<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, 1999 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 December
14, 1999, was $182,179,824

         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 December 14, 1999

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's definitive proxy statement for its 2000
Annual Meeting of Shareholders are incorporated by reference into Part III,
Items 10, 11, 12, and 13.

                                       1
<PAGE>

                         CASCADE NATURAL GAS CORPORATION

      ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K
                  For the Fiscal Year Ended September 30, 1999

                                Table of Contents

<TABLE>
<CAPTION>
Number                                                                         Page
------                                                                         ----
<S>                                                                            <C>
Part I

         Item  1 - Business                                                      3
         Item  2 - Properties                                                    7
         Item  3 - Legal Proceedings                                             8
         Item  4 - Submission of Matters to a Vote of Security Holders           8
         Executive Officers of the Registrant                                    8

Part II

         Item  5 - Market for Registrant's Common Equity and
                           Related Stockholder Matters                           9
         Item  6 - Selected Financial Data                                      10
         Item  7 - Management's Discussion and Analysis of Financial
                           Condition and Results of Operations                  12
         Item  7a- Quantitative and Qualitative Disclosures about Market Risk   18
         Item  8 - Financial Statements and Supplementary Data                  20
         Item  9 - Changes in and Disagreements With Accountants on
                           Accounting and Financial Disclosure                  41

Part III

         Item 10 - Directors and Executive Officers of the Registrant           41
         Item 11 - Executive Compensation                                       41
         Item 12 - Security Ownership of Certain Beneficial Owners
                           and Management                                       41
         Item 13 - Certain Relationships and Related Transactions               41

Part IV

         Item 14 - Exhibits, Financial Statement Schedules and
                           Reports on Form 8-K                                  42

Signatures                                                                      43

Index to Exhibits                                                               44
</TABLE>

                                       2
<PAGE>

PART I
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 81% of its gas distribution revenues are
from customers in the state of Washington.

         As of September 30, 1999, the Company had approximately 177,162 core
customers and 189 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 18% of gas deliveries and 70% 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.

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 incremental change in the actual cost of gas supplies, as
compared to the forecasted cost reflected in the PGA, is deferred. The remaining
33% (increase or decrease) is absorbed by the Company. This mechanism is
intended to encourage the Company to seek opportunities to lower its cost of
supplies and to be innovative in its management of the supply portfolio to avoid
price spikes.

         Cascade has an earnings sharing mechanism with respect to its Oregon
jurisdictional operations. See "Regulatory Matters" under Item 7 for a
description of the mechanism.

         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 1999 with both the WUTC and the OPUC. The IRP
shows the Company's optimum set of supply and demand side resources that
minimizes costs and risk over the twenty-year planning horizon. The IRP also
sets forth possible core customer growth scenarios 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

                                      3
<PAGE>

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.

NATURAL GAS SUPPLY

         The majority of Cascade's supply of natural gas is transported via
Williams Gas Pipelines - West (Williams). 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 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. Cascade also
receives natural gas directly from Westcoast Energy, Inc. at the Canadian border
near Sumas, Washington.

         Presently, baseload requirements for Cascade's core market group are
provided by six major gas supply contracts with various expiration dates from
2000 through 2008 and totaling 764,830 therms per day. Approximately 90% 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 Avista 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 a
contract with a major industrial customer whereby the customer agrees to switch
to alternate fuel allowing Cascade to reduce firm deliveries to that customer.
Cascade then takes the customer's firm gas supply and pipeline capacity to serve
its core markets. In return, Cascade reimburses the customer for the cost of its
alternate fuel and pipeline capacity. Since the customer 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 an even greater
accommodation of late day demand spikes. Because the customer'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. This peak shaving
agreement, which expires in 2014, entitles Cascade to call on 150,000 therms per
day up to a seasonal total of 3,000,000 therms.

         During 1999, Cascade purchased approximately 90% of its gas supplies
from firm gas supply contracts and 10% from 30-day spot market contracts. In
addition, 912 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 price
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.

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

                                      4
<PAGE>

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. As a consequence, limitations on gas
cost recovery could be imposed even when actual earnings were lower than the
OPUC staff's ceiling. Effective December 1, 1998, 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.

         Cascade's current gas supply portfolio for Oregon core customers is
comprised mostly 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 the
period beginning December 1998 through September 1999, under the new
arrangement, Cascade's 33% share of savings achieved totaled $116,000.

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 issues are pending before
FERC, or are on appeal before the U.S. Court of Appeals. The final outcome may
affect 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 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 conditions. 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 will 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 conduct of Cascade's present business.
Franchises expire on various dates from 2000 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.

                                      5

<PAGE>

         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, clay and ceramic products, refining of crude
oil, producing and forming of aluminum, the processing, flash freezing 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 tends to decrease as the availability of hydroelectric generation
increases.

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, 1999, 64% of operating revenues and 89% of earnings from
operations were derived from the first two quarters (October 1998 through March
1999). 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 influenced
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, propane, 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, natural gas enjoys the
advantage of being the preferred energy choice by builders for new home
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. Cascade has not experienced any significant loss of sales
to alternate fuels to these customers during the last ten years, even though
there have been periods when the residual fuel oil prices were lower than
natural gas.

         In addition to multiple alternative fuels, the Company is subject to
bypass. 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. In addition, other sellers of natural gas compete to sell the natural
gas commodity over the Company's pipelines to its distribution customers.

         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.

                                      6
<PAGE>

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 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. Capital expenditures for the five years ended September 30, 1999
totaled approximately $134.7 million, and the budget for fiscal 2000 is $23.5
million. Fiscal 1999 capital expenditures were $17.2 million, $6.6 million less
than the prior year, due to improved cost controls, higher contributions by
customers, the rescheduling of certain projects, and lower technology
expenditures.

         The Company is currently forecasting that capital expenditures will
total approximately $124 million over the next five years, reflecting
expectations that customer growth will continue at a pace similar to recent
experience but that spending on system reinforcement will be lower. 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. The subsidiary ceased making new loans
in September 1997. 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.

PERSONNEL

         At September 30, 1999, Cascade had 451 employees. Of the total
employees, 207 are represented by the International Chemical Workers Union. The
present contract with the union extends to April 1, 2001, 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.

ITEM 2. PROPERTIES

         At September 30, 1999, Cascade's utility plant investments included
approximately 4,412 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 2,846 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 buildings used for operations, office
space and warehousing in Washington and seven such buildings in Oregon. It
leases an additional seven commercial offices and

                                      7
<PAGE>

warehouse buildings. 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.

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.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company, as of December 1, 1999, 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                     53        1987

Jon T. Stoltz              Senior Vice President -
                           Planning, Regulatory
                           & Consumer Affairs                          52        1981

J. D. Wessling             Senior Vice President - Finance
                           and Chief Financial Officer                 56        1995

Larry E. Anderson          Vice President -
                           Operations                                  51        1995

King C. Oberg              Vice President -
                           Gas Supply                                  58        1993

James E. Haug              Controller and Chief
                           Accounting Officer                          50        1981

Larry C. Rosok             Vice President - Human Resources
                           and Corporate Secretary                     43        1995
</TABLE>

         None of the above officers is related by blood, marriage or adoption to
any other of the above named officers. 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.

                                      8
<PAGE>

PART II

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 1999                       Fiscal 1998
                                  -----------                       -----------
                 Quarter        High        Low                   High        Low
                 -------        ----        ---                   ----        ---
             <S>              <C>         <C>                    <C>         <C>
             December 31      $18-9/16    $16-1/8                $19         $16-1/2
             March 31          18-1/8      14-15/16               18-9/16     15-1/2
             June 30           19          14-5/8                 17-3/16     15-5/16
             September 30      18-11/16    16-9/16                16-1/2      14-5/8
</TABLE>

         At November 24, 1999, there were approximately 7,407 holders of the
Common Stock. The following table shows for the periods indicated the dividends
paid per share on the Common Stock.

<TABLE>
<CAPTION>
           Quarter                     1999                   1998
           -------                     ----                   ----
         <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>

                                      9
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

(dollars in thousands except per share data)

<TABLE>
<CAPTION>
                                                    Year Ended     Year Ended     Year Ended   Nine Months    Year Ended
                                                      Sep 30         Sep 30         Sep 30     Ended Sep 30     Dec 31
                                                       1999           1998           1997          1996          1995
                                                  -------------  -------------  -------------  -------------  -----------
<S>                                               <C>            <C>            <C>            <C>            <C>
STATEMENTS OF OPERATIONS:
 Operating Revenues                                   $208,610       $189,656       $195,786       $127,665     $182,744
 Less: Gas Purchases                                   109,263         97,382        104,342         69,679      102,858
      Revenue Taxes                                     13,280         12,037         12,430          8,420       11,480
                                                  -------------  -------------  -------------  -------------  -----------
 Operating Margin                                       86,067         80,237         79,014         49,566       68,406
                                                  -------------  -------------  -------------  -------------  -----------
 Cost of Operations:
      Operating expenses                                36,313         37,310         35,670         25,058       30,818
      Depreciation and amortization                     12,841         13,470         13,416          9,362       11,733
      Property and payroll taxes                         4,574          4,420          3,989          3,181        4,051
                                                  -------------  -------------  -------------  -------------  -----------
                                                        53,728         55,200         53,075         37,601       46,602
                                                  -------------  -------------  -------------  -------------  -----------
 Earnings From Operations                               32,339         25,037         25,939         11,965       21,804
                                                  -------------  -------------  -------------  -------------  -----------
 Nonoperating Expense (Income):
      Interest                                          10,486         10,132          9,436          7,459        9,938
      Interest charged to construction                    (383)          (550)          (532)          (569)        (394)
                                                  -------------  -------------  -------------  -------------  -----------
                                                        10,103          9,582          8,904          6,890        9,544
      Amortization of debt issuance expense                603            605            612            459          606
      Other                                               (495)          (388)          (467)           (2)         (586)
                                                  -------------  -------------  -------------  -------------  -----------
                                                        10,211          9,799          9,049          7,347        9,564
                                                  -------------  -------------  -------------  -------------  -----------
 Earnings Before Income Taxes                           22,128         15,238         16,890          4,618       12,240
 Income Taxes                                            8,075          5,694          6,263          1,606        4,508
                                                  -------------  -------------  -------------  -------------  -----------
 Net Earnings                                           14,053          9,544         10,627          3,012        7,732
 Preferred Dividends                                       483            497            510            393          539
                                                  -------------  -------------  -------------  -------------  -----------
 Net Earnings Available to
     Common Shareholders                              $ 13,570       $  9,047      $  10,117       $  2,619      $ 7,193
                                                  =============  =============  =============  =============  ===========
 Net Earnings per Common Share
      (Basic and diluted)                             $   1.23       $   0.82      $    0.93       $   0.28      $  0.80
</TABLE>

                                      10

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
(dollars in thousands except per share data)

<TABLE>
<CAPTION>
                                                                      At September 30                      At Dec 31
                                                   ---------------------------------------------------     ---------
                                                        1999          1998          1997          1996          1995
<S>                                                <C>           <C>           <C>           <C>           <C>
RETAINED EARNINGS:
     Beginning of the year                         $   3,003     $   4,553     $   4,901     $   9,297     $  10,806
     Net earnings available to
         common shareholders                          13,570         9,047        10,117         2,619         7,193
     Common dividends                                (10,603)      (10,597)      (10,465)       (7,015)       (8,702)
                                                   -----------------------     -----------------------     ---------
     End of the year                               $   5,970     $   3,003     $   4,553     $   4,901     $   9,297
                                                   -----------------------     -----------------------     ---------

CAPITAL STRUCTURE:
     Common shareholders' equity                   $ 114,395     $ 111,428     $ 111,662     $ 109,126     $  89,539
     Redeemable preferred stocks                       6,186         6,408         6,630         6,851         6,851
                                                   -----------------------     -----------------------     ---------
     Debt:
         Long-term debt                              125,000       110,650       121,150       101,850       102,100
         Notes Payable and Commercial Paper             --           6,929        12,900          --          32,000
         Current maturities of long-term debt           --          10,000          --            --            --
                                                   -----------------------     -----------------------     ---------
                                                     125,000       127,579       134,050       101,850       134,100
                                                   -----------------------     -----------------------     ---------
     Total capital                                 $ 245,581     $ 245,415     $ 252,342     $ 217,827     $ 230,490
                                                   =======================     =======================     =========

FINANCIAL RATIOS:
     Return on common shareholders' equity             11.52%         7.77%         8.75%         8.09%         8.12%
     Common stock dividend payout ratio                   78%          117%          103%          257%          120%
     Cash dividends declared per common share      $    0.96     $    0.96     $    0.96     $    0.72     $    0.96

     Fixed charge coverage (before income
         tax deduction):
         Times interest earned                          3.00          2.42          2.68          2.17          2.16
         Times interest and preferred
             dividends earned                           2.80          2.26          2.48          2.01          2.00

     Book value per year-end share
         of common stock                           $   10.33     $   10.09     $   10.18     $   10.12     $    9.79

     Capitalization Ratios at End of Year
         Common shareholders' equity                    46.6%         45.4%         44.3%         50.1%         39.6%
         Preferred stock                                 2.5%          2.6%          2.6%          3.1%          3.3%
         Long-term debt (incl. current)                 50.9%         49.2%         48.0%         46.8%         48.4%
         Short-term debt                                 0.0%          2.8%          5.1%          0.0%          8.7%
                                                   -----------------------     -----------------------     ---------
                                                       100.0%        100.0%        100.0%        100.0%        100.0%
                                                   -----------------------     -----------------------     ---------

UTILITY PLANT:
     Utility plant - end of year                   $ 453,278     $ 433,568     $ 416,365     $ 383,771     $ 362,924
     Accumulated depreciation                        177,878       167,356       160,332       147,599       138,831
                                                   -----------------------     -----------------------     ---------
     Net plant                                     $ 275,400     $ 266,212     $ 256,033     $ 236,172     $ 224,093
                                                   =======================     =======================     =========
     Capital expenditures, net
         of contributions in aid                   $  17,262     $  23,780     $  21,626     $  26,053     $  37,637
                                                   =======================     =======================     =========
     Total assets                                  $ 315,569     $ 311,511     $ 307,703     $ 296,381     $ 296,898
                                                   =======================     =======================     =========
</TABLE>

                                      11
<PAGE>

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

         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 and cash flows for the fiscal years ended September 30,
1999, 1998, and 1997.

EARNINGS PER SHARE

         Net earnings available to common shareholders were $13,570,000, or
$1.23 per common share for fiscal 1999, representing a 50% improvement over the
$9,047,000, or $0.82 per common share, reported for fiscal 1998. The improvement
in earnings is primarily the result of higher operating margins. Reductions in
operating expenses and depreciation also contributed to the improvement.

OPERATING MARGIN

         RESIDENTIAL AND COMMERCIAL MARGIN for the fiscal years ended September
30, 1999, 1998, and 1997 are set forth in the table below:

Residential and Commercial Operating Margins
(dollars in thousands)

<TABLE>
<CAPTION>
                                   (12 months ended September 30)
                                     1999       1998       1997
-----------------------------------------------------------------
<S>                                <C>        <C>        <C>
Degree Days                           5,535      5,031      5,525
Average Number of Customers
  Residential                       150,068    142,537    134,857
  Commercial                         26,360     25,409     24,682
Average Therm Usage Per Customer
  Residential                           799        747        817
  Commercial                          4,058      3,931      4,348
Operating Margin
  Residential                      $ 35,072   $ 30,436   $ 29,725
  Commercial                       $ 21,886   $ 19,648   $ 20,523
</TABLE>

         Fiscal 1999 operating margins from sales to residential and commercial
customers were up $6,874,000, or 13.7%, compared to fiscal 1998. The primary
factors contributing to this improvement were increased per-customer gas usage,
increased number of customers, and a $1 per month increase in the monthly
service charge paid by Washington customers.

         Approximately $2.8 million of the increase is attributable to increased
consumption per customer, largely due to colder weather. Weather in fiscal 1999,
as measured by heating degree-days, while approximately 2% warmer than normal,
was 10% colder than fiscal 1998. Improvement of approximately $2.4 million was
the result of the 5% increase in the number of customers.

         A $1 per month service charge increase added approximately $1.3 million
in margin. The increase was offset by a corresponding decrease in the rates
charged to industrial customers. This shift in rate responsibility was approved
by the Washington Utilities & Transportation Commission (WUTC) effective August
1, 1996. The approval provided for a phased in shift of rate responsibility in
three annual increments, on August 1, 1996, 1997, and 1998. The intended result
was to produce no direct bottom line impact.

                                      12
<PAGE>

         1998 VERSUS 1997. 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, or $0.23 per share, compared to 1997. 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
was described above. 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.

         INDUSTRIAL AND OTHER MARGIN in fiscal 1999 decreased $840,000, or 2.8%
from fiscal 1998. Approximately $1.3 million represents the rate reduction
offset for the increased residential and commercial service charges. Also in
1999, margins from the sales of spot market gas declined $519,000. Partially
offsetting these decreases is approximately $800,000 in margins from 70, mostly
smaller, new industrial customers and $700,000 from consumption increases by
existing industrial customers.

         1998 VERSUS 1997. Margins from industrial and other customers in fiscal
1998 increased $1.4 million or 4.8% over fiscal 1997. This improvement was
primarily due to greater deliveries to the Company's electric generation
customers. The higher demand for gas-fired generation was driven in part by the
diminished availability of hydroelectric generation, resulting from the previous
winter's low snowfall in the northwest. The addition of several smaller
industrial customers also contributed to the improvement in operating margins.

         Partially offsetting the margin improvements from industrial customers
for both 1997 and 1998 were rate reductions equivalent to the amount derived
from the higher monthly service charges to residential and commercial customers
(see "Residential and Commercial Margin").

COST OF OPERATIONS

         Cost of operations, which consists of operating expenses, depreciation
and amortization, and property and payroll taxes, was $53.7 million, $55.2
million, and $53.1 million for the fiscal years ended September 30, 1999, 1998,
and 1997, respectively.

         OPERATING EXPENSES for fiscal 1999, which are primarily labor and
benefits expenses, decreased $997,000, or 2.7% from 1998. Improved efficiencies
have resulted in the reduction of 22 personnel positions since the end of 1998.
The average employee count in 1999 was 468 compared to 483 in 1998, and these
reductions were achieved through normal attrition and early retirements. As a
result of these staffing reductions, savings in labor expense of $946,000 were
realized in 1999 compared to 1998. In addition, overtime pay decreased $137,000.
These reductions were offset by $1.3 million of normal wage and salary rate
increases, and incentive compensation accruals for all salaried employees.

         Additional reductions were achieved in other expense categories,
including administrative, advertising, and operations.

                                      13
<PAGE>

         For fiscal 1998, operating 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.

         DEPRECIATION AND AMORTIZATION for fiscal 1999 decreased $629,000, or
4.7% from 1998. Based on results of a depreciation study, conducted during 1998,
the Company implemented lower depreciation rates effective with the fourth
quarter of fiscal 1998. The annual effect of the lower rates is an approximate
$2 million reduction in depreciation expense. The effect on the comparison of
fiscal 1999 to 1998 is approximately $1.5 million. Incremental depreciation
expense on new assets placed in service was approximately $900,000.

         For fiscal 1998, depreciation and amortization increased by $54,000 or
0.4% over fiscal 1997. Lower depreciation rates as of July 1, 1998 resulted in
decreased expense by approximately $500,000, offsetting the effect of additions
to depreciable utility plant.

         PROPERTY AND PAYROLL TAXES for fiscal 1999 were higher by $154,000, or
3.5% compared to fiscal 1998. Of the increase, $111,000 is 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. The amount refunded to customers varied each
year and was set by the OPUC. 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 completed in the first quarter of fiscal 1998.

         Property and payroll taxes in 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 as discussed in the
preceding paragraph.

NONOPERATING EXPENSE (INCOME)

         Interest expense for 1999 increased by $354,000 or 3.5% from fiscal
1998. The increase was due primarily to higher long-term debt, higher average
short-term debt and deferred gas cost balances. Interest charged to construction
decreased $167,000 because of lower construction expenditures and lower balances
in construction work in progress. Other income increased $107,000, mainly
because of a gain of $174,000 on the sale of non-utility property, partially
offset by reductions in interest and other income of $67,000.

         Interest expense for 1998 increased by $696,000 or 7.4% from fiscal
1997. The increase was 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.

INCOME TAXES

         The increase in the provision for federal and state income taxes is
attributable to improvements in pre-tax earnings. The average effective income
tax rate for 1999 is 36.5%, compared to 37.4% for 1998 and 37.1% for 1997.
Increases in pretax income mitigate the effective rate impact of the differences
between the statutory and effective tax rates.

                                      14
<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. This agreement expires in
September 2000; however, the Company is currently finalizing terms for a new
5-year agreement. The Company uses the facility to meet short-term needs as well
as to support a money market facility and a commercial paper facility of a
similar amount. The annual commitment fee is 1/8 of one percent. The Company
also has $30 million of uncommitted lines from three banks.

         A Medium-Term Note program provides longer term financing with $125
million outstanding at September 30, 1999. There is $15 million remaining
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

         Cash from operating activities, less cash dividends paid, provided 100%
of capital expenditures in fiscal 1999. Although net earnings for fiscal 1999
were higher by $4,509,000 than for 1998, net cash provided by operating
activities was $28,178,000, compared to $38,564,000 last year. Affecting the
comparison was the difference in cash flows from changes in current assets and
liabilities. This change is primarily the result of timing differences related
to changes in accounts receivable, accounts payable, and accrued taxes.

INVESTING ACTIVITIES

         Cash used by investing activities in fiscal 1999 was $16.1 million,
compared to $22.9 million in 1998. Capital expenditures in fiscal 1999 were
lower due to several factors, including delays until the first quarter of fiscal
2000 in the completion of facilities to serve a major new customer and lower
expenditures on distribution system reinforcement projects. Also, new
feasibility rules applicable to the Company's Washington operations have had the
desired effect of discouraging marginally feasible new customer hookups or
requiring marginal customers to contribute more toward the cost of new plant.
Under the new rules, customers are required to contractually commit to install
appliances that will utilize enough gas to make the Company's investment in
plant profitable.

         Budgeted capital expenditures for fiscal 2000 are approximately $23.5
million, which is expected to be financed approximately 75% from operating
activities, and 25% from debt financing.

FINANCING ACTIVITIES

         Cash used for financing activities was $14.0 million in fiscal 1999,
and $16.5 million in 1998. Other than the payment of dividends, the principal
financing activities in 1999 involved replacement of debt. During the first
quarter the Company redeemed $10 million of medium-term notes, which matured in
December. This redemption was funded with short-term debt. In March, the Company
issued $15 million of new 7.098% medium-term notes with a 30-year maturity.
Proceeds were used primarily to pay down short-term debt. At September 30, 1999,
the Company had no short-term debt.

         In the first quarter of fiscal 2000, the Company redeemed the $6
million, 7.85% cumulative preferred stock. This redemption was funded with
short-term debt.

                                      15

<PAGE>

REGULATORY MATTERS

         In the first quarter of fiscal 1999, the OPUC approved the agreement
that had been reached between the Company and the OPUC Staff regarding an
Earnings Sharing Mechanism. Under that mechanism, first effective for calendar
year 1999, Cascade shares with its Oregon customers one third of earnings that
exceed a return on equity (ROE) ceiling. The ROE ceiling will be adjusted over
time based upon the change in the average US Treasury 5, 7, and 10-year bond
rates. Based upon current bond rates, the ROE ceiling before any sharing occurs
is 12.60%. The estimated effect of this sharing arrangement for the first nine
months of calendar 1999 is $204,000. The approved agreement also dropped
previous limitations that allowed recovery of certain gas cost increases only if
earnings, adjusted for normal weather, were below set return levels. Management
believes the new mechanisms are favorable, in that they should reduce the risk
of losing the benefit of efficiency gains and the risk of being unable to
recover actual costs of gas.

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. The 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
initial report has been furnished to the Oregon Department of Environmental
Quality (DEQ). The owner has reached an intergovernmental agreement with the DEQ
with respect to further investigation and possible remediation of contamination
on the property under 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 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 retained an environmental consultant who conducted a
preliminary investigation of 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 has investigated title and other government records
to identify other potentially liable parties. The Company has notified the other
identified parties of the contamination claims, and has requested cooperation
and financial contribution.

                                      16
<PAGE>

         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 READINESS DISCLOSURE

         This Year 2000 Readiness Disclosure is based in part on information
provided to the Company by outside suppliers and vendors. While the Company
believes this outside information is accurate, Cascade is not the source of this
information and has not independently verified the information submitted by
third parties.

         Cascade is heavily reliant on computers for internal and external
information processing. The Year 2000 issue is the result of computer systems
and other equipment with embedded processors that use two digits rather than
four to define a year date. Problems can occur when computer applications fail
to distinguish between the year 1900 and 2000. To mitigate potential problems
associated with this issue, Cascade began in 1996 to address the compliance of
those computers and systems that are critical to business operations. In
addressing this issue, the Company employed a five-phase process: 1) organize
and inventory all peripherals, applications, software, metering equipment,
communications equipment and date-related logic systems that could be impacted;
2) assess those systems that require modification or replacement; 3) upgrade or
replace non-compliant equipment and systems; 4) test and validate all mission
critical systems and implement test data migration plans and procedures for
large applications; and 5) place compliant systems and equipment into service.

         The Company has also engaged in a process to assess upstream suppliers
including pipeline companies, vendors and other utilities of their compliance
status. To date, the Company has received communications from substantially all
significant suppliers and vendors. While no company can provide assurance that
suppliers will be compliant, Cascade has not received indication that any major
third party will have a compliance problem adversely affecting its ability to
conduct business. Cascade believes those statements it has received are
accurate, however the company is not the source of this information and has not
independently verified the information. The Company continues to monitor the
compliance process of external systems, suppliers and vendors.

RISKS

         Despite efforts to address all significant Year 2000 issues in advance,
the company could potentially experience disruptions to some aspects of its
activities or operations, including, but not limited to, delays in payments to
the company from customers. Currently, Cascade has not received any indication
that customers, third party suppliers or vendors will experience problems that
could impact Cascade. However, there can be no guarantee that the systems of
other companies with whom the Company transacts business will be timely
converted.

         In the unlikely event that internal computer systems fail due to a year
2000 compliance problem, business processes that may be interrupted include:
automated 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 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.

STATE OF READINESS

         Management believes that all mission critical systems have been
identified. The Company has upgraded or replaced most of its third-party
financial and distribution system monitoring hardware and software and has
established that these systems are now Year 2000 compliant. All of the Company's
personal computers, embedded building and office systems, and fleet vehicles
have also been assessed, tested, and verified to be compliant. Corrections to
internally developed software, including billing, cash receipts processing, and
payroll are complete and have tested to be compliant. The company's new SCADA
system, which monitors natural gas pressure and volume on the Company's
distribution system, was fully tested and placed into service in December 1999.

                                      17
<PAGE>

COSTS OF YEAR 2000 COMPLIANCE

         The Company has used a combination of internal and external resources
to make necessary modifications to existing systems. The Company does not
separately track the direct costs associated with such internal personnel, which
primarily consist of salary and benefits. Costs 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. Such delays are not expected to have a material adverse effect on
the Company or its competitive position.

         Fiscal Year 1999, capital expenditures to replace non-compliant vendor
based systems total approximately $769,000. Project-to-date expenditures total
approximately $1.3 million. Estimated total capital expenditures are expected to
be $1.9 million. Though Year 2000 compliance is the primary motivating factor
for these system replacements, management anticipates other significant
improvements from these systems as 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 PLANNING

         The Company has given consideration to several worst-case Year 2000
scenarios and has developed a YEAR 2000 BUSINESS CONTINUITY AND DISTRIBUTION
SYSTEM MONITORING PLAN that outlines manual monitoring and operating procedures
of critical facilities. The Company's Plan will be enacted in the event there
are short-term failures to purchased power, gas supplies, telecommunications,
and internal computer systems. The plan addresses key operating processes and
the roles of individuals in the event of such failures.

         Management believes the most likely worst case scenario is that
necessary program code modifications of legacy computer systems may have been
overlooked. The response to such an event is the dedication of available
programming staff to correct the problem. The Company reviews and updates its
remediation schedule and contingency plan as needed.

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.

                                      18
<PAGE>

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.





                                      19
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

Board of Directors
Cascade Natural Gas Corporation
Seattle, Washington

We have audited the consolidated balance sheets of Cascade Natural Gas
Corporation and subsidiaries (the Corporation) as of September 30, 1999 and
1998, and the related consolidated statements of net earnings available to
common shareholders, common shareholders' equity, and cash flows for the years
ended September 30, 1999, 1998 and 1997. These financial statements are the
responsibility of the Company'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, 1999 and 1998, and the results of its
operations and its cash flows for the years ended September 30, 1999, 1998 and
1997, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Seattle, Washington

November 5, 1999

                                      20
<PAGE>

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

(Dollars in thousands except per share data)

<TABLE>
<CAPTION>
                                                             Year Ended September 30,
                                                 -------------------------------------------------
                                                     1999             1998              1997
                                                 -------------    --------------    --------------
<S>                                              <C>              <C>               <C>
Operating Revenues                                  $ 208,610         $ 189,656         $ 195,786
     Less
        Gas purchases                                 109,263            97,382           104,342
        Revenue taxes                                  13,280            12,037            12,430
                                                 -------------    --------------    --------------
Operating Margin                                       86,067            80,237            79,014
                                                 -------------    --------------    --------------
Cost of Operations
     Operating expenses                                36,313            37,310            35,670
     Depreciation and amortization                     12,841            13,470            13,416
     Property and payroll taxes                         4,574             4,420             3,989
                                                 -------------    --------------    --------------
                                                       53,728            55,200            53,075
                                                 -------------    --------------    --------------
     Earnings from operations                          32,339            25,037            25,939
                                                 -------------    --------------    --------------

Nonoperating Expense (Income)
     Interest                                          10,486            10,132             9,436
     Interest charged to construction                    (383)             (550)             (532)
                                                 -------------    --------------    --------------
                                                       10,103             9,582             8,904
     Amortization of debt issuance expense                603               605               612
     Other                                               (495)             (388)             (467)
                                                 -------------    --------------    --------------
                                                       10,211             9,799             9,049
                                                 -------------    --------------    --------------

Earnings Before Income Taxes                           22,128            15,238            16,890

Income Taxes                                            8,075             5,694             6,263
                                                 -------------    --------------    --------------
Net Earnings                                           14,053             9,544            10,627

Preferred Dividends                                       483               497               510
                                                 -------------    --------------    --------------
Net Earnings Available
     to Common Shareholders                          $ 13,570          $  9,047          $ 10,117
                                                 =============    ==============    ==============
Net Earnings Per Common
     Share (basic and diluted)                       $   1.23          $   0.82          $   0.93
                                                 =============    ==============    ==============
</TABLE>

The accompanying notes are an integral part of these financial statements

                                       21
<PAGE>

                CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                         September 30,
                                                             -------------------------------------
                                                                  1999                  1998
                                                             ---------------       ---------------
                                                                    (Dollars in thousands)
<S>                                                           <C>                  <C>
ASSETS
Utility Plant                                                    $  453,278            $  433,568
     Less accumulated depreciation                                  177,878               167,356
                                                             ---------------       ---------------
                                                                    275,400               266,212
     Construction work in progress                                    6,891                10,394
                                                             ---------------       ---------------
                                                                    282,291               276,606
                                                             ---------------       ---------------
Other Assets
     Investments in non utility property                                202                   667
     Notes receivable, less current maturities                          577                 1,006
                                                             ---------------       ---------------
                                                                        779                 1,673
                                                             ---------------       ---------------
Current Assets
     Cash and cash equivalents                                          410                 2,338
     Accounts receivable, less allowance of
         $622 and $645 for doubtful accounts                         12,468                 9,271
     Current maturities of notes receivable                             176                   329
     Materials, supplies, and inventories                             6,250                 6,213
     Prepaid expenses and other assets                                5,584                 5,122
                                                             ---------------       ---------------
                                                                     24,888                23,273
                                                             ---------------       ---------------
Deferred Charges                                                      7,611                 9,959
                                                             ---------------       ---------------
                                                                 $  315,569            $  311,511
                                                             ===============       ===============

COMMON SHAREHOLDERS' EQUITY, PREFERRED STOCKS, AND LIABILITIES
Common Shareholders' Equity
     Common stock, par value $1 per share
         Authorized, 15,000,000 shares; issued and
         outstanding, 11,045,095 shares                           $  11,045             $  11,045
     Additional paid-in capital                                      97,380                97,380
     Retained earnings                                                5,970                 3,003
                                                             ---------------       ---------------
                                                                    114,395               111,428
                                                             ---------------       ---------------
Redeemable Preferred Stocks, aggregate redemption
     Amount of $6,338 and $6,592                                      6,186                 6,408
                                                             ---------------       ---------------
Long-Term Debt                                                      125,000               110,650
                                                             ---------------       ---------------
Current Liabilities
     Notes payable and commercial paper                                  --                 6,929
     Current maturities of long-term debt                                --                10,000
     Accounts payable                                                 8,933                10,206
     Property, payroll, and excise taxes                              3,434                 4,570
     Dividends and interest payable                                   7,614                 7,407
     Other current liabilities                                        4,527                 3,681
                                                             ---------------       ---------------
                                                                     24,508                42,793
                                                             ---------------       ---------------
Deferred Credits and Other
     Gas cost changes                                                12,210                10,330
     Income taxes                                                    19,405                17,598
     Investment tax credits                                           2,302                 2,523
     Other                                                           11,563                 9,781
                                                             ---------------       ---------------
                                                                     45,480                40,232
                                                             ---------------       ---------------
Commitments and Contingencies (Note 12)                                  --                    --
                                                             ---------------       ---------------
                                                                 $  315,569            $  311,511
                                                             ===============       ===============
</TABLE>

The accompanying notes are an integral part of these financial statements

                                      22
<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, September 30, 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
     Cash dividends:
          Common stock, $.96 per share                                                              (10,603)
          Preferred stock, senior, $.55 per share                                                       (12)
          7.85% cumulative preferred stock,
             $7.85 per share                                                                           (471)
     Net earnings                                                                                    14,053
                                                        -------------  ------------  ------------ ----------
Balance, September 30, 1999                               11,045,095     $  11,045      $ 97,380    $ 5,970
                                                        =============  ============  ============ ==========
</TABLE>

The accompanying notes are an integral part of these financial statements

                                     23
<PAGE>

                CASCADE NATURAL GAS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

<TABLE>
<CAPTION>
                                                                   Year Ended September 30,
                                                         --------------------------------------------
                                                              1999            1998            1997
                                                         ------------    -----------      -----------
<S>                                                      <C>             <C>              <C>
Operating Activities
   Net earnings                                             $ 14,053       $  9,544         $ 10,627
   Adjustments to reconcile net earnings to
       net cash provided by operating activities:
     Depreciation and amortization                            12,841         13,470           13,416
     Deferrals of gas cost changes                               818          4,463          (12,815)
     Amortization of gas cost changes                          1,062           (424)          (2,473)
     Other deferrals and amortizations                         2,359          1,802            1,860
     Deferred income taxes and tax credits - net               2,373          1,568             (522)
     Other                                                      (174)            --               --
     Change in current assets and liabilities                 (5,154)         8,141          (10,047)
                                                         ------------    -----------      -----------
   Net cash provided by operating activities                  28,178         38,564               46
                                                         ------------    -----------      -----------
Investing Activities
   Capital expenditures                                      (19,942)       (25,611)         (29,166)
   Customer contributions in aid of construction               2,680          1,831            7,540
   Other                                                       1,155            862              460
                                                         ------------    -----------      -----------
   Net cash used by investing activities                     (16,107)       (22,918)         (21,166)
                                                         ------------    -----------      -----------

Financing Activities
   Issuance of common stock                                       --            754            1,747
   Redemption of preferred stock                                (222)          (222)            (216)
   Proceeds from long-term debt, net                          14,888             --           19,850
   Repayment of long-term debt                               (10,650)          (500)            (700)
   Changes in notes payable and commercial paper, net         (6,929)        (5,971)          12,900
   Dividends paid                                            (11,086)       (10,531)          (9,842)
                                                         ------------    -----------      -----------
   Net cash provided (used) by financing activities          (13,999)       (16,470)          23,739
                                                         ------------    -----------      -----------

Net Increase (Decrease) in Cash and Cash Equivalents          (1,928)          (824)           2,619

Cash and Cash Equivalents
   Beginning of year                                           2,338          3,162              543
                                                         ------------    -----------      -----------
   End of year                                              $    410       $  2,338         $  3,162
                                                         ============    ===========      ===========
</TABLE>

The accompanying notes are an integral part of these financial statements

                                     24
<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 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, 1999, the Company had approximately 177,162 core customers
and 189 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 18%
of gas deliveries and 70% 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 generation of electricity, processing of
forest products, production of chemicals, refining of crude oil, production of
aluminum, 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.

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 cost, 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 annual depreciation rate decreased from
approximately 3.5% to 3.0%. Based on depreciable assets at the time of the
study, the annual effect of this change on depreciation expense is approximately
$2 million.

Investments in non utility property: This consists primarily of real estate,
carried at the lower of cost or estimated net realizable value.

                                      25
<PAGE>

Notes receivable: Notes receivable includes loans made to customers for the
purchase of energy efficient appliances, which are generally the security for
the loan. The loans have 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,
operations, 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, 1999 and 1998 include the
following:

<TABLE>
<CAPTION>
(dollars in thousands)             1999             1998
-----------------------------------------------------------
<S>                            <C>              <C>
Unamortized loss on
   reacquired debt                $  4,497        $  5,027
Gas cost changes                   (12,210)        (10,330)
Deferred income taxes               (4,247)         (3,457)
Postretirement benefits
    other than pensions              2,436           3,186
Other, net                            (316)            852
                               ------------     -----------
Net                               $ (9,840)       $ (4,722)
                               ------------     -----------
</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 the end of the accounting period.

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 normalizes temporary differences between book
income and taxable income, with the exception of depreciation differences on
assets placed in service prior to 1981, consistent with the policies of the WUTC
and OPUC. Deferred income taxes are determined according to the provisions of
Statement of Financial Accounting Standards No. 109.

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

                                      26
<PAGE>

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. The following provides additional information with
respect to the Consolidated Statement of Cash Flows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                             1999       1998        1997
-------------------------------------------------------------------------------------------------
<S>                                                            <C>         <C>        <C>
Changes in current assets and current liabilities:
      Accounts receivable                                       $ (3,196)   $ 2,596    $    (221)
      Income taxes                                                  (165)     2,261        1,183
      Inventories                                                    (38)      (326)          45
      Prepaid expenses and other assets                             (259)       (4)       (2,858)
      Accounts payable and accrued expenses                       (1,394)     3,782       (8,115)
      Other                                                         (102)      (168)         (81)
                                                               ----------  ---------  -----------
      Net change in current assets and current liabilities      $ (5,154)   $ 8,141    $ (10,047)
                                                               ----------  ---------  -----------
Cash payments:
      Interest (net of amounts capitalized)                     $  9,136    $ 8,303    $   7,938
      Income taxes                                              $  5,863    $ 1,876    $   5,606
</TABLE>

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.

Stock-Based Compensation: Compensation cost for stock options is measured as the
excess of the market price of the Company's stock at the date of the grant over
the price the employee must pay to acquire the stock. The Company accounts for
its stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" rather than using the fair-value-based method prescribed under FAS
No. 123, "Accounting for Stock-Based Compensation." The Company has adopted the
disclosure requirements of FAS No. 123. See Note 6 for more information about
the Company's stock-based compensation plan.

New Accounting Standards:

As of the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards (FAS) Nos. 130, 131, and 132.

FAS No. 130, entitled "REPORTING COMPREHENSIVE INCOME," 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 have other
comprehensive income, therefore implementation of this standard has not affected
the reporting of its financial information.

FAS No. 131, entitled "DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION," 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 a local distribution
company (LDC) in the Pacific Northwest. Therefore the adoption of this standard
has not changed the Company's financial reporting.

FAS No. 132, entitled "EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER
POSTRETIREMENT BENEFITS," modifies the disclosure requirements for pensions and
other postretirement benefits, but does not affect the measurement of such
benefits. These disclosure modifications are included in Note 10.

                                     27
<PAGE>

In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
entitled "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." This
standard will be effective for fiscal years beginning after June 15, 2000, and
will be adopted by the Company as of October 1, 2000. It requires that the fair
value of all derivative financial instruments be recognized as either assets or
liabilities on the Company's balance sheet. Changes during a period in the fair
value of a derivative instrument would be included in earnings or other
comprehensive income for the period.

The Company is currently evaluating the effects of this standard on its
financial reporting. This evaluation is not complete, but the Company believes
that some of its natural gas supply contracts may meet the technical definition
of derivative instruments, and thus may be subject to the requirements of FAS
No. 133. The Company also believes that, because of rate regulation, derivative
assets and liabilities would be offset by regulatory assets and regulatory
liabilities, and therefore the earnings effect of application of this standard
would not be material.

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, and was adopted by the
Company effective October 1, 1999. 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 materiality of this change is dependent upon the magnitude of the costs and
the nature and complexity of specific software development or acquisition
projects incurred in any period. Based on projects planned for fiscal 2000,
management does not expect the application of this standard to have a material
effect on results of operations or financial reporting.

NOTE 3 - EARNINGS PER SHARE

The following table sets forth the calculation of earnings per share as
prescribed in FAS No. 128.

<TABLE>
<CAPTION>
                                                            1999         1998        1997
                                                       --------------------------------------
                                                        (in thousands except per share data)
<S>                                                    <C>             <C>         <C>
Net earnings                                             $  14,053     $  9,544    $ 10,627
Less: Preferred dividends                                      483          497         510
                                                       --------------------------------------
Net earnings available to common shareholders            $  13,570     $  9,047    $ 10,117
                                                       --------------------------------------
Weighted average shares outstanding                         11,045       11,000      10,842
Plus: Issued on assumed exercise of stock options                1           --          --
                                                       --------------------------------------
Weighted average shares outstanding assuming
   dilution                                                 11,046       11,000      10,842
                                                       --------------------------------------
Basic and diluted earnings per common share              $    1.23     $   0.82    $   0.93
                                                       --------------------------------------
</TABLE>

The only dilutive securities are the stock options described in Note 5.

                                     28
<PAGE>

NOTE 4 - UTILITY PLANT

Utility plant at September 30, 1999 and 1998 consists of the following
components:

<TABLE>
<CAPTION>
(dollars in thousands)              1999            1998
------------------------------------------------------------
<S>                            <C>             <C>
Distribution plant               $ 401,826       $ 381,524
Transmission plant                  14,086          14,086
Production plant                     1,053           1,053
General plant                       32,104          32,863
Intangible plant                       212             212
Nondepreciable plant                 3,997           3,830
                               ------------    ------------
                                 $ 453,278       $ 433,568
                               ------------    ------------
</TABLE>

NOTE 5 - COMMON STOCK

At September 30, 1999, 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
Stock Incentive Plan                          150,000
                                        --------------
                                              325,215
                                        --------------
</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. The
Company's practice is to purchase shares on the open market for these plans
rather than issue new shares.

During the quarter ended March 31, 1999, the Company awarded officers, under the
1998 Stock Incentive Plan, grants to purchase 38,000 shares of Cascade common
stock. The exercise price per share was equal to the fair market value of the
stock at the date of grant. Stock options granted at 100% of fair market value
are not recognized as compensation expense. A portion of the options become
exercisable one year after the grant date, and the options are fully exercisable
three years after the grant date.

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.

                                     29

<PAGE>

NOTE 6 - STOCK COMPENSATION PLAN

At its annual meeting January 27, 1999, the Company adopted, and shareholders
approved an incentive compensation plan, the 1998 STOCK INCENTIVE PLAN (the
Plan), under which officers and other key management employees may be granted
options to purchase stock. During the second fiscal quarter, the Company awarded
grants to purchase 38,000 shares at an exercise price of $16.50. The grants vest
1/3 per year over three years, and expire five years after the grant date. At
September 30, 1999, no options were exercisable.

The weighted average fair value of options granted during the year are estimated
at $2.43. The fair value was estimated at the date of the grants using a
Black-Scholes option pricing model using the following assumptions: dividend
yield of 4.52%, expected volatility of 21%, risk-free interest rate of 4.60%,
and an expected life of 4 years.

The Company accounts for stock-based compensation using APB Opinion No. 25,
"Accounting for Stock Issued to Employees". Under this method, compensation cost
is recognized on the excess, if any, of the market price of the stock at grant
date over the exercise price of the option. The exercise price of $16.50 per
share was equal to the market price at the grant date, therefore no compensation
expense has been recorded in connection with the Plan. Under FAS No. 123,
"Accounting for Stock-Based Compensation," compensation expense is determined
based on the fair value of the award and is recognized over the vesting period.
Had compensation expense been determined in accordance with FAS 123, the
Company's net earnings would have been reduced from the reported amount of
$14,053,000 to the pro forma amount of $14,033,000. Net earnings per common
share (basic and diluted) would have been $1.23, the same as reported.

NOTE 7 - REDEEMABLE PREFERRED STOCKS

Redeemable preferred stock at September 30, 1999 and 1998 consists of the
   following:

<TABLE>
<CAPTION>
(dollars in thousands)                             1999                      1998
------------------------------------------------------------------------------------------
                                            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                 21,750         186         46,750        408
                                        -----------------------   -----------------------
                                            81,750     $ 6,186        106,750    $ 6,408
                                        -----------------------   -----------------------
</TABLE>

Preferred stockholders have preference over common stockholders in dividends and
liquidation rights. The 7.85% cumulative preferred stock was redeemed on
November 1, 1999. The $.55 cumulative senior preferred stock is subject to
minimum annual redemption requirements, with Series C being fully redeemed in
fiscal 2001. The Series B shares were fully redeemed during fiscal 1999. The
Series 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 $6,145,000 in fiscal 2000, $73,000 in fiscal 2001, and none
thereafter.

                                     30
<PAGE>

NOTE 8 - 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.

<TABLE>
<CAPTION>
                                                                  September 30
(dollars in thousands)                                  1999           1998          1997
-------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>            <C>
Amount outstanding                                    $    --        $ 6,929        $12,900
Average daily balance outstanding                       8,122          6,201         13,666
Average interest rate, excluding commitment fee          5.44%          5.83%          5.94%
Maximum month end amount outstanding                   23,713         13,260         21,650
</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 $25,472,000 is available for payment of
dividends as of September 30, 1999.

NOTE 9 - LONG-TERM DEBT

Long-term debt at September 30, 1999 and 1998 consists of the following:

<TABLE>
<CAPTION>
(dollars in thousands)                 1999            1998
---------------------------------------------------------------
<S>                               <C>             <C>
6.53% Five Year Term Note
       due Dec. 2000                $      --        $     650

Medium-term notes:
       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
       7.098% due Mar. 2029            15,000               --
                                  ------------    -------------
       Total long-term debt         $ 125,000        $ 110,650
                                  ------------    -------------

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. The $650,000,
6.53% five year term note was paid off in February 1999. Annual obligations for
redemption of long-term debt are as follows: None in fiscal years 2000 through
2003 and $22,000,000 in fiscal year 2004, and $103,000,000 thereafter.

                                     31
<PAGE>

NOTE 10 - 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)                1999               1998               1997
------------------------------------------------------------------------------------
<S>                               <C>                <C>                <C>
Current tax expense                   $5,702             $4,126             $6,785
Deferred tax expense                   2,594              1,809               (256)
Amortization of deferred
   investment tax credits               (221)              (241)              (266)
                                  -----------        -----------        -----------
                                      $8,075             $5,694             $6,263
                                  -----------        -----------        -----------
</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)                                  1999            1998            1997
------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>            <C>
Statutory federal income tax rate                           35%             35%             35%
Income tax calculated at statutory federal rate         $ 7,745         $ 5,333         $ 5,911
Increase (decrease) resulting from:
      State income tax, net of federal tax benefit          177             117             122
      Non-normalized depreciation differences               374             345             380
      Amortization of investment tax credits               (221)           (241)           (266)
      Other                                                   0             140             116
                                                      ----------      ----------     -----------
                                                        $ 8,075         $ 5,694         $ 6,263
                                                      ----------      ----------     -----------
Effective tax rate                                         36.5%           37.4%           37.1%
</TABLE>

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, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
(dollars in thousands)                           1999            1998
-------------------------------------------------------------------------
<S>                                           <C>             <C>
Deferred tax liabilities:
     Basis differences on net fixed assets        $17,484        $16,096
     Debt refinancing costs                         1,610          1,797
     Retirement benefit obligations                 1,092          1,005
                                              ------------    -----------
                                                   20,186         18,898
                                              ------------    -----------
Deferred tax assets:
     Valuation reserves                                --            470
     Retirement benefit obligations                   439            531
     Provision for doubtful accounts                  266            255
     Other                                             76             44
                                              ------------    -----------
                                                      781          1,300
                                              ------------    -----------
Net deferred tax liability                        $19,405        $17,598
                                              ------------    -----------
</TABLE>

                                     32
<PAGE>

NOTE 11 - 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 a trust
sufficient to assure assets held by the trust always exceed the accumulated
benefit obligation for benefits payable by the 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's policy is to fund the plan to the extent allowable under Internal
Revenue Service rules. The following tables set forth the pension and health
care plan disclosures.

COMPONENTS OF NET PERIODIC BENEFIT COST

<TABLE>
<CAPTION>
                                               Pension Benefits                  Other Benefits
                                            1999      1998      1997        1999      1998      1997
                                         -----------------------------   -----------------------------
<S>                                      <C>        <C>       <C>        <C>         <C>       <C>
Service cost                              $ 1,784   $ 1,584   $ 1,367      $  434    $  394    $  369
Interest cost                               2,838     2,617     2,398       1,316     1,201     1,211
Expected return on plan assets             (3,346)   (2,861)   (2,288)       (699)     (691)     (495)
Amortization of transition obligation         106       106       106         657       657       657
Amortization of prior service cost            424       378       352          --        --        --
Recognized net actuarial loss / (gain)         41        76        34        (341)     (371)      (99)
Special termination benefit                   210       369        --          --        --        --
                                         -----------------------------   -----------------------------
Net periodic benefit cost                 $ 2,057   $ 2,269   $ 1,969      $1,367    $1,190    $1,643
                                         -----------------------------   -----------------------------
</TABLE>

                                     33

<PAGE>

<TABLE>
<CAPTION>
                                                           Pension Benefits                Other Benefits
(dollars in thousands)                                     1999       1998                1999       1998
-------------------------------------------------------------------------------        -----------------------
<S>                                                     <C>         <C>                <C>         <C>
CHANGE IN BENEFIT OBLIGATIONS
Projected benefit obligation at beginning of year        $ 39,745    $ 34,212           $ 18,084    $ 17,495
Service cost                                                1,784       1,584                434         394
Interest cost                                               2,839       2,617              1,316       1,201
Plan participants' contributions                               --          --                 21          17
Amendments                                                    592          --                 --          --
Termination benefits                                          210         369                 --          --
Benefits paid                                              (1,911)     (1,256)              (857)       (683)
Changes in assumptions                                     (2,673)      3,028                 --          --
Actuarial (gain)/loss                                         301        (809)              (718)       (340)
                                                       -----------------------        -----------------------
Projected benefit obligation at end of year              $ 40,887    $ 39,745           $ 18,280    $ 18,084
                                                       -----------------------        -----------------------

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year           $ 36,254    $ 34,046           $  7,966    $  7,741
Actual return on plan assets                                4,646          24                838          (5)
Employer contributions                                      2,865       3,440              1,173         580
Plan participants' contributions                               --          --                 21          17
Benefits Paid                                              (1,911)     (1,256)              (484)       (367)
                                                       -----------------------        -----------------------
Fair value of plan assets at end of year                 $ 41,854    $ 36,254           $  9,514    $  7,966
                                                       -----------------------        -----------------------

Funded Status                                            $    967    $ (3,491)          $ (8,766)   $(10,118)
Unrecognized prior service cost                             2,965       2,798                 --          --
Unrecognized net (gain)/loss                                  183       3,896             (1,798)     (1,282)
Unrecognized transition obligation                            729         834              8,705       9,362
                                                       -----------------------        -----------------------
Net amount recognized in Consolidated Statements         $  4,844    $  4,037           $ (1,859)   $ (2,038)
                                                       -----------------------        -----------------------
</TABLE>

<TABLE>
<CAPTION>
      WEIGHTED AVERAGE ASSUMPTIONS                         1999         1998
                                                      -------------------------
      <S>                                             <C>          <C>
      Discount rate                                        7.75%        7.25%
      Average compensation increase                        5.00%        5.00%
      Expected rate of return on plan assets
            Pension plan                                   9.00%        9.00%
            Supplemental executive retirement plan         8.50%        8.50%
            Postretirement medical benefit plan            8.75%        8.75%
</TABLE>

HEALTH CARE COST TREND

The assumed health care cost trend rate used in measuring the APBO is 8.5% for
2000, trending down to 5.5% at 2005. A one percent change in the assumed health
care cost trend rate would have the following effects as of September 30, 1999:

<TABLE>
<CAPTION>
                                                        One Percentage Point
                                                      ------------------------
                                                      Increase        Decrease
                                                      --------        --------
                                                            (thousands)
<S>                                                   <C>             <C>
Effect on service and interest cost                    $   322        $   (259)
Effect on postretirement benefit obligation            $ 2,725        $ (2,248)
</TABLE>

                                     34
<PAGE>

An amendment to the pension plan, effective April 1, 1999, increased the
projected benefit obligation for union employees represented by the collective
bargaining agreement of the International Chemical Workers Union. The amendment
enhances benefits received by these employees.

The special termination benefit for the supplemental retirement plan 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 special termination benefit for the retirement plan represents the
recognition of the increase in the projected benefit obligation for five
employees that retired in December 1998 and January 1999.

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 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. The Company recognized costs for
contributions to this plan of $810,000, $769,000, and $703,000, for 1999, 1998
and 1997, respectively.

NOTE 12 - 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 up to 25
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
  Fiscal Year Ending      Firm Gas       Pipeline       and Peaking
     September 30          Supply       Transportation    Service         Total
-----------------------------------------------------------------------------------
                                           (dollars in thousands)
<S>                   <C>            <C>              <C>            <C>
       2000               $ 24,756       $  25,904        $ 3,123        $53,783
       2001                 18,719          25,904          3,123         47,746
       2002                 18,595          25,767          2,735         47,097
       2003                 18,595          25,767          2,735         47,097
       2004                 18,595          25,767          2,735         47,097
    Thereafter              15,265         265,233         27,352        307,850
                      -------------  --------------   ------------   ------------
                         $ 114,525       $ 394,342        $41,803       $550,670
                      -------------  --------------   ------------   ------------
</TABLE>

Purchases under these contracts for fiscal 1999, 1998, and 1997, 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>
1999                          $ 60,231        $ 30,224         $ 3,786       $  94,241
1998                          $ 47,102        $ 28,901         $ 4,830       $  80,833
1997                          $ 67,329        $ 30,547         $ 4,626       $ 102,502
</TABLE>

                                     35
<PAGE>

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. There is currently not enough information available to estimate the
potential liability associated with these claims.

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. Through the end of the fiscal year the amounts spent, primarily on
investigation and containment, has been immaterial.

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 is 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 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 completed its corrections to
non-compliant systems, implemented these corrections, and continues testing of
these systems. Primarily Company personnel performed the modifications to
existing systems. The expense for these modifications is charged as incurred.

                                     36
<PAGE>

NOTE 13 - 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, 1999 and 1998, of financial instruments whose values are sensitive
to market conditions are set forth in the following table:

<TABLE>
<CAPTION>
                                          1999                         1998
                                 ------------------------     -------------------------
                                 Carrying       Estimated     Carrying      Estimated
(dollars in thousands)            Amount       Fair Value      Amount       Fair Value
---------------------------------------------------------------------------------------
<S>                              <C>           <C>            <C>           <C>
Redeemable Preferred Stock       $   6,186      $   6,270     $   6,408      $   6,525
 Long-term Debt                  $ 125,000      $ 144,893     $ 120,650      $ 142,517
</TABLE>

                                     37

<PAGE>

NOTE 14 - INTERIM RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>

(thousands except                                    Quarter Ended
  per share data)                      9/30/99     6/30/99    3/31/99   12/31/98
---------------------------------------------------------------------------------
<S>                                   <C>        <C>        <C>        <C>
 Operating revenues                    $31,706     $42,869    $71,118    $62,917
 Gas costs and revenue taxes            19,288      25,577     41,923     35,755
                                     ---------- ---------------------- ----------
 Operating margin                       12,418      17,292     29,195     27,162
 Cost of operations                     12,712      13,501     13,791     13,724
                                     ---------- ---------------------- ----------
 Earnings (loss) from operations          (294)      3,791     15,404     13,438
 Interest and other, net                 2,528       2,477      2,584      2,622
                                     ---------- ---------------------- ----------
 Earnings (loss) before income taxes    (2,822)      1,314     12,820     10,816
 Income taxes                           (1,291)        503      4,801      4,062
                                     ---------- ---------------------- ----------
 Net earnings (loss)                    (1,531)        811      8,019      6,754
 Preferred dividends                       120         121        119        123
                                     ---------- ---------------------- ----------
 Net earnings (loss) available
   to Common Shareholders              $(1,651)    $   690    $ 7,900    $ 6,631
                                     ---------- ---------------------- ----------
 Net earnings (loss) per common
   share - basic and diluted           $ (0.15)    $  0.06    $  0.72    $  0.60
                                     ---------- ---------------------- ----------

</TABLE>

<TABLE>
<CAPTION>

(thousands except                                    Quarter Ended
  per share data)                      9/30/98     6/30/98    3/31/98  12/31/97
--------------------------------------------------------------------------------
<S>                                   <C>         <C>       <C>       <C>
 Operating revenues                     $26,129    $36,995    $65,548   $60,984
 Gas costs and revenue taxes             13,850     21,527     38,601    35,441
                                     ----------- -------------------------------
 Operating margin                        12,279     15,468     26,947    25,543
 Cost of operations                      12,781     14,101     14,346    13,972
                                     ----------- -------------------------------
 Earnings (loss) from operations           (502)     1,367     12,601    11,571
 Interest and other, net                  2,500      2,400      2,415     2,484
                                     ----------- -------------------------------
 Earnings (loss) before income taxes     (3,002)    (1,033)    10,186     9,087
 Income taxes                            (1,158)      (370)     3,817     3,405
                                     ----------- -------------------------------
 Net earnings (loss)                     (1,844)      (663)     6,369     5,682
 Preferred dividends                        124        124        124       125
                                     ----------- -------------------------------
 Net earnings (loss) available
   to Common Shareholders               $(1,968)   $  (787)   $ 6,245   $ 5,557
                                     ----------- -------------------------------
 Net earnings (loss) per common
   share - basic and diluted            $ (0.18)   $ (0.07)   $  0.57   $  0.51
                                     ----------- -------------------------------
</TABLE>


                                        38

<PAGE>

INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULE

Cascade Natural Gas Corporation and subsidiaries
Seattle, Washington

We have audited the consolidated balance sheets of Cascade Natural Gas
Corporation and subsidiaries (the Corporation) as of September 30, 1999 and
1998, and the related consolidated statements of net earnings available to
common shareholders, common shareholders' equity, and cash flows for the years
ended September 30, 1999, 1998, and 1997, and have issued our report thereon
dated November 5, 1999; 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 Corporation'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 5, 1999

                                        39

<PAGE>

                                                                     SCHEDULE II

                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, 1997                   $  439              507                                 417           $  529

     September 30, 1998                   $  529              585                                 469           $  645

     September 30, 1999                   $  645              686                                 709           $  622




Valuation Reserve - Notes Receivable

     September 30, 1997                   $1,537              183                                               $1,720

     September 30, 1998                   $1,720              118                                               $1,838

     September 30, 1999                   $1,838                                                1,838           $    0

</TABLE>

     Note: Accounts written off, net of recoveries

                                        40

<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 pages 4 and 5 of the
Proxy Statement sent to shareholders for the 2000 Annual Meeting (the 2000
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 2000 Proxy Statement under "Executive
Compensation" on pages 7 and 8, "Retirement Plan" on page 9, "Executive
Supplemental Retirement Income Plan" on pages 9 and 10, "Employment
Agreements" on page 10, "Supplemental Benefit Trust" on page 10, "Director
Compensation" on page 11, and under "Compensation Committee Interlocks and
Insider Participation" on page 11, 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 4 of the 2000
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 11 of the 2000 Proxy Statement,
which information is incorporated herein by reference.

                                        41

<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, 1999, 1998, and 1997
         Consolidated Balance Sheets, September 30, 1999 and 1998
         Consolidated Statements of Common Shareholders' Equity for the Years
           Ended September 30, 1999, 1998, and 1997
         Consolidated Statements of Cash Flows for the Years Ended September 30,
           1999, 1998, and 1997
         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.

                                        42

<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 20, 1999             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>
<S>                                        <C>                                   <C>
                                           Chairman of the Board,
                                           President and Chief Executive
    /s/ W. Brian Matsuyama                 Officer and Director                  December 20, 1999
    ------------------------               (Principal Executive Officer)         -----------------
        W. Brian Matsuyama                                                              Date

                                           Sr. Vice President - Finance,
    /s/ J. D. Wessling                     Chief Financial Officer               December 20, 1999
    -------------------------              (Principal Financial Officer)         -----------------
        J. D. Wessling                                                                  Date

                                           Controller and Chief
    /s/ James E. Haug                      Accounting Officer                    December 20, 1999
    -------------------------              (Principal Accounting Officer)        -----------------
        James E. Haug                                                                   Date

    /s/ Melvin C. Clapp                    Director                              December 20, 1999
    -------------------------                                                    -----------------
        Melvin C. Clapp                                                                 Date

    /s/ Thomas E. Cronin                   Director                              December 20, 1999
    -------------------------                                                    -----------------
        Thomas E. Cronin                                                                Date

    /s/ David A. Ederer                    Director                              December 20, 1999
    -------------------------                                                    -----------------
        David A. Ederer                                                                 Date

    /s/ Howard L. Hubbard                  Director                              December 20, 1999
    -------------------------                                                    -----------------
        Howard L. Hubbard                                                               Date

    /s/ Larry L. Pinnt                     Director                              December 20, 1999
    -------------------------                                                    -----------------
        Larry L. Pinnt                                                                  Date

    /s/ Brooks G. Ragen                    Director                              December 20, 1999
    -------------------------                                                    -----------------
        Brooks G. Ragen                                                                 Date

    /s/ Mary A. Williams                   Director                              December 20, 1999
    -------------------------                                                    -----------------
        Mary A. Williams                                                                Date

</TABLE>

                                        43

<PAGE>

         INDEX TO EXHIBITS

EXHIBIT
NO.                                                  DESCRIPTION

<TABLE>
<CAPTION>

<S>      <C>
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 filed July 19, 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 filed July 19, 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.* Incorporated by reference
         to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the
         year ended September 30, 1998.

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
         Registrant's Annual Report on Form 10-K for the year ended December 31,
         1991.

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, and 10.22. Incorporated by
         reference to Exhibit 10.6 to the Registrant's Annual Report on Form
         10-K for the year ended September 30, 1997 (1997 Form 10-K).

10.7     Natural Gas Sales Agreement dated November 1, 1998, between Engage
         Energy US L.P., and the Registrant.

10.8     Intentionally omitted.

10.9     Intentionally omitted.

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<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 Registrant's registration statement
         on Form S-2, No. 33-52672 (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.

10.15    Intentionally omitted.

10.16    Intentionally omitted.

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 (1994 Form 10-K).

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 1994
         Form 10-K.

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 1994 Form 10-K.

10.21    Gas Purchase Contract dated October 1, 1994, between IGI Resources,
         Inc. and the Registrant. Incorporated by reference to Exhibit 10.21 to
         the Registrant's 1994 Form 10-K.

10.21.1  Amended Exhibit A, effective October 1, 1999, to Gas Purchase Contract
         dated October 1, 1994, between IGI Resources, Inc. and the Registrant.
         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 the Registrant Incorporated by
         reference to Exhibit 10.22 to the Registrant's 1994 Form 10-K.

10.22.1  Letter amendment dated September 22, 1999, to Amended and restated
         Natural Gas Sales Agreement dated August 17, 1994, between Engage
         Energy Canada L.P. and Registrant. A PORTION OF THIS AGREEMENT IS
         SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

                                        45

<PAGE>

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
         1994 Form 10-K.

10.24    Firm Transportation Agreement dated August 1, 1994, between Northwest
         Pipeline Corporation and the Registrant. Incorporated by reference to
         Exhibit 10.24 to the Registrant's 1994 Form 10-K.

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 the Registrant. Incorporated
         by reference to Exhibit 10.25 to the Registrant's 1994 Form 10-K.

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

10.27    Agreement for Peaking Gas Supply Service dated November 22, 1991,
         between Longview Fibre Company and the Registrant. Incorporated by
         reference to Exhibit 10.27 to the Registrant's 1994 Form 10-K.

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

10.28    Intentionally omitted.

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 Retirement Income 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 officer of the Registrant. *
         Incorporated by reference to Exhibit 10(p) to the 1992 Form S-2.

10.32    Gas Storage Management Agreement, dated November 17, 1999, between
         Amoco Energy Trading Corporation, Part of BP Amoco Group, and the
         Registrant. A PORTION OF THIS AGREEMENT IS SUBJECT TO A REQUEST FOR
         CONFIDENTIAL TREATMENT.

10.33    Agreement for Jackson Prairie Storage Service, dated October 7, 1999,
         between Engage Energy Canada, L.P. and the Registrant. A PORTION OF
         THIS AGREEMENT IS SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT.

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.

</TABLE>

------------------------
* Management contract or compensatory plan or arrangement.

                                        46