RGCO 
                                  Roanoke Gas 
                                 Bluefield Gas 
                               Highland Propane 
                              1996 ANNUAL REPORT 
<PAGE> 
SOUTHWEST VIRGINIA AND SOUTHERN WEST VIRGINIA'S 
CHOICE FOR COMFORT AND ECONOMY 
  
PROUDLY SERVING: 
Beckley              New Castle 
Bedford              Princeton 
Blacksburg           Pulaski 
Bluefield            Radford 
Bramwell             Rainelle 
Buchanan             Roanoke 
Christiansburg       Rocky Mount 
Fincastle            Rupert 
Floyd                Salem 
Fort Chiswell        Smith Mountain 
Galax                Tazewell 
Hillsville           Troutville 
Hinton               Vinton 
Lewisburg            White Sulphur Springs 
Lexington            Wytheville 
Marion               AND OTHER AREA 
Natural Bridge       COMMUNITIES 
  
 
 
CORPORATE MISSION STATEMENT 
Roanoke Gas Company provides superior customer and stockholder value by being
the preferred choice for safe, dependable, efficient, economical energy and 
services in the market it serves. 
<PAGE>
 
          CONTENTS 
  
 2        Letter To Stockholders 
 3        Questions Investors Frequently Ask 
          AN INTERVIEW WITH FRANK A. FARMER, JR., CEO 
 4        Review Of Operations 
 7        Management's Discussion & Analysis 
12        1996 Financial Highlights 
13        Independent Auditors' Report 
14        Consolidated Balance Sheets 
16        Consolidated Statements Of Earnings 
17        Consolidated Statements Of Stockholders' Equity 
18        Consolidated Statements Of Cash Flows 
20        Notes To Consolidated Financial Statements 
31        Summary Of Gas Sales & Statistics 
32        Summary of Capitalization Statistics 
          Notice Of Annual Meeting - BACK COVER 
  
<PAGE>
 
LETTER TO STOCKHOLDERS 
  
(Photo of Frank A. Farmer, Jr.) 
FRANK A. FARMER, JR. 
Chairman, President & CEO, Roanoke Gas Company  
  
 
DEAR STOCKHOLDER: 
    I am pleased to say that the year ended September 30, 1996, was one of new
records at Roanoke Gas Company with revenues and earnings at all time highs.  
Revenues at $69 million were 35 percent greater than last year on 24 percent 
colder weather.  Earnings were $2.2 million and 24 percent higher than last 
year.  Earnings per share were $1.51, a 20 percent increase over last year with
the number of shares of stock outstanding increasing by three percent.  
    The volume of natural gas sold or transported and the amount of propane 
delivered also set new records.  Total deliveries of MCFs (thousand cubic feet
units) of natural gas was 11.2 million, an increase of 12 percent over 1995. 
Deliveries of propane reached to just under 6 million gallons, a 24 percent 
increase.  
    Our dividend record remains strong with 52 years of consecutive quarterly 
dividends.  I am pleased to say we also raised the dividend rate by two percent
with the February 1996 dividend payment.  Our dividend reinvestment and stock 
purchase plan remains an attractive feature for our stockholders as reflected 
by the fact that 19.4 percent of dividends paid this year were directly
reinvested through the plan by stockholders.  
    We have successfully negotiated and executed new 20-year franchise 
agreements with the Cities of Roanoke and Salem and the Town of Vinton.  While
we have continued operations as usual during the two-year lapse in the 
franchise agreements, I am pleased we reached full consensus with our major 
municipalities for operations within their respective jurisdictional 
boundaries. 
    A survey we commissioned by an independent market research firm in the 
spring of 1996 confirmed what our sales and new customer additions imply; 
natural gas continues to be the energy of choice in the areas we serve. 
Customer growth remains strong, with the number of natural gas customers 
increasing by three percent and the number of propane installations growing
by approximately 14 percent.  
    Our customer and sales growth strategy is three fold.  We concentrate 
heavily on our saturation program, which means we try to attract homes and 
businesses located near existing natural gas mains to connect to the system,
thus allowing us to add customers with a minimum of additional investment. 
Slightly over half of our natural gas customer growth this year was 
accomplished through this effort.  We concentrate our new main extension 
efforts either in new subdivisions where we work with developers and builders
who are strongly committed to natural gas appliances, or in areas with 
existing homes where the age of the homes and neighborhood surveys indicate 
owners are ready to seriously consider replacing existing heating equipment 
with natural gas units.  In areas where construction density is insufficient
to justify construction of natural gas facilities, we concentrate on propane 
sales. We believe we understand how to efficiently provide suburban, semirural,
rural and even mountainous areas with propane service almost as reliable as 
pipeline natural gas.  
<PAGE>
    We continued our efforts at aggressively employing new technology and 
management practices for cost control including outsourcing where savings 
combined with improved service or efficiencies justify the paradigm shift. 
Examples of computerization during the year include implementing new computer 
software systems to automate processing work orders and to better track and 
control Company assets, installing improved billing estimate programs for when
weather disrupts meter reading and upgrades to our central computer processor 
and memory.  Examples of outsourcing in-clude printing and mailing customer 
bills, distribution system map development and maintenance, reading customer 
meters, and installation of customer premises propane tanks. In some instances,
out sourcing allows us to tap into economies of scale such as in the case of 
printing customer bills and reading meters.  In other situations, outsourcing 
allows us to handle peak or seasonal work load demands with less disruption to 
the size and utilization rate of the Company's workforce, such as is the case 
with pipeline and propane tank installations.  
    We remain committed to our long-term program to replace all bare steel and 
cast iron in the natural gas distribution system to continue to control 
maintenance costs and to increase safety and system reliability.  We replaced 
8.7 miles of bare steel and cast iron piping this year, 3.3 miles greater than 
last year.  
    The 1995-96 winter was the fifth coldest in the 68 years we have been 
keeping records and certainly tested our ability to manage gas supplies.  I am 
pleased to say we not only set a record for volume of deliveries, but we did it 
without a single day of supply disruption to a single firm natural gas customer 
during a very long and cold winter.  The increased investment in our liquefied 
natural gas storage facility in Botetourt County, Virginia, in 1994 coupled 
with enhancements made to the distribution system in the summer and fall of 
1995 and additional interstate pipeline and storage capacities added in 1995 
served us well.  We annually review our system peak day and peak season gas 
load projections to ensure that we are managing our supply and pipeline 
capacities to meet customer demand without over investing in facilities or 
paying for excess capacity.  We are very proud of the successful efforts of
our management team and all of our employees this year, especially during a 
very severe winter season.  
    We remain committed to growing Roanoke Gas Company, to providing quality 
service to our customers, to continuing to enhance the value of our stock and 
to providing a safe and growth opportunity working environment for our 
employees.  We certainly appreciate your being a stockholder of the Company and
hope you continue to grow your investment through our dividend reinvestment 
and stock purchase program either with reinvested dividends or by using the 
cash purchase option available in the plan.  
    On behalf of our Board of Directors and our Management Team, I once again 
extend an invitation for you to join us for a stockholders breakfast and 
renewal of acquaintances prior to our Annual Meeting on January 27, 1997.  We
look forward to further updating you on recent Company operations during the 
meeting. 
  
Sincerely,  
  
(Signature of Frank A. Farmer, Jr.) 
FRANK A. FARMER, JR.  
CHAIRMAN OF THE BOARD, PRESIDENT & CEO 
ROANOKE GAS COMPANY 
2 
<PAGE>
QUESTIONS INVESTORS FREQUENTLY ASK 
An Interview With Frank A. Farmer, Jr., CEO 
  
Q.   WHAT IS "UNBUNDLING" IN THE GAS INDUSTRY AND WHAT EFFECT HAS 
     IT HAD ON ROANOKE GAS COMPANY? 
A.   Unbundling means that the sale of the commodity (natural gas) is separated
     or unbundled from the sale of the transportation of the commodity.  
     Roanoke Gas Company has unbundled the sale of natural gas to its 
     interruptible customers and today an interruptible service customer may 
     buy its transportation or delivery service from Roanoke Gas and purchase
     the commodity from a variety of marketing companies.  Roanoke Gas Company
     has not been adversely affected by unbundling because the Company designed
     its transportation rates to realize the same margin per MCF of transported
     gas (adjusted for utility and gross receipts tax) as per MCF of gas sold
     retail.  
Q.   WHY WOULD A MARKETER BE ABLE TO SELL THE COMMODITY TO AN 
     INTERRUPTIBLE CUSTOMER CHEAPER THAN ROANOKE GAS COMPANY? 
A.   Under State regulations Roanoke Gas Company has to charge an interruptible
     customer its system average commodity cost of gas plus a mark up for State 
     and local government gross receipt taxes and local government utility 
     taxes.  The marketer can purchase spot gas without the gas cost impact of
     longer term contracts or supply reservation fees, plus because the 
     marketer is not legally a utility the price does not include a mark up for
     gross receipts tax and local utility taxes. 
Q.   DO YOU EXPECT FURTHER UNBUNDLING OF NATURAL GAS SERVICE ON THE 
     COMPANY'S SYSTEM? 
A.   Yes.  Eventually unbundling will occur for firm gas sales as well.  The 
     unbundling process will be more complicated because firm service has to be 
     backed up by firm delivery capacity on the interstate pipeline system and
     peak day supply such as is available from our liquefied natural gas 
     storage (LNG) facility.  Our strategy will be to design our firm 
     transportation rates so that the utility does not lose margin if a 
     customer switches from system gas to a marketer's gas.  Actually, we see 
     potential opportunities by providing services such as meter reading, 
     billing and collecting, delivery imbalance management, andother services 
     to marketers for a fee.  However, we suspect that most homeowners will not
     want the hassle of dealing with multiple commodity suppliers and will stay 
     with the locally known and trusted name. 
Q.   WHAT IS ROANOKE GAS COMPANY DOING TO PLAN FOR FUTURE CHANGES 
     IN THE INDUSTRY AND AREA MARKETS? 
A.   In August, the Company held a strategic opportunity planning retreat with
     our entire management team using facilitators from Virginia Tech, where we
     explored options and developed a series of short and long range strategic
     objectives designed to keep us on top of market and industry opportunities
     and conditions.  In addition, we are active in American Gas Association
     (AGA), National Association of Regulatory Commissions (NARUC), 
     Southeastern Gas Association (SEGA), and several propane gas association
     activities and informational forums and seminars.  I am on the Small
     Company Coordinating Council of the AGA and on the Board of Directors of
     the AGA, with the intent of keeping the Company abreast of what is 
     happening regionally and nationally. 
<PAGE>
Q.   HOW DO YOU SEE THE CHANGES IN THE ELECTRIC INDUSTRY IMPACTING 
     ROANOKE GAS COMPANY? 
A.   Restructuring of the electric industry is in the very early stages.  At 
     this time, the Federal Energy Regulatory Commission has mandated wholesale
     transportation on the electric grid system, but decisions on whether and
     when to allow retail unbundling is being left up to the States.  We do not
     anticipate Virginia being one of the early States to unbundle.  However,
     we think it will begin with the industrial customers similar to the way it
     is progressing in the natural gas industry.  We think this may provide
     opportunities as well and we are exploring the potential for Roanoke Gas
     Company to be a full energy source and services provider. 
Q.   IN AN INDUSTRY WHERE MERGERS ARE RAPIDLY OCCURRING AND THE 
     TERMS "CRITICAL MASS AND ECONOMIES OF SCALE" ARE FREQUENTLY USED, 
     WHAT FUTURE DO YOU SEE FOR ROANOKE GAS COMPANY? 
A.   I think that the outlook is good for Roanoke Gas Company to remain a 
     strong independent Company as long as we stay competitive in our prices 
     and offer quality service.  We are a low cost natural gas company compared
     to most other gas companies in Virginia.  We are outsourcing in areas
     where we think we can benefit from economies of scale to control costs. 
     As the energy markets change, we plan to change with them and to position
     ourselves to ensure economical, reliable service to our residential and 
     small business customers and adequate supply and capacity for the region's
     industrial and large scale commercial growth.  We may partner with other 
     energy suppliers or vendors to ensure our customers have access to the 
     variety of new services that may become available in the industry while 
     maintaining a locally owned and operated Company responsive to local needs 
     and concerns. 
Q.   WHAT ARE YOUR PLANS FOR YOUR RETIREMENT AND HOW WILL THAT 
     AFFECT ROANOKE GAS COMPANY? 
A.   I anticipate retiring in calendar 1998.  However, I expect to remain on 
     the Board of Directors and with the Board's approval, serve as Chairman of
     the Board for several years.  I also expect to remain active in the AGA 
     and will be Chairman of the Small Company Coordinating Council of the AGA
     in 1998.  The Board of Directors has established a nominating committee 
     and one of their functions is succession planning and recommending to the
     Board of Directors a nominee to become President and Chief Executive 
     Officer when I retire.  We have three Vice Presidents in the Company and 
     we feel that we have adequate talent from which to select the next person
     to lead the Company. We have a very knowledgeable and experienced Board of
     Directors and I expect the transition to a new CEO in 1998 to go smoothly. 
  
 
1996 ANNUAL REPORT 
3 
<PAGE>
REVIEW OF OPERATIONS 
  
                     ROANOKE GAS COMPANY CONTINUES TO 
               REGARD STORAGE AS AN INTEGRAL COMPONENT 
            OF ITS GAS SUPPLY PORTFOLIO. HAVING STORAGE 
                 SPACE ALLOWS ROANOKE GAS TO MINIMIZE 
                  GAS COSTS BY PURCHASING AND INJECTING 
                    NATURAL GAS IN THE SUMMER WHEN THE 
             COMMODITY PRICES ARE TRADITIONALLY LOWER. 
  
FINANCIAL  
    The Company achieved record earnings in fiscal 1996 with net income of 
$2,196,672 or $1.51 per share.  This compares to earnings of $1,777,240 or 
$1.26 per share for fiscal 1995.  The stockholders' investment in the Company
grew by $1,419,829 to $18,975,001 which amounts to $12.86 per share.  At 
September 30, 1996, the market price of the Company's stock was $17.25 per 
share or 134% of book value.  
    In December, 1995 the directors voted to increase the regular quarterly 
dividend to $.255 per share from $.25 per share effective February, 1996. The 
current annual dividend of $1.02 per share represents a 5.9% yield on the 
current market value of the Company's stock and is a payout ratio of 67.9% 
based on earnings in fiscal 1996.  
    The Company's issuance of $8,000,000 unsecured senior notes payable for 
Roanoke Gas Company and $1,300,000 unsecured notes payable for Bluefield Gas 
Company have been classified as long-term debt in accordance with the Company's
refinance of current installments of long-term debt and borrowings under lines
of credit on a long-term basis subsequent to fiscal year-end.  The Company 
increased its equity capitalization by issuing $714,232 in stock through its 
Dividend Reinvestment and Stock Purchase Plan.  
    The Company has unsecured lines of credit through its cash management 
system totaling $18,000,000 at interest rates of prime or less.  These lines 
are subject to annual renewal and do not require compensating balances.  The 
average month-end balance of short-term debt in 1996 was approximately 
$4,453,000, at an average interest rate of approximately 5.84%.  The month-end
balance at September 30, 1996 was $6,652,500, at an average interest rate of 
5.71%.  
    Please refer to Management's Discussion and Analysis of Financial Condition
and Results of Operations for additional information on the Company's capital 
resources and for an analysis of changes in revenues and expenses.  
GAS SUPPLY  
    The winter of 1995-96 brought much colder than normal weather to the 
central and eastern United States. One consequence of the cold weather was to 
increase demand for flowing natural gas supplies, resulting in significant 
increases in natural gas supply acquisition costs. For fiscal 1996, commodity 
indexes relevant to Roanoke Gas Company purchases averaged almost 52% higher 
than the previous year.  
    Roanoke Gas was very pleased with the performance of its natural gas 
suppliers during the winter of 95-96.  Even under extreme winter weather 
conditions all suppliers continued to perform flawlessly. Roanoke Gas continues
to use a mixture of long-term (multi-year), mid-term (seasonal) and short-term
(spot) gas purchase contracts.  The Company's objective is to create a reliable
and economical mixture of gas supply contracts with terms that will not limit
the Company's ability to adapt to changing market conditions or additional 
regulatory changes. Long-term suppliers currently include Amoco Energy Trading,
Ashland Exploration, Coastal Gas Marketing, Columbia Energy Services, LG&E 
Natural Gas and Panenergy Trading Company.  
<PAGE>
    Roanoke Gas Company continues to regard storage supplies as an integral 
component of its gas supply portfolio. The Roanoke and Bluefield operations 
combined hold the rights to about 2.8 billion cubic feet (BCF) of natural gas
storage space, up about 0.2 BCF from the previous year.  This storage includes
pipeline and third party underground facilities in both the Gulf coast and 
Appalachian areas as well as the Company's own liquefied natural gas (LNG) 
storage in Botetourt County, Virginia.  
    Having storage space allows Roanoke Gas to minimize gas costs by purchasing
and injecting natural gas in the summer when the commodity prices are 
traditionally lower.  The storage gas then acts as winter supply that is both 
economical and highly reliable. Roanoke Gas Company participates in pipeline 
capacity release programs to further minimize the cost of firm service to its 
customers by reselling pipeline capacity not needed during the warmer months. 
NONUTILITY OPERATIONS  
    Total sales by Highland Propane Company for fiscal year 1996 were 5,997,912
gallons, an increase of 24% from 1995 levels on 24% colder weather.  Primary 
wholesale suppliers to Highland Propane included Exxon, Pratt Propane, EIL 
Petroleum and Enron Gas Liquids.  
    Propane operations are organized into geographic divisions based on areas 
of market concentration and location of fuel storage facilities.  Current 
divisions include Roanoke, Virginia; Southwest Virginia; Bluefield, West 
Virginia; and Rainelle, West Virginia.  The Company maintains a program of 
evaluating additional areas for expansion or potential acquisition of existing
operations.  
    The Company's capital expenditures for propane operations have been focused
on acquisition of additional customer premises storage tanks to meet growth, 
modernization and replacement of the propane delivery fleet, and development of
additional or enhancement of existing bulk storage facilities.  
    Total sales by Highland Gas Marketing for fiscal year 1996 were 1,011,261 
DTH, an increase of 1% over 1995, even though total interruptible usage in the 
Roanoke Valley was down due to the amount of curtailments as a result of the 
weather.  Highland Gas Marketing buys interruptible supplies of spot gas, along
with interruptible interstate pipeline transportation services, and resells 
them to large industrial customers that contract for local distribution line
transportation service from the local utility.  The gas marketing business is 
highly competitive with relatively low margins, but it is also a relatively low
cost operation with minimal facility and personnel requirements. 
  
ROANOKE GAS COMPANY 
4 
<PAGE>
PLANT ADDITIONS  
    Capital additions for the year totaled $5,522,977 for the consolidated 
companies, slightly below the $5,609,292 total for last year. Bluefield Gas 
accounted for 10.2% of the total or $563,500, Highland Propane additions were 
12.3% of the total or $677,877 and Roanoke Gas added $4,281,600 in capital or 
77.5% of total capital additions.  New business expenditures, including mains, 
meters, new service lines and propane tanks, totaled $2,773,354, which was in 
line with last year's $2,843,290.  
    The natural gas companies installed 1,563 new service lines and 18.1 miles 
of new mains compared to 1,237 new service lines and 21.2 miles of new mains 
last year.  Main replacement and service renewal expenditures totaled 
$1,507,951, which is double the prior year's investment.  During the year the 
Company replaced 800 service lines and 8.7 miles of main compared to previous 
year totals of 484 services and 5.38 miles of main. The increase in facility 
replacement work was to ensure that cumulative replacement expenditures are on
track to maintain the 25-year program schedule to replace, by the year 2017, 
approximately 12,000 bare steel services and 210 miles of cast iron or bare 
steel distribution mains.  This program is designed to reduce maintenance costs
and improve system integrity by reducing unaccounted for gas volumes caused by
leakage.  
    Other major increases in plant additions included: $57,800 for facility 
relocations due to road construction projects including the Peters Creek Road
Project; $370,045 for new equipment including replacement vehicles; and 
$303,000 to add new support services equipment including additions to mainframe
computer software and hardware.  
    For fiscal year 1997, the Company has budgeted $5,802,931 for capital 
expenditures.  Projections include $3.1 million in new customer additions, 
$1,170,000 to replace existing mains and services, $150,000 for relocations due
to road construction projects, $550,000 for new equipment including automotive
replacements and $400,000 for computer software, hardware and facilities for
networking of personal computers.  
MARKETING & SALES  
    Natural gas continues to be the energy of choice in the communities served
by the Company, which enjoyed strong customer growth during the fiscal year.  
Customer growth was approximately 3% at Roanoke Gas and 2% at Bluefield Gas.  
Conversions represented approximately 55% of the new customer growth for 
Roanoke Gas and 63% for Bluefield Gas.  
    Roanoke Gas reached the 50,000 customer milestone in January.  A customer 
in the Roanoke Valley became the 50,000th customer and joined the 49,999 others
in the Roanoke Valley and Bluefield area who use natural gas.  
    Highland Propane enjoyed a 14% customer growth during the fiscal year and 
surpassed 1,000 tank installations in a single year for the first time in 
Highland's history.  Highland Propane expanded its market territory and now 
covers the Beckley, West Virginia and Rockbridge County, Virginia areas.  
    In May, Martin Research, Inc. completed a marketing research survey to 
determine the image of Roanoke Gas Company and the image of natural gas as an 
energy source within the Roanoke Valley.  The Martin survey was first conducted
in 1985, again in 1988, 1990 and 1993. Seven hundred interviews were conducted
and the survey data has a confidence level of 95%.  Top of mind awareness for 
natural gas is very high; half of all respondents mentioned natural gas first 
when they thought of home heat energy sources.  Natural gas was even mentioned
first by 16.1% of the oil users and 18.6% of the electricity users, indicating
a high profile even among users of competitive sources.  
<PAGE>
    Respondents were again in 1996 much more likely to think of natural gas 
when considering which energy source was "most efficient" and "provides the 
best value." In 1985, 54% of the respondents mentioned natural gas and by 1996
the percentage had increased to 67.8%.  This has been a strong competitive 
advantage for Roanoke Gas Company, especially when the perception of value 
is coupled with the good feeling people have regarding the high quality of 
service provided by the Company. Natural gas was also selected by a majority 
of respondents as "least expensive and most reliable."  
    The marketing strategy for both propane and natural gas is centered on 
strong trade ally relationships and one-on-one contacts with members of the 
sales team.  The program has been very successful, and the number of trade 
allies has grown to over 80 contractors.  The Company has been proactive in its
efforts to seek feedback from the trade allies and has made improvements to 
operations based on their suggestions.  
    Commission sales representatives, whose primary goal is to focus on the 
conversion of electric water heaters to gas and the addition of new gas 
customers along existing gas mains or the addition of new propane customers, 
have proven to be highly successful.  They achieved a water heater conversion 
in approximately 45% of the homes that were converted to natural gas.  New 
propane tank sets increased approximately 48% compared to the number of new 
tank sets last year.  
    The Company has installed three natural gas heat pumps (York Triathlon) in
its service territory this year for a total of eight system wide.  The 
Triathlon, with a 126% efficiency rating, is the most technologically advanced
gas fired heating and cooling system on the market today.  The Company 
anticipates installation of several more units in the coming year.  
    The Company remained actively involved in various leadership positions 
within the community, including, but not limited to, the Economic Development 
Partnership of the Roanoke Valley, Junior Achievement, the Arts Council of the 
Blue Ridge, The Council of Community Services, The Salvation Army, and the 
Roanoke Regional Homebuilders Association.  The Company takes its community 
responsibilities seriously and encourages employees and other companies to 
become involved in community affairs.  
CUSTOMER SERVICE  
    With the completion of the consolidation of billing, credit and customer 
service into one department, the emphasis has been to further refine the 
operations and procedures of the Customer Service Department to provide optimal
service which is sensitive to customer needs.  
    Responding to customer and employee feedback concerning delays in phone 
calls routed through the automated attendant, changes were made which 
substantially reduced or eliminated customer hold time into the Customer 
Service Department.  This was accomplished by modifying the phone system to 
allow phone calls to bypass the automated attendant during times when there 
are customer service representatives available to immediately receive the 
calls.  When there is no available customer service representative the call
will then be answered by the automated attendant and forwarded to the first 
available representative.  
    Due to the seasonal weather changes it becomes increasingly difficult to 
1996 ANNUAL REPORT 
  
5 
<PAGE>
collect on past due accounts in the spring and early summer.  With customer 
bills reflecting the colder than normal winter and past due amounts on the 
rise, two new plans were offered to assist the customers with past due amounts.
In early summer, Roanoke Gas Company and subsidiaries began accepting payment 
by credit card and the Company now accepts Visa and MasterCard payments from 
walk-in customers at each office location.  In addition to credit card 
acceptance, the Company developed a plan to work with past due customers to 
extend payments over several summer months as a way to help the customer handle
the past due payment and avoid having to disconnect the service.  Over 50% of 
those customers contacted made payments under this program and retained active 
service.  
    In the final quarter of fiscal 1996, Stone & Webster Management 
Consultants, Inc. was commissioned to perform a study of Roanoke Gas Company's
credit and collection policies.  Stone & Webster is internationally known for 
its work in the gas industry.  The study focused on a review of credit and 
collection policies of Roanoke Gas Company and bench-marking Roanoke Gas with 
other companies in the industry.  A final report is expected in the first 
quarter of 1997; however, preliminary findings indicate the Company is 
performing better than the industry average, but improvements can still be 
made.  The final report will provide information to help the Company develop 
and implement enhanced credit and collection policies and procedures in 1997. 
    In September 1996, Roanoke Gas Company was launched into cyberspace with 
publication of the Roanoke Gas Company website on the Internet.  Featured in 
the homepage is a Message From the President, Company Information, 
Stockholder/Financial Information and Products and Services.  The homepage also
links the Company's site with local weather forecasts, industry sites and area
sites.  In its first six weeks of existence, there were over 2,000 hits 
(inquiries) on the homepage, including inquiries from abroad.  The Internet 
address is http://www.roanokegas.com.  
    The Company again conducted its annual HeatShare Program, designed to 
provide monetary assistance to low income customers having difficulty paying 
their winter heating bills.  Now in its fourteenth season, the program has 
helped more than 5,300 families with nearly $800,000 donated by the Company, 
employees, customers and concerned individuals.  The program is administered 
each year by the local Salvation Army. In addition, customer service employees
provide information to needy families on additional sources of financial 
assistance.  
INFORMATION SYSTEMS  
    As technological changes continue at unprecedented levels, Roanoke Gas 
Company continued its efforts to provide its employees with more information 
and better tools to complete their ever changing jobs. The constant growth in 
the number of customers and an increasing demand for improved information in 
all aspects of the business require greater and greater employee efficiency.  
Efforts are focused on system integration, system usability and employee 
training in an effort to enhance employee performance. In situations where 
outsourcing was considered cost effective, interfaces were developed to provide
communications with the vendor.  
    Efforts continued toward the goal of complete system integration, including
the implementation of a new Special Equipment System.  The system retains all 
current and historic information on natural gas mains, services, regulators, 
valves, and other key pieces of equipment.  The Special Equipment System 
integrates with the Work Order System and the Customer Information System (CIS)
and it enables the Engineering Department to test and analyze Company 
facilities more easily.  Integration allows direct access to equipment 
information as well as customer record information.  The employee can check the
service equipment located at a customer's address and simultaneously analyze 
the customer's usage from billing history for a given type of equipment.  
<PAGE>
    The CIS was upgraded adding enhancements like improved bill estimating and
further integration between the service order system and inventory control 
system.  Additional upgrades were made to Financial Systems, with further 
integration and progress towards preparing for the year 2000. The IBM AS/400 
system was upgraded with additional memory and disk storage to ensure adequate
system performance.  
    The printing of all customer billing statements and other key forms was 
outsourced, reducing costs associated with the overhead of forms management, 
printing equipment, changing postal requirements, and labor cost.  The Company
electronically transmits all forms to be printed on a daily basis to the 
outsourced contractor.  In addition to enhanced efficiency, there is improved
quality of the printing.  
MARKET PRICE & DIVIDEND INFORMATION  
    The Company's common stock is listed on the Nasdaq National Market under 
the trading symbol RGCO.  This provides stockholders, brokers and others with 
immediate access to the latest bid and ask prices and creates greater liquidity
in the Company's stock.  The table below sets forth the range of bid prices for
shares of the Company's common stock, as reported in the Nasdaq National 
Market. 
    Although the Company has paid continuous quarterly dividends to its 
stockholders since August 1, 1944, the Company has not established a formal 
policy with respect to dividends.  Payment of dividends is within the 
discretion of the Company's Board of Directors and will depend upon, among 
other factors, earnings, capital requirements and the operating and financial
condition of the Company.  There can be no assurance that these or other 
conditions will not in the future negatively affect the Company's ability
to pay dividends.  In addition, the Company's long-term indebtedness contains 
restrictions on cumulative net earnings of the Company and dividends previously
paid.  At September 30, 1996, there were 1,713 holders of record of the 
Company's common stock. 
<TABLE>
<CAPTION>  
                            RANGE OF   CASH DIVIDENDS 
                           BID PRICES     DECLARED 
FISCAL YEAR ENDED             HIGH          LOW 
SEPTEMBER 30,      
<S>                      <C>       <C>       <C>
1996 
 First Quarter              $16.25    $14.25    $.255 
 Second Quarter              18.50     15.00     .255 
 Third Quarter               18.25     16.50     .255 
 Fourth Quarter              17.25     14.75     .255 
1995 
 First Quarter              $18.50    $16.00    $ .25 
 Second Quarter              17.00     14.00      .25 
 Third Quarter               15.125    13.50      .25 
 Fourth Quarter              15.00     14.25      .25 
</TABLE>

ROANOKE GAS COMPANY 
  
6 
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS 
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
<TABLE> 
<CAPTION> 
  
                                  Roanoke Gas Company & Subsidiaries 
                                       SELECTED FINANCIAL DATA 
                                       Years Ended September 30, 
                                            1996            1995            1994            1993            1992 
<S>                                 <C>             <C>             <C>             <C>             <C> 
Operating Revenues                  $ 65,770,873    $ 48,611,147    $ 58,195,857    $ 57,715,679    $ 49,147,998 
Operating Margin                      22,030,795      19,435,864      19,902,497      18,297,030      16,645,764 
Operating Earnings                     4,035,304       3,522,258       3,537,267       3,235,269       2,848,130 
Earnings Before Interest Charges       4,113,044       3,701,907       3,592,351       3,264,713       3,051,031 
NET EARNINGS                           2,196,672       1,777,240       1,677,098       1,441,336       1,305,125 
Net Earnings Per Share                      1.51            1.26            1.25            1.13            1.03 
Cash Dividends Declared  
  Per Share                                 1.02            1.00            1.00            1.00            1.00 
Book Value Per Share                       12.86           12.25           11.88           11.36           11.16 
A verage Shar es Outstanding           1,455,999       1,408,659       1,339,402       1,280,176       1,264,994 
TOTAL ASSETS                          58,921,099      51,614,667      49,579,447      48,758,728      45,325,270 
Long-Term Debt  
  (Less Current Portion)              20,222,124      17,504,047      16,414,900      16,530,499      16,936,500 
Stockholders' Equity                  18,975,001      17,555,172      16,424,919      14,652,663      14,176,330 
SHARES OUTSTANDING AT SEPTEMBER 30     1,475,843       1,432,512       1,382,343       1,289,302       1,269,924 
</TABLE> 
  
GENERAL  
    The primary business of Roanoke Gas Company and its public utility 
affiliates is the distribution of natural gas to approximately 51,000 active 
customers in the cities of Roanoke, Salem and Bluefield, Virginia and 
Bluefield, West Virginia, and the surrounding areas, at rates and charges
regulated by the State Corporation Commission in Virginia (the Virginia 
Commission) and the Public Service Commission in West Virginia (the West 
Virginia Commission).  The Company is required, as a public utility, to ensure
that it has the capacity to adequately serve the ongoing needs of its 
customers.  The Company also continues to expand its facilities to keep pace
with the industrial and commercial development and residential growth in its 
service areas.  The Company continues to experience steady customer growth, and
anticipates continuing this trend by attracting adequate investment capital, 
along with adequate and timely increases in rates when needed from the state 
commissions.  The Company also serves approximately 6,400 active propane 
accounts with approximately 7,500 tank installations in southwestern Virginia
and southern West Virginia and serves natural gas industrial transportation 
customers by brokerage of natural gas supplies through its subsidiary, 
Diversified Energy Company, which trades as Highland Propane Company and 
Highland Gas Marketing.  
    Continued public acceptance and a growing preference for natural gas as a
competitively priced, clean and efficient fuel for space heating and other 
residential, commercial and industrial applications have prompted the steady
increase in the number of customers served and in the cost of constructing 
facilities required to serve them.  Energy conservation and the availability of
modern, highly efficient furnaces and other appliances for replacement and new
services in better-insulated homes continue to result in a slight decline in 
annual weather normalized per capita residential usage.  The effect of such per
capita declines, unless offset by new customer growth, abnormally cold weather,
or rate relief, could result in a decline or attrition in the Company's net 
operating earnings as a percentage of the equity component of the rate base.  
Competition from alternate fuels and/or supplies could also impact the 
Company's profitability levels.  
<PAGE>  
FORWARD-LOOKING STATEMENTS  
    From time to time, the Company may publish forward-looking statements 
relating to such matters as anticipated financial performance, business 
prospects, technological developments, new products, research and development
activities and similar matters.  The Private Securities Litigation Reform Act 
of 1995 provides a safe harbor for forward-looking statements.  In order to 
comply with the terms of the safe harbor, the Company notes that a variety of 
factors could cause the Company's actual results and experience to differ 
materially from the anticipated results or other expectations expressed in the
Company's forward-looking statements. The risks and uncertainties that may 
affect the operations, performance, development and results of the Company's 
business include the following: (i) obtaining adequate rate relief from 
regulatory authorities on a timely basis; (ii) earning on a consistent basis an
adequate return on invested capital; (iii) increasing expenses and labor costs
and availability; (iv) price competition from alternate fuels; (v) volatility 
in the price of natural gas and propane; (vi) some uncertainty in the projected
rate of growth of natural gas and propane requirements in the Company's service
area; and (vii) general economic conditions both locally and nationally.  
In addition, the Company's business is seasonal in character and strongly 
influenced by weather conditions.  Extreme changes in winter heating degree 
days from the normal or mean can have significant short-term impacts on 
revenues and gross margin. 
  
1996 ANNUAL REPORT 
7 
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS 
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
<TABLE>
<CAPTION>  
                        NATURAL GAS 
                         CUSTOMERS 
(Bar graph appears here with the following plot points.) 
<S>              <C>          <C>         <C>          <C>         <C>
YEAR               1992         1993        1994         1995        1996 
CUSTOMERS          46,172       46,788      48,544       49,813      51,094 
</TABLE>

CAPITAL RESOURCES AND LIQUIDITY  
    The Company is in the process of making major changes to the debt 
capitalization at the end of fiscal year 1996. The Company's consolidated 
balance sheet reflects the issuance of $8,000,000 in long-term senior notes at
an interest rate of 7.66% and $1,300,000 in intermediate notes at 7.28% shortly
after the fiscal year end close.  The issues will be used to retire $5,912,500
in existing intermediate and long-term debt and $3,387,500 of short-term debt,
shortly after the fiscal year end.  
    Stockholders' equity increased by $1,419,829, reflecting an increase of 
$705,595 in retained earnings and proceeds of $714,234 of new stock purchases 
through the Company's Dividend Reinvestment and Stock Purchase Plan (the Plan)
for the period.  The purchase price of Company common stock under the Plan is 
based upon the fair market value of such common stock, determined by the Board
of Directors based on the closing sales price of the Company's common stock on
the Nasdaq National Market on the investment date, if the investment date is a 
trading day, or if not, the first trading day prior to such day.  
    The Company's capital expenditures for the year were a combination of 
replacements and expansions, reflecting the need to replace older cast iron and
bare steel pipe in the system, while continuing to meet the demands of customer
growth.  Total capital expenditures for the period were approximately $5.5 
million, broken down to $4.3 million for Roanoke Gas Company, $.6 million for 
Bluefield Gas Company and $.6 million for Highland Propane Company.  
Depreciation cash flow provided approximately $2.8 million in support of 
capital expenditures, or approximately 51% of total investment.  Historically,
consolidated capital expenditures were $5.6 million in 1995 and $5.5 million in
1994.  It is anticipated that future capital expenditures will be funded with 
the combination of depreciation cash flow, retained earnings, sale of common 
stock through the Plan and issuance of debt. 
    At September 30, 1996, the Company had available lines of credit totaling 
$18.0 million for its short-term borrowing needs, of which $6,652,500 was 
outstanding after recognition of the debt refinancing subsequent to year end as
discussed above.  Short-term borrowing, in addition to providing limited 
capital project bridge financing, is used to finance summer and fall gas 
purchases which are injected into storage in the underground facilities of 
Columbia Gas Transmission Corporation, Tennessee Gas Pipeline Company and 
Virginia Gas Storage Company, as well as in the Company's own LNG facility, 
to ensure adequate winter supplies to meet customer demand.  At September 30, 
1996, the Company has $6,484,700 in inventoried natural gas supplies.  
    Short-term borrowings, together with internally-generated funds, long-term
debt and the sale of stock, have been adequate to cover construction costs, 
debt service and dividend payments to stockholders.  The terms of short-term
borrowings are negotiable, with average rates of 5.84% in 1996, 6.07% in 1995 
and 3.90% in 1994.  The lines do not require compensating balances.  The 
Company utilizes a cash management program, which provides for daily balancing
of the Company's temporary investment and short-term borrowing needs with 
interest rates indexed to the 30-day LIBOR interest rate plus a premium.  
The program allows the Company to maximize returns on temporary investments 
and minimize cost on short-term borrowings.  
<PAGE>
    At September 30, 1996, the Company's consolidated long-term capitalization
was 48% equity and 52% debt, compared to 50% equity and 50% debt at September 
30, 1995.  
REGULATORY & RATE CASE PROCEEDINGS  
    Roanoke Gas Company's last rate case filing was on June 15, 1994. However,
the Company anticipates filing a rate case early in fiscal year 1997 to recover
additional capital and depreciation costs associated with its bare steel and 
cast iron renewal program and additional interest costs associated with its 
refinancing in early 1997.  
    The Company filed a $41,388 rate increase application for Commonwealth 
Public Service Corporation on February 15, 1996, and received an order from the
State Corporation Commission shortly after the fiscal year end approving an 
increase of $24,863.  Commonwealth Public Service Corporation is a subsidiary 
of Bluefield Gas Company providing natural gas service in Bluefield, Virginia.
    The Company also filed a $111,738 rate increase application on behalf of 
Bluefield Gas Company on February 24, 1996.  After being informed by the Staff
of the West Virginia Public Service Commission that the Staff intended to apply
weather normalization adjustments to the financial results underlying the rate 
application, the Company withdrew the application.  The Company determined that
normalizing fiscal year 1995 Bluefield Gas Company revenues for normal weather
would negate the rate increase justification.  
    In 1996, the General Assembly of Virginia passed legislation providing for
the possibility for natural gas utilities to apply to the State Corporation 
Commission for an alternative rate regulation model based on a performance 
plan. 
 The Company has advised the Commission of its general intent to file for 
consideration of a performance-based rate regulatory plan and anticipates 
making a filing sometime in 1997.  The Company is currently applying the 
provisions of Statement of Financial Accounting 
  
ROANOKE GAS COMPANY 
  
8 
<PAGE>
Standards No. 71, ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION 
(Statement 71), and has recorded regulatory assets of $416,844 at September 30,
1996, exclusive of purchased gas adjustments of $1,782,590, consistent with the
provisions of Statement 71.  Management is evaluating the continued application
of Statement 71 and the corresponding effect on the Company's regulatory 
assets, excluding purchased gas adjustments which would not be affected by an 
alternative rate regulation model, should the Company convert to a performance-
based rate regulatory plan.  

RESULTS OF OPERATIONS  

FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995  
    OPERATING REVENUES- Operating revenues for the natural gas utilities 
increased $16,005,670 to $60,067,407 in 1996 from $44,061,737 in 1995.  The 
increase in revenues is attributed to weather that was approximately 24% colder
in 1996 than in 1995 and a 34% increase in the unit cost of gas.  Operating 
revenues for propane increased $1,154,056 to $5,703,466 in 1996 from $4,549,410
in 1995.  The increase in revenues is also attributed to the colder weather and
customer growth.  
    ENERGY VOLUMES- The volume of natural gas delivered to customers was up 
1,208,071 MCF or approximately 12% for the year.  The interruptible and 
transportation volumes were down due to curtailments but the firm volumes were
up 21% due to the colder weather.  Propane sales volumes were up 1,175,635 
gallons or 24% due to the colder weather and an increase in customer growth. 
    COST OF ENERGY- The cost of natural gas was $40,763,104 in 1996 compared to
$27,027,507 in 1995.  The $13,735,597 increase was due to a 12% increase in the
volume of gas delivered to customers and a 34% increase in the unit cost of 
gas. 
 Both the volume and price increases were impacted by the weather that was 11%
colder than normal.  Likewise, the cost of propane was up $829,198 due to a 24%
increase in sales volume associated with the colder weather and customer 
growth, and an 11% increase in the unit cost of propane.  
    OTHER OPERATING EXPENSES- Other operations and maintenance expenses 
increased 11% to $9,924,491 in 1996 from $8,959,677 in 1995. The largest 
increases were in bad debt accrual (associated with higher billings), 
collection and billing expenses, legal expenses, general office renovations 
and maintenance of distribution system.  
    General taxes increased 15% to $2,401,768 in 1996 from $2,082,896 in 1995,
due primarily to revenue sensitive taxes (gross receipts and business and 
occupation taxes).  
    Income taxes on the natural gas utilities increased $252,458 to $963,895 in
1996 from $711,437 in 1995, primarily due to increased taxable income.  See 
note 5 of the notes to consolidated financial statements for additional 
information on income taxes.  
    Depreciation and amortization expenses increased $160,959 to $2,294,447 in
1996 from $2,133,488 in 1995 due to depreciation on normal additions to plant 
in service.  
    Other operating expenses - propane operations consist of the operating and
maintenance expenses, taxes and depreciation of Highland Propane. These costs 
increased to $2,410,890 in 1996 from $2,026,108 in 1995. The $384,782 increase
was mainly attributable to (1) tank sets in regard to customer growth, (2) 
additional delivery costs associated with increased volumes and foul weather, 
(3) additional sales expense associated with 
<PAGE>
<TABLE>
<CAPTION>
                                 COMPARISON 
                       MCF to HDD (Heating Degree Days) 
                                          
(Bar graph appears here with the following plot points.) 
                                             
YEAR             1992        1993          1994         1995          1996 
<S>           <C>        <C>          <C>           <C>          <C>
MCFS DELIVERED 9,338,521   9,820,345    10,267,038    9,961,877    11,169,948 
HDD                3,986       4,356         4,416        3,791         4,696 
</TABLE>
  
<TABLE>
<CAPTION> 
                                 COMPARISON                     
               Gallons Delivered to HDD (Heating Degree Days) 
(Bar graph appears here with the following plot points.) 
         
YEAR                 1992        1993         1994         1995         1996 
<S>           <C>        <C>          <C>           <C>          <C>
GALLONS PROPANE 4,178,671   4,586,334    5,012,830    4,822,277    5,997,912 
HDD                 3,986       4,356        4,416        3,791        4,696 
</TABLE>  
<TABLE>
<CAPTION>
                                COMPARISON 
               Net Income to HDD (Heating Degree Days) 
(Bar graph appears here with the following plot points.) 
  
YEAR             1992        1993          1994          1995          1996 
<S>       <C>         <C>          <C>           <C>           <C>
NET INCOME $1,305,125  $1,441,336    $1,677,098    $1,777,240    $2,196,672 
HDD             3,986       4,356         4,416         3,791         4,696 
</TABLE>  
1996 ANNUAL REPORT 
  
9 
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS 
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
  
market area expansion and the resulting customer growth and sales 
commissions, (4) tank maintenance, and (5) greater depreciation on additional 
customer tanks and delivery vehicles.  
  
    OTHER INCOME- Other income, net of other deductions, decreased 
significantly in 1996 to $77,740 from $179,649 in 1995.  The decrease was 
primarily due to Roanoke Gas Company being in a borrowing mode instead of an
investment mode on the cash management system, a reduction in net jobbing 
revenues, and the elimination of interest income and a capital gain on the sale
of investment property of Highland Propane.  
  
    INTEREST CHARGES- Total interest charges were down $8,295 for 1996 versus 
1995 due to the liquidity of Highland Propane Company.  
  
    NET EARNINGS AND DIVIDENDS- Net earnings for fiscal 1996 were $2,196,672 as
compared to $1,777,240 for fiscal 1995.  The $419,432 increase in earnings can 
be attributed to weather that was 11% colder than normal and 24% colder than 
last year and increased sales from customer growth.  Earnings per share of 
common stock were $1.51 in 1996 compared to $1.26 in 1995.  Dividends per share
of common stock were $1.02 in 1996 and $1.00 in 1995.  
  
 
FISCAL YEAR 1995 COMPARED WITH FISCAL YEAR 1994  
  
    OPERATING REVENUES- Operating revenues for natural gas decreased $9,463,570
to $44,061,737 in 1995 from $53,525,307 in 1994, due to a decrease of 305,161 
MCF in total sales volume associated with 14% warmer weather and a 16.76% 
decrease in the cost per unit of natural gas.  Operating revenues for propane 
were $4,549,410 in 1995 compared to $4,670,550 in 1994, primarily from a 
decrease in volume associated with the warmer weather.  
  
    ENERGY VOLUMES - The volume of natural gas delivered to customers was down
305,161 MCF to 9,961,877 MCF in 1995 from 10,267,038 MCF in 1994 primarily 
attributable to weather that was approximately 14% warmer than the weather for
1994.  While customer growth was on par for the period and sales to 
interruptible customers were up, the weather had a significant impact on sales
to our residential and commercial customers.  Propane sales volumes for 1995 
were 4,822,277 gallons compared to 5,012,830 gallons in 1994, a decrease of 
190,553 gallons, and this decrease can also be attributed to the warmer 
weather. 
 
    COST OF ENERGY- The cost of natural gas was $27,027,507 in 1995 compared to
$36,109,555 in 1994.  Gas prices began decreasing with fiscal 1994 and 
continued to decline in fiscal 1995 as the nation experienced a very warm 
winter and the per unit price of natural gas decreased approximately 17%.  The
total cost of propane decreased in 1995 to $2,147,776 from $2,183,805 in 1994
due to a volume decrease associated with approximately 14% warmer weather even
though the per unit price increased approximately $.01.  
  
    OTHER OPERATING EXPENSES- Other operations and maintenance expenses 
decreased $420,108 to $8,959,677 in 1995 from $9,379,785 in 1994.  The decrease
was the result of management's reorganization via an early retirement incentive
plan and an austerity program placed into effect as a result of the warm
weather.  Also, maintenance expenses for the last half of the year were limited
to essential or required areas and an emphasis was placed on renewal versus 
repair.  
<PAGE>  
    General taxes decreased to $2,082,896 in 1995 from $2,395,379 in 1994 
primarily as a result of lower gross receipts taxes on total revenues due to 
lower cost of gas.  
  
    Income taxes on the natural gas utilities increased $64,995 to $711,437 in
1995 from $646,442 in 1994 in proportion to taxable earnings.  See note 5 of 
the notes to consolidated financial statements for additional information on 
income taxes.  
  
    Depreciation and amortization expenses increased to $2,133,488 in 1995 from
$1,945,672 in 1994.  The increase of $187,816 represents depreciation on normal
additions to plant in service and amortization of additional regulatory assets.
  
    Other operating expenses - propane operations consist of the operating and
maintenance expenses, taxes and depreciation of Highland Propane. These costs 
increased $28,156 to $2,026,108 in 1995 from $1,997,952 in 1994 and was largely
attributable to increased legal and pension benefit costs.  
  
    OTHER INCOME- Other income, net of other deductions, was $179,649 in 1995 
as compared to $55,084 in 1994.  The increase of $124,565 was mainly the result
of improved jobbing revenues due to enhanced service billing rates and the 
elimination of the merchandise function in the natural gas utilities.  In the 
propane operations, a deferred gain was recognized on the sale of investment 
property and revenues from the brokerage of natural gas increased.  
  
    INTEREST CHARGES- Total interest charges increased to $1,924,667 in 1995 
from $1,915,253 in 1994.  The increase was due to a higher average balance of 
long-term debt.  Short-term interest declined in 1995 due to the decrease in 
interest on supplier refunds.  The interest expense in the propane operations 
was down significantly due to a lower average borrowing balance. 
  
                          GROSS UTILITY PLANT 
                   (Including Construction Work-In-Progress) 
                    Millions Of Dollars: 1996 - $61,732,904 
  
(Bar graph appears here with the following plot points) 
  
                                                                         
   87     88     89     90     91     92     93     94     95     96 
  31.5    33     36     41.5   43     46.5   49.5  52.5   58.5    61.5 
  
 
             ROANOKE GAS COMPANY 
 
10 
 
<PAGE>
    NET EARNINGS AND DIVIDENDS- Net earnings for fiscal 1995 were $1,777,240 as
compared to $1,677,098 for fiscal 1994.  Earnings per share of common stock 
were $1.26 in 1995 compared with $1.25 in 1994. Dividends per share of common
stock were $1.00 per share in 1995 and 1994.  The $100,142 increase in earnings
can be attributed to increased rates put into effect in the first quarter and 
management's restructuring and cost containment plans.  
ACCOUNTING CHANGES  
    Effective October 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR 
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, which established a new accounting
principle for the cost of retiree health care and other postretirement 
benefits. 
    Prior to October 1, 1993, the Company recognized these benefits on the pay-
as-you-go method.  The cumulative effect of the change in method of accounting
for postretirement benefits other than pensions of $4,746,000 was determined as
of October 1, 1993 and is being amortized on a straight-line basis over a 20-
year period for financial reporting purposes and over a 40-year period for 
regulatory accounting treatment. The adoption of Statement 106 resulted in an
increase in net periodic post retirement benefits cost for the year ended 
September 30, 1994 from approximately $296,000 under the pay-as-you-go method 
to $649,936 under Statement 106, with approximately 67% of the consolidated 
annual cost being recovered from the Company's customers through rates. The 
effect of adopting Statement 106 on net income was a decrease of $77,087, or 
$.06 per share.  
    Effective October 1, 1993, the Company also adopted the provisions of 
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME 
TAXES.  Statement 109 required a change from the deferred method of accounting
for income taxes of APB Opinion 11 to the asset and liability method of 
accounting for income taxes.  Under the asset and liability method of Statement
109, deferred tax assets and liabilities are recognized for the future tax 
consequences attributable to differences between the financial statement 
carrying amounts of existing assets and liabilities and their respective tax 
bases and operating loss and tax credit carry forwards. 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.  Under Statement 109, the effect on deferred tax assets 
and liabilities of a change in tax rates is recognized in earnings in the 
period that includes the enactment date.  The adoption of Statement 109 did not
have a material impact on the Company's consolidated financial statements, and
accordingly, no cumulative effect of accounting change was reported in the 1994
consolidated statement of earnings.  
RECENT ACCOUNTING DEVELOPMENTS  
    In March 1995, the Financial Accounting Standards Board (FASB) issued 
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (Statement 
121). 
Statement 121 requires companies to review long-lived assets and certain 
identifiable intangibles to be held, used or disposed of, for impairment 
whenever events or changes in circumstances indicate that the carrying amount 
of an asset may not be recoverable.  The Company is required to adopt the 
provisions of Statement 121 in fiscal year 1997.  The Company believes the 
adoption of Statement 121 will not have a material impact on its consolidated
financial statements.  
<PAGE>
    In October 1995, the FASB issued Statement of Financial Accounting 
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION(Statement 123).  
The Company is required to adopt the provisions of Statement 123 in fiscal 
year 1997.  The Company plans to retain the intrinsic value method of APB 
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, for recognizingstock-
based compensation in the consolidated financial statements. The Company is 
still evaluating the new disclosure requirements of Statement 123; however, 
management believes the adoption of this Statement will not have a material 
impact on the Company's consolidated financial position or results of 
operations.  

IMPACT OF INFLATION  
    The cost of natural gas represented approximately 72% , 66% and 72% of the
total operating expenses of the Company's gas utilities' operations for fiscals
1996, 1995 and 1994, respectively.  However, under the present regulatory PGA 
mechanism, the increases and decreases in the wholesale cost of gas are passed
through to the Company's customers.  
    Inflation impacts the Company through increases in non-gas costs such as 
insurance, labor costs, supplies and services used in operations and 
maintenance and on the replacement cost of plant and equipment.  Since the 
Company can only recover these costs through the regulatory process via rate 
application, increased costs can significantly impact the results of 
operations.  Therefore, it is extremely important that management continually 
review operations and economic conditions to assess the need for filing and 
receiving adequate and timely rate relief from the State commissions.  
FRANCHISES  
    Roanoke Gas Company and Commonwealth Public Service Corporation, a 
subsidiary of Bluefield Gas Company, currently hold the only franchise and/or
certificates of public convenience and necessity to distribute natural gas in
their respective Virginia service areas.  The franchises generally extend for
multi-year periods and are renewable by the municipalities.  Certificates of 
public convenience and necessity, which are 
  
                                  GAS SALES 
                              Volume (Millions) 
                           1996 - 11,169,948 MCF 
  
(Bar graph appears here with the following plot points) 
  87      88      89      90      91      92      93      94      95     96 
                                    YEAR 
 7.8     9.2     9.3     9.1      8.1     9.4    9.8     10.6     9.6   11.4 
  
1996 ANNUAL REPORT 
  
11 
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS 
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
  
issued by the State Corporation Commission of Virginia, are of perpetual 
duration, subject to compliance with regulatory standards.  
    In July 1996, Roanoke Gas and the City of Roanoke signed a new multi-year 
franchise agreement, providing for approximately $42,000 in annual franchise 
fees, with a three percent annual fee increment.  This new agreement has a 20-
year term beginning January 1, 1996.  In addition, Roanoke Gas signed new 
multi-year franchise agreements with the City of Salem and the Town of Vinton 
in July 1996.  The new agreements provide for combined annual franchise fees of
approximately $14,000, with three percent annual fee increments.  Each of the 
new agreements has a 20-year term beginning January 1, 1996.  
    Bluefield Gas Company holds the only franchise to distribute natural gas in
its West Virginia service area.  Its franchise extends for a period of 30 years
from August 23, 1979.  
    Management anticipates that the Company will be able to renew all of its 
franchises when they expire.  There can be no assurance, however, that a given 
jurisdiction will not refuse to renew a franchise or will not in connection 
with the renewal of a franchise, impose certain restrictions or conditions that
could adversely affect the Company's business operations or financial 
condition.
ENVIRONMENTAL ISSUES  
    Both Roanoke Gas Company and Bluefield Gas Company operated manufactured 
gas plants (MGPs) as a source of fuel for lighting and heating until the early
1950's.  The process involved heating coal in a low-oxygen environment to 
produce a manufactured gas that could be distributed through the Company's 
pipeline system to customers.  A by-product of the process was coal tar, and 
the potential exists for on-site tar waste contaminants at both former plant 
sites.  
The extent of contaminants at these sites is unknown at this time, and the 
Company has not performed formal analysis at the Roanoke Gas Company MGP site.
An analysis at the Bluefield Gas Company site indicates some soil 
contamination. 
The Company, with concurrence of legal counsel, does not believe any events
have occurred requiring regulatory reporting.  Further, the Company has not
received any notices of violation or liabilities associated with environmental
regulations related to the MGP sites and is not aware of any off-site 
contamination or pollution as a result of these prior sites.  Therefore, the
Company has no plans for subsurface remediation at either of the MGP sites. 
Should the Company eventually be required to remediate either of the MGP sites,
the Company will pursue all prudent and reasonable means to recover any related
costs, including insurance claims and regulatory approval for rate case 
recognition of expenses associated with any work required. Based upon prior 
orders of the Commission related to environmental matters at other companies, 
the Company believes it would be able to recover prudently incurred costs.  
Additionally, a stipulated rate case agreement between the Company and the 
West Virginia Commission recognizes the Company's right to defer MGP clean-up 
costs, should any be incurred, and to seek rate relief for such costs.  If the 
Company eventually incurs costs associated with a required clean-up of either 
MGP site, the Company anticipates recording a regulatory asset for such clean-
up costs which are anticipated to be recoverable in future rates.  Based on 
anticipated regulatory actions and current practices, management believes that
any costs incurred related to the previously-mentioned environmental matters 
will not have a material effect on the Company's consolidated financial 
position. 
<PAGE>
<TABLE>
<CAPTION>
  
                       Roanoke Gas Company & Subsidiaries 
                               HOW 1996 REVENUE 
                             DOLLARS WERE SPENT 
                         Year Ended September 30, 1996 
                          Gross Revenues - $68,789,437 
  
(Bar graph appears here with the following plot points) 
<S>                                               <C>  
Cost Of Gas & Propane                              $43,740,078 
Salaries & Wages                                   $ 5,263,280 
All Other Expenses                                 $ 9,191,539 
Taxes                                              $ 3,671,182 
Interest Charges                                   $ 1,916,372 
Depreciation & Amortization                        $ 2,810,314 
Dividends Declared To Owners                       $ 1,491,077 
Earnings Retained In Business                      $   705,595 
</TABLE>
<TABLE>
<CAPTION>
  
                      Roanoke Gas Company & Subsidiaries 
                               1996 FINANCIAL 
                                 HIGHLIGHTS 
<S>                                                            <C>
Operating Revenues - Gas .......................................$60,067,407 
Propane Revenues - Propane......................................$ 5,703,466 
Other Revenues - Gas Marketing..................................$ 2,433,503 
Merchandising And Jobbing.......................................$   563,387 
Interest Income ................................................$    21,674 
Gross Revenues..................................................$68,789,437 
Net Earnings....................................................$ 2,196,672 
Earnings Per Share .............................................$      1.51 
Dividends Per Share - Cash .....................................$      1.02 
Total Customers - Natural Gas...................................     51,094 
Total Customers - Propane.......................................      6,410 
Total Natural Gas Deliveries - MCF.............................. 11,169,948 
Total Propane Sales - Gallons...................................  5,997,912 
Number Of Full-Time Employees....................................       153 
Total Payroll Chargeable To Operations & Construction ..........$ 5,745,920 
Total Additions To Plant........................................$ 5,522,977 
</TABLE>
ROANOKE GAS COMPANY 
  
12 
<PAGE>
 
INDEPENDENT AUDITORS' REPORT 
  
The Board of Directors and Stockholders 
Roanoke Gas Company: 
    We have audited the accompanying consolidated balance sheets of Roanoke Gas
Company and subsidiaries as of September 30, 1996 and 1995, and the related 
consolidated statements of earnings, stockholders' equity and cash flows for 
each of the years in the three-year period ended September 30, 1996.  These 
consolidated financial statements are the responsibility of the Company's 
management.  Our responsibility is to express an opinion on these consolidated 
financial statements based on our audits.  
  
    We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test 
basis, evidence supporting the amounts and disclosures in the financial 
statements.  An audit also includes assessing the accounting principles used 
and significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits provide a 
reasonable basis for our opinion.  
  
    In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Roanoke Gas
Company and subsidiaries as of September 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1996, in conformity with generally accepted
accounting principles.  
  
    As discussed in notes 1 and 5 to the consolidated financial statements, 
the Company changed its method of accounting for income taxes in 1994 to adopt
the provisions of Statement of Financial Accounting Standards No. 109, 
ACCOUNTING FOR INCOME TAXES.  As discussed in notes 1 and 6 to the consolidated
financial statements, the Company also adopted the provisions of Statement of 
Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR 
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, in 1994. 
  
                                                         KPMG PEAT MARWICK LLP
Roanoke, Virginia 
October 18, 1996, except as to note 4, 
   which is as of November 11, 1996 
  
1996 ANNUAL REPORT 
  
13 
<PAGE>
Roanoke Gas Company and Subsidiaries 
CONSOLIDATED BALANCE SHEETS 
September 30, 1996 and 1995 
<TABLE> 
<CAPTION> 
  
<S>                                                          <C>              <C> 
ASSETS                                                              1996             1995  
UTILITY PLANT: 
  In service                                                 $ 60,454,905       56,834,174 
  Accumulated depreciation and amortization                   (20,822,398)     (19,262,416) 
    In service, net                                            39,632,507       37,571,758 
  Construction work-in-progress                                 1,277,999          535,107 
    Utility plant, net                                         40,910,506       38,106,865 
NONUTILITY PROPERTY:  
  Propane                                                       4,403,630        3,781,633 
  Accumulated depreciation and amortization                    (2,070,405)      (1,742,342) 
    Nonutility property, net                                    2,333,225        2,039,291 
CURRENT ASSETS:  
  Cash and cash equivalents                                       633,322          502,895 
  Accounts receivable, less allowance for doubtful  
    accounts of 
    $279,316 in 1996 and $171,947 in  1995                      3,857,407        3,463,104 
  Inventories                                                   7,402,586        5,347,994 
  Prepaid income taxes                                            297,521                - 
  Deferred income taxes                                           379,356          967,732 
  Purchased gas adjustments                                     1,782,590                - 
  Other                                                           479,926          181,190 
    Total current assets                                       14,832,708       10,462,915 
OTHER ASSETS                                                      844,660        1,005,596 
  
                                                             $ 58,921,099       51,614,667 
</TABLE> 
  
See accompanying notes to consolidated financial statements. 
  
 
ROANOKE GAS COMPANY 
  
14 
<PAGE>
<TABLE> 
<CAPTION> 
LIABILITIES AND STOCKHOLDERS' EQUITY                               1996      1995  
<S>                                                          <C>            <C> 
CAPITALIZATION: 
   Stockholders' equity: 
     Common stock, $5 par value. Authorized 3,000,000 
       shar es; issued and outstanding 
      1,475,843 and 1,432,512 shar es in 1996 and 
        1995, respectively                                   $ 7,379,215     7,162,560 
     Capital in excess of par value                            4,647,163     4,149,584 
     Retained earnings                                         6,948,623     6,243,028 
     Total stockholders' equity                               18,975,001    17,555,172 
   Long-term debt, excluding current maturities               20,222,124    17,504,047 
     Total capitalization                                     39,197,125    35,059,219 
CURRENT LIABILITIES:  
   Current maturities of long-term debt                          669,423     1,179,415 
   Borrowings under lines of credit                            6,652,500     1,442,000 
   Dividends payable                                             376,795       358,743 
   Accounts payable                                            4,931,467     5,544,647 
   Income taxes payable                                                -       476,410 
   Customers deposits                                            362,384       314,647 
   Accrued expenses                                            3,214,953     3,027,825 
   Refunds from suppliers - due customers                         23,865       682,851 
   Purchased gas adjustments                                           -       236,999 
     Total current liabilities                                16,231,387    13,263,537 
DEFERRED CREDITS AND OTHER LIABILITIES:   
   Deferred income taxes                                       2,960,795     2,721,470 
   Deferred investment tax credits                               531,792       570,441 
     Total deferred credits and other liabilities              3,492,587     3,291,911 
                                                             $58,921,099    51,614,667 
</TABLE> 
 
1996 ANNUAL REPORT 
  
15 
<PAGE>
Roanoke Gas Company and Subsidiaries 
CONSOLIDATED STATEMENTS OF EARNINGS 
Years Ended September 30, 1996,1995 and 1994 
<TABLE> 
<CAPTION> 
  
                                                                    1996           1995           1994  
<S>                                                          <C>              <C>            <C> 
OPERATING REVENUES: 
  Gas utilities                                              $ 60,067,407     44,061,737     53,525,307 
  Propane operations                                            5,703,466      4,549,410      4,670,550 
     Total operating revenues                                  65,770,873     48,611,147     58,195,857 
COST OF GAS: 
  Gas utilities                                                40,763,104     27,027,507     36,109,555 
  Propane operations                                            2,976,974      2,147,776      2,183,805 
     Total cost of gas                                         43,740,078     29,175,283     38,293,360 
OPERATING MARGIN                                               22,030,795     19,435,864     19,902,497 
OTHER OPERATING EXPENSES: 
  Gas utilities: 
     Other operations                                           8,056,211      7,726,611      7,891,993 
     Maintenance                                                1,868,280      1,233,066      1,487,792 
     Taxes - general                                            2,401,768      2,082,896      2,395,379 
     Taxes - income                                               963,895        711,437        646,442 
     Depreciation and amortization                              2,294,447      2,133,488      1,945,672 
  Propane operations (including taxes - income of $177,059,   
     $224,017 and $239,069 in 1996, 1995 and 1994,  
     respectively)                                              2,410,890      2,026,108      1,997,952 
     Total other operating expenses                            17,995,491     15,913,606     16,365,230 
OPERATING EARNINGS                                              4,035,304      3,522,258      3,537,267 
OTHER INCOME (DEDUCTIONS): 
  Gas utilities: 
     Interest income                                                  274         26,652         22,907 
     Merchandising and jobbing, net                                99,334        120,475         50,734 
     Other deductions                                            (120,539)      (142,389)      (124,655) 
     Taxes - income                                               (22,486)       (14,547)         5,608 
  Propane operations, net                                         121,157        189,458        100,490 
     Total other income (deductions)                               77,740        179,649         55,084 
EARNINGS BEFORE INTEREST CHARGES                                4,113,044      3,701,907      3,592,351 
INTEREST CHARGES:  
  Gas utilities: 
     Long-term debt                                             1,621,661      1,680,078      1,615,679 
     Other                                                        292,301        231,142        242,776 
  Propane operations                                                2,410         13,447         56,798 
     Total interest charges                                     1,916,372      1,924,667      1,915,253 
NET EARNINGS                                                 $  2,196,672      1,777,240      1,677,098 
NET EARNINGS PER SHARE                                       $       1.51           1.26           1.25 
</TABLE> 
See accompanying notes to consolidated financial statements. 
  
ROANOKE GAS COMPANY 
  
16 
  
<PAGE>
Roanoke Gas Company and Subsidiaries 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
Years Ended September 30, 1996, 1995 and 1994 
<TABLE> 
<CAPTION> 
  
                                                         CAPITAL IN                            TOTAL  
                                               COMMON     EXCESS OF        RETAINED     STOCKHOLDERS' 
                                                STOCK    PAR VALUE         EARNINGS            EQUITY 
<S>                                       <C>            <C>            <C>             <C> 
Balances, September 30, 1993              $ 6,446,510     2,647,056       5,559,097        14,652,663 
Net earnings                                        -             -       1,677,098         1,677,098 
Cash dividends ($1.00 per share)                    -             -      (1,354,326)       (1,354,326) 
Issuance of common stock (93,041 shares)      465,205     1,098,129               -         1,563,334 
Common stock issuance costs                         -      (113,850)              -          (113,850) 
Balances, September 30, 1994                6,911,715     3,631,335       5,881,869        16,424,919 
Net earnings                                        -             -       1,777,240         1,777,240 
Cash dividends ($1.00 per share)                    -             -      (1,416,081)       (1,416,081) 
Issuance of common stock (50,169 shares)      250,845       522,699               -           773,544 
Common stock issuance costs                         -        (4,450)              -            (4,450) 
Balances, September 30, 1995                7,162,560     4,149,584       6,243,028        17,555,172 
Net earnings                                        -             -       2,196,672         2,196,672 
Cash dividends ($1.02 per share)                    -             -      (1,491,077)       (1,491,077) 
Issuance of common stock (43,331 shares)      216,655       497,579               -           714,234 
Balances, September 30, 1996              $ 7,379,215     4,647,163       6,948,623        18,975,001 
</TABLE> 
  
See accompanying notes to consolidated financial statements. 
  
1996 ANNUAL REPORT 
  
17 
<PAGE>
Roanoke Gas Company and Subsidiaries 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
Years Ended September 30, 1996, 1995 and 1994 
<TABLE> 
<CAPTION> 
                                                                   1996            1995            1994  
<S>                                                          <C>             <C>             <C> 
CASH FLOWS FROM OPERATING ACTIVITIES: 
  Net earnings                                               $ 2,196,672       1,777,240       1,677,098 
  Adjustments to reconcile net earnings to net cash  
    provided by (used in) operating activities: 
     Depreciation and amortization                             2,810,314       2,563,128       2,334,457 
     Loss (gain) on disposal of utility plant and 
       nonutility pr operty                                       (4,202)          4,823            (364) 
     Gain on sale of other asset                                       -         (67,556)              - 
     Decrease (increase) in purchased gas    
       adjustments                                            (2,019,589)        931,422       1,387,025 
     Decrease in gas cost recoverable from    
       customers                                                       -               -         219,443 
     Decrease in gas cost payable to suppliers                         -               -        (219,443) 
     Changes in assets and liabilities which  
        provided (used) 
        cash, exclusive of changes and noncash 
         transactions shown separately                        (3,608,875)      3,139,960        (320,415) 
     Net cash provided by (used in) operating  
       activities                                               (625,680)      8,349,017       5,077,801 
CASH FLOWS FROM INVESTING ACTIVITIES:  
  Additions to utility plant in service and under  
    construction and nonutility property                      (5,522,977)     (5,609,292)     (5,518,275) 
  Proceeds from disposal of property                              42,511          70,403          33,796 
  Cost of removal of utility plant, net                         (423,221)       (122,523)       (184,908) 
  Proceeds from collection of note receivable                          -         490,000               - 
       Net cash used in investing activities                  (5,903,687)     (5,171,412)     (5,669,387) 
CASH FLOWS FROM FINANCING ACTIVITIES: 
  Proceeds from issuance of long-term debt                             -       2,700,000       2,000,000 
  Retirement of long-term debt and payments on  
    obligations under capital leases                          (1,179,415)     (1,124,703)     (2,470,696) 
  Net borrowings (repayments) under lines of credit            8,598,000      (3,793,000)        235,000 
  Proceeds from issuance of common stock                         714,234         773,544       1,563,334 
  Common stock issuance costs                                          -          (4,450)       (113,850) 
  Cash dividends paid                                         (1,473,025)     (1,403,370)     (1,330,619) 
       Net cash provided by (used in) financing  
         activities                                            6,659,794      (2,851,979)       (116,831) 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             130,427         325,626        (708,417) 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                     502,895         177,269         885,686 
CASH AND CASH EQUIVALENTS, END OF YEAR                      $    633,322         502,895         177,269 
</TABLE> 
                                                                      CONTINUED 
  
 
ROANOKE GAS COMPANY 
18 
<PAGE>
<TABLE> 
<CAPTION> 
 
                                                                     1996          1995          1994  
<S>                                                          <C>               <C>           <C> 
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED (USED) 
 CASH, EXCLUSIVE OF CHANGES AND NONCASH TRANSACTIONS 
 SHOWN SEPARATELY: 
   Accounts receivable and customer deposits, net            $    (346,566)     (304,927)      399,531 
   Inventories                                                  (2,054,592)    1,028,359      (175,108) 
   Prepaid income taxes                                           (297,521)      260,609       157,183 
   Accounts payable                                               (613,180)      224,166       437,812 
   Income taxes payable                                           (476,410)      476,410             - 
   Accrued expenses and other current assets                      (111,608)    2,011,166      (227,585) 
   Refunds from suppliers - due customers                         (658,986)      183,953      (496,605) 
   Other noncurrent assets                                         160,936      (277,339)     (116,050) 
   Deferred taxes, including amortization of deferred 
     investment tax credits                                        789,052      (350,121)     (299,593) 
   Other deferr ed credits                                               -      (112,316)            - 
                                                             $  (3,608,875)    3,139,960      (320,415) 
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: 
   Cash paid during the year for: 
     Interest                                                $   1,493,801     1,867,816     2,306,579 
     Income taxes, net of refunds                            $   1,148,319       675,418     1,022,314 
   Noncash Transactions:  
     The Company refinanced $9,300,000 of current    
       installments of 
      long-term debt and borrowings under lines of 
        credit as long-term  
      debt in 1996 (see note 4). 
     Capital lease obligations of $21,119 and $7,925 
       were incurred in 
      1995 and 1994, respectively , when the 
        Company entered into 
      equipment leases. 
     A note receivable of $490,000 was received in 
       1994 upon the sale 
      of a building, resulting in a deferred gain 
        of $67,556.  The note was 
      paid in full and the deferred gain  
        recognized in 1995. 
     A regulatory asset of $20,484 and a regulatory 
       liability of $112,316 
      were recorded in 1994 via adjustment of the 
        deferred income tax 
      liability upon adoption of Statement 109 (see 
        notes 1 and 5). 
</TABLE> 
  
See accompanying notes to consolidated financial statements. 
  
 
1996 ANNUAL REPORT 
  
19 
<PAGE>
Roanoke Gas Company and Subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 1996 and 1995 and Years Ended September 30, 1996, 1995 and 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
GENERAL 
    The consolidated financial statements include the accounts of Roanoke Gas 
Company and its wholly-owned subsidiaries (the Company), Bluefield Gas Company
and Highland Propane Company (with propane and gas marketing divisions in 
Roanoke and a propane division in Bluefield).  Roanoke Gas Company and 
Bluefield Gas Company are gas utilities, which distribute and sell natural gas
to residential, commercial and industrial customers within their service areas.
The gas utilities are subject to regulation by the Federal Energy Regulatory 
Commission and their applicable state regulatory commissions.  Highland Propane
Company, which is not a public utility, distributes and sells propane in 
southwestern Virginia and southern West Virginia. The gas marketing division of
Highland Propane brokers natural gas to several industrial transportation 
customers of Roanoke Gas Company.  
    The Company maintains its financial records in accordance with the 
accounting policies as prescribed by its regulatory commissions and generally
accepted accounting principles.  The Company's regulated operations meet the 
criteria, and accordingly, follow the reporting and accounting requirements of
Statement of Financial Accounting Standards No. 71, ACCOUNTING FOR THE EFFECTS
OF CERTAIN TYPES OF REGULATION(Statement 71). Statement 71 sets forth the 
application of generally accepted accounting principles to those companies 
whose rates are determined by an independent third-party regulator.  The 
economic effects of regulation can result in regulated companies recording 
costs that have been or are expected to be allowed in the rate-setting process 
in a period different from the period in which the costs would be charged to 
expense by an unregulated enterprise.  When this results, costs are deferred 
as assets in the consolidated balance sheet (regulatory assets) and recorded 
as expenses as those same amounts are reflected in rates.  Additionally, 
regulators can impose liabilities upon a regulated company for amounts 
previously collected from customers and for recovery of costs that are expected
to be incurred in the future (regulatory liabilities).  
    The amounts recorded by the Company as regulatory assets and regulatory 
liabilities follow: 
<TABLE>
<CAPTION>
                                                 SEPTEMBER 30, 
                                               1996         1995 
<S>                                     <C>            <C>
REGULATORY ASSETS: 
   Early retirement incentive plan costs   $  246,768    318,463 
   Statement 106 implementation costs          18,884     35,670 
   Rate case costs                             20,879     53,797 
   Franchise negotiation costs                 41,846     55,237 
   LNG tank painting costs                     25,720     33,951 
   Union or ganization costs                   29,325     58,651 
   Purchased gas adjustments                1,782,590          - 
   Statement 109 implementation                20,484     20,484 
   Other                                       12,938     25,414 
                                           $2,199,434    601,667 
REGULATORY LIABILITIES: 
   Refunds from suppliers - due customers      23,865    682,851 
   Purchased gas adjustments                        -    236,999 
                                           $   23,865    919,850 
</TABLE> 
    All significant intercompany transactions have been eliminated in 
consolidation.  
<PAGE>
UTILITY PLANT  
    Utility plant is stated at original cost.  The cost of additions to utility
plant includes direct labor and overhead.  The cost of depreciable property 
retired, plus cost of dismantling, less salvage, is charged to accumulated 
depreciation.  Maintenance, repairs, and minor renewals and betterments of 
property are charged to operations.  
DEPRECIATION AND AMORTIZATION  
    Provisions for depreciation and amortization are computed principally on 
composite straight-line rates for financial statement purposes and on 
accelerated rates for income tax purposes.  Depreciation and amortization for 
financial statement purposes are provided on annual composite rates ranging from
2 percent to 20 percent, except for propane plant and certain other utility 
plant which are depreciated on a straight-line basis over the assets' estimated
useful lives.  The annual composite rates are determined by depreciation 
studies performed for rate-making purposes; however, these studies provide 
estimated useful lives which are materially consistent with generally accepted
accounting principles, and accordingly, no significant differences in annual 
depreciation and amortization expense amounts occur as a result of regulation.
  
ROANOKE GAS COMPANY 
  
20 
<PAGE>
Roanoke Gas Company and Subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 1996 and 1995 and Years Ended September 30, 1996, 1995 and 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 
CASH AND CASH EQUIVALENTS 
    For purposes of the consolidated statements of cash flows, the Company 
considers all highly liquid debt instruments purchased with an original 
maturity of three months or less to be cash equivalents.  
INVENTORIES  
    Inventories, which consist primarily of propane gas and natural gas firm 
and winter storage, are valued at the lower of cost (average cost) or market. 
UNBILLED REVENUES  
    The Company bills most of its customers on a monthly cycle basis, although 
certain large industrial customers are billed at or near the end of each month.
The Company records revenue based on service rendered to the end of the 
accounting period.  The amounts of unbilled revenues receivable included in 
accounts receivable on the consolidated balance sheets in 1996 and 1995 were 
$863,480 and $770,735, respectively.  
INCOME TAXES  
    Effective October 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES.  
Statement 109 requires a change from the deferred method of accounting for
income taxes of APB Opinion 11 to the asset and liability method of accounting
for income taxes.  Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax 
consequences attributable to differences between the financial statement 
carrying amounts of existing assets and liabilities and their respective tax 
bases and operating loss and tax credit 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.  Under Statement 109, the effect on deferred tax assets 
and liabilities of a change in tax rates is recognized in earnings in the 
period that includes the enactment date.  The adoption of Statement 109 did not
have a material impact on the Company's consolidated financial statements, and 
accordingly, no cumulative effect of accounting change was reported in the 1994
consolidated statement of earnings.  
BOND EXPENSES  
    Bond expenses are being amortized over the lives of the bonds using the 
bonds outstanding method.  
PURCHASED GAS ADJUSTMENTS  
    Pursuant to the provisions of the Company's purchased gas adjustment (PGA)
clause, increases or decreases in gas costs are passed on to its customers. 
Accordingly, the difference between actual costs incurred and costs recovered 
through the application of the PGA is reflected as a net deferred charge or 
credit.  At the end of the deferral period, the balance of the net deferred 
charge or credit is amortized over the next 12-month period and amounts are 
reflected in customer billings.  
PENSION AND OTHER POSTRETIREMENT PLANS  
    The Company has a defined benefit pension plan covering substantially all
of its employees.  Generally, the Company's funding policy is to contribute 
annually an amount equal to that which can be deducted for federal income tax
purposes.  Pension costs are computed based upon the provisions of Statement 
of Financial Accounting Standards No. 87.  
<PAGE>
    The Company also provides certain health care, supplemental retirement and
life insurance benefits to active and retired employees.  Effective October 1,
1993, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN
PENSIONS, which establishes a new accounting principle for the cost of retiree
health care and other postretirement benefits (see also note 6).  The 
cumulative effect of the change in method of accounting for postretirement 
benefits other than pensions is being amortized on a straight-line basis over a
20-year period. 
NET EARNINGS PER SHARE  
    Net earnings per share are based on the weighted average number of shares 
outstanding during the year (1,455,999 shares in 1996, 1,408,659 shares in 1995
and 1,339,402 shares in 1994).  The calculation of weighted average shares 
outstanding for 1996 does not include the effect of common stock equivalents 
(CSEs), since the impact of including CSEs in the weighted average shares 
outstanding is less than three percent.  
USE OF ESTIMATES  
    The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the reported amounts of assets and liabilities and 
disclosure of contingent assets and liabilities at the date of the financial 
statements and the reported amounts of revenues and expenses during the 
reporting period.  Actual results could differ from those estimates. 
  
1996 ANNUAL REPORT 
  
21 
<PAGE>
Roanoke Gas Company and Subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 1996 and 1995 and Years Ended September 30, 1996, 1995 and 1994

(2) ALLOWANCE FOR DOUBTFUL ACCOUNTS 
A summary of the changes in the allowance for doubtful accounts follows: 
<TABLE>
<CAPTION>
                                      YEARS ENDED SEPTEMBER 30, 
                                       1996          1995        1994 
<S>                                <C>            <C>            <C>
Balances, beginning of year         $ 171,947       318,834       287,189 
Provision for doubtful accounts       550,777       345,585       468,183 
Recoveries of accounts written off    131,499        91,941       107,117 
Accounts written off                 (574,907)     (584,413)     (543,655) 
Balances, end of year               $ 279,316       171,947       318,834 
</TABLE>
  
(3) BORROWINGS UNDER LINES OF CREDIT  
    The Company had total short-term lines of credit of $18,000,000 in 1996 and
$13,000,000 in 1995 and 1994.  The balances outstanding under these lines of
credit at September 30, 1996, 1995 and 1994 were $6,652,500, $1,442,000 and 
$5,235,000, respectively.  The balance outstanding at September 30, 1996 
reflects the effect of the Company's partial refinance of borrowings under 
lines of credit on a long-term basis subsequent to year end (see note 4).  
The highest month-end balances outstanding under these lines of credit were 
$7,587,000, $7,186,000 and $5,250,000 in 1996, 1995 and 1994, respectively.  
The average month-end balances outstanding were approximately $4,453,000, 
$2,809,000 and $2,658,000 in 1996, 1995 and 1994, respectively.  The average 
interest rates on the lines of credit were approximately 5.84 percent, 6.07 
percent and 3.90 percent for 1996, 1995 and 1994, respectively.  The lines are
subject to annual renewal and do not require compensating balances.  The 
average interest rates were 5.71 percent, 6.27 percent and 5.22 percent on 
balances outstanding at September 30, 1996, 1995 and 1994, respectively.  
<PAGE>
(4) LONG-TERM DEBT  
Long-term debt consists of the following: 
<TABLE> 
<CAPTION> 
  
                                                             SEPTEMBER 30, 
                                                            1996        1995 
<S>                                                          <C>           <C> 
ROANOKE GAS COMPANY: 
  First mortgage bonds, collateralized by utility plant: 
     Series K, 10%, due July 1, 2002, with provision 
       for retirement of 
       $265,000 each year through 2001 with a 
         final payment of $290,000                           $1,615,000    1,880,000 
     Series L, 10.375%, due April 1, 2004, with  
       provision for retirement of $334,000 
       each year through 2003 with a final payment 
         of $324,000                                          2,662,000    2,996,000 
     Term debentures, collateralized by indenture 
       dated October 1, 1991, 
       with provision for retirement in varying 
         annual payments through 
       October 1, 2016 and interest rates ranging 
         from 6.75% to 9.625%, 
       partially refinanced subsequent to year end            7,200,000    8,400,000 
     Unsecured senior notes payable, with interest 
       rate fixed at 7.66%, 
       with provision for retirement of  
         $1,600,000 for each year beginning in 
       November 2014 thr ough November 2018                   8,000,000          - 
     Unsecured notes payable, with interest rates 
       ranging from 5% to 7.64%, 
       with provision for retirement of  
         $3,000,000 on October 19, 1996 
       and $1,000,000 on November 22, 1996,  
         refinanced subsequent to 
         year end                                                    -     4,000,000 
     Obligations under capital leases, due in  
       aggregate monthly payments 
       of $3,076, including imputed interest,  
        through August 1998                                     64,547        94,962 
</TABLE> 
  
                                                                    CONTINUED

ROANOKE GAS COMPANY

22 
<PAGE>
Roanoke Gas Company and Subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 1996 and 1995 and Years Ended September 30, 1996, 1995 and 1994

(4) LONG-TERM DEBT (CONTINUED) 
 
<TABLE> 
<CAPTION> 
 
                                                                     SEPTEMBER 30, 
                                                                   1996           1995 
<S>                                                          <C>              <C> 
BLUEFIELD GAS COMPANY: 
   Unsecured installment loan, with interest rate 
     based on prime 
     (8.25% and 8.75% at September 30, 1996 and 1995, 
       respectively), 
     with provision for retirement of $50,000 for 
       each year through 
     1997 and a final payment of $12,500 on January 
       31, 1998, 
     partially refinanced subsequent to year end            $     50,000         112,500 
   Unsecured notes payable, with interest rate fixed 
     at 7.28%, 
     with provision for retirement of $25,000  
       quarterly in fiscal years 
     2003 and 2004 and a final payment of $1,100,000 
       in November 2004                                        1,300,000               - 
   Unsecured note payable, with inter est rate fixed 
     at 5.8%, with 
     provision for retirement in full in August 
       1996                                                            -         500,000 
   Unsecured note payable, with interest based on 30- 
     day LIBOR plus 
     120 basis points (7.075% at September 30, 1995), 
       with provision 
     for retirement in full on October 18, 1996,  
       refinanced subsequent to year end                                -        700,000 
Total long-term debt                                           20,891,547     18,683,462 
Less current maturities of long-term debt                        (669,423)    (1,179,415) 
Total long-term debt, excluding current installments         $ 20,222,124     17,504,047 
</TABLE> 
  
    The $8,000,000 unsecured senior notes payable and $1,300,000 unsecured 
notes payable have been classified as long-term debt in accordance with the 
Company's refinance of current installments of long-term debt and borrowings 
under lines of credit on a long-term basis, consistent with financing 
agreements dated November 11, 1996 and October 23, 1996, respectively.  
    The above debt obligations contain various provisions including a minimum
interest charge coverage ratio, limitations on debt as a percentage of total 
capitalization, and limitations on total liabilities as a percentage of 
tangible net worth.  The obligations also contain a provision restricting the 
payment of dividends, primarily based on the earnings of the Company and 
dividends previously paid.  At September 30, 1996, a total of $4,000,000 of 
retained earnings was available for dividends.  
<PAGE>
    The aggregate annual maturities of long-term debt, including obligations 
under capital leases, subsequent to September 30, 1996 are as follows: 
<TABLE>
<CAPTION>
YEARS ENDING SEPTEMBER 30, 
<S>                      <C>
         1997               $    669,423 
         1998                    643,124 
         1999                    599,000 
         2000                    599,000 
         2001                    599,000 
         Thereafter           17,782,000 
         Total              $ 20,891,547 
</TABLE>
  
(5) INCOME TAXES  
    As discussed in note 1, the Company adopted the provisions of Statement 109
as of October 1, 1993.  The adoption of Statement 109 did not have a material 
impact on the Company's consolidated financial statements, and accordingly, no
cumulative effect of accounting change was reported in the 1994 consolidated 
statement of earnings.  Prior years' consolidated financial statements were not
restated to apply the provisions of Statement 109. 
  
1996 ANNUAL REPORT 
  
23 
<PAGE>
Roanoke Gas Company And Subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 1996 and 1995 and Years Ended September 30, 1996, 1995 and 1994
  
(5) INCOME TAXES (CONTINUED) 
The details of income tax expense (benefit) are as follows: 
  
<TABLE> 
<CAPTION> 
                                                                   YEARS ENDED SEPTEMBER 30, 
                                                                  1996         1995        1994 
<S>                                                          <C>             <C>           <C> 
Charged to other operating expenses - gas utilities: 
Current 
  Federal                                                    $   206,399     1,104,505       917,069 
  State                                                          (40,248)       48,649        30,807 
Total current                                                    166,151     1,153,154       947,876 
Deferred: 
  Federal                                                        777,772      (370,870)     (256,945) 
  State                                                           58,621       (32,198)       (8,457) 
Total deferred                                                   836,393      (403,068)     (265,402) 
Investment tax credits, net                                      (38,649)      (38,649)      (36,032) 
Total charged to other operating expenses - gas  
  utilities                                                      963,895       711,437       646,442 
Charged to other income and deductions - gas utilities: 
Current:  
  Federal                                                         22,195        14,587        (6,372) 
  State                                                              665           (40)          764 
Total current                                                     22,860        14,547        (5,608) 
Deferred: 
  Federal                                                           (374)            -             - 
  State                                                                -             -             - 
Total deferred                                                      (374)            -             - 
Total charged to other income and deductions - gas  
  utilities                                                       22,486        14,547        (5,608) 
Charged to other operating expenses - propane  
  operations: 
Current:  
  Federal                                                        153,044       200,022       193,795 
  State                                                           32,333        44,715        43,433 
Total current                                                    185,377       244,737       237,228 
Deferred:  
  Federal                                                         (6,052)      (15,528)       (2,443) 
  State                                                           (2,266)       (5,192)        4,284 
Total deferred                                                    (8,318)      (20,720)        1,841 
Total charged to other operating expenses - propane    
  operations                                                     177,059       224,017       239,069 
Total income tax expense                                     $ 1,163,440       950,001       879,903 
</TABLE> 
ROANOKE GAS COMPANY 
  
24 
<PAGE>
Roanoke Gas Company and Subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 1996 and 1995 and Years Ended September 30, 1996, 1995 and 1994
(5) INCOME TAXES (CONTINUED) 
    Income tax expense for the years ended September 30, 1996, 1995 and 1994 
differed from amounts computed by applying the U.S. Federal income tax rate of
34 percent to earnings before income taxes as a result of the 
following: 
<TABLE> 
<CAPTION> 
  
                                                                    YEARS ENDED SEPTEMBER 30, 
                                                                  1996          1995        1994 
<S>                                                          <C>             <C>           <C> 
Net earnings                                                 $ 2,196,672     1,777,240     1,677,098 
Income tax expense                                             1,163,440       950,001       879,903 
Earnings before income taxes                                 $ 3,360,112     2,727,241     2,557,001 
Computed "expected" income tax expense                         1,142,438       927,262       869,380 
Increase (reduction) in income tax expense resulting   
  from: 
   Amortization of deferred investment tax credits               (38,649)      (38,649)      (36,032) 
   Other, net                                                     59,651        61,388        46,555 
Total income tax expense                                     $ 1,163,440       950,001       879,903 
</TABLE> 
     The tax effects of temporary differences that give rise to the deferred 
tax assets and deferred tax liabilities are as follows:  
<TABLE> 
<CAPTION> 
                                                               SEPTEMBER 30, 
                                                               1996        1995 
<S>                                                          <C>            <C> 
Deferred tax assets: 
   Accounts receivable, due to allowance for doubtful 
     accounts                                                $   105,602       60,898 
   Accrued pension and medical benefits, due to  
     accrual for 
     financial reporting purposes in excess of 
       actual contributions                                      682,471      687,828 
   Accrued vacation and bonuses, due to accrual for 
     financial reporting purposes                                164,542      151,392 
   Purchased gas adjustments, due to accrual for 
     financial reporting  
     purposes in excess of actual payments to 
       customers                                                       -      100,873 
   Other                                                          92,456       23,697 
Total gross deferred tax assets                                1,045,071    1,024,688 
   Less valuation allowance                                            -            - 
Net deferred tax assets                                        1,045,071    1,024,688 
Deferred tax liabilities:  
   Utility plant, due to differences in depreciation           2,912,432    2,653,872 
   Purchased gas adjustments, due to actual payments 
     to 
     customers in excess of accrual for financial  
        reporting purposes                                       620,788            - 
   Prepaid expenses and other assets, due to  
     capitalization for 
     financial reporting purposes                                 93,290      124,554 
Total gross deferred tax liabilities                           3,626,510    2,778,426 
Net deferred tax liability                                   $ 2,581,439    1,753,738 
</TABLE> 
<PAGE>  
    The Company has determined that a valuation allowance for the gross 
deferred tax assets was not necessary at September 30, 1996 and 1995, since 
realization of the entire gross deferred tax assets can be supported by the 
amount of taxes paid during the carryback period available under current tax 
laws, as well as the reversal of the temporary differences which gave rise to 
the deferred tax liabilities.  
    In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized.  The ultimate realization of deferred tax assets 
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.  Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. 
  
1996 ANNUAL REPORT 
  
25 
<PAGE>
Roanoke Gas Company and Subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 1996 and 1995 and Years Ended September 30, 1996, 1995 and 1994 
  
(6) EMPLOYEE BENEFIT PLANS 
    The Company has a defined benefit pension plan covering substantially all 
of its employees.  The benefits are based on years of service and employee 
compensation.  Plan assets are invested principally in cash equivalents and 
corporate stocks and bonds.  Company contributions are intended to provide not
only for benefits attributed to date but also for those expected to be 
earned in the future.  

Pension expense includes the following components: 
<TABLE> 
<CAPTION> 
  
                                                                  YEARS ENDED SEPTEMBER 30, 
                                                                1996          1995        1994 
<S>                                                          <C>           <C>           <C> 
Service cost for the current year                            $ 148,465       127,908       146,849 
Interest cost on the projected benefit obligation              397,458       376,147       370,811 
Actual return on assets held in the plan                      (717,703)     (988,813)      (96,300) 
Net amortization and deferral of unrecognized gains and   
  losses                                                       372,234       727,706      (182,032) 
Special termination benefits cost related to the early  
  retirement incentive plan                                          -       168,730             - 
Net pension expense                                          $ 200,454       411,678       239,328 
</TABLE> 
  
The Plan's funded status is as follows: 
<TABLE> 
<CAPTION> 
  
                                                                 SEPTEMBER 30, 
                                                                1996        1995 
<S>                                                          <C>             <C> 
Actuarial present value of accumulated benefit 
  obligation: 
   Vested                                                    $ 4,241,528       3,955,511 
   Nonvested                                                      30,872          28,742 
Accumulated benefit obligation                                 4,272,400       3,984,253 
Effect of anticipated future compensation levels and   
  other events                                                 1,343,289       1,292,654 
Projected benefit obligation                                   5,615,689       5,276,907 
Fair value of assets held in the plan                         (5,498,868)     (4,971,725) 
Unfunded excess of projected benefit obligation over plan  
  assets                                                     $   116,821         305,182 
</TABLE> 
<PAGE>
    The unfunded excess of projected benefit obligation over plan assets 
consists of the following: 
<TABLE> 
<CAPTION> 
  
                                                                       SEPTEMBER 30, 
                                                                1996               1995 
<S>                                                          <C>               <C> 
Net unrecognized gain from past experience different 
  than assumed                                               $  (1,283,944)     (1,166,807) 
Unamortized transition liability                                   435,421         540,865 
Unrecognized prior service cost                                     94,377         113,251 
Accrued pension cost included in the consolidated balance 
  sheets                                                           870,967         817,873 
Total                                                        $     116,821         305,182 
</TABLE> 

    The weighted average discount rates used in determining the actuarial 
present value of the projected benefit obligation were 7.75 percent for 1996 
and 1995 and 8 percent for 1994.  The rates of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation in 1996, 1995 and 1994 were 4 percent for compensation increases 
through December 31, 1996 and 5 percent for compensation increases thereafter. 
The assumed long-term rate of return on assets was 8.5 percent for 1996, 1995 
and 1994.  
    In addition to pension benefits, the Company has a postretirement benefits
plan which provides certain health care, supplemental retirement and life 
insurance benefits to active and retired employees who meet specific age and
service requirements.  The plan is contributory for 1996 and 1995; the plan was
noncontributory for 1994.  The Company has elected to fund the plan over future
years.  
    As discussed in note 1, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR 
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, as of October 1, 1993.  The 
transition obligation resulting from this change in accounting principle of 
$4,746,000 was determined as of October 1, 1993 and is being amortized on a 
straight-line basis over a 20-year period.  The adoption of Statement 106 
resulted in an increase in net periodic postretirement benefits cost for the 
year ended September 30, 1994 from approximately $296,000 under the pay-as-you-
go method to $649,936 under Statement 106, with approximately 67 percent of the
consolidated annual cost being recovered from the Company's customers through 
rates.  The effect of adopting Statement 106 on net earnings was a decrease of
$77,087, or $.06 per share. 
  
ROANOKE GAS COMPANY 
  
26 
<PAGE>
Roanoke Gas Company and Subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 1996 and 1995 and Years Ended September 30, 1996, 1995 and 1994 

(6) EMPLOYEE BENEFIT PLANS (CONTINUED) 
     The following table presents the plan's funded status reconciled with the
amounts recognized in the Company's consolidated balance sheets:  
<TABLE> 
<CAPTION> 
  
                                                                    SEPTEMBER 30, 
                                                                 1996             1995 
<S>                                                          <C>             <C> 
Accumulated postretirement benefits obligation:  
   Retirees                                                  $ 2,448,483       2,464,992 
   Fully eligible active plan participants                       646,587       1,026,018 
   Other active plan participants                              1,202,667       1,319,200 
Total accumulated postretirement benefits obligation           4,297,737       4,810,210 
Plan assets at fair value, principally cash equivalents 
  and mutual funds                                              (971,630)       (651,155) 
Accumulated postretirement benefits obligation in excess  
  of plan assets                                               3,326,107       4,159,055 
Unrecognized net gain                                          1,322,715         743,605 
Unrecognized transition obligation                            (4,034,100)     (4,271,400) 
Postretirement benefits cost included in accrued 
  expenses                                                   $   614,722         631,260 
</TABLE> 
  
    The unrecognized net gain of $743,605 as of September 30, 1995 has been 
reduced by the curtailment loss of $195,258 resulting from the early retirement
incentive plan offered by the Company in 1995.  
  
    Net periodic postretirement benefits cost includes the following 
components: 
<TABLE> 
<CAPTION> 
                                                                 YEARS ENDED SEPTEMBER 30, 
                                                                1996       1995         1994 
<S>                                                          <C>           <C>          <C> 
Service cost for the current year                            $  89,000       86,613      79,506 
Interest cost on the accumulated postretirement 
  benefits obligation                                          363,000      320,992     333,464 
Return on assets held in the plan                              (40,000)     (35,000)     (6,020) 
Amortization of transition obligation                          237,300      237,300     237,300 
Net total of other components                                  (16,000)      (7,583)      5,686 
Special termination benefits cost related to the early  
  retirement incentive plan                                          -      242,319           - 
Net periodic postretirement benefits cost                    $ 633,300      844,641     649,936 
</TABLE> 

    For measurement purposes, 10.5 percent, 11 percent and 12 percent annual 
rates of increase in the per capita cost of covered benefits (i.e., medical 
trend rate) were assumed for 1996, 1995 and 1994, respectively; the rates were
assumed to decrease gradually to 6.25 percent by the year 2005 and remain at 
that level thereafter.  The medical trend rate assumption has a significant 
effect on the amounts reported.  For example, increasing the assumed medical 
cost trend rate by one percentage point each year would increase the 
accumulated postretirement benefits obligation as of September 30, 1996 by 
approximately $254,218 and the aggregate of the service and interest cost 
components of net postretirement benefits cost by approximately $51,636.  
<PAGE>
    The weighted average discount rates used in determining the accumulated 
postretirement benefits obligation were 7.75 percent at September 30, 1996 and
1995 and 8 percent at September 30, 1994.  
    During 1995, the Company offered a voluntary early retirement incentive 
plan to all employees over age 55 who were vested in the Company's pension 
plan.  Of the 25 eligible employees, 12 accepted the early retirement offer by
the April 26, 1995 deadline.  The total cost of the early retirement incentive
plan was $444,367, of which $125,904 was expensed directly in the Company's 
third quarter and $318,463 was established as a regulatory asset, with 
amortization beginning in fiscal year 1996 when rates were placed into effect
to allow recovery of the capitalized costs.  The costs expensed during the 
third quarter of 1995 related to the portion of the plan costs that would be 
amortized during the period between the recognition of the plan costs and the 
implementation of new rates, which provide for plan cost recovery, in fiscal 
year 1996.  The Company recorded $71,695 of amortization expense related to 
this regulatory asset during the year ended September 30, 1996.  
    The Company also has a defined contribution thrift plan covering all of its
employees who elect to participate.  The Company makes annual contributions to
the plan based on 50 percent of the net participants' basic contributions (from
1 percent to 6 percent of their total compensation).  The annual cost of the
plan was $134,188, $132,261 and $132,683 for 1996, 1995 and 1994, respectively.
During 1996, the Company's Board of Directors approved management's proposal to
convert the thrift plan into a 401(k) plan effective October 1, 1996.  The plan
conversion will not have a significant impact on the annual cost of the plan. 
  
1996 ANNUAL REPORT 
27 
  
<PAGE>
Roanoke Gas Company and Subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 1996 and 1995 and Years Ended September 30, 1996, 1995 and 1994 

(7) COMMON STOCK OPTIONS 
  
   During 1996, the Company's stockholders approved the Roanoke Gas Company Key
Employee Stock Option Plan.  The plan provides for the issuance of common 
stock options to officers and certain other full-time salaried employees to 
acquire a maximum of 50,000 shares of the Company's common stock.  The plan 
requires each option's exercise price per share to equal the fair value of the
Company's common stock as of the date of grant. 
   The aggregate number of shares under option pursuant to the Roanoke Gas 
Company Key Employee Stock Option Plan are as follows:  
<TABLE>
<CAPTION>  
                                                 NUMBER OF     OPTION PRICE 
                                                   SHARES       PER SHARE 
<S>                                               <C>            <C>
Options granted                                    13,000         $15.50 
Options outstanding, September 30, 1996            13,000         $15.50 
</TABLE>
  
    Under the terms of the plan, the options become exercisable six months from
the grant date and expire ten years subsequent to the grant date.  All options
outstanding were fully vested and exercisable at September 30, 1996.  
    In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED 
COMPENSATION(Statement 123).  The Company is required to adopt the provisions 
of Statement 123 in fiscal year 1997.  The Company plans to retain the 
intrinsic value method of APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO 
EMPLOYEES, for recognizing stock-based compensation in the consolidated 
financial statements.  The Company is still evaluating the new disclosure 
requirements of Statement 123; however, management believes the adoption of 
this Statement will not have a material impact on the Company's consolidated 
financial position or results of operations.  
(8) RELATED PARTY TRANSACTIONS  
    Certain of the Company's directors render various business services or 
products to the Company.  The services included legal fees of approximately 
$69,000, $173,000 and $197,000 in 1996, 1995 and 1994, respectively, and 
construction costs of approximately $1,963,000 in 1994.  The products included
natural gas purchases of approximately $1,950,000 in 1996 and $1,250,000 in 
1995.  It is anticipated that similar services and products will be provided to
the Company in 1997.  
<PAGE>
(9) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)  
    Quarterly financial data as previously reported for the years ended 
September 30, 1996 and 1995 is summarized as follows: 
<TABLE> 
<CAPTION> 
                                      FIRST        SECOND         THIRD        FOURTH 
1996                                QUARTER       QUARTER       QUARTER       QUARTER 
<S>                            <C>             <C>           <C>            <C> 
Operating revenues             $ 17,993,759    29,625,390    10,435,031     7,716,693 
Operating earnings (loss)      $  1,865,501     2,412,749        38,336      (281,282) 
Net earnings (loss)            $  1,434,772     1,954,256      (407,940)     (784,416) 
Net earnings (loss) per share  $       1.00          1.35          (.28)         (.56) 
                                      FIRST        SECOND         THIRD        FOURTH 
1995                                QUARTER       QUARTER       QUARTER       QUARTER 
Operating revenues             $ 14,115,726    18,949,627     8,995,204     6,550,590 
Operating earnings             $  1,046,530     2,267,518       193,645        14,565 
Net earnings (loss)            $    558,602     1,795,737      (237,891)     (339,208) 
Net earnings (loss) per share  $        .40          1.28          (.17)         (.25) 
</TABLE> 
  
    The pattern of quarterly earnings is the result of the highly seasonal 
nature of the business, as variations in weather conditions generally result in
greater earnings during the winter months.  
  
ROANOKE GAS COMPANY 
  
28 
<PAGE>
Roanoke Gas Company and Subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 1996 and 1995 and Years Ended September 30, 1996, 1995 and 1994 
  
(10) BUSINESS AND CREDIT CONCENTRATIONS  
    The primary business of the Company is the distribution of natural gas to
residential, commercial and industrial customers in Roanoke, Virginia; 
Bluefield, Virginia; Bluefield, West Virginia; and the surrounding areas.  The
Company distributes natural gas to its customers at rates and charges regulated
by the State Corporation Commission in Virginia and the Public Service 
Commission in West Virginia.  The Company also serves propane customers in
southwestern Virginia and southern West Virginia through its nonregulated 
subsidiary.  
    During 1996, 1995 and 1994, no single customer accounted for more than 5 
percent of the Company's sales, and no account receivable from any customer 
exceeded 5 percent of the Company's total stockholders' equity at September 30,
1996 and 1995.  
(11) FRANCHISES  
    Roanoke Gas Company (Roanoke Gas) and Commonwealth Public Service 
Corporation, a subsidiary of Bluefield Gas Company, currently hold the only 
franchises and/or certificates of public convenience and necessity to 
distribute natural gas in their respective Virginia service areas.  The 
franchises generally extend for multi-year periods and are renewable by the 
municipalities.  Certificates of public convenience and necessity, which are
issued by the State Corporation Commission of Virginia, are of perpetual 
duration, subject to compliance with regulatory standards.  
    In July 1996, Roanoke Gas and the City of Roanoke signed a new multi-year
franchise agreement, providing for approximately $42,000 in annual franchise
fees, with a 3 percent annual fee increment.  This new agreement, which was 
effective January 1, 1996, has a 20-year term.  In addition, Roanoke Gas signed
new multi-year franchise agreements with the City of Salem and the Town of 
Vinton in July 1996.  The new agreements provide for annual franchise fees of 
approximately $14,000, with 3 percent annual fee increments.  The new 
agreements, which were effective January 1, 1996, have 20-year terms.  
    Bluefield Gas Company holds the only franchise to distribute natural gas in
its West Virginia service area.  Its franchise extends for a period of 30 years
from August 23, 1979.  
    Management anticipates that the Company will be able to renew all of its
franchises when they expire.  There can be no assurance, however, that a given
jurisdiction will not refuse to renew a franchise or will not in connection 
with the renewal of a franchise, impose certain restrictions or conditions 
that could adversely affect the Company's business operations or financial 
condition.  
(12) ENVIRONMENTAL MATTERS  
    Both Roanoke Gas Company and Bluefield Gas Company operated manufactured 
gas plants (MGPs) as a source of fuel for lighting and heating until the early
1950's.  The process involved heating coal in a low-oxygen environment to 
produce a manufactured gas that could be distributed through the Company's 
pipeline system to customers.  A by-product of the process was coal tar, and 
the potential exists for on-site tar waste contaminants at both former plant 
sites.  The extent of contaminants at these sites is unknown at this time, and 
the Company has not performed a formal analysis at the Roanoke Gas Company MGP
site.  An analysis at the Bluefield Gas Company site indicates some soil 
contamination.  The Company, with concurrence of legal counsel, does not 
believe any events have occurred requiring regulatory reporting.  Further, the
Company has not received any notices of violation or liabilities associated 
with environmental regulations related to the MGP sites and is not aware of any
off-site contamination or pollution as a result of these prior operations.  
Therefore, the Company has no plans for subsurface remediation at either of the
MGP sites. Should the Company eventually be required to remediate either of the
<PAGE>
MGP sites, the Company will pursue all prudent and reasonable means to recover
any related costs, including insurance claims and regulatory approval for rate
case recognition of expenses associated with any work required.  Based upon
prior orders of the State Corporation Commission of Virginia related to 
environmental matters at other companies, the Company believes it will be able
to recover prudently incurred costs. Additionally, a stipulated rate case 
agreement between the Company and the West Virginia Public Service Commission 
recognizes the Company's right to defer MGP clean-up costs, should any be 
incurred, and to seek rate relief for such costs.  If the Company eventually 
incurs costs associated with a required clean-up of either MGP site, the 
Company anticipates recording a regulatory asset for such clean-up costs which
are anticipated to be recoverable in future rates.  Based on anticipated 
regulatory actions and current practices, management believes that any costs 
incurred related to the previously-mentioned environmental matters will not 
have a material effect on the Company's consolidated financial position.  
(13) COMMITMENTS  
    The Company has six short-term contracts with five natural gas suppliers 
requiring the purchase of approximately 4,222,000 DTH of natural gas at varying
prices during the period October 1, 1996 through September 30, 1997.  The 
Company has also provided notice of bid awards to three fuel suppliers, and 
anticipates these notices to result in three contracts to purchase an 
additional 1,787,000 DTH of natural gas at varying prices during fiscal year 
1997.  In addition, the Company has short-term contracts with two propane 
suppliers requiring the purchase of 1,040,000 gallons of propane during the 
period October 1, 1996 through September 30, 1997.  Management does not 
anticipate that these contracts will have a material impact on the Company's 
fiscal year 1997 consolidated results of operations. 
  
1996 ANNUAL REPORT 
  
29 
<PAGE>
Roanoke Gas Company and Subsidiaries 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 1996 and 1995 and Years Ended September 30, 1996, 1995 and 1994

(14) FAIR VALUE OF FINANCIAL INSTRUMENTS  
    Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS (Statement 107), requires the Company to 
disclose estimated fair values of its financial instruments.  Statement 107 
defines the fair value of a financial instrument as the amount at which the 
instrument could be exchanged in a current transaction between willing 
parties.  
  
    The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate 
fair value.  
CASH AND CASH EQUIVALENTS  
    The carrying amount is a reasonable estimate of fair value.  
LONG-TERM DEBT  
    The fair value of long-term debt is estimated by discounting the future 
cash flows of each instrument at rates currently offered to the Company for 
similar debt instruments of comparable maturities.  
BORROWINGS UNDER LINES OF CREDIT  
    The carrying amount is a reasonable estimate of fair value since the rates
of interest paid on borrowings under lines of credit approximate market rates.
  
    The carrying amounts and approximate fair values of the Company's financial
instruments at September 30, 1996 are as follows: 
<TABLE>
<CAPTION>
                                         CARRYING     APPROXIMATE  
                                          AMOUNTS     FAIR VALUES 
<S>                                <C>               <C>
FINANCIAL ASSETS: 
  Cash and cash equivalents          $    633,322         633,322 
Total financial assets               $    633,322         633,322 
FINANCIAL LIABILITIES: 
  Long-term debt                     $ 20,891,547      22,057,130 
  Borrowings under lines of credit      6,652,500       6,652,500 
Total financial liabilities          $ 27,544,047      28,709,630 
</TABLE>

    Fair value estimates are made at a specific point in time, based on 
relevant market information and information about the financial instrument.  
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular 
financial instrument.  Because no market exists for a significant portion of 
the Company's financial instruments, fair value estimates are based on 
judgments regarding current economic conditions, risk characteristics of 
various financial instruments and other factors.  These estimates are 
subjective in nature and involve uncertainties and matters of significant 
judgment, and therefore, cannot be determined with precision.  Changes in 
assumptions could significantly affect the estimates.  
<PAGE>
    Fair value estimates are based on existing financial instruments without 
attempting to estimate the value of anticipated future business and the value 
of assets and liabilities that are not considered financial instruments.  
Significant assets that are not considered financial assets include utility 
plant, nonutility property, current deferred income taxes, purchased gas 
adjustments and other assets; significant liabilities that are not considered 
financial liabilities are refunds from suppliers - due customers, noncurrent 
deferred income taxes and deferred investment tax credits.  In addition, the 
tax ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have not been 
considered in the estimates.  
(15) STATEMENT 121  
    In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-
LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF(Statement 121).  
Statement 121 requires companies to review long-lived assets and certain 
identifiable intangibles to be held, used or disposed of, for impairment 
whenever events or changes in circumstances indicate that the carrying amount 
of an asset may not be recoverable.  The Company is required to adopt the 
provisions of Statement 121 in fiscal year 1997.  The Company believes the 
adoption of Statement 121 will not have a material impact on its consolidated
financial statements. 
  
ROANOKE GAS COMPANY 
30 
<PAGE>
Roanoke Gas Company and Subsidiaries 
SUMMARY OF GAS SALES AND STATISTICS 
Years Ended September 30, 
 
<TABLE> 
<CAPTION> 
 
REVENUES:                                    1996        1995            1994            1993            1992  
<S>                                   <C>             <C>             <C>             <C>             <C> 
   Residential Sales                  $ 33,981,835    $ 25,078,211    $ 29,844,636    $ 27,841,933    $ 23,439,809

   Commercial Sales                     20,219,289      14,313,723      16,979,230      16,005,765      13,683,948

   Interruptible Sales                   4,569,766       3,513,181       5,607,002       9,262,947       7,954,908

   Transportation Gas Sales                943,215         909,515         610,682          53,611               -

   Backup Services                         190,310         107,652         222,025               -               -

   Late Payment Charges                    135,838         115,130         194,156         147,814          22,893

   Miscellaneous                            27,154          24,325          67,576         193,449         210,818

   Propane                               5,703,466       4,549,410       4,670,550       4,210,160       3,835,622

     Total                            $ 65,770,873    $ 48,611,147    $ 58,195,857    $ 57,715,679    $ 49,147,998

NET INCOME                            $  2,196,672    $  1,777,240    $  1,677,098    $  1,441,336    $  1,305,125

MCF'S DELIVERED: 
   Residential                           5,108,553       4,204,222       4,701,703       4,508,694       4,146,456

   Commercial                            3,385,962       2,834,884       2,981,888       2,853,079       2,762,004

   Interruptible                         1,088,921       1,240,658       1,521,663       2,377,236       2,430,061

   Transportation Gas                    1,549,854       1,660,504       1,022,892          81,336               -

   Backup Service                           36,658          21,609          38,892               -               -

     Total                              11,169,948       9,961,877      10,267,038       9,820,345       9,338,521

GALLONS DELIVERED (PROPANE)              5,997,912       4,822,277       5,012,830       4,586,334       4,178,671

HEATING DEGREE DAYS                          4,696           3,791           4,416           4,356           3,986

NUMBER OF CUSTOMERS: 
   Residential                              46,007          44,873          43,734          42,232          41,695

   Commercial                                5,043           4,896           4,767           4,512           4,429

   Interruptible And Interruptible  
    Transportation Service                      44              44              43              44              48

     Total                                  51,094          49,813          48,544          46,788          46,172
<PAGE>
GAS ACCOUNT (MCF): 
   Natural Gas Purchases And Storage    11,756,089      10,453,696      10,795,928      10,430,635       9,960,017

   Gas Made - Propane                            -               -          14,008               -               -

     Total Available                    11,756,089      10,453,696      10,809,936      10,430,635       9,960,017

   Natural Gas Deliveries               11,169,948       9,961,877      10,267,038       9,820,345       9,338,521

   Storage - LNG                           142,297         118,393         134,893         153,478         168,761

   Company Use And Miscellaneous            54,140          46,532          50,356          66,211          82,470

   System Loss                             389,704         326,894         357,649         390,601         370,265

     Total Gas Available                11,756,089      10,453,696      10,809,936      10,430,635       9,960,017

TOTAL ASSETS                          $ 58,921,099    $ 51,614,667    $ 49,579,447    $ 48,758,728    $ 45,325,270

LONG-TERM OBLIGATIONS                 $ 20,222,124    $ 17,504,047    $ 16,414,900    $ 16,530,499    $ 16,936,500

</TABLE> 
  
1996 ANNUAL REPORT 
  
31 
  
<PAGE>
Roanoke Gas Company and Subsidiaries 
SUMMARY OF CAPITALIZATION STATISTICS 
Years Ended September 30, 
  
<TABLE> 
<CAPTION> 
COMMON STOCK:                              1 996            1 995            1 994            1 993            1 992 
<S>                                 <C>              <C>              <C>              <C>              <C> 
   Shares Issued                       1,475,843        1,432,512        1,382,343        1,289,302        1,269,924 
   Net Earnings Per Share           $       1.51     $       1.26     $       1.25     $       1.13     $       1.03 
   Dividends Paid Per Share (Cash)  $       1.02     $       1.00     $       1.00     $       1.00     $       1.00 
   Dividends Paid Out Ratio                 67.5%            79.4%            80.0%            88.9%            97.1%

   Number Of Shareholders                  1,713            1,699            1,625              901              911 
CAPITALIZATION RATIOS: 
   Long-Term Debt,  
     Including Current Maturities           52.4             51.6             51.0             54.5             55.9 
   Common Stock And Surplus                 47.6             48.4             49.0             45.5             44.1 
     Total                                 100.0            100.0            100.0            100.0            100.0 
   Long-Term Debt,  
     Including Current Maturities   $ 20,891,547     $ 18,683,462     $ 17,087,046     $ 17,549,817     $ 17,935,500 
   Common Stock And Surplus           18,975,001       17,555,172       16,424,919       14,652,663       14,176,330 
TOTAL CAPITALIZATION  
  PLUS CURRENT MATURITIES           $ 39,866,548     $ 36,238,634     $ 33,511,965     $ 32,202,480     $ 32,111,830 
</TABLE> 
  
ROANOKE GAS COMPANY 
  
32 
  
<PAGE>
ROANOKE GAS COMPANY 
BOARD OF DIRECTORS 
LYNN D. AVIS 
AVIS CONSTRUCTION COMPANY 
PRESIDENT 
ABNEY S. BOXLEY, III 
W. W. BOXLEY COMPANY 
PRESIDENT 
FRANK T. ELLETT 
VIRGINIA TRUCK CENTER, INC. 
PRESIDENT 
FRANK A. FARMER, JR. 
CHAIRMAN OF THE BOARD, PRESIDENT & CEO 
WILBUR L. HAZLEGROVE 
LAW FIRM OF WOODS, ROGERS & HAZLEGROVE, P.L.C. 
MEMBER 
W. BOLLING IZARD 
W. BOLLING IZARD SURETY & CONSULTING AGENCY, INC. 
PRESIDENT 
J. ALLEN LAYMAN 
R & B COMMUNICATIONS, INC. 
PRESIDENT & CEO 
JOHN H. PARROTT 
JOHN H. PARROTT ASSOCIATES 
PRESIDENT 
THOMAS L. ROBERTSON 
CARILION HEALTH SYSTEM & 
CARILION MEDICAL CENTER 
PRESIDENT 
S. FRANK SMITH 
COASTAL COAL SALES INC. 
EXECUTIVE VICE PRESIDENT 
  
(Photo appears here with the following caption:) 
ROANOKE GAS COMPANY 
Officers (left to right): Arthur L. Pendleton, Roger L. Baumgardner, Frank A. 
Farmer, Jr., Jane N. O'Keeffe, John B. Williamson III, and J. David Anderson. 
  
OFFICERS 
FRANK A. FARMER, JR. 
CHAIRMAN OF THE BOARD, PRESIDENT & CEO 
  
JANE N. O'KEEFFE 
ASSISTANT VICE PRESIDENT - HUMAN RESOURCES 
ROGER L. BAUMGARDNER 
VICE PRESIDENT, SECRETARY & TREASURER 
  
J. DAVID ANDERSON 
ASSISTANT SECRETARY & ASSISTANT TREASURER 
  
ARTHUR L. PENDLETON 
VICE PRESIDENT - OPERATIONS 
  
JOHN B. WILLIAMSON, III 
VICE PRESIDENT - RATES & FINANCE 
  
<PAGE> 
BLUEFIELD GAS COMPANY 
  
BOARD OF DIRECTORS 
  
ROGER L. BAUMGARDNER 
ROANOKE GAS COMPANY 
VICE PRESIDENT, SECRETARY & TREASURER 
  
JOHN C. SHOTT 
PAPER SUPPLY COMPANY 
PRESIDENT 
  
FRANK A. FARMER 
PRESIDENT 
  
FRANK A. FARMER,  JR. 
ROANOKE GAS COMPANY 
CHAIRMAN OF THE BOARD, PRESIDENT & CEO 
  
SCOTT H. SHOTT 
PAPER SUPPLY COMPANY 
SECRETARY & TREASURER 
  
JOHN H. PARROTT 
JOHN H. PARROTT ASSOCIATES 
PRESIDENT 
  
ARTHUR L. PENDLETON 
VICE PRESIDENT - OPERATIONS 
  
OFFICERS 
FRANK A. FARMER 
PRESIDENT 
  
ARTHUR L. PENDLETON 
ROANOKE GAS COMPANY 
VICE PRESIDENT - OPERATIONS 
  
JOHN B. WILLIAMSON, III 
VICE PRESIDENT - RATES & FINANCE 
  
ROGER L. BAUMGARDNER 
SECRETARY & TREASURER 
  
DIVERSIFIED ENERGY COMPANY 
T/A Highland Propane Company & Highland Gas Marketing 
  
BOARD OF DIRECTORS 
  
ROGER L. BAUMGARDNER 
ROANOKE GAS COMPANY 
VICE PRESIDENT, SECRETARY & TREASURER 
  
S. FRANK SMITH 
COASTAL COAL SALES, INC. 
EXECUTIVE VICE PRESIDENT 
  
FRANK T. ELLETT 
VIRGINIA TRUCK CENTER, INC. 
PRESIDENT 
<PAGE>  
FRANK A. FARMER, JR. 
ROANOKE GAS COMPANY 
CHAIRMAN OF THE BOARD, PRESIDENT & CEO 
  
ARTHUR L. PENDLETON 
ROANOKE GAS COMPANY 
VICE PRESIDENT - OPERATIONS 
  
OFFICERS 
ARTHUR L. PENDLETON 
VICE PRESIDENT - OPERATIONS 
  
FRANK A. FARMER 
PRESIDENT 
  
JOHN B. WILLIAMSON, III 
VICE PRESIDENT - RATES & FINANCE 
  
ROGER L. BAUMGARDNER 
SECRETARY & TREASURER 
  
<PAGE>
 
  
                        Notice of Annual Meeting 
                    The annual meeting of stockholders 
                    of Roanoke Gas Company will be held 
                   at the Executive Office of the Company, 
                          519 Kimball Avenue, N.E., 
                       Roanoke, Virginia at 9:00 a.m., 
                          Monday, January 27, 1997. 
  
                       (Roanoke Gas logo appears here) 
  
                                Roanoke Gas 
                    Your Choice for Comfort and Economy. 
  
                               P.O. Box 13007 
                         Roanoke, Virginia 24030-3007 
                                540-983-3800 
  
                  Roanoke Gas Company trades on Nasdaq as RGCO. 
  
 
                  Transfer Agent and Dividend Disbursing Agent 
                  First Union National Bank of North Carolina 
                        Dividend Reinvestment Services 
                               P.O. Box 1154 
                    Charlotte, North Carolina 28288-1154 
                               1-800-829-8432
<PAGE>