

FAS NO. 132. In February 1998, the FASB issued FAS No. 132, entitled "EMPLOYERS'
DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS." This standard is
effective for fiscal years beginning after December 15, 1997. It standardizes
disclosure requirements for pensions and other postretirement benefits. The
Company does not expect this standard to have a material effect on the reporting
of financial information.

FAS NO. 133. In June 1998, the FASB issued FAS No. 133, entitled "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." This standard will be effective
for fiscal years beginning after June 15, 1999. It requires that all derivative
financial instruments be recognized as either assets or liabilities on the
Company's balance sheets. The Company has not determined the effects of this
standard on its financial reporting.

SOP 98-1. In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
(SOP) 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED
FOR INTERNAL USE". Application of this SOP is required for financial statements
for fiscal years beginning after December 15, 1998. The SOP establishes criteria
for accounting for costs as operating expense when incurred, or as a capital
expenditure. It provides that internal and external cost incurred to develop or
obtain new software during the "application development stage" should be
capitalized. Other costs, including preliminary project costs, training, data
conversion, and upgrades and enhancements would be expensed under the provisions
of SOP 98-1.

         The Company's current practice is to capitalize certain costs that
under the provisions of SOP 98-1 would be expensed. Therefore, when the Company
adopts the SOP, the Company will capitalize less of the cost of projects to
develop or acquire software, and charge more cost to operating expense than is
currently done. The materiality of this change is dependent upon the magnitude
of the costs of specific software development or acquisition projects incurred
in any period.


NOTE 3 - UTILITY PLANT

Utility plant at September 30, 1998 and 1997 consists of the following 
components:

<TABLE>
<CAPTION>

Utility plant at September 30, 1998 and 1997 consists
   of the following  components:

(dollars in thousands)                       1998                      1997
-----------------------------------------------------------------------------
<S>                                      <C>                       <C>
 Distribution plant                      $ 381,524                 $ 363,275
 Transmission plant                         14,086                    14,086
 Production plant                            1,053                     1,053
 General plant                              32,863                    32,414
 Intangible plant                              212                       212
 Nondepreciable plant                        3,830                     5,325
                                       ------------               ------------
                                         $ 433,568                 $ 416,365
                                       ------------               ------------
</TABLE>


                                    32
<PAGE>

NOTE 4 - COMMON STOCK

At September 30, 1998, shares of common stock are reserved for issuance as
follows:

<TABLE>
<CAPTION>

                                              Number
                                             of shares
--------------------------------------------------------
<S>                                      <C>
Employee Savings Plan and
    Retirement Trust (401(k) plan)           119,765
Dividend Reinvestment Plan                    51,338
Director Stock Award Plan                      4,112
                                         -------------
                                             175,215
                                         -------------
</TABLE>

The price of shares issued to the above plans is determined by the market price
of shares on the day of, or immediately preceding the issuance date. As of the
third quarter of fiscal 1998, the Company's practice is to purchase shares on
the open market for these plans rather than issue new shares.

Holders of Common Stock have rights ("Rights") to purchase shares of Series Z
Preferred Stock on the basis of one Right for each share of Common Stock. The
Rights may not be exercised and will be attached to and trade with shares of
Common Stock until the Distribution Date, which will occur on the earlier of (i)
the tenth day following a public announcement that there has been a "Share
Acquisition", i.e., that a person or group (other than the Company and certain
other persons) has acquired or obtained the right to acquire 20% or more of the
outstanding Common Stock and (ii) the tenth business day following the
commencement or announcement of certain offers to acquire beneficial ownership
of 30% or more of the outstanding Common Stock. Subject to restrictions on
exercisability while the Rights are redeemable, each Right entitles the holder
to buy from the Company one one-hundredth of a share of Series Z Preferred Stock
at a price of $85, subject to adjustment. Upon the occurrence of a Share
Acquisition, and provided that all necessary regulatory approvals have been
obtained, each Right will thereafter entitle the holder (other than the
acquiring person or group and transferees) to buy from the Company for $85,
shares of Common Stock having a market value of $170, subject to adjustment.

NOTE 5 - REDEEMABLE PREFERRED STOCKS

 Redeemable preferred stock at September 30, 1998 and 1997
   consists of the following:

<TABLE>
<CAPTION>

(dollars in thousands)                                             1998                      1997
------------------------------------------------------------------------------------------------------------------
                                                           Shares         Amount           Shares         Amount
<S>                                                  <C>                 <C>          <C>                <C>
7.85% cumulative, $1.00 par value                          60,000        $  6,000          60,000        $  6,000
$.55 cumulative senior, series B
   and C, without par value                                46,750             408          71,750             630
                                                     -----------------------------    ----------------------------
                                                          106,750        $  6,408         131,750        $  6,630
                                                     -----------------------------    ----------------------------
</TABLE>

The 7.85% cumulative preferred stock is subject to redemption in November 1999 
The $.55 cumulative senior preferred stock is subject to minimum annual
redemption requirements, with Series B being fully redeemed in fiscal 1999, and
Series C in 2001. The Series B and C shares may be purchased on the open market,
or redeemed at $10 per share plus accrued dividends. Redemption in excess of the
required number of shares of preferred stock can be made only if all cumulative
dividends on preferred stock have been paid. The aggregate annual preferred
stock redemption requirements are $250,000 in fiscal 1999, $6,145,000 in fiscal
2000, $73,000 in fiscal 2001, and none thereafter.

NOTE 6 - NOTES PAYABLE AND COMMERCIAL PAPER

The Company's short-term borrowing needs are met with a $40,000,000 revolving
credit agreement with three of its banks. This agreement expires in September
2000. The annual commitment fee is 1/8 of 1% and the committed lines of credit
also support a money market facility and a commercial paper facility of a
similar amount. The Company also has $30,000,000 of uncommitted lines from three
banks. A non-


                                    33
<PAGE>

regulated subsidiary has a $1,500,000 revolving credit facility
that expires in December 2000. At September 30, 1998, $650,000 was outstanding.

<TABLE>
<CAPTION>

                                                                                  September 30
(dollars in thousands)                                       1998                      1997                      1996
----------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                      <C>                        <C>
Amount outstanding                                       $  6,929                 $  12,900                  $     -
Average daily balance outstanding                           6,201                    13,666                    15,664
Average interest rate, excluding commitment fee              5.83%                     5.94%                     5.77%
Maximum month end amount outstanding                       13,260                    21,650                    27,500
</TABLE>

Various debt and credit agreements restrict the Company and its subsidiaries as
to indebtedness, payment of cash dividends on common stock, and other matters.
Under these restrictions, approximately $23,910,000 is available for payment of
dividends as of September 30, 1998.

NOTE 7 - LONG-TERM DEBT
Long -term debt at September 30, 1998 and 1997 consists of the following:

<TABLE>
<CAPTION>

(dollars in thousands)                                       1998                      1997
----------------------------------------------------------------------------------------------
<S>                                                      <C>                     <C>
6.53% Five Year Term Note
    due Dec. 2000                                        $      650              $      1,150
Medium-term notes:
    5.77% due Dec. 1998                                           -                     5,000
    5.78% due Dec. 1998                                           -                     5,000
    7.18% due Oct. 2004                                       4,000                     4,000
    7.32% due Aug. 2004                                      22,000                    22,000
    8.38% due Jan. 2005                                       5,000                     5,000
    8.35% due Jul. 2005                                       5,000                     5,000
    8.50% due Oct. 2006                                       8,000                     8,000
    8.06% due Sep. 2012                                      14,000                    14,000
    8.10% due Oct. 2012                                       5,000                     5,000
    8.11% due Oct. 2012                                       3,000                     3,000
    7.95% due Feb. 2013                                       4,000                     4,000
    8.01% due Feb. 2013                                      10,000                    10,000
    7.95% due Feb. 2013                                      10,000                    10,000
    7.48% due Sep. 2027                                      20,000                    20,000
                                                        ------------             --------------
     Total long-term debt                                $  110,650               $   121,150
                                                        ------------             --------------
Current maturities of medium-term notes:
    5.77% due Dec. 1998                                  $    5,000                         -
    5.78% due Dec. 1998                                       5,000                         -
                                                        ------------             --------------
                                                         $   10,000               $         -
                                                        ------------             --------------
</TABLE>

None of the long-term debt includes sinking fund requirements. Annual
obligations for redemption of long-term debt are as follows: $10,000,000 in
fiscal year 1999, none in fiscal year 2000, $650,000 in fiscal year 2001, none
in fiscal years 2002 and 2003, and $110,000,000 thereafter.


                                    34
<PAGE>

NOTE 8 - INCOME TAXES

Pursuant to the provisions of SFAS No. 109, the Company has recorded a deferred
tax liability for the cumulative tax effect of basis differences on utility
plant placed in service prior to 1981. Flow through accounting had previously
been recorded with respect to these temporary differences. In addition, the
Company has adjusted previously recorded deferred tax liabilities related to
plant placed in service after 1980, due to reductions in tax rates. Due to
regulatory policies regarding recovery of deferred taxes charged to customers
through rates, a regulatory liability was recorded which offsets the effect of
these adjustments to the deferred tax balances. Therefore these adjustments have
had no effect on net earnings. The provision for income tax expense consists of
the following:

<TABLE>
<CAPTION>

(dollars in thousands)             1998            1997            1996
---------------------------------------------------------------------------
<S>                              <C>             <C>             <C>
Current tax expense              $ 4,126         $ 6,785         $ 1,108
Deferred tax expense               1,809            (256)            673
Amortization of deferred
   investment tax credits           (241)           (266)           (175)
                               -----------      ----------     -----------
                                 $ 5,694         $ 6,263         $ 1,606
                               -----------      ----------     -----------
</TABLE>

A reconciliation between income taxes calculated at the statutory federal tax
rate and income taxes reflected in the financial statements is as follows:

<TABLE>
<CAPTION>

(dollars in thousands)                                    1998             1997             1996
---------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>
Statutory federal income tax rate                           35%              35%              35%
Income tax calculated at statutory federal rate      $   5,333        $   5,911        $   1,616
Increase (decrease) resulting from:
  State income tax, net of federal tax benefit             117              122               34
  Non-normalized depreciation differences                  345              380              251
  Amortization of investment tax credits                  (241)            (266)            (175)
  Other                                                    140              116             (120)
                                                     -----------      ----------       -----------
                                                       $ 5,694          $ 6,263          $ 1,606
                                                     -----------      ----------       -----------
</TABLE>


                                     35
<PAGE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effects of
significant items comprising the Company's net deferred tax liability at
September 30, 1998 and 1997 are as follows: 

<TABLE>
<CAPTION>

(dollars in thousands)                            1998           1997
------------------------------------------------------------------------
<S>                                         <C>            <C>
Deferred tax liabilities:
  Basis differences on net fixed assets     $   16,096     $   14,230
  Debt refinancing costs                         1,797          1,985
  Retirement benefit obligations                 1,005            986
                                            ----------     ----------
                                                18,898         17,201
                                            ----------     ----------
Deferred tax assets:
  Valuation reserves                               470            458
  Retirement benefit obligations                   531            406
  Provision for doubtful accounts                  255            213
  Other                                             44             44
                                            ----------     ----------
                                                 1,300          1,121
                                            ----------     ----------
Net deferred tax liability                  $   17,598     $   16,080
                                            ----------     ----------
</TABLE>

NOTE 9 - RETIREMENT PLANS

The Company's noncontributory defined benefit pension plan covers 
substantially all employees over 21 years of age with one year of service. 
The benefits are based on a formula which includes credited years of service 
and the employee's annual compensation. The Company's policy is to fund the 
plan by contributing an amount equal to the actuarially determined normal 
cost plus ten-year amortization payments towards the unfunded actuarial 
liability, subject to the limits on deductible contributions. The Company 
also provides executive officers with supplemental retirement, death, and 
disability benefits. Under the plan, vesting occurs on a stepped basis, with 
full vesting upon the executive reaching age 55 and completing either five 
years of participation under the plan or seventeen years of employment with 
the company, upon death, or upon a change in control. The plan supplements 
the benefit received through Social Security and the defined benefit pension 
plan so that the total retirement benefits are equal to 70% of the 
executive's highest salary during any of the five years preceding retirement. 
The plan also provides a death benefit equivalent to ten years of vested 
benefits. The Company funds the plan by making contributions to the Trust 
sufficient to assure assets held by the Trust always exceed the accumulated 
benefit obligation for benefits payable by the plan. The funded status of the 
defined benefit pension and supplemental retirement plans and amounts 
recognized in the Company's financial statements at September 30, 1998 and 
1997 are set forth in the following table:


                                     36
<PAGE>

<TABLE>
<CAPTION>

                                                                                                 Supplemental
                                                                         Pension Plan          Retirement Plan
(dollars in thousands)                                                 1998        1997        1998        1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>         <C>         <C>         <C>
 Actuarial present value of accumulated
  benefit obligations:
    Vested                                                           $ 29,707    $ 25,130    $  3,970    $  3,692
    Nonvested                                                             808         767         525         465
                                                                   -----------------------  -----------------------
                                                                     $ 30,515    $ 25,897    $  4,495    $  4,157
                                                                   -----------------------  -----------------------
                                                                   -----------------------  -----------------------
 Projected benefit obligation for services
  rendered to date                                                   $ 34,904    $ 29,767    $  4,841    $  4,445
 Plan assets, at fair value, primarily common stocks,
  corporate bonds, and life insurance policies                         30,768      29,158       5,486       4,888
                                                                   -----------------------  -----------------------
 Projected benefit obligation (in excess of) less than plan assets     (4,136)       (609)        645         443
 Unrecognized amounts:
    Prior service cost                                                  2,986       3,399        (188)       (223)
    Loss (gain) from past experience different
      from that assumed                                                 3,034      (2,167)        862       1,082
    Net transition obligation                                               7          13         827         927
                                                                   -----------------------  -----------------------
 Prepaid pension cost                                                $  1,891    $    636    $  2,146    $  2,229
                                                                   -----------------------  -----------------------
</TABLE>

Net pension cost for both plans included the following components:

<TABLE>
<CAPTION>

(dollars in thousands)                                  1998       1997       1996
------------------------------------------------------------------------------------
<S>                                                 <C>         <C>        <C>
 Service cost of benefits earned during the period  $  1,584    $ 1,367    $ 1,095
 Interest cost on projected benefit obligation         2,617      2,398      1,684
 Actual return on plan assets                            (24)    (6,771)    (2,274)
 Deferral of unrecognized loss (gain) and
     amortization, net                                (2,278)     4,975      1,179
 Special termination benefit                             369       --         --
                                                   ----------  ---------  ----------
                                                    $  2,268    $ 1,969    $ 1,684
                                                   ----------  ---------  ----------
</TABLE>

The special termination benefit represents the recognition of the increase in
the projected benefit obligation for three executives who elected to accept
early retirement benefits effective September 30, 1998.

The following assumptions were used to determine the projected benefit 
obligation and expected return on assets at September 30, 1998, 1997 and 1996:

<TABLE>

<S>                                                   <C>     <C>     <C>
Pension plan:
  Discount rate                                       7.25%   7.75%   8.25%
  Long-term rate of return on plan assets             9.00%   9.00%   9.00%
  Rate of increase in future compensation levels      5.00%   5.00%   5.00%
Supplemental retirement plan:
  Discount rate                                       7.25%   7.75%   8.25%
  Long-term rate of return on plan assets             8.50%   8.50%   8.50%
  Rate of increase in future compensation levels      5.00%   5.00%   5.00%
</TABLE>

401(K) PLAN. The Company has an Employee Savings Plan and Retirement Trust
(401(k) plan). All employees 21 years of age or older with one full year of
service are eligible to enroll in the plan. Under the


                                  37
<PAGE>

terms of the plan, the Company will match each employee's contribution at a 
rate of 75% of the employee's contribution up to 6% of the employee's 
compensation, as defined. Prior to January 1, 1997, the matching rate was 
50%. The increased contribution is in the form of Company stock. The Company 
recognized costs for contributions to this plan of $769,000, $703,000, and 
$377,000, for 1998, 1997 and 1996, respectively.

RETIREE MEDICAL PLAN. The Company's health care plan provides Postretirement
Benefits Other than Pensions (PBOP), consisting of medical and prescription drug
benefits, to its retired employees hired prior to June 1, 1992, and their
eligible dependents. The Company has been recording PBOP expense, as provided in
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions", since January 1, 1993. The Company deferred, in a regulatory asset
account, the portion of the annual PBOP accrual attributable to Washington
regulated operations in excess of the cash basis of recording these expenses
through July 31, 1996. The amount so deferred was $767,000 in 1996. On August 1,
1996 new customer tariff rates were approved by the WUTC in the general rate
case. Accordingly, the PBOP deferrals ceased and the balance is being amortized
concurrently with the new rates. The annual amortization amount is $750,000.

Amounts accrued for PBOP, not including the above mentioned deferrals and
amortization, consist of the following components:

<TABLE>
<CAPTION>

(dollars in thousands)             1998       1997       1996
---------------------------------------------------------------
<S>                             <C>        <C>        <C>
Service cost                    $   394    $   369    $   326
Net interest cost                 1,201      1,211        939
Actual return on plan assets          5     (1,417)      (317)
Net amortization and deferral      (410)     1,480        492
                                -------
                                $ 1,190    $ 1,643    $ 1,440
                                -------    -------    -------
</TABLE>

The Company's policy is generally to fund the plan to the extent allowable 
under Internal Revenue Service rules. The following table sets forth the 
health care plan's funded status at September 30, 1998 and 1997:

<TABLE>
<CAPTION>

(dollars in thousands)                                       1998        1997
-------------------------------------------------------------------------------
<S>                                                      <C>         <C>
 Accumulated postretirement benefit obligation (APBO):
    Retirees                                             $  5,949    $  5,814
    Fully eligible active plan participants                 5,699       5,389
    Other active plan participants                          6,436       6,292
                                                        ----------  -----------
                                                           18,084      17,495
 Plan assets, at fair value, primarily common
  stocks and corporate bonds                                7,966       7,741
                                                        ----------  -----------
 Funded status                                            (10,118)     (9,754)
 Unrecognized transition obligation                         9,362      10,019
 Unrecognized (gain) loss                                  (1,282)     (1,976)
                                                        ----------  -----------
 Accrued postretirement benefit cost                     $ (2,038)   $ (1,711)
                                                        ----------  -----------
                                                        ----------  -----------
</TABLE>

At October 1, 1997, the per capita claims cost assumption was updated, resulting
in a 9.7% decrease in the APBO. For the valuation at September 30, 1998, the
discount rate was decreased from 7.75% to 7.25% and the census data was updated.
These, together with the passage of time, resulted in a 14.5% increase in the
APBO.

The assumed health care cost trend rate used in measuring the APBO is 8.5% for
1999, trending down to 5.5% at 2005. A one percentage point increase in the
assumed health care cost trend rate for each year would increase the APBO by
approximately 15.7% and the service and interest cost components of net
postretirement health care cost by approximately 17.9%.


                                    38
<PAGE>

NOTE 10- COMMITMENTS AND CONTINGENCIES

Gas Service Contracts

The Company has entered into various long-term contracts for natural gas supply,
transportation, storage, and peaking services. These contracts assure that
adequate supplies of gas will be available to provide firm service to core
customers and to meet obligations under long-term non-core customer agreements,
and to assure that adequate capacity is available on interstate pipelines for
the delivery of these supplies. These contracts have maturities ranging from one
to 26 years, and generally provide for monthly and annual fixed demand charges
and minimum purchase obligations.

The Company's minimum obligations under these contracts are set forth in the
following table. The amounts are based on current contract price terms and
estimated commodity prices, which are subject to change:

<TABLE>
<CAPTION>

                                        Interstate           Storage
                      Firm Gas           Pipeline          and Peaking    
                       Supply          Transportation        Service           Total
---------------------------------------------------------------------------------------
                                       (dollars in thousands)
<S>               <C>                <C>               <C>                 <C>
      1999         $   30,401         $   26,335         $    3,910         $   60,646
      2000             19,399             26,437              3,910             49,746
      2001             18,367             26,437              3,910             48,714
      2002             15,345             26,300              3,522             45,167
      2003             15,064             26,300              3,522             44,886
Thereafter             25,599            283,961             38,737            348,297
                  -----------        -----------       ------------        -----------
                   $  124,175         $  415,770         $   57,511         $  597,456
                  -----------        -----------       ------------        -----------
                                                                          
</TABLE>

Purchases under these contracts for fiscal 1998, 1997, and 1996, including
commodity purchases, as well as demand charges have been as follows:

<TABLE>
<CAPTION>

                                         Interstate        Storage
                           Firm Gas       Pipeline        and Peaking
(dollars in thousands)      Supply     Transportation       Service         Total
-----------------------------------------------------------------------------------
<S>                       <C>          <C>                <C>             <C>
1998                      $ 47,102        $ 28,901        $  4,830        $ 80,833
1997                      $ 67,329        $ 30,547        $  4,626        $102,502
1996 (nine months)        $ 32,075        $ 19,002        $  3,718        $ 54,795
</TABLE>

Environmental Matters                                    
                                                         
There are two claims against the Company for as yet unknown costs for clean up
of alleged environmental contamination related to manufactured gas plant sites
that were previously operated by companies, which were subsequently merged into
Cascade. The first claim was received in 1995, and relates to a site in Oregon.
An investigation has shown that contamination does exist, but there has been no
estimate of clean up costs. It is expected that other parties will participate
in the clean up costs, and negotiations are ongoing as to the sharing
arrangement.

The second claim was received in 1997, and relates to a site in Washington. An
investigation has determined there is evidence of contamination at the site, but
there is also evidence of an oil line, operated by an unrelated party, crossing
the property, which may have also contributed to the contamination. There has
been no estimate of possible clean up costs.

Management intends to pursue reimbursement from its insurance carriers, and
recovery from its customers through increased rates, for any remediation costs
for which the Company is determined to be liable. There


                             39
<PAGE>

is precedent for such recovery through increased rates, as both the WUTC and 
OPUC have previously allowed regulated utilities to increase customer rates 
to recover similar costs.

Litigation

Various lawsuits, claims, and contingent liabilities may arise from time to 
time from the conduct of the Company's business. In 1998 the Company was 
served with a lawsuit by six plaintiffs, claiming unspecified damages for 
personal injuries in connection with carbon monoxide exposure. The plaintiffs 
were residents of a house served by the Company at the time of the incident. 
The Company denies any responsibility for these injuries, and the parties are 
engaged in discovery. There is no estimate of the Company's potential 
liability for this claim, and its self-insured retainage with respect to such 
claims is $1 million. No other claim now pending, in the opinion of 
management, is expected to have a material effect on the Company's financial 
position, results of operations, or liquidity.

Technology Risk

Like most entities that are heavily reliant on business application computer 
software, the Company is affected by the fact that some of its computer 
systems are not year 2000 compliant. The Company has identified and is in the 
process of correcting and replacing such non-compliant systems. Costs of 
modifying existing programs are charged to expense as incurred.

Several vendor-based systems are being replaced or upgraded. Such 
replacements and upgrades also provide significant improvements in efficiency 
and functionality, in addition to being year 2000 compliant. Costs of such 
replacements and upgrades are capitalized. Capital expenditures to date for 
such replacements and upgrades have been approximately $500,000.

There is a potential risk of loss associated with customers and suppliers 
being non-compliant with respect to their systems. The Company has not 
developed an estimate of the potential cost associated with failures on the 
part of suppliers and customers. Though monitoring and measurement may be 
affected, delivery of natural gas is not dependent on computer systems, so 
management anticipates that any such losses would be minimal. Another risk 
factor is failure of customer systems, affecting their financial viability or 
their systems that are used to pay their obligations to Cascade for gas 
service.


                                 40
<PAGE>

NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following estimated fair value amounts have been determined by the 
Company, using available market information and appropriate valuation 
methodologies. However, considerable judgment is required in interpreting 
market data to develop the estimates of fair value. Accordingly, these 
estimates are not necessarily indicative of the amounts that the Company 
could realize in a current market exchange. Thus, the use of different market 
assumptions or estimation methodologies may have a material effect on the 
estimated fair value amounts. The estimated fair values have been determined 
by using interest rates that are currently available to the Company for 
issuance of instruments with similar terms and remaining maturities. The 
estimated fair value amounts, at September 30, 1998 and 1997, of financial 
instruments whose values are sensitive to market conditions are set forth in 
the following table:

<TABLE>
<CAPTION>

                                           1998                         1997
                                 Carrying        Estimated      Carrying      Estimated
(dollars in thousands)            Amount        Fair Value       Amount       Fair Value
-----------------------------------------------------------------------------------------
<S>                              <C>            <C>             <C>           <C>
Redeemable Preferred Stock       $   6,408       $   6,525      $   6,630      $   6,815
 Long-term Debt                  $ 120,650       $ 142,517      $ 121,150      $ 127,983
</TABLE>

NOTE 12 - INTERIM RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>

(thousands except                                       Quarter Ended                                 Quarter Ended
 per share data)                         9/30/98     6/30/98     3/31/98   12/31/97    9/30/97     6/30/97     3/31/97   12/31/96
----------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>         <C>         <C>        <C>        <C>         <C>         <C>        <C>
 Operating revenues                    $ 26,129    $ 36,995    $ 65,548   $ 60,984   $ 25,911    $ 33,730    $ 71,174   $ 64,971
 Gas costs and revenue taxes             13,850      21,527      38,601     35,441     14,547      19,317      43,548     39,360
                                       --------    --------    --------   --------   --------    --------    --------   --------
 Operating margin                        12,279      15,468      26,947     25,543     11,364      14,413      27,626     25,611
 Cost of operations                      12,781      14,101      14,346     13,972     12,943      13,455      13,441     13,236
                                       --------    --------    --------   --------   --------    --------    --------   --------
 Earnings (loss) from operations           (502)      1,367      12,601     11,571     (1,579)        958      14,185     12,375
 Interest and other, net                  2,500       2,400       2,415      2,484      2,229       2,241       2,249      2,330
                                       --------    --------    --------   --------   --------    --------    --------   --------
 Earnings (loss) before income taxes     (3,002)     (1,033)     10,186      9,087     (3,808)     (1,283)     11,936     10,045
 Income taxes                            (1,158)       (370)      3,817      3,405     (1,396)       (274)      4,336      3,597
                                       --------    --------    --------   --------   --------    --------    --------   --------
 Net earnings (loss)                     (1,844)       (663)      6,369      5,682     (2,412)     (1,009)      7,600      6,448
 Preferred dividends                        124         124         124        125        126         128         128        128
                                       --------    --------    --------   --------   --------    --------    --------   --------
 Net earnings (loss) available
   to Common Shareholders               ($1,968)      ($787)   $  6,245   $  5,557    ($2,538)    ($1,137)   $  7,472   $  6,320
                                       --------    --------    --------   --------   --------    --------    --------   --------
 Weighted average shares
     outstanding (as restated)           11,045      11,045      11,018     10,980     10,933      10,880      10,837     10,799
                                       --------    --------    --------   --------   --------    --------    --------   --------
 Net earnings (loss) per common
      share - basic and diluted          ($0.18)     ($0.07)   $   0.57   $   0.51     ($0.23)     ($0.10)   $   0.69   $   0.59
                                       --------    --------    --------   --------   --------    --------    --------   --------
</TABLE>


                                   41
<PAGE>

INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES

Cascade Natural Gas Corporation
     and Subsidiaries

We have audited the consolidated financial statements of Cascade natural Gas 
Corporation and subsidiaries as of September 30, 1998 and 1997, and for the 
years ended September 30, 1998 and 1997, and the nine months ended September 
30, 1996, and have issued our report thereon dated November 6, 1998; such 
consolidated financial statements and report are included in Part II of this 
Annual Report on Form 10-K. Our audits also included the consolidated 
financial statement schedule of Cascade Natural Gas Corporation, listed in 
Item 14(a)2. This consolidated financial statement schedule is the 
responsibility of the Company's management. Our responsibility is to express 
an opinion based on our audits. In our opinion, such consolidated financial 
statement schedule, when considered in relation to the basic financial 
statements taken as a whole, presents fairly in all material respects the 
information shown therein.

Deloitte & Touche LLP

Seattle, Washington
November 6, 1998


                                    42
<PAGE>

                CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES

                      VALUATION AND QUALIFYING ACCOUNTS
                          (Thousands of Dollars)

<TABLE>
<CAPTION>
                                                              
          Column A                          Column B               Column C                  Column D       Column E
                                                        -------------------------------
                                                                   Additions
                                                        -------------------------------
                                            Balance at      Charged to      Charged to                     Balance at
                                            Beginning       Costs and         Other         Deductions       End of
  Description                               of Period        Expenses        Accounts         (Note)         Period
-------------------------------           ------------  ----------------  -------------    ------------   ------------
<S>                                       <C>           <C>               <C>              <C>            <C>
Allowance for Doubtful Accounts:
  Year ended:
    September 30, 1996                            $425             440                           426           $439
    September 30, 1997                            $439             507                           417           $529
    September 30, 1998                            $529             585                           469           $645
    Note: Accounts receivable written
     off, net of recoveries
Valuation Reserve - Notes Receivable
    September 30, 1996                          $1,249             288                                       $1,537
    September 30, 1997                          $1,537             183                                       $1,720
    September 30, 1998                          $1,720             118                                       $1,838
Valuation Reserve - Investments
    September 30, 1996                            $150             154                           304             $0
    September 30, 1997                              $0               0                             0             $0
    September 30, 1998                              $0                                                           $0
</TABLE>


                                   43
<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Reference is made to the information regarding directors under the
caption "Election of Directors" on pages 1 through 3 and the caption "Section
16(a) Beneficial Ownership Reporting Compliance" on page 7 of the Proxy
Statement issued to Shareholders for the 1999 Annual Meeting (the 1999 Proxy
Statement), which information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

         Reference is made to the information regarding executive compensation
set forth in the 1999 Proxy Statement, under "Executive Compensation" on pages
10, 11, and 12, and under "Compensation Committee Interlocks and Insider
Participation" on page 13, which information is incorporated herein by
reference. Certain information concerning the executive officers of the Company
is set forth in Part I, under the caption "Executive Officers of the
Registrant."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         Reference is made to the information regarding security ownership of
certain beneficial owners and management under the caption "Security Ownership
of Certain Beneficial Owners and Management" on page 7 of the 1999 Proxy
Statement (excluding the information under the subheading "Section 16(a)
Beneficial Ownership Reporting Compliance"), which information is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Reference is made to the information regarding certain relationships
and transactions under the caption "Compensation Committee Interlocks and
Insider Participation" on page 13 of the 1999 Proxy Statement, which information
is incorporated herein by reference


                                    44
<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) 1. Financial Statements (Included in Part II of this report):

         Independent Auditors' Report
                  Consolidated Statements of Net Earnings Available to Common
                  Shareholders for the Years Ended September 30, 1998, September
                  30, 1997, and the Nine Months Ended September 30, 1996
         Consolidated Balance Sheets, September 30, 1998, and September 30, 1997
         Consolidated Statements of Common Shareholders' Equity for the Years
                  Ended September 30, 1998, September 30, 1997, and
                  the Nine Months Ended September 30, 1996
         Consolidated Statements of Cash Flows for the Years Ended
                  September 30, 1998, September 30, 1997, and the nine Months
                  Ended September 30, 1996
         Notes to Consolidated Financial Statements

(a) 2. Financial Statement Schedules (Included in Part II of this report):

         Independent Auditors' Report on Financial Statement Schedule
         Schedule II - Valuation and Qualifying Accounts

(a) 3. Exhibits:

         Reference is directed to the index to exhibits following the signature
         page of this report. Each management contract or compensatory plan or
         arrangement required to be filed as an exhibit to this report is
         identified in the list.

(b) Reports on Form 8-K:

         None.


                                    45
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

                                  CASCADE NATURAL GAS CORPORATION

     December 21, 1998                        By   /s/ J. D. Wessling
     -----------------                             -------------------
             Date                       J. D. Wessling
                                        Sr. Vice President - Finance, Chief 
                                         Financial Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

<S>                                  <C>                                       <C>
                                     Chairman of the Board,
                                     President and Chief Executive Officer
/s/    W. Brian Matsuyama            and Director                              December 21, 1998
--------------------------------     (Principal Executive Officer)             -----------------
       W. Brian Matsuyama                                                             Date
                                    
                                     Sr. Vice President - Finance,
/s/    J. D. Wessling                Chief Financial Officer                   December 21, 1998
--------------------------------     (Principal Financial Officer)             -----------------
      J. D. Wessling                                                                  Date
                                    
                                     Controller and Chief
 /s/  James E. Haug                  Accounting Officer                         December 21, 1998
--------------------------------     (Principal Accounting Officer)             -----------------
     James E. Haug                                                                    Date
                                    
 /s/  Melvin C. Clapp                Director                                   December 21, 1998
--------------------------------                                                -----------------
     Melvin C. Clapp                                                                  Date       
                                    
 /s/  Thomas E. Cronin               Director                                   December 21, 1998 
--------------------------------                                                ----------------- 
     Thomas E. Cronin                                                                 Date           
                                    
 /s/  David A. Ederer                Director                                   December 21, 1998 
--------------------------------                                                ----------------- 
     David A. Ederer                                                                  Date           
                                    
 /s/  Howard L. Hubbard              Director                                   December 21, 1998 
--------------------------------                                                ----------------- 
     Howard L. Hubbard                                                                Date           
                                    
 /s/  Larry L. Pinnt                 Director                                   December 21, 1998 
--------------------------------                                                ----------------- 
     Larry L. Pinnt                                                                   Date           
                                    
 /s/  Brooks G. Ragen                Director                                   December 21, 1998 
--------------------------------                                                ----------------- 
     Brooks G. Ragen                                                                  Date           
                                    
 /s/  Mary A. Williams               Director                                   December 21, 1998 
--------------------------------                                                ----------------- 
     Mary A. Williams                                                                 Date           
</TABLE>


                                          46
<PAGE>

         INDEX TO EXHIBITS

Exhibit
No.                                      Description
---                                      -----------

3.1      Restated Articles of Incorporation of the Registrant as amended through
         March 28, 1996. Incorporated by reference to Exhibit 3.1 to the
         Registrant's current report on Form 8-K dated
         July 18, 1996.

3.2      Restated Bylaws of the Registrant. Incorporated by reference to Exhibit
         3.2 to the Registrant's current report on Form 8-K dated July 18, 1996.

4.1      Indenture dated as of August 1, 1992, between the Registrant and The
         Bank of New York relating to Medium-Term Notes. Incorporated by
         reference to Exhibit 4 to the Registrant's current report on Form 8-K
         dated August 12, 1992.

4.2      First Supplemental Indenture dated as of October 25, 1993, between the
         Registrant and The Bank of New York relating to Medium-Term Notes.
         Incorporated by reference to Exhibit 4 to the Registrant's quarterly
         report on Form 10-Q for the quarter ended June 30, 1993.

4.3      Rights Agreement dated as of March 19, 1993, between the Registrant and
         Harris Trust and Savings Bank. Incorporated by reference to Exhibit 2
         to the Registrant's registration statement on Form 8-A dated April 21,
         1993.

4.4      First Amendment to Rights Agreement dated June 15, 1993, between the
         Registrant and The Bank of New York. Incorporated by reference to
         Exhibit 4 to the Registrant's quarterly report on Form 10-Q for the
         quarter ended June 30, 1993.

10.1     1998 Stock Incentive Plan of  the Registrant.

10.2     Service Agreement (Storage Gas Service under Rate Schedule SGS-1) dated
         January 12, 1994, between Northwest Pipeline Corporation and the
         Registrant. Incorporated by reference to Exhibit 10.2 to the
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         1993 (1993 Form 10-K).

10.3     Service agreement (assigned Storage Gas Service under Rate Schedule
         SGS-1) dated January 12, 1994, between Northwest Pipeline Corporation
         and the Registrant. Incorporated by reference to Exhibit 10.3 to the
         Registrant's 1993 Form 10-K.

10.4     Service Agreement (Liquefaction -- Storage Gas Service under Rate
         Schedule SGS-1) dated January 12,1994, between Northwest Pipeline
         Corporation and the Registrant. Incorporated by reference to Exhibit
         10.4 to the Registrant's 1993 Form 10-K.

10.5     Gas Purchase Agreement dated November 1, 1990, between Mobil Oil Canada
         and the Registrant. Incorporated by reference to Exhibit 10-6 to the
         1991 Form 10-K.

10.6     Consent to Assignments, Dated June 1, 1997, which assigns from
         Westcoast Gas Services Inc. (WGSI), to Engage Energy Canada, L.P.
         (Engage) all the rights and obligations as specified in the contracts
         contained herein as Exhibit Nos. 10.7, 10.9, and 10.22. Incorporated by
         reference to Exhibit 10.6 to the Registrant's Annual Report on Form
         10-K for the year ended December 31,1997 (1997 Form 10-K)

10.7     Amendment dated October 9, 1997 to Natural Gas Sales Agreement dated
         November 1, 1990, between Canadian Hydrocarbons Marketing, Inc., and
         the Registrant, as amended by the Consent to Assignments dated June 1,
         1997. Incorporated by reference to Exhibit 10.7 to the Registrant's
         1997 Form 10-K. A PORTION OF THIS AGREEMENT IS SUBJECT TO A REQUEST FOR
         CONFIDENTIAL TREATMENT.

10.9     Long Term Gas Sales Agreement dated August 26, 1993, between Canadian
         Hydrocarbons Marketing Inc., and the Registrant, as amended by the
         Consent to Assignments dated June 1, 1997. Incorporated by reference to
         Exhibit 10.2 to amendment no. 1 to the Registrant's quarterly report on
         Form 10-Q/A for the quarter ended September 30, 1993.


                                      47
<PAGE>

10.11    Gas transportation agreement between Pacific Gas Transmission Company
         and the Registrant dated as of April 30, 1997. Incorporated by
         reference to Exhibit 10.11 to the Registrant's 1997 10-K.

10.12    Replacement Firm Transportation Agreement dated July 31, 1991, between
         Northwest Pipeline Corporation and the Registrant. Incorporated by
         reference to Exhibit 10(1) to the 1992 Form S-2.

10.12.1  Amendments dated August 20, 1992, November 1, 1992, October 20, 1993,
         and December 17, 1993, to Replacement Firm Transportation Agreement
         dated July 31, 1991, between Northwest Pipeline Corporation and the
         Registrant. Incorporated by reference to Exhibit 10.12.1 to the
         Registrant's 1993 Form 10-K.

10.13    Firm Transportation Service Agreement dated April 25, 1991, between
         Pacific Gas Transmission Company and the Registrant (1993 expansion).
         Incorporated by reference to Exhibit 10(m) to the 1992 Form S-2.

10.14    Firm Transportation Service Agreement dated October 27, 1993, between
         Pacific Gas Transmission Company and the Registrant. Incorporated by
         reference to Exhibit 10.14 to the Registrant's 1993 Form 10-K.

10.17    Storage Agreement dated July 23, 1990, between Washington Water Power
         Company and the Registrant. Incorporated by reference to Exhibit 10(v)
         to the 1992 Form S-2.

10.17.1  Second amendment to the agreement for the release of Jackson Prairie
         Storage Capacity dated as of July 30, 1997, amending the Storage
         Agreement dated July 23, 1990, between Washington Water Power Company
         and the Registrant. Incorporated by reference to Exhibit 10.17.1 to the
         Registrant's 1997 Form 10-K.

10.18    Service Agreement (Firm Redelivery Transportation Agreement under Rate
         Schedule TF-2 for Cascade's SGS-1) dated January 12, 1994, between
         Northwest Pipeline Corporation and the Registrant. Incorporated by
         reference to Exhibit 10.18 to the Registrant's Annual Report on Form
         10-K for the year ended December 31, 1994.

10.19    Service Agreement (Firm Redelivery Transportation Agreement under Rate
         Schedule TF-2 for Cascade's assignment of SGS-1 from WWP) dated January
         12, 1994, between Northwest Pipeline Corporation and the Registrant.
         Incorporated by reference to Exhibit 10.19 to the Registrant's Annual
         Report on Form 10-K for the year ended December 31, 1994.

10.20    Service Agreement (Firm Redelivery Transportation Agreement under rate
         Schedule TF-2 for Cascade's LS-1) dated January 12, 1994, between
         Northwest Pipeline Corporation and the Registrant. Incorporated by
         reference to Exhibit 10.20 to the Registrant's Annual Report on Form
         10-K for the year ended December 31, 1994.

10.21    Gas Purchase Contract dated October 1, 1994, between IGI Resources,
         Inc. and the Registrant, as amended by Amended Exhibit A, effective
         October 1, 1997. Incorporated by reference to Exhibit 10.21 to the
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         1994.

10.21.1  Amended Exhibit A, effective October 1, 1997, to Gas Purchase Contract
         dated October 1, 1994, between IGI Resources, Inc. and the Registrant.
         Incorporated by reference to Exhibit 10.21.1 to the Registrant's 1997
         Form 10-K. A PORTION OF THIS AGREEMENT IS SUBJECT TO A REQUEST FOR
         CONFIDENTIAL TREATMENT

10.22    Amended and restated Natural Gas Sales Agreement dated August 17, 1994,
         between Westcoast Gas Services, Inc. and Registrant which replaces and
         substitutes for the Kingsgate Gas Sales Agreement dated September 23,
         1960, as amended by the Consent to Assignments dated June 1, 1997, and
         the letter amendment dated October 8, 1997. Incorporated by reference
         to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the
         year ended December 31, 1994.

10.22.1  Letter amendment dated October 8, 1997, to Amended and restated Natural
         Gas Sales Agreement dated August 17, 1994, between Westcoast Gas
         Services, Inc. and Registrant which replaces and substitutes


                                     48
<PAGE>

         for the Kingsgate Gas Sales Agreement dated September 23, 1960.
         Incorporated by reference to Exhibit 10.22.1 to the Registrant's
         1997 Form 10-K. A PORTION OF THIS AGREEMENT IS SUBJECT TO A REQUEST
         FOR CONFIDENTIAL TREATMENT

10.23    Firm Transportation Service Agreement dated November 4, 1994, between
         Pacific Gas Transmission and the Registrant, effective November 1,
         1995. Incorporated by reference to Exhibit 10.23 to the Registrant's
         Annual Report on Form 10-K for the year ended December 31, 1994.

10.24    Firm Transportation Agreement dated August 1, 1994, between Northwest
         Pipeline Corporation and Registrant. Incorporated by reference to
         Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the
         year ended December 31, 1994.

10.25    Prearranged Permanent Capacity Release of Firm Natural Gas
         Transportation Agreements dated November 30, 1993 between Tenaska Gas
         Co., Tenaska Washington Partners, L.P. and Registrant. Incorporated by
         reference to Exhibit 10.25 to the Registrant's Annual Report on Form
         10-K for the year ended December 31, 1994.

10.26    Agreement for Peak Gas Supply Service dated August 1, 1992, between
         Tenaska Gas Co., Tenaska Washington Partners, L.P., and Registrant.
         Incorporated by reference to Exhibit 10.26 to the Registrant's Annual
         Report on Form 10-K for the year ended December 31, 1994.

10.27    Agreement for Peaking Gas Supply Service dated November 22, 1991,
         between Longview Fibre Company and Registrant, as amended by the
         Amendment No. 3 to Agreement for Peaking Gas Service, dated as of
         October 2, 1997. Incorporated by reference to Exhibit 10.27 to the
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         1994.

10.27.1  Amendment No. 3 to Agreement for Peaking Gas Service, dated as of
         October 2, 1997. Incorporated by reference to Exhibit 10.27.1 to the
         Registrant's 1997 Form 10-K.

10.29    1991 Director Stock Award Plan of the Registrant.* Incorporated by
         reference to Exhibit 10(n) to the 1992 Form S-2.

10.30    Executive Supplemental Income Retirement Plan of the Registrant and
         Supplemental Benefit Trust as amended and restated as of May 1, 1989,
         as amended by Amendment No. 1 dated July 1, 1991.* Incorporated by
         reference to Exhibit 10(o) to the 1992 Form S-2.

10.31    Form of employment agreement between the Registrant and W. Brian
         Matsuyama, and each other executive officers of the registrant *
         Incorporated by reference to Exhibit 10(p) to the 1992 Form S-2.

12.      Statement regarding computation of ratio of earnings to fixed charges
         and preferred dividend requirements.

21.      A list of the Registrant's subsidiaries is omitted because the
         subsidiaries considered in the aggregate as a single subsidiary do not
         constitute a significant subsidiary.

23.      Consent of Deloitte & Touche LLP to the incorporation of their report
         in the Registrant's registration statements.

27.      Financial Data Schedule.

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

* Management contract or compensatory plan or arrangement.


                                              49