<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                   FORM 10-Q

                                   (Mark One)

                [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended June 30, 2000
                                                -------------

                                       OR

                [_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

             For the transition period from _________ to _________

                       Commission File Number:   33-98490
                                                ---------

                            STAR GAS PARTNERS, L.P.
                            -----------------------
             (Exact name of registrant as specified in its charter)

Delaware                                                06-1437793
--------                                                ----------
(State or other jurisdiction                            (I.R.S. Employer
of incorporation or organization)                       Identification No.)


2187 Atlantic Street, Stamford, Connecticut                    06902
-------------------------------------------                    -----
(Address of principal executive office)                        (Zip Code)

(203) 328-7300
--------------
(Registrant's telephone number, including area code)

________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)


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 the number of shares outstanding of each issuer's classes of common
stock, as of July 28, 2000:

      16,044,967     Common Units
       2,578,797     Senior Subordinated Units
         345,364     Junior Subordinated Units
         325,729     General Partner Units
<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>

Part I   Financial Information                                                                Page
                                                                                              ----
<S>                                                                                           <C>
      Item 1 - Condensed Consolidated Financial Statements

          Condensed Consolidated Balance Sheets as of
            September 30, 1999 and June 30, 2000                                                 3

          Condensed Consolidated Statements of Operations for the
            Three months ended June 30, 1999 and June 30, 2000 and for the
            Nine months ended June 30, 1999 and June 30, 2000                                    4

          Condensed Consolidated Statement of Partners' Capital for the nine months ended
            June 30, 2000                                                                        5

          Condensed Consolidated Statements of Cash Flows for the nine months ended
            June 30, 1999 and June 30, 2000                                                      6

          Notes to Condensed Consolidated Financial Statements                                7-19

      Item 2 - Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                                       20-26

      Item 3 - Quantitative and Qualitative Disclosures About Market Risk                       27

Part II  Other Information:

      Item 6 - Exhibits and Reports on Form 8-K                                                 27

      Signature                                                                                 28
</TABLE>

                                       2
<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                             June 30,
                                                                       September 30,           2000
                                                                            1999             (unaudited)
                                                                       -------------        ------------
<S>                                                                    <C>                  <C>
Assets
Current assets:
 Cash and cash equivalents                                               $  4,492             $  7,649
 Receivables, net of allowance of $948 and  $2,725 respectively            42,295               79,968
 Inventories                                                               26,317               19,521
 Prepaid expenses and other current assets                                 13,764               14,308
                                                                         --------             --------
      Total current assets                                                 86,868              121,446
                                                                         --------             --------

Property and equipment, net                                               154,967              166,740
Long-term portion of accounts receivable                                    5,590                7,138
Intangibles and other assets, net                                         291,919              312,015
                                                                         --------             --------
      Total assets                                                       $539,344             $607,339
                                                                         ========             ========
Liabilities and Partners' Capital
Current liabilities:
 Accounts payable                                                        $ 12,939             $ 18,089
 Bank credit facility borrowings                                            3,150               12,050
 Current maturities of long-term debt                                       1,391               14,838
 Accrued expenses                                                          43,044               39,311
 Unearned service contract revenue                                         14,007               14,333
 Customer credit balances                                                  31,094               12,915
                                                                         --------             --------
      Total current liabilities                                           105,625              111,536
                                                                         --------             --------

Long-term debt                                                            276,638              302,681
Other long-term liabilities                                                 6,905                6,421

Partners' Capital:
 Common unitholders                                                       145,906              175,142
 Subordinated unitholders                                                   5,878               12,476
 General partner                                                           (1,608)                (917)
                                                                         --------             --------
      Total Partners' Capital                                             150,176              186,701
                                                                         --------             --------
      Total Liabilities and Partners' Capital                            $539,344             $607,339
                                                                         ========             ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (unaudited)

<TABLE>
<CAPTION>
                                                       Three Months Ended June 30,      Nine Months Ended June 30,
                                                       ---------------------------      --------------------------
(in thousands, except per unit data)                       1999            2000            1999            2000
                                                       -----------      ----------      ----------      ----------
<S>                                                    <C>              <C>             <C>             <C>
Sales:
 Product                                                  $ 59,022      $104,243          $135,925       $562,795
 Installation, service and appliances                       20,070        25,920            25,505         75,949
                                                          --------      --------          --------       --------
   Total sales                                              79,092       130,163           161,430        638,744

Costs and expenses:
 Cost of product                                            28,642        66,204            58,471        328,038
 Cost of installation, service and appliances               24,021        28,552            26,651         88,886
 Delivery and branch                                        32,122        35,410            54,447        120,987
 Depreciation and amortization                               8,458         8,847            14,489         25,447
 General and administrative                                  4,070         5,073             7,226         14,349
 TG&E customer acquisition expense                               -           932                 -            932
 Unit compensation expense                                       -           599                 -            599
 Net gain (loss) on sales of assets                             (5)            6               (96)            56
                                                          --------      --------          --------       --------
   Operating income (loss)                                 (18,226)      (15,448)               50         59,562
Interest expense, net                                        5,221         6,608             9,760         19,981
Amortization of debt issuance costs                            128           141               218            398
                                                          --------      --------          --------       --------
   Income (loss) before income taxes
      and minority interest                                (23,575)      (22,197)           (9,928)        39,183
                                                          --------      --------          --------       --------
Minority interest in net loss of TG&E                            -           251                 -            251
Income tax expense (benefit)                                (5,362)           45            (5,324)           373
                                                          --------      --------          --------       --------
   Net income (loss)                                      $(18,213)     $(21,991)         $ (4,604)      $ 39,061
                                                          ========      ========          ========       ========

   General Partner's interest in net income (loss)        $   (364)     $   (374)         $    (92)      $    691
                                                          --------      --------          --------       --------

Limited Partners' interest in net income (loss)           $(17,849)     $(21,617)         $ (4,512)      $ 38,370
                                                          ========      ========          ========       ========

Basic and diluted net income (loss) per
 Limited Partner unit                                     $  (1.11)     $  (1.15)          $ (0.46)      $   2.13
                                                          ========      ========          ========       ========

Basic and diluted weighted average number of Limited
  Partner units outstanding                                 16,011        18,872             9,717         18,056
                                                          ========      ========          ========       ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

             CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
                                  (unaudited)


(in thousands, except per unit amounts)

<TABLE>
<CAPTION>
                                        Number of Units
                              ----------------------------------                                          Total
                                        Senior  Junior  General             Senior   Junior   General   Partners'
                                Common   Sub.    Sub.   Partner   Common     Sub.     Sub.    Partner    Capital
                                ------   ----    ----   -------   ------     ----     ----    -------    -------
                              ------------------------------------------------------------------------------------
<S>                             <C>     <C>     <C>     <C>      <C>        <C>      <C>      <C>       <C>
Balance as of
   September 30, 1999           14,378   2,477     345      326  $145,906   $ 5,938    $(60)  $(1,608)   $150,176

Issuance of Common Units         1,667                             22,611                                  22,611

Issuance of Senior
  Subordinated Units                       102                                  599                           599

Net income                                                         32,371     5,265     734       691      39,061

Distributions
  ($1.725 per common unit)                                        (25,746)                                (25,746)
                              -----------------------------------------------------------------------------------
Balance as of
   June 30, 2000                16,045   2,579     345      326  $175,142   $11,802    $674   $  (917)   $186,701
                              ===================================================================================
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)

<TABLE>
<CAPTION>
(in thousands)                                                                    Nine Months Ended June 30,
                                                                              ---------------------------------
                                                                                  1999                  2000
                                                                              ---------           -------------
<S>                                                                           <C>                 <C>
Cash flows from operating activities:
Net income (loss)                                                             $  (4,604)             $ 39,061
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
Depreciation and amortization                                                    14,489                25,447
Amortization of debt issuance cost                                                  218                   398
Minority interest in net loss of TG&E                                                 -                  (251)
Unit compensation expense                                                             -                   599
Provision for losses on accounts receivable                                         168                 1,425
Loss (gain) on sales of assets                                                       96                   (56)
Deferred tax benefit                                                             (5,368)                    -
Other                                                                                (7)                  (11)
Changes in operating assets and liabilities, net of amounts acquired:
  Decrease (increase) in receivables                                             26,277               (33,700)
  Decrease in inventories                                                         9,195                 8,580
  Increase in other assets                                                       (4,444)                 (946)
  Decrease in accounts payable                                                   (4,377)               (2,802)
  Increase (decrease) in other current liabilities                                2,313               (23,177)
                                                                              ---------              --------
       Net cash provided by operating activities                                 33,956                14,567
                                                                              ---------              --------

Cash flows from investing activities:
Capital expenditures                                                             (4,936)               (4,634)
Proceeds from sales of fixed assets                                                 137                   360
Cash acquired in acquisitions                                                    18,760                   876
Acquisitions                                                                     (2,581)              (49,162)
                                                                              ---------              --------
       Net cash provided by (used in) investing activities                       11,380               (52,560)
                                                                              ---------              --------

Cash flows from financing activities:
Credit facility borrowings                                                       11,850                75,000
Credit facility repayments                                                      (15,220)              (69,352)
Acquisition facility borrowings                                                       -                49,350
Acquisition facility repayments                                                  (7,000)              (36,000)
Distributions                                                                   (12,005)              (25,746)
Increase in deferred charges                                                       (927)                 (551)
Proceeds from issuance of Common Units, net                                     118,824                22,611
Repayment of debt                                                              (197,053)               (1,239)
Redemption of preferred stock                                                   (11,746)                    -
Proceeds from issuance of debt                                                   87,552                28,029
Other                                                                               123                  (952)
                                                                              ---------              --------
       Net cash provided by (used in) financing activities                      (25,602)               41,150
                                                                              ---------              --------

       Net increase in cash                                                      19,734                 3,157
Cash at beginning of period                                                       1,115                 4,492
                                                                              ---------              --------
Cash at end of period                                                         $  20,849              $  7,649
                                                                              =========              ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       6
<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1)  Partnership Organization

    Star Gas Partners, L.P. ("Star Gas Partners" or the "Partnership") is a
    diversified home energy distributor and services provider, specializing in
    heating oil, propane, natural gas and electricity. Star Gas Partners is a
    Master Limited Partnership whose 16.0 million common limited partner units
    (trading symbol "SGU" representing a 83.1% limited partner interest in Star
    Gas Partners) and 2.6 million senior subordinated units (trading symbol
    "SGH" representing a 13.4% limited partner interest in Star Gas Partners)
    are traded on the New York Stock Exchange. Additional interest in Star Gas
    Partners are represented by 0.3 million junior subordinated units
    (representing a 1.8% limited partner interest in Star Gas Partners) and 0.3
    million general partner units (representing a 1.7% general partner interest
    in Star Gas Partners).

    Operationally the Partnership is organized as follows:

    . Petro Holdings, Inc. ("Petro" or the "heating oil segment"), is the
      nation's largest distributor of home heating oil and serves approximately
      350,000 customers in the Northeast and Mid-Atlantic. Petro is an indirect
      wholly owned subsidiary of Star Gas Propane, L.P.

    . Star Gas Propane, L.P., ("Star Gas Propane" or the "propane segment") is a
      wholly owned subsidiary of Star Gas Partners. Star Gas Propane markets and
      distributes propane gas and related products to more than 190,000
      customers in the Midwest and Northeast.

    . Total Gas and Electric ("TG&E" or the "natural gas and electric reseller
      segment") is an energy reseller that markets natural gas and electricity
      to residential homeowners in deregulated energy markets in the Northeast
      and Mid-Atlantic states of New York, New Jersey, Pennsylvania and Maryland
      and serves approximately 100,000 residential customers. TG&E is a 72.7%
      owned subsidiary of the Partnership.

2)  Summary of Significant Accounting Policies

    Basis of Presentation

    The Consolidated Financial Statements for the period October 1, 1998 through
    March 25, 1999 include the accounts of Star Gas Partners, L.P., and
    subsidiaries, principally Star Gas Propane. Beginning March 26, 1999, the
    Consolidated Financial Statements also include the accounts and results of
    operations of Petro. Beginning April 7, 2000, the Consolidated Financial
    Statements also include the accounts and results of operations of TG&E. The
    Partnership consolidates 72.7% of TG&E's fair market value adjusted balance
    sheet with a contra amount representing the minority interest not owned by
    the Partnership. Revenue and expenses are also consolidated with the
    Partnership with a deduction for the net amount allocable to the minority
    interest. All material intercompany items and transactions have been
    eliminated in consolidation.

    Use of Estimates

    The preparation of financial statements in accordance 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 revenue and expenses during the
    reporting period. Actual results could differ from those estimates.

                                       7
<PAGE>

2)  Summary of Significant Accounting Policies - (continued)

    Revenue Recognition

    Sales of propane, heating oil, natural gas, electricity and propane/heating
    oil equipment are recognized at the time of delivery of the product to the
    customer or at the time of sale or installation. Revenue from repairs and
    maintenance service is recognized upon completion of the service. Payments
    received from customers for heating oil equipment service contracts are
    deferred and amortized into income over the terms of the respective service
    contracts, on a straight-line basis, which generally do not exceed one year.

    Basic and Diluted Income (Loss) per Limited Partner Unit

    Net income (loss) per Limited Partner Unit is computed by dividing net
    income (loss), after deducting the General Partner's interest, by the
    weighted average number of Common Units, Senior Subordinated Units, and
    Junior Subordinated Units outstanding.

    Cash Equivalents

    The Partnership considers all highly liquid investments with a maturity of
    three months or less, when purchased, to be cash equivalents.

    Inventories

    Inventories are stated at the lower of cost or market and are computed on a
    first-in, first-out basis.

    Property, Plant, and Equipment

    Property, plant, and equipment are stated at cost. Depreciation is computed
    over the estimated useful lives of the depreciable assets using the
    straight-line method.

    Intangible Assets

    Intangible assets include goodwill, covenants not to compete, customer lists
    and deferred charges.

    Goodwill is the excess of cost over the fair value of net assets in the
    acquisition of a company. The Partnership amortizes goodwill using the
    straight-line method over a twenty-five year period.

    Covenants not to compete are non-compete agreements established with the
    owners of an acquired company, and are amortized over the respective lives
    of the covenants, which are generally five years.

    Customer lists are the names and addresses of the acquired company's
    patrons. Based on the historical retention experience of these lists, Star
    Gas Propane amortizes customer lists on a straight-line method over fifteen
    years, Petro amortizes customer lists on a straight-line method over seven
    to ten years and TG&E amortizes customer lists on a straight-line method
    over ten years.

    Deferred charges represent the costs associated with the issuance of debt
    instruments and are amortized using the interest method over the lives of
    the related debt instruments.

    It is the Partnership's policy to review intangible assets for impairment
    whenever events or changes in circumstances indicate that the carrying
    amount of such assets may not be recoverable. The Partnership determines
    that the carrying values of intangible assets are recoverable over their
    remaining estimated lives through undiscounted future cash flow analysis. If
    such a review should indicate that the carrying amount of the intangible
    assets is not recoverable, it is the Partnership's policy to reduce the
    carrying amount of such assets to fair value.

                                       8
<PAGE>

2)   Summary of Significant Accounting Policies - (continued)

     Advertising Expenses
     Advertising costs are expensed as they are incurred.

     Customer Credit Balances
     Customer credit balances represent pre-payments received from customers
     pursuant to a budget payment plan (whereby customers pay their estimated
     annual usage on a fixed monthly basis) and the payments made have exceeded
     the charges for deliveries.

     Environmental Costs
     The Partnership expenses, on a current basis, costs associated with
     managing hazardous substances and pollution in ongoing operations. The
     Partnership also accrues for costs associated with the remediation of
     environmental pollution when it becomes probable that a liability has been
     incurred and the amount can be reasonably estimated.

     Derivatives  and Premiums
     The Partnership uses derivatives to hedge the price risk associated with
     the products it sells to guaranteed maximum price customers and to some
     extent natural gas inventory on hand. The realized gains and losses from
     these derivatives are matched with the inventory being hedged and are
     included with cost of goods sold. Premiums paid for derivatives are
     capitalized and amortized as part of cost of goods sold over the useful
     lives of the related instruments.

     TG&E Customer Acquisition Expense
     TG&E customer acquisition expense represent primarily, payments made to a
     third-party direct marketing company for the cost associated with obtaining
     new accounts for the Partnership's natural gas and electric reseller
     division.

     Employee Unit Incentive Plan
     The Partnership adopted an employee unit incentive plan to grant certain
     employees senior subordinated units of limited partner interest of the
     Partnership ("incentive units"), as an incentive for increased efforts
     during employment and as an inducement to remain in the service of the
     Partnership.  Grants of incentive units vest twenty percent immediately,
     with the remaining amount vesting over four consecutive installments in
     which the Partnership achieves annual targeted distributable cash flow.
     The Partnership records an expense for the incentive units granted, which
     require no cash contribution, ratably over the vesting period for those
     units which are probable of being issued.

     Income Taxes
     The Partnership is a master limited partnership.  As a result, for Federal
     income tax purposes, earnings or losses are allocated directly to the
     individual partners.  Except for the Partnership's corporate subsidiaries,
     no recognition has been given to Federal income taxes in the accompanying
     financial statements of the Partnership.  While the Partnership's corporate
     subsidiaries will generate non-qualifying Master Limited Partnership
     revenue, dividends from the corporate subsidiaries to the Partnership are
     included in the determination of Master Limited Partnership income.  In
     addition, a portion of the dividends received by the Partnership from the
     corporate subsidiaries will be taxable to the partners.  Net earnings for
     financial statement purposes will differ significantly from taxable income
     reportable to partners as a result of differences between the tax basis and
     financial reporting basis of assets and liabilities and due to the taxable
     income allocation requirements of the Partnership agreement.

                                       9
<PAGE>

2)   Summary of Significant Accounting Policies - (continued)

     Income Taxes - (continued)
     For all corporate subsidiaries of the Partnership excluding TG&E, a
     consolidated Federal income tax return is filed. TG&E files a separate
     Federal income tax return.  Deferred tax assets and liabilities are
     recognized for the future tax consequences attributable to differences
     between the financial statement carrying amount of assets and liabilities
     and their respective tax bases and operating loss carryforwards.  Deferred
     tax assets and liabilities are measured using enacted tax rates expected to
     apply to taxable income in the years in which those temporary differences
     are expected to be recovered or settled.

     Accounting Changes
     In June 1998, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards ("SFAS") No. 133 - "Accounting
     for Derivative Instruments and Hedging Activities." SFAS No. 133
     establishes accounting and reporting standards for derivative instruments,
     including certain derivative instruments embedded in other contracts, and
     for hedging activities. Subsequently, the FASB issued SFAS No. 137 which
     amended the effective date for SFAS No. 133 to all fiscal quarters of all
     fiscal years beginning after June 15, 2000. The Partnership is assessing
     the impact and disclosure requirements of SFAS No. 133.

3)   Quarterly Distribution of Available Cash

     In general, the Partnership distributes to its partners on a quarterly
     basis all "Available Cash."  Available Cash generally means, with respect
     to any fiscal quarter, all cash on hand at the end of such quarter less the
     amount of cash reserves that are necessary or appropriate in the reasonable
     discretion of the General Partner to (1) provide for the proper conduct of
     the Partnership's business, (2) comply with applicable law or any of its
     debt instruments or other agreements or (3) in certain circumstances
     provide funds for distributions to the common unitholders and the senior
     subordinated unitholders during the next four quarters. The General Partner
     may not establish cash reserves for distributions to the senior
     subordinated units unless the General Partner has determined that in its
     judgment the establishment of reserves will not prevent the Partnership
     from distributing the Minimum Quarterly Distribution ("MQD") on all common
     units and any common unit arrearages thereon with respect to the next four
     quarters.  Certain restrictions on distributions on senior subordinated
     units, junior subordinated units and general partner units could result in
     cash that would otherwise be Available Cash being reserved for other
     purposes.  Cash distributions will be characterized as distributions from
     either Operating Surplus or Capital Surplus.

     The senior subordinated units, the junior subordinated units, and general
     partner units are each a separate class of interest in Star Gas Partners,
     and the rights of holders of those interests to participate in
     distributions differ from the rights of the holders of the common units.

     The Partnership intends to distribute to the extent there is sufficient
     Available Cash, at least a MQD of $0.575 per common unit, or $2.30 per
     common unit on a yearly basis.  In general, Available Cash will be
     distributed per quarter based on the following priorities:

       .  First, to the common units until each has received $0.575, plus any
          arrearages from prior quarters.
       .  Second, to the senior subordinated units until each has received
          $0.575.
       .  Third, to the junior subordinated units and general partner units
          until each has received $0.575.
       .  Finally, after each has received $0.575, available cash will be
          distributed proportionately to all units until target levels are met.

     If distributions of available cash exceed target levels greater than
     $0.604, the senior subordinated units, junior subordinated units and
     general partner units will receive incentive distributions.



                                       10
<PAGE>

3)   Quarterly Distribution of Available Cash - (continued)

     In July 2000, the Partnership announced based on its results in fiscal
     2000, that in addition to its regular quarterly distribution of $0.575 on
     its common units, that it would commence quarterly distributions on its
     senior subordinated units at an initial rate of $0.25 per unit.

     The subordination period will end once the Partnership has met the
     financial tests stipulated in the partnership agreement, but it generally
     cannot end before October 1, 2002.  However, if the general partner is
     removed under some circumstances, the subordination period will end.  When
     the subordination period ends, all senior subordinated units and junior
     subordinated units will convert into Class B common units on a one-for-one
     basis, and each common unit will be redesignated as a Class A common unit.
     The main difference between the Class A common units and Class B common
     units is that the Class B common units will continue to have the right to
     receive incentive distributions and additional units.

     The subordination period will generally extend until the first day of any
     quarter beginning on or after October 1, 2002 that each of the following
     three events occur:

     (1) distributions of Available Cash from Operating Surplus on the common
     units, senior subordinated units, junior subordinated units and general
     partner units equal or exceed the sum of the minimum quarterly
     distributions on all of the outstanding common units, senior subordinated
     units, junior subordinated units and general partner units for each of the
     three non-overlapping four-quarter periods immediately preceding that date;
     (2) the Adjusted Operating Surplus generated during each of the three
     immediately preceding non-overlapping four-quarter periods equaled or
     exceeded the sum of the minimum quarterly distributions on all of the
     outstanding common units, senior subordinated units, junior subordinated
     units and general partner units during those periods on a fully diluted
     basis for employee options or other employee incentive compensation. This
     includes all outstanding units and all common units issuable upon exercise
     of employee options that have, as of the date of determination, already
     vested or are scheduled to vest before the end of the quarter immediately
     following the quarter for which the determination is made. It also includes
     all units that have as of the date of determination been earned by but not
     yet issued to our management for incentive compensation; and
     (3) there are no arrearages in payment of the minimum quarterly
     distribution on the common units.

4)   Segment Reporting

     In accordance with SFAS No. 131, "Disclosures about Segments of an
     Enterprise and Related Information," the Partnership has three reportable
     segments, as a retail distributor of heating oil, as a retail distributor
     of propane and as a reseller of natural gas and electricity.  Management
     has chosen to organize the enterprise under these three segments in order
     to leverage the expertise it has in each industry, allow each segment to
     continue to strengthen its core competencies and provide a clear means for
     evaluation of operating results.

     The heating oil segment is primarily engaged in the retail distribution of
     home heating oil, related equipment services, and equipment sales to
     residential and commercial customers.  It operates primarily in the
     Northeast and Mid-Atlantic states. Home heating oil is principally used by
     the Partnership's residential and commercial customers to heat their homes
     and buildings, and as a result, weather conditions have a significant
     impact on the demand for home heating oil.

     The propane segment is primarily engaged in the retail distribution of
     propane and related supplies and equipment to residential, commercial,
     industrial, agricultural and motor fuel customers, in the Midwest and the
     Northeast. Propane is used primarily for space heating, water heating and
     cooking by the Partnership's residential and commercial customers and as a
     result, weather conditions also have a significant impact on the demand for
     propane.

                                       11
<PAGE>

4)   Segment Reporting - (continued)

     The natural gas and electric reseller segment is primarily engaged in
     offering natural gas and electricity to residential consumers in
     deregulated energy markets.  In deregulated energy markets customers have a
     choice in selecting energy suppliers to power and / or heat their homes.
     TG&E operates in nine markets in the Northeast/Mid Atlantic states where
     competition for energy suppliers range from independent resellers, like
     TG&E, to large public utilities.

     The following are the statements of operations and balance sheets for each
     segment as of and for the periods indicated.  The heating oil segment was
     consolidated with the propane segment beginning March 26, 1999, and the
     electric and natural gas reselling segment was added beginning April 7,
     2000.  There were no inter-segment sales.

<TABLE>
<CAPTION>


(in thousands)                                                 Three Months Ended
                                  -----------------------------------------------------------------------------------
                                                June 30, 1999                         June 30, 2000
                                  ---------------------------------------  ------------------------------------------
                                         Heating                           Heating                 TG        (a)
Statement of Operations                    Oil     Propane   Consol.         Oil      Propane      &E      Consol.
-----------------------                 ---------  --------  ---------     ---------  ---------  --------  ----------
<S>                                     <C>        <C>       <C>          <C>        <C>        <C>       <C>
Sales:
  Product                               $ 45,404   $13,618   $ 59,022     $ 72,049    $20,946   $11,248    $104,243
  Installation, service,
    and appliance                         18,056     2,014     20,070       23,253      2,667         -      25,920
                                        --------   -------   --------     --------    -------   -------    --------
     Total sales                          63,460    15,632     79,092       95,302     23,613    11,248     130,163

Costs and expenses:
  Cost of product                         23,455     5,187     28,642       45,442     10,595    10,167      66,204
  Cost of installation,
    service, and appliances               23,316       705     24,021       27,806        746         -      28,552
  Delivery and branch                     22,583     9,539     32,122       25,011     10,399         -      35,410
  Depreciation and
    amortization                           5,423     3,035      8,458        5,704      2,983       160       8,847
  General and
     administrative                        2,439     1,631      4,070        2,466      1,864       743       5,073
  TG&E customer
     acquisition expense                       -         -          -            -          -       932         932
  Unit compensation expense                    -         -          -            -          -         -         599
  Net gain (loss) on sales
     of assets                                 2        (7)        (5)          (6)        12         -           6
                                        --------   -------   --------     --------    -------   -------    --------
      Operating (loss)                   (13,754)   (4,472)   (18,226)     (11,133)    (2,962)     (754)    (15,448)
Interest expense
 (income), net                             3,261     1,960      5,221        4,072      2,501        35       6,608
Amortization of debt
  issuance  costs                             83        45        128           91         50         -         141
                                        --------   -------   --------     --------    -------   -------    --------
       Income (loss) before
         income taxes and
          minority interest              (17,098)   (6,477)   (23,575)     (15,296)    (5,513)     (789)    (22,197)
                                        --------   -------   --------      -------    -------   -------     -------
Minority interest in net
   loss of TG&E                                -         -          -            -          -       251         251
Income tax expense (benefit)              (5,368)        6     (5,362)          25         17         3          45
                                        --------   -------   --------     --------    -------   -------    --------
        Net (loss)                      $(11,730)  $(6,483)  $(18,213)    $(15,321)   $(5,530)  $  (541)   $(21,991)
                                        ========   =======   ========     ========    =======   =======    ========

Capital expenditures                    $  1,121   $ 1,464   $  2,585     $    740    $   593   $     7    $  1,340
                                        ========   =======   ========     ========    =======   =======    ========
</TABLE>

   (a)  Unit compensation expense has been classified as an expense of Star Gas
Partners and has not been allocated to the three segments.

                                       12
<PAGE>

4) Segment Reporting - (continued)

<TABLE>
<CAPTION>
      (in thousands)                                                 Nine Months Ended
                                             --------------------------------------------------------------------------
                                                       June 30, 1999                        June 30, 2000
                                             -------------------------------    ---------------------------------------
                                              Heating                           Heating                TG        (a)
     Statement of Operations                    Oil      Propane    Consol.       Oil     Propane      &E      Consol.
     -----------------------                 ---------  ---------  ---------    --------  --------  --------  ---------
     <S>                                     <C>        <C>        <C>          <C>       <C>       <C>       <C>
     Sales:
       Product                               $ 53,312    $82,613   $135,925     $436,791  $114,756  $11,248   $562,795
       Installation, service,
         and appliance                         18,281      7,224     25,505       66,479     9,470        -     75,949
                                             --------    -------   --------     --------  --------  -------   --------
          Total sales                          71,593     89,837    161,430      503,270   124,226   11,248    638,744

     Costs and expenses:
       Cost of product                         27,152     31,319     58,471      259,322    58,549   10,167    328,038
       Cost of installation,
         service, and appliances               24,290      2,361     26,651       85,879     3,007              88,886
       Delivery and branch                     23,726     30,721     54,447       87,406    33,581             120,987
       Depreciation and                                                                      8,918
         amortization                           5,423      9,066     14,489       16,369                160     25,447
       General and                                                                           5,537
          administrative                        2,589      4,637      7,226        8,069                743     14,349
       TG&E customer
          acquisition expense                       -          -          -            -         -      932        932
       Unit compensation expense                    -          -          -            -         -        -        599
       Net gain (loss) on sales
          of assets                                 2        (98)       (96)           8        48        -         56
                                             --------    -------   --------     --------  --------  -------   --------
            Operating income (loss)           (11,585)    11,635         50       46,233    14,682     (754)    59,562
     Interest expense
      (income), net                             3,486      6,274      9,760       12,982     6,964       35     19,981
     Amortization of debt
       issuance costs                              83        135        218          258       140        -        398
                                             --------    -------   --------     --------  --------  -------   --------
            Income (loss) before
              income taxes and
               minority interest              (15,154)     5,226     (9,928)      32,993     7,578     (789)    39,183
                                             --------    -------   --------     --------  --------  -------   --------
     Minority interest in net
        loss of TG&E                                -          -          -            -         -      251        251
     Income tax expense (benefit)              (5,343)        19     (5,324)         300        70        3        373
                                             --------    -------   --------     --------  --------  -------   --------
             Net income (loss)               $ (9,811)   $ 5,207   $ (4,604)    $ 32,693  $  7,508  $  (541)  $ 39,061
                                             ========    =======   ========     ========  ========  =======   ========
     Capital expenditures                    $  1,121    $ 3,815   $  4,936     $  1,752  $  2,875  $     7   $  4,634
                                             ========    =======   ========     ========  ========  =======   ========
     </TABLE>

   (a) Unit compensation expense has been classified as an expense of Star Gas
       Partners and has not been allocated to the three segments.

                                       13
<PAGE>

4) Segment Reporting - (continued)

<TABLE>
<CAPTION>
     (in thousands)                               September 30, 1999                         June 30, 2000
                                           -------------------------------     -----------------------------------------
                                            Heating                 (1)         Heating                 TG        (1)
     Balance Sheet                            Oil      Propane    Consol.         Oil      Propane      &E      Consol.
     -------------                         ---------  ---------  ---------     ---------  ---------  --------  ---------
     <S>                                   <C>        <C>        <C>           <C>        <C>        <C>       <C>
     Assets
     Current assets:
       Cash and cash equivalents            $  4,270   $    222   $  4,492      $  1,294   $  3,362   $    86   $  7,649
       Receivables, net                       35,960      6,335     42,295        63,797      9,427     6,744     79,968
       Inventories                            16,498      9,819     26,317        12,048      5,951     1,522     19,521
       Prepaid expenses and other
         current assets                       13,678      1,156     13,764        12,733      2,113     1,823     14,308
                                            --------   --------   --------      --------   --------   -------   --------
              Total current assets            70,406     17,532     86,868        89,872     20,853    10,175    121,446
     Property and equipment, net              39,849    115,118    154,967        38,861    127,741       138    166,740
     Long-term portion of accounts
       receivable                              5,590          -      5,590         7,138          -         -      7,138
     Investment in Petro Holdings                  -     83,233          -             -    103,742         -          -
     Intangibles and other assets, net       236,981     54,938    291,919       238,778     61,817    11,420    312,015
                                            --------   --------   --------      --------   --------   -------   --------
              Total assets                  $352,826   $270,821   $539,344      $374,649   $314,153   $21,733   $607,339
                                            ========   ========   ========      ========   ========   =======   ========

     Liabilities and
       Partners'                            Heating                 (1)         Heating                 TG        (1)
        Capital                               Oil      Propane    Consol.         Oil      Propane      &E      Consol.
                                            --------  ---------  ---------     ---------  ---------  --------  ---------
     Current Liabilities:
       Accounts payable                     $  7,366   $  5,573   $ 12,939      $  8,550   $  3,072   $ 6,917   $ 18,089
       Bank credit
         facility borrowings                       -      3,150      3,150         7,000          -     5,050     12,050
       Current maturities
          of long-term debt                    1,391          -      1,391        14,381        457         -     14,838
       Accrued expenses
         and other current
          liabilities                         39,012      4,231     43,044        31,260      6,479     1,574     39,311
     Due to affiliate                              -          -          -             -          -       144          -
       Unearned service
         contract revenue                     14,007          -     14,007        14,333          -         -     14,333
       Customer credit
         balances                             26,657      4,437     31,094         9,422      2,553       940     12,915
                                            --------   --------   --------      --------   --------   -------   --------
              Total current
                liabilities                   88,433     17,391    105,625        84,946     12,561    14,625    111,536
     Long-term debt                          174,338    102,300    276,638       179,638    123,043     4,000    302,681
     Other long-term
        liabilities                            6,822         92      6,905         6,323         98         -      6,421
     Partners' Capital /
       Equity Capital                         83,233    151,038    150,176       103,742    178,451     3,108    186,701
                                            --------   --------   --------      --------   --------   -------   --------
              Total Liabilities
                and Partners'
                 Capital                    $352,826   $270,821   $539,344      $374,649   $314,153   $21,733   $607,339
                                            ========   ========   ========      ========   ========   =======   ========
     </TABLE>

   (1) The consolidated amounts include the necessary entries to eliminate the
       investment in Petro Holdings, Star Gas Propane and TG&E, and at 6/30/00
       includes $2,907 of cash held by Star Gas Partners.

                                       14
<PAGE>

5)   Inventories

     The components of inventory were as follows:

<TABLE>
<CAPTION>
                                                   September 30, 1999    June 30, 2000
                                                   ------------------    -------------
     <S>                                           <C>                   <C>
     (in thousands)
     Propane gas                                         $ 7,678            $ 3,742
     Propane appliances and equipment                      2,141              2,209
     Fuel oil                                              9,959              4,989
     Fuel oil parts and equipment                          6,539              7,059
     Natural Gas                                               -              1,522
                                                         -------            -------
                                                         $26,317            $19,521
                                                         =======            =======
</TABLE>

     Propane Gas
     Substantially all of the Partnership's propane for the Northeast retail
     operations are purchased under supply contracts.  Certain of the supply
     contracts provide for minimum and maximum amounts of propane to be
     purchased thereunder, and provide for pricing in accordance with posted
     prices at the time of delivery or include a pricing formula that typically
     is based on current market prices.  Historically, spot purchases from local
     refiners supply most of the propane for the Midwest operations, with spot
     purchases from Mont Belvieu, Texas accounting for approximately one-seventh
     of the Partnership's total volume of propane purchases.  In addition, the
     three single largest suppliers in the aggregate account for approximately
     one-half of total propane purchases.

     Fuel Oil
     The Partnership obtains home heating oil in either barge or truckload
     quantities, and has contracts with over 80 terminals for the right to
     temporarily store its heating oil at facilities not owned by the
     Partnership.  Purchases are made pursuant to supply contracts or on the
     spot market. The Partnership has market price based contracts for
     substantially all its petroleum requirements with 12 different suppliers,
     the majority of which have significant domestic sources for their product,
     and many of which have been suppliers for over 10 years.  Typically supply
     contracts have terms of 12 months. All of the supply contracts provide for
     maximum and in some cases minimum quantities, and in most cases the price
     is based upon the market price at the time of delivery.

     Natural Gas and Electricity
     The Partnership is an independent reseller of natural gas and electricity
     to residential homeowners in deregulated markets, through its 72.7%
     controlling interest in TG&E.  In the markets in which TG&E operates,
     natural gas and electricity are available from wholesale natural gas
     producers and electricity generating companies.  Substantially all of
     TG&E's natural gas is purchased from a major Texas wholesaler, with the
     balance from regional wholesalers, who transport the natural gas to the
     incumbent utility company for TG&E, through purchased or assigned capacity
     using existing pipes.  Additionally, all of TG&E's electricity is purchased
     from a major New York State wholesaler, who transports the electricity to
     the incumbent utility company, through scheduled deliveries using existing
     electric lines.

     The incumbent utility company then delivers the natural gas and electricity
     to TG&E customers using existing pipes and electric lines. The incumbent
     utility and TG&E coordinate delivery and billing, and also compete to sell
     the natural gas and electricity to the ultimate consumer.  Generally,
     customers pay the incumbent utility a service charge to cover customer
     related costs like meter reading, billing, equipment and maintenance.
     Customers also pay a separate delivery charge to the incumbent utility for
     bringing the natural gas and electricity from the customer's chosen
     supplier.  The energy service company is then paid by the customer for the
     natural gas or electricity that was supplied.  In most markets in which
     TG&E operates, these charges are itemized on one customer energy bill from
     the utility company.  In other markets, TG&E directly bills the customer
     for the natural gas or electricity supplied.

                                       15
<PAGE>

5)   Inventories - (continued)

     The Partnership may enter into forward contracts with Mont Belvieu
     suppliers, heating oil suppliers, refineries or wholesale natural gas
     producers which call for a fixed price for the product to be purchased
     based on current market conditions, with delivery occurring at a later
     date. In most cases the Partnership has entered into similar agreements to
     sell this product to customers for a fixed price based on market
     conditions. In the event that the Partnership enters into these types of
     contracts without a subsequent sale, it is exposed to some market risk.
     Currently, the Partnership does not have any contracts that if market
     conditions were to change, would have a material affect on its financial
     statements.

     Concentration of Revenue with Guaranteed Maximum Price Customers

     Approximately one-third of the volume sold in the Partnership's heating oil
     segment is sold to individual customers under an agreement pre-establishing
     the maximum sales price of home heating oil over a twelve month period. The
     maximum price at which home heating oil is sold to these capped-price
     customers is generally renegotiated prior to the heating season of each
     year based on current market conditions.  The heating oil segment currently
     enters into futures contracts, options, and swaps for a substantial
     majority of the heating oil it sells to these capped-price customers in
     advance and at a fixed cost.  Should events occur after a capped-sales
     price is established that increases the cost of home heating oil above the
     amount anticipated, margins for the capped-price customers whose heating
     oil was not purchased in advance would be lower than expected, while
     margins for those customers whose heating oil was purchased in advance
     would be unaffected. Conversely, should events occur during this period
     that decrease the cost of heating oil below the amount anticipated, margins
     for the capped-price customers whose heating oil was purchased in advance
     could be lower than expected, while those customers whose heating oil was
     not purchased in advance would be unaffected or higher than expected.

     In accordance with SFAS No. 80, "Accounting for Futures Contracts," futures
     contracts are classified as a hedge when the item to be hedged exposes the
     company to price risk and the futures contract reduces that risk exposure.
     Future contracts that relate to transactions that are expected to occur are
     accounted for as a hedge when the significant characteristics and expected
     terms of the anticipated transactions are identified and it is probable
     that the anticipated transaction will occur.  If a transaction does not
     meet the criteria to qualify as a hedge, it is considered to be
     speculative.  Any gains or losses associated with futures contracts which
     are classified as speculative are recognized in the current period.  If a
     futures contract that has been accounted for as a hedge is closed or
     matures before the date of the anticipated transaction, the accumulated
     change in value of the contract is carried forward and included in the
     measurement of the related transaction.  Option contracts are accounted for
     in the same manner as futures contracts. Based upon the above the
     Partnership accounts for its derivative activity as hedge transactions.

     To hedge a portion of the heating oil gallons anticipated to be sold to its
     guaranteed maximum price customers, the heating oil segment at June 30,
     2000 had 40.1 million gallons of futures contracts to buy heating oil with
     a notional value of $28.4 million and a fair market value of $32.5 million;
     30.4 million gallons of futures contracts to sell heating oil with a
     notional value of $21.3 million and a fair market value of $24.5 million;
     4.2 million gallons of cap contracts to buy heating oil at an agreed upon
     cap price with a notional value of $2.9 million and a fair market value of
     $3.5 million; 66.2 million gallons of floor contracts to sell heating oil
     at an agreed upon floor price with a notional value of $40.8 million and a
     fair market value of $52.0 million; and 43.1 million gallons of swap
     contracts that establishes a fixed price to buy heating oil at an agreed
     upon strike price with a notional value of $28.5 million and a fair market
     value of $33.0 million. The contracts expire at various times with no
     contract expiring later than June 2001.

     At June 30, 2000 the unrealized gains on the heating oil segment's hedging
     activity was approximately $6.0 million. The heating oil segment's hedging
     activity is designed to help it achieve its planned margins and represents
     approximately one-third of the expected total home heating oil volume sold
     in a twelve month period.

                                       16
<PAGE>

5)   Inventories - (continued)

     At June 30, 2000 less than 5% of TG&E's natural gas accounts have a fixed
     selling price.  To help mitigate fluctuations in the cost of natural gas
     and to hedge these fixed price customers TG&E at June 30, 2000 had forward
     purchase contracts for 280 thousand dekatherms of natural gas with a
     notional value of $0.8 million and a fair market value of $1.2 million; and
     360 thousand dekatherm future contracts to sell natural gas at an agreed
     upon price with a notional value of $1.6 million and a fair market value of
     $1.6 million.  The contracts expire at various times with no contract
     expiring later than March 2001.  At June 30, 2000 the unrealized gain on
     TG&E's hedging activity was approximately $0.5 million.

     The carrying amount of all hedging financial instruments at June 30, 2000
     was $1.7 million and was included in Prepaid Expenses on the Consolidated
     Balance Sheet.  The risk that counterparties to such instruments may be
     unable to perform is minimized by limiting the counterparties to major oil
     companies and major financial institutions, including the New York
     Mercantile Exchange.  The Partnership does not expect any losses due to
     counterparty default.

6)   Acquisitions

     During the nine month period ending June 30, 2000, the Partnership acquired
     seven unaffiliated retail heating oil dealers, four unaffiliated retail
     propane dealers and a 72.7% controlling interest in an electricity and
     natural gas reseller (see footnote 1).  The aggregate consideration for
     these acquisitions accounted for by the purchase method of accounting was
     approximately $49.2 million. Purchase prices have been allocated to the
     acquired assets and liabilities based on their respective fair market
     values on the dates of acquisition.  The purchase prices in excess of the
     fair values of net assets acquired were classified as intangibles in the
     Condensed Consolidated Balance Sheets.

     The following table indicates the allocation of the aggregate purchase
     price paid for these acquisitions and the respective periods of
     amortization assigned:

<TABLE>
<CAPTION>
     (in thousands)                                                                   Useful Lives
                                                                                      ------------
     <S>                                                <C>                           <C>
     Land                                               $ 1,394                       -
     Buildings                                              431                       30 years
     Furniture and Fixtures                                 304                       10 years
     Fleet                                                3,712                       5 - 30 years
     Tanks and equipment                                 11,618                       5- 30 years
     Customer lists                                       9,244                       7- 15 years
     Restrictive covenants                                3,380                       5 years
     Goodwill                                            21,207                       25 years
     Inventory                                              604                       -
     Working capital                                     (3,467)                      -
     Minority interest                                      735                       -
                                                        -------
     Total                                              $49,162
                                                        =======
</TABLE>

     Sales and net income have been included in the Condensed Consolidated
     Statements of Operations from the respective dates of acquisition. The
     following unaudited pro forma information presents the results of
     operations for the nine months ending June 30, 2000 of the Partnership and
     the acquisitions previously described, as if the acquisitions had taken
     place on October 1, 1999.

     (in thousands, except per share data)

<TABLE>
     <S>                                                                                     <C>
     Sales                                                                                   $682,216
                                                                                             ========
     Net income                                                                              $ 40,448
                                                                                             ========
     General Partner's interest in net income                                                $    683
                                                                                             ========
     Limited Partners' interest in net income                                                $ 39,765
                                                                                             ========
     Basic and Diluted net income per limited partner unit                                   $   2.10
                                                                                             ========
</TABLE>

                                       17
<PAGE>

7)   Supplemental Disclosure of Cash Flow Information

<TABLE>
<CAPTION>
      (in thousands)                             Nine Months Ended June 30,
                                             ---------------------------------
                                                 1999                  2000
                                                 ----                  ----
      <S>                                     <C>                    <C>
      Cash paid during the period for:
        Income taxes                          $     -                $ 3,643
        Interest                              $10,616                $27,490

      Non-cash investing activities:
        Redemption of preferred stock         $(6,858)                     -

      Non-cash financing activities:
        Issuance of Common Units              $ 6,858                      -
   </TABLE>




8)   Earnings Per Limited Partner Units

<TABLE>
<CAPTION>
                                                                                   Three Months Ended              Nine Months Ended
       (in thousands, except per unit data)                                           June 30,                        June 30,
                                                                                      --------                        --------
                                                                                    1999        2000         1999       2000
                                                                                    ----        ----         ----       ----
<S>                                                                                <C>          <C>           <C>        <C>
 Basic Earnings Per Unit:
 ------------------------
 Net income (loss)                                                                 $(18,213)   $(21,991)     $(4,604)   $39,061
 Less:  General Partner's interest in net income (loss)                                (364)       (374)         (92)       691
                                                                                   --------    --------      -------    -------
    Limited Partner's interest in net income (loss)                                $(17,849)   $(21,617)     $(4,512)   $38,370
                                                                                   ========    ========      =======    =======

 Common Units                                                                        13,189      16,045        7,169     15,233
 Senior Subordinated Units                                                            2,477       2,482          880      2,478
 Junior Subordinated Units                                                              345         345          123        345
 Subordinated Units                                                                       -           -        1,545          -
                                                                                   --------    --------      -------    -------
    Weighted average number of Limited Partner units outstanding                     16,011      18,872        9,717     18,056
                                                                                   ========    ========      =======    =======

    Basic earnings (loss) per unit                                                 $  (1.11)   $  (1.15)    $  (0.46)   $  2.13
                                                                                   ========    ========      =======    =======

 Diluted Earnings Per Unit:
 ---------------------------
 Effect of dilutive securities                                                     $      -     $     -    $       -    $     -
                                                                                  ---------   ---------     --------    -------

    Limited Partner's interest in net income (loss)                                $(17,849)   $(21,617)   $  (4,512)   $38,370
                                                                                   ========    ========      =======    =======

 Effect of dilutive securities                                                            -           -            -          -
                                                                                   --------    --------      -------    -------
    Weighted average number of Limited Partner units outstanding                     16,011      18,872        9,717     18,056
                                                                                   ========    ========      =======    =======

    Diluted earnings (loss) per unit                                               $  (1.11)   $  (1.15)    $  (0.46)   $  2.13
                                                                                   ========    ========      =======    =======
</TABLE>


9)   Weather Insurance

     The Partnership purchased a weather insurance policy from an independent
     insurance company in January 2000 for a one-time premium of approximately
     $0.5 million.  The purpose of the policy was to limit the negative impact
     of warmer than normal weather on the Partnership's operating results for
     the months of February and March 2000. The Partnership submitted a notice
     of loss in the amount of approximately $1.8 million under the policy in
     April 2000. The insurance company, while not disclaiming its obligation,
     has not made payments in accordance with the stipulated payment terms.
     Attorneys for the Partnership have reviewed the policy and are not aware of
     any facts or legal theories that would provide a valid defense to the
     Partnership's claim.  The Partnership is currently pursuing judicial
     remedies to resolve this matter.  Amounts that are receivable pursuant to
     the policy are recorded as a reduction to operating expenses.

                                       18
<PAGE>

10)  Subsequent Events

     Cash Distribution
     On July 25, 2000 the Partnership announced that it would pay a cash
     distribution of $0.575 per Common Unit and $0.25 per Senior Subordinated
     Unit for the three months ended June 30, 2000.  The distributions will be
     paid on August 15, 2000 to holders of record as of August 4, 2000.

                                       19
<PAGE>

                     STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS



Statement Regarding Forward-Looking Disclosure

This Report includes "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act which represent
the Partnership's expectations or beliefs concerning future events that involve
risks and uncertainties, including those associated with the effect of weather
conditions on the Partnership's financial performance, the price and supply of
home heating oil, propane, electricity and natural gas and the ability of the
Partnership to obtain new accounts and retain existing accounts.  All statements
other than statements of historical facts included in this Report including,
without limitation, the statements under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and elsewhere herein, are
forward-looking statements. Although the Partnership believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Partnership's expectations ("Cautionary Statements") are disclosed in this
Report, including without limitation and in conjunction with the forward-looking
statements included in this report.  All subsequent written and oral forward-
looking statements attributable to the Partnership or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.


Overview

In analyzing the financial results of the Partnership, the following matters
should be considered.

The Petro acquisition was made on March 26, 1999.  Accordingly, the results of
operations for the nine month period ended June 30, 2000 include Petro's results
for the entire period whereas the results for the previous corresponding nine
month period only include the heating oil segment's results of operations for
approximately one quarter.  Since the Petro acquisition was included for both
periods, the results for the three month period ended June 30, 2000 are
comparable to the three month period ended June 30, 1999.

The Total Gas and Electric (TG&E) acquisition was made on April 7, 2000.
Accordingly, the results of operations for the three and nine month periods
ended June 30, 2000 include TG&E's results from April 7, 2000.

The primary use for heating oil and propane is for heating in residential and
commercial applications.  As a result, weather conditions have a significant
impact on financial performance and should be considered when analyzing changes
in financial performance.  In addition, gross margins vary according to customer
mix.  For example, sales to residential customers generate higher profit margins
than sales to other customer groups, such as agricultural customers.
Accordingly, a change in customer mix can affect gross margins without
necessarily impacting total sales.

Also, the propane and heating oil industries are seasonal in nature with peak
activity occurring during the winter months.  Accordingly, results of operations
for the periods presented are not indicative of the results to be expected for a
full year.

                                       20
<PAGE>

THREE MONTHS ENDED JUNE 30, 2000
COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
--------------------------------------------

Volume

For the three months ended June 30, 2000, retail volume of home heating oil and
propane increased 8.4 million gallons, or 14.8%, to 65.4 million gallons, as
compared to 56.9 million gallons for the three months ended June 30, 1999. This
increase was due to an additional 5.6 million gallons provided by the heating
oil segment and a 2.8 million gallon increase in the propane segment. The
increase in the heating oil segment was largely due to the impact of colder
temperatures and additional volume provided by acquisitions. The 2.8 million
gallon increase in the propane segment was largely due to the impact of
additional volume provided by propane acquisitions, colder temperatures and
internal growth. Temperatures for the Partnership were 15.3% colder than in the
prior year's comparable quarter and 0.7% colder than normal.


Sales

For the three months ended June 30, 2000, sales increased $51.1 million, or
64.6%, to $130.2 million, as compared to $79.1 million for the three months
ended June 30, 1999. This increase was due to an additional $31.8 million
provided by the home heating oil segment, $11.3 million of TG&E sales and a $8.0
million increase in the propane segment. Sales rose in both the heating oil and
propane segments due to increased selling prices and from increased retail
volume. Selling prices increased versus the prior year's comparable period in
response to higher supply costs. Sales also increased in the heating oil
division by $5.2 million and by $0.7 million in the propane division due to an
increased focus on the sales of rationally related products including air
conditioning installation and service and water softeners.


Cost of Product

For the three months ended June 30, 2000, cost of product increased $37.6
million, or 131.1%, to $66.2 million, as compared to $28.6 million for the three
months ended June 30, 1999. This increase was due to an additional $22.0 million
of cost of product at the home heating segment, $10.2 million of TG&E cost of
product and a $5.4 million increase in the propane segment. The cost of product
for both the heating oil and propane segments increased due to the impact of
higher supply cost and for higher retail volume sales. While selling prices and
supply cost increased on a per gallon basis for both the heating oil and propane
divisions, the increase in selling prices was greater than the increase in
supply costs. This resulted in an increase in per gallon margins.


Cost of Installation, Service and Appliances

For the three months ended June 30, 2000, cost of installation, service and
appliances increased $4.5 million to $28.6 million, as compared to $24.0 million
for the three months ended June 30, 1999. This increase was entirely due to an
additional $4.5 million of expenses for the heating oil segment relating to an
increased focus on the sales of rationally related products, principally air
conditioning installation.

                                       21
<PAGE>

Delivery and Branch Expenses

For the three months ended June 30, 2000, delivery and branch expenses increased
$3.3 million, or 10.2%, to $35.4 million, as compared to $32.1 million for the
three months ended June 30, 1999. This increase was due to an additional $2.4
million of delivery and branch expenses at the heating oil segment and a $0.9
million increase in delivery and branch expenses for the propane segment.
Delivery and branch expenses increased at the heating oil segment due to
additional operating cost for higher retail volume sales, inflation and for
additional operating cost of acquired companies. Delivery and branch expenses
increased at the propane segment primarily due to additional operating cost of
acquired propane companies.


Depreciation and Amortization Expenses

For the three months ended June 30, 2000, depreciation and amortization expenses
increased $0.4 million, or 4.6%, to $8.8 million, as compared to $8.5 million
for the three months ended June 30, 1999. This increase was primarily due to
$0.2 million of depreciation and amortization expense for TG&E and additional
depreciation and amortization for heating oil and propane acquisitions.


General and Administrative Expenses

For the three months ended June 30, 2000, general and administrative expenses
increased $1.0 million, or 24.6%, to $5.1 million, as compared to $4.1 million
for the three months ended June 30, 1999. The increase was due to $0.7 million
of TG&E general and administrative expenses and an additional $0.2 million of
general and administrative expenses for the propane segment. The $0.2 million
increase in general and administrative expenses at the propane segment was
largely due to an increase in professional and acquisition related expenditures.


TG&E Customer Acquisition Expense

For the three months ended June 30, 2000, TG&E customer acquisition expense was
$0.9 million. This TG&E segment expense is for the cost of acquiring new
accounts through the services of a third party direct marketing company. For the
three months ended June 30, 2000 TG&E added 25,000 new customers.


Unit Compensation Expense

For the three months ended June 30, 2000, unit compensation expense was $0.6
million. This expense was incurred under the Employee Unit Incentive Plan
whereby certain employees were granted senior subordinated units as an incentive
for increased efforts during employment and as an inducement to remain in the
service of the partnership.


Interest Expense, net

For the three months ended June 30, 2000, net interest expense increased $1.4
million, or 26.6%, to $6.6 million, as compared to $5.2 million for the three
months ended June 30, 1999. This increase was due to additional interest expense
for higher working capital borrowings necessitated by the higher cost of
product, as well as for additional interest expense for the financing of propane
and heating oil acquisitions.

                                       22
<PAGE>

Income Tax Expense (Benefit)

For the three months ended June 30, 2000, income tax expense increased $5.4
million to less than $0.1 million, as compared to an income tax benefit of $5.4
million for the three months ended June 30, 1999. This change was due to the
heating oil segment's corporate net operating loss carryforwards, which
generated $5.4 million in deferred tax benefits offsetting in part a deferred
tax liability existing at June 30, 1999.


Net Loss

For the three months ended June 30, 2000, the net loss increased $3.8 million,
or 20.7%, to $22.0 million, as compared to $18.2 million for the three months
ended June 30, 1999. The increase in the net loss is attributable to $5.4
million higher income tax expense due to the deferred tax benefit realized in
1999, $0.7 million of net loss attributable to TG&E and the $0.6 million of unit
compensation expense. Excluding the $6.7 million impact of these three items,
the net loss would have decreased by $2.9 million as compared to three months
ended June 30, 1999. This improvement in the net loss was due to acquisitions,
internal growth, per gallon improvement in gross profit margins and to colder
weather.


Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense, less net gain (loss) on sales
of equipment (EBITDA)

Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense, less net gain (loss) on sales
of equipment (EBITDA) increased $4.7 million, to a loss of $5.1 million, as
compared to a loss of $9.8 million for the three months ended June 30, 1999.
This increase was due to $2.9 million of additional EBITDA generated by the
heating oil segment, $0.3 million of TG&E EBITDA and a $1.5 million increase in
the propane segment EBITDA. The increase in the heating oil and propane segments
was due to additional EBITDA provided by acquisitions, propane internal growth,
higher per gallon gross profit margins and by the impact of colder temperatures
on the Partnership's results. EBITDA should not be considered as an alternative
to net income (as an indicator of operating performance) or as an alternative to
cash flow (as a measure of liquidity or ability to service debt obligations),
but provides additional information for evaluating the Partnership's ability to
make the Minimum Quarterly Distribution. The definition of "EBITDA" set forth
above may be different from that used by other companies.

                                       23
<PAGE>

NINE MONTHS ENDED JUNE 30, 2000
COMPARED TO NINE MONTHS ENDED JUNE 30, 1999
-------------------------------------------

Volume

For the nine months ended June 30, 2000, retail volume of propane and heating
oil increased 273.4 million gallons, or 199.9%, to 410.2 million gallons, as
compared to 136.8 million gallons for the nine months ended June 30, 1999. This
increase was due to 267.3 million gallons of additional volume provided by the
heating oil segment and a 6.2 million gallon increase in the propane segment.
While retail propane volume was favorably impacted by acquisitions and internal
growth, a 2.4 million gallon reduction in agriculture sales and warmer
temperatures negatively impacted volumes. The abnormal weather conditions during
the first fiscal quarter resulted in a very dry fall harvest, which
significantly reduced propane demand for crop drying. In the Partnership's
propane operating areas, temperatures for the nine months ending June 30, 2000,
were 1.8% warmer than in the prior year's comparable period and 11.4% warmer
than normal.


Sales

For the nine months ended June 30, 2000, sales increased $477.3 million, or
295.7%, to $638.7 million, as compared to $161.4 million for the nine months
ended June 30, 1999. This increase was attributable to $431.7 million additional
sales provided by the heating oil segment, $11.2 million of TG&E sales and a
$34.4 million increase in propane sales. Propane sales increased due to higher
selling prices in response to higher propane supply costs and from the increased
retail volume. Sales in the propane division also rose by $2.2 million due to an
increased focus on the sales of rationally related products.


Cost of Product

For the nine months ended June 30, 2000, cost of product increased $269.6
million, or 461.0%, to $328.0 million, as compared to $58.5 million for the nine
months ended June 30, 1999. This increase was due to $232.2 million of
additional costs attributable to the heating oil segment, $10.2 million of TG&E
cost of product and for higher propane supply cost of $27.2 million. While both
propane selling prices and propane supply costs increased on a per gallon basis,
the increase in selling prices was more than the increase in supply costs, which
resulted in an increase in per gallon margins.


Cost of Installation, Service and Appliances

For the nine months ended June 30, 2000, cost of installation, service and
appliances increased $62.2 million, or 233.5%, to $88.9 million, as compared to
$26.7 million for the nine months ended June 30, 1999. This increase was
primarily due to $61.6 million of additional costs relating to the heating oil
segment's cost of installation and service.


Delivery and Branch Expenses

For the nine months ended June 30, 2000, delivery and branch expenses increased
$66.5 million, or 122.2%, to $121.0 million, as compared to $54.4 million for
the nine months ended June 30, 1999. This increase was due to $63.7 million of
additional heating oil operating costs and $2.8 million of additional operating
costs for the propane segment. The increase for the propane segment was due to
additional cost of acquired propane companies and expenses related to the
propane segment's tank set program, which has increased same store residential
volume by approximately 3%.

                                       24
<PAGE>

Depreciation and Amortization

For the nine months ended June 30, 2000, depreciation and amortization expenses
increased $11.0 million, or 75.6%, to $25.4 million, as compared to $14.5
million for the nine months ended June 30, 1999. This increase was primarily due
to $10.9 million of heating oil segment depreciation and amortization.


General and Administrative Expenses

For the nine months ended June 30, 2000, general and administrative expenses
increased $7.1 million, or 98.6%, to $14.3 million, as compared to $7.2 million
for the nine months ended June 30, 1999. This increase was primarily due to the
inclusion of an additional $5.5 million of general and administrative expenses
for the heating oil segment and $0.7 million of TG&E general and administrative
expenses. The $0.9 million increase in general and administrative expenses at
the propane segment was largely due to an increase in incentive compensation,
inflation and acquisition related expenditures.


Interest Expense, net

For the nine months ended June 30, 2000, net interest expense increased $10.2
million, or 104.7%, to $20.0 million, as compared to $9.8 million for the nine
months ended June 30, 1999. This change was primarily due to $9.5 million of
additional interest expense at the heating oil segment, $0.2 million of net
interest expense for TG&E and additional interest expense for the financing of
the propane acquisitions.


Income Tax Expense (Benefit)

For the nine months ended June 30, 2000, income tax expense increased $5.7
million to $0.4 million, as compared to an income tax benefit of $5.3 million
for the nine months ended June 30, 1999. This change was due to the heating oil
segment's corporate net operating loss carryforwards, which generated $5.4
million in deferred tax benefits offsetting in part a deferred tax liability
existing at June 30, 1999.

Net Income

For the nine months ended June 30, 2000, net income increased $43.7 million, to
$39.1 million, as compared to a net loss of $4.6 million for the nine months
ended June 30, 1999. Additional net income provided by the heating oil segment
was $42.5 million while TG&E incurred a $0.7 million loss for the period. The
$2.3 million increase in net income for the propane segment was due to the
segment's acquisition program, internal growth and a per gallon improvement in
gross profit margins, partially reduced by the impact of warmer temperature on
the propane segment's results.


Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense, less net gain (loss) on sales
of equipment (EBITDA)

Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense, less net gain (loss) on sales
of equipment (EBITDA) increased $71.9 million, or 490.9%, to 86.5 million for
the nine months ended June 30, 2000, as compared to $14.6 million for the prior
year's comparable period. This increase was due to $68.8 million of additional
EBITDA generated by the heating oil segment, a $2.8 million increase in the
propane segment EBITDA and $0.3 million of EBITDA for TG&E. The increase in the
propane segment was due to additional EBITDA provided by propane acquisitions,
propane internal growth and higher per gallon propane gross profit margins
reduced by the impact of warmer temperatures on the propane segment's results.
EBITDA should not be considered as an alternative to net income (as an indicator
of operating performance) or as an alternative to cash flow (as a measure of
liquidity or ability to service debt obligations), but provides additional
information for evaluating the Partnership's ability to make the Minimum
Quarterly Distribution. The definition of "EBITDA" set forth above may be
different from that used by other companies.

                                       25
<PAGE>

Liquidity and Capital Resources

During February 2000, the partnership sold 1.7 million common units (including
0.2 million of overallotment units exercised), the net proceeds of which, net of
underwriter's discounts, commissions, and offering expenses was $22.6 million.
These funds combined with net cash provided by operating activities of $14.6
million, $28.0 million of long-term debt ($27.5 million of privately placed debt
and $0.5 million in an acquisition note), $19.0 million in net credit and
acquisition facility borrowings, $0.3 million in proceeds from the sale of fixed
assets, and $0.9 million in cash acquired in an acquisition amounted to $85.4
million. Such funds were used for capital expenditures of $4.6 million,
acquisitions of $49.2 million, distributions of $25.7 million, debt repayment of
$1.2 million, and other financing activities of $1.5 million. As a result of the
above activity, cash increased by $3.2 million to $7.6 million.

The $27.5 million of privately placed debt mentioned above was comprised of two
issuances. In March 2000, the propane division issued $12.5 million of 8.67%
First Mortgage Notes ("8.67% Notes") with a final maturity of March 30, 2012.
The 8.67% Notes require semiannual interest payments on March 30 and September
30. The propane division also issued $15.0 million of 8.72% First Mortgage Notes
("8.72% Notes") that require semiannual interest payments on March 30 and
September 30 and require annual prepayments of $3.0 million commencing on March
30, 2011. The total proceeds from these note issuances of $27.5 million were
used to repay $25.0 million borrowed under the propane division's bank
acquisition facility with the balance of $2.5 million set aside for general
operating purposes within the propane segment.

During July 2000, the holders of $11.2 million of the heating oil segment's 9.0%
Senior Notes exercised their option to extend the first sinking fund payment of
such notes by one year to October 1, 2001. In accordance with the terms of this
election, the interest rate on this portion of the Senior Notes has been
increased to 10.9%. These notes are included as part of current maturities of
long-term debt on the June 30, 2000 balance sheet.

For the remainder of fiscal 2000, the Partnership anticipates paying interest of
$6.8 million and anticipates growth and maintenance capital additions of
approximately $2.1 million. The Partnership has no material commitments for
capital expenditures. In addition, the Partnership plans to pay distributions on
its units in accordance with the partnership agreement. The Partnership also
plans to pursue strategic acquisitions as part of its business strategy and to
prudently fund such acquisitions through a combination of internally generated
cash, debt and equity. Based on its current cash position, bank credit
availability and net cash from operating activities, the Partnership expects to
be able to meet all of its obligations for fiscal 2000.

Year 2000

As a result of the preparation and series of analyses and tests performed
before, during and after December 31, 1999, the Partnership did not experience
any significant disruption in information technology or operations as a result
of the date change-over to the year 2000.

Accounting Principles Not Yet Adopted

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133 - "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities.
Subsequently, the FASB issued SFAS No. 137 which amended the effective date for
SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000. The Partnership is assessing the impact and disclosure requirements of
SFAS No. 133.

                                       26
<PAGE>

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
         ----------------------------------------------------------

The Partnership is exposed to interest rate risk primarily through its bank
credit facilities. The Partnership utilizes these borrowings to meet its working
capital needs and also to fund the short-term needs of its acquisition program.

Including TG&E, at June 30, 2000, the Partnership had outstanding borrowings of
approximately $38.1 million under its Bank Credit Facilities. In the event that
interest rates associated with these facilities were to increase 100 basis
points, the impact on future cash flows would be a decrease of approximately
$0.4 million annually.

The Partnership also selectively uses derivative financial instruments to manage
its exposure to market risk related to changes in the current and commodity
market price of home heating oil for its heating oil segment. The Partnership
does not hold derivatives for trading purposes. The value of market sensitive
derivative instruments is subject to change as a result of movements in market
prices. Consistent with the nature of hedging activity, associated unrealized
gains and losses would be offset by corresponding decreases or increases in the
purchase price the Partnership would pay for the home heating oil being hedged.
Sensitivity analysis is a technique used to evaluate the impact of hypothetical
market value changes. Based on a hypothetical ten percent increase in the cost
of product at June 30, 2000, the potential unrealized gain on the Partnership's
hedging activity would be increased by $4.4 million to an unrealized gain of
$10.9 million; and conversely a hypothetical ten percent decrease in the cost of
product would decrease the unrealized gain by $4.4 million to an unrealized gain
of $2.1 million.



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


Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------

(a)  Exhibits Included Within:
     -------------------------

     (27)   Financial Data Schedule

     10.20  Eighth amendment dated June 30, 2000 to the Credit Agreement dated
            December 13, 1995, between Star Gas Propane, L.P. and Fleet National
            Bank formerly known as BankBoston, N.A., and Bank of America, N.A.
            formerly known as NationsBank, N.A.

     10.21  June 2000 Star Gas Employee Unit Incentive Plan.


(b)  Reports on Form 8-K:
     --------------------

     None

                                       27
<PAGE>

                                   SIGNATURE
                                   ---------


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized:



Star Gas Partners, L.P.
By:  Star Gas LLC (General Partner)



Signature                        Title                           Date
---------                        -----                           ----


/s/  George Leibowitz            Chief Financial Officer        August 10, 2000
     ----------------
     George Leibowitz            Star Gas LLC
                                 (Principal Financial Officer)

/s/  James J. Bottiglieri        Vice President                 August 10, 2000
     ---------------------
     James J. Bottiglieri        Star Gas LLC

                                       28