<PAGE>

                                   FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.   20549



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

           For the quarterly period ended             June 30, 2001
                                           --------------------------------

                                      OR

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

         For the transition period from _____________ to ____________

                        Commission File Number 0-10007
                                               -------

                             COLONIAL GAS COMPANY
                   D/B/A KEYSPAN ENERGY DELIVERY NEW ENGLAND
         ------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


         MASSACHUSETTS                                          04-3480443
------------------------------                             --------------------
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                             Identification No.)


                ONE BEACON STREET, BOSTON, MASSACHUSETTS 02108
                -----------------------------------------------
                   (Address of principal executive offices)
                                  (Zip Code)

                                 617-742-8400
              --------------------------------------------------
             (Registrant's telephone number, including area code)


                                     None
              --------------------------------------------------
              Former name, former address and former fiscal year,
                         if changed since last report.



     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                               Yes  [X]     No [_]

     Common stock of Registrant at the date of this report was 100 shares, all
held by Eastern Enterprises.
<PAGE>


                         PART I.  FINANCIAL INFORMATION
                         ------------------------------

ITEM 1.  FINANCIAL STATEMENTS
-----------------------------

Company or group of companies for which report is filed:

COLONIAL GAS COMPANY ("Company")

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
                                                                   (In Thousands)

                                         For the Three Months Ended               For the Six Months Ended
                                         --------------------------               ------------------------
                                         June 30,          June 30,               June 30,        June 30,
                                           2001              2000                   2001            2000
                                         -------           -------                --------        --------
                                                        (Predecessor)                          (Predecessor)
<S>                                      <C>            <C>                       <C>          <C>
OPERATING REVENUES                       $42,185           $26,718                $164,233        $113,053
  Cost of gas sold                        28,431            12,765                 107,798          57,595
                                         -------           -------                --------        --------
  Operating Margin                        13,754            13,953                  56,435          55,458
                                         -------           -------                --------        --------

OPERATING EXPENSES:
  Operations                               7,278             5,696                  13,347          10,143
  Maintenance                                810               811                   1,759           1,861
  Depreciation and amortization            3,631             2,610                   7,501           8,394
  Amortization of goodwill                 2,334             1,506                   4,668           3,012
  Income taxes                            (1,896)              (38)                  7,233           9,773
  Taxes, other than income                 1,018               989                   2,481           2,654
                                         -------           -------                --------        --------
  Total Operating Expenses                13,175            11,574                  36,989          35,837
                                         -------           -------                --------        --------
OPERATING EARNINGS                           579             2,379                  19,446          19,621

OTHER EARNINGS (LOSS), NET                    21               115                     (71)             64
                                         -------           -------                --------        --------

EARNINGS BEFORE INTEREST EXPENSE             600             2,494                  19,375          19,685
                                         -------           -------                --------        --------

INTEREST EXPENSE:
  Long-term debt                           2,133             2,133                   4,249           4,266
  Other, including amortization
  of debt expense                          4,290             1,945                   8,496           3,323
  Less - Interest during construction        (46)              (19)                    (67)            (34)
                                         -------           -------                --------        --------
  Total Interest Expense                   6,377             4,059                  12,678           7,555
                                         -------           -------                --------        --------

NET EARNINGS (LOSS)                      $(5,777)          $(1,565)               $  6,697        $ 12,130
                                         =======           =======                ========        ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>


COLONIAL GAS COMPANY
--------------------

CONSOLIDATED BALANCE SHEETS
---------------------------

<TABLE>
<CAPTION>
                                                                            (In Thousands)

                                                                  June 30,        June 30,       December 31,
                                                                    2001            2000             2000
                                                                 -----------     -----------     ------------
                                                                                (Predecessor)
<S>                                                              <C>            <C>              <C>
ASSETS
GAS PLANT, at cost                                                 $ 399,191       $ 390,746        $ 394,509
  Construction work-in-progress                                       13,685           9,168            7,751
  Less-Accumulated depreciation                                     (127,041)       (118,365)        (119,564)
                                                                 -----------     -----------     ------------
       Net plant                                                     285,835         281,549          282,696
                                                                 -----------     -----------     ------------

CURRENT ASSETS:

  Cash and cash equivalents                                              153             207              124
  Accounts receivable, less reserves of $4,500 and
    $3,524 at June 30, 2001 and 2000, respectively, and
    $2,964 at December 31, 2000                                       26,636          16,876           24,285
  Accounts receivable - affiliates                                    13,756           3,933            5,235
  Accrued utility revenue                                              3,562           1,478           22,414
  Unbilled gas costs receivable                                       28,174          12,708           33,550
  Natural gas and other inventories                                   14,655           8,682           13,246
  Materials and supplies                                               1,677           2,401            1,709
  Prepaid expenses                                                        71             225              262
                                                                 -----------     -----------     ------------
       Total Current Assets                                           88,684          46,510          100,825
                                                                 -----------     -----------     ------------

OTHER ASSETS:

  Goodwill, net of amortization                                      367,183         236,073          371,850
  Deferred charges and other assets                                    4,527           5,777            4,077
                                                                 -----------     -----------     ------------
       Total Other Assets                                            371,710         241,850          375,927
                                                                 -----------     -----------     ------------

TOTAL ASSETS                                                       $ 746,229       $ 569,909        $ 759,448
                                                                 ===========     ===========     ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>


COLONIAL GAS COMPANY
--------------------

Consolidated Balance Sheets
---------------------------
<TABLE>
<CAPTION>

                                                                                    (In Thousands)

                                                                        June 30,       June 30,      December 31,
                                                                          2001           2000            2000
                                                                       ----------     ----------     ------------
                                                                                    (Predecessor)
<S>                                                                    <C>            <C>            <C>
CAPITALIZATION AND LIABILITIES

CAPITALIZATION:
 Common stockholder's investment--Common stock,
   $1 par value--Authorized and outstanding 100 shares                   $      -       $      -         $      -
 Amounts in excess of par value                                           253,558        225,667          203,558
 Retained earnings                                                         13,553          6,321            6,856
                                                                       ----------     ----------     ------------
   Total common stockholder's investment                                  267,111        231,988          210,414
 Long-term obligations, less current portion                              120,621        121,021          120,621
                                                                       ----------     ----------     ------------
   Total Capitalization                                                   387,732        353,009          331,035
                                                                       ----------     ----------     ------------
ADVANCE FROM KEYSPAN                                                      200,000              -          250,000
ADVANCE FROM EASTERN                                                            -        100,000                -
                                                                       ----------     ----------     ------------
Total Capitalization and advances                                         587,732        453,009          581,035
                                                                       ----------     ----------     ------------

CURRENT LIABILITIES:
  Current portion of long-term obligations                                    247            646              572
  Notes payable - utility pool                                             21,204              -           47,209
  Notes payable-utility pool gas inventory financing                       12,560              -           19,216
  Notes payable                                                                 -         30,300                -
  Gas inventory financing                                                       -          7,038                -
  Accounts payable                                                         19,257         14,486           38,765
  Accounts payable-affiliates                                              15,369              -            6,486
  Accrued income taxes                                                      6,512          7,590              291
  Accrued interest                                                         16,587          3,064            4,263
  Customer deposits                                                           667            643              738
  Refunds due customers                                                       731          3,591            2,681
  Other                                                                       943            671              781
                                                                       ----------     ----------     ------------
     Total Current Liabilities                                             94,077         68,029          121,002
                                                                       ----------     ----------     ------------

RESERVES AND DEFERRED CREDITS:
  Deferred income taxes                                                    42,856         32,815           36,641
  Unamortized investment tax credits                                        2,503          2,708            2,605
  Postretirement benefits obligation                                        6,551          5,297            5,972
  Other                                                                    12,510          8,051           12,193
                                                                       ----------     ----------     ------------
    Total Reserves and Deferred Credits                                    64,420         48,871           57,411
                                                                       ----------     ----------     ------------

TOTAL CAPITALIZATION AND LIABILITIES                                     $746,229       $569,909         $759,448
                                                                       ==========     ==========     ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>


<TABLE>
<CAPTION>
COLONIAL GAS COMPANY
-------------------------------------
Consolidated Statements of Cash Flows
-------------------------------------
                                                                   (In Thousands)

                                                               For the Six Months Ended
                                                               -------------------------
                                                                June 30,       June 30,
                                                                  2001           2000
                                                               ----------     ----------
                                                                     (Predecessor)
<S>                                                           <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net earnings                                                  $  6,697       $ 12,130
   Adjustments to reconcile net earnings to
     cash provided by operating activities:
     Depreciation and amortization                                 12,169         11,780
     Deferred taxes                                                 6,215            539
     Other changes in assets and liabilities:
       Accounts receivable                                        (10,872)          (889)
       Accrued utility revenue                                     18,852         11,522
       Unbilled gas costs receivable                                5,376         (3,831)
       Inventories                                                 (1,377)         2,775
       Accounts payable                                           (19,508)        (2,092)
       Accounts payable--affiliates                                 8,883        (21,849)
       Federal and state income taxes                               6,221         11,772
       Accrued Interest                                            12,324           (277)
       Refunds due customers                                       (1,950)        (1,740)
       Other                                                          (71)          (720)
                                                               ----------     ----------
Cash provided by operating activities                              42,959         19,120
                                                               ----------     ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, net of retirements                       (10,269)        (6,592)
                                                               ----------     ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Cash dividends paid on common stock                                  -         (6,039)
   Change in equity                                                50,000              -
   Change in advance from KeySpan                                 (50,000)             -
   Change in notes payable                                        (26,005)         1,300
   Change in inventory financing                                   (6,656)        (7,971)
                                                               ----------     ----------
Cash used for financing activities                                (32,661)       (12,710)
                                                               ----------     ----------

INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS                                                           29           (182)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                      124            389
                                                               ----------     ----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                       $    153       $    207
                                                               ==========     ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>



                              COLONIAL GAS COMPANY
                              --------------------

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

                                 JUNE 30, 2001
                                 -------------



ITEM 1. ACCOUNTING POLICIES AND OTHER INFORMATION
        -----------------------------------------

GENERAL
-------

The Company is a wholly-owned subsidiary of Eastern Enterprises ("Eastern") and
an indirect wholly-owned subsidiary of KeySpan Corporation ("KeySpan"). The
consolidated financial statements include the accounts of the Company and its
affiliate, Massachusetts Fuel Inventory Trust (through December 31, 2000). All
material intercompany balances and transactions between the Company and its
subsidiary have been eliminated in consolidation.

It is the Company's opinion that the financial information contained in this
report reflects all adjustments necessary to present a fair statement of results
for the periods reported. All of these adjustments are of a normal recurring
nature. Results for the periods are not necessarily indicative of results to be
expected for the year, due to the seasonal nature of the Company's operations.
All accounting policies have been applied in a manner consistent with prior
periods, except for the method of accounting for depreciation and property taxes
during interim periods as discussed in "Interim Period Depreciation and Property
Tax Accounting". Such financial information is subject to year-end adjustments
and annual audit by independent public accountants.

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, the 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.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q. Therefore these interim
financial statements should be read in conjunction with the Company's 2000
Annual Report filed on Form 10-K with the Securities and Exchange Commission.

MERGER
------

On November 8, 2000, KeySpan acquired all the common stock of Eastern for $64.56
per share in cash. The transaction was accounted for using the purchase method
of accounting for business combinations. The purchase price was allocated to the
net assets acquired of Eastern and its subsidiaries based upon their fair value.
The historical cost basis of the Company's assets and liabilities, with minor
exceptions, was determined to represent fair value due to the existence of
regulatory-approved rate plans that are based upon the recovery of historical
costs and a fair return thereon. The allocation of the purchase price remains
subject to adjustment upon final valuation of certain acquired balances of the
Company. Under push-down accounting, the excess of the purchase price over the
<PAGE>


fair value of the Company's net assets acquired, or goodwill, of approximately
$139 million has been recorded as an asset and is being amortized over a period
of 40 years. The push-down accounting resulted in a decrease to equity of $9
million, net of fair value adjustments of $2 million, and the recording of a
$250 million advance from KeySpan, $100 million of which was previously advanced
from Eastern.

Effective June 30, 2001, an additional $50 million was added to equity by
KeySpan, The Company, in turn, paid down the advance from KeySpan.


SEASONAL ASPECT
---------------

The amount of the Company's natural gas firm throughput for purposes of space
heating is directly related to temperature conditions. Consequently, there is
less gas throughput during the summer months than during the winter months. In
addition, under its seasonal rate structure, the rates charged to customers
during November through April are higher than those charged during May through
October.


INTERIM PERIOD DEPRECIATION AND PROPERTY TAX ACCOUNTING
-------------------------------------------------------

To be consistent with KeySpan accounting policies, the Company, beginning in
2001, charges annual depreciation and property tax expense on an estimated basis
equally throughout the year. In prior years, the Company charged depreciation
and property tax expense in an amount equal to the percentage of the annual
volume of firm gas throughput projected for the month, applied to the estimated
annual depreciation and property tax expense.


WORKFORCE REDUCTION PROGRAM
---------------------------

As a result of the KeySpan merger, the Company implemented a severance program
in an effort to reduce is workforce. In 2000, the Company recorded a merger-
related liability of $1.7 million associated with this severance program. During
the second quarter of 2001, payments approximating $0.2 million were made under
this program.


RECLASSIFICATIONS
-----------------

Certain prior quarter financial statement amounts have been reclassified for
consistent presentation with the current year.


RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------

On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets". The key concepts from the two interrelated Statements
include mandatory use of the purchase method of accounting for business
combinations, discontinuance of goodwill amortization, a revised framework for
testing goodwill impairment at a "reporting unit" level, and new criteria for
the identification and potential amortization of other intangible assets.

The Business Combination Statement is generally effective for combinations after
June 30, 2001. The Statement of Goodwill and Other Intangible Assets is
effective for the fiscal years beginning after December 15, 2001, however, for
<PAGE>


business combinations consummated after June 30, 2001, the requirements to
discontinue goodwill amortization are effective upon issuance of the Statements.
The first part of the annual impairment test is to be performed within six
months of adopting the Statement on Goodwill and Other Intangible Assets.

We are currently evaluating the impact that these Statements will have on our
operations. We are currently amortizing goodwill of approximately $15 million on
an annual basis. As noted, effective January 1, 2002, goodwill will no longer be
subject to amortization, but instead will be tested for impairment.

In July of 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". The standard requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the long-lived asset. Over time the
liability is accreted to its then present value, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The standard is effective for fiscal
years beginning after June 15, 2001, with earlier application encouraged. We are
currently evaluating the impact, if any, that this Statement may have on our
results of operations.



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------------------------------------------
RESULTS OF OPERATIONS:
----------------------

RESULTS OF OPERATIONS

SECOND QUARTER

The seasonal net loss for the second quarter of 2001 was $5.8 million, an
increase of $4.2 million, from the first quarter of 2000. Weather was 7% warmer
than normal and 13% warmer than 2000.

Operating revenues in the second quarter of 2001 increased $15.5 million,
principally due to higher gas prices.

Operating margin was virtually unchanged from the corresponding quarter in 2000.

Operations and maintenance expenses increased $1.6 million, due to a higher
provision for bad debts due to the higher gas prices and increased employee
benefit costs.

Depreciation and property taxes increased $1.0 million and $0.3 million,
respectively, principally due to the modification of recording these expenses
within the year as discussed under "Interim Period Depreciation and Property Tax
Accounting".

The second quarter of 2001 reflects increased amortization of goodwill of $0.8
million and higher interest and amortization of debt issuance costs of $3.0
million associated with the additional advance from KeySpan.
<PAGE>


YEAR-TO-DATE

Net earnings for the first six months of 2001 were $6.7 million, a decrease of
$5.4 million, from the same period last year. Weather was 1.6% colder than
normal and slightly colder than 2000.

Operating revenues in the first six months of 2001 increased $51.2 million,
principally due to higher gas prices and the colder weather.

Operating margin increased $1.0 million, or 1.8%, principally due to customer
growth and the colder weather.

Operations and maintenance expenses increased $3.1 million, principally due to a
higher provision for bad debts due to the higher gas prices and increased
employee benefit costs.

Depreciation and property taxes decreased $0.9 million and $0.2 million,
respectively, principally due to the modification in the method of recording
these expenses within the year as discussed under "Interim Period Depreciation
and Property Tax Accounting".

The first six months of 2001 reflects increased amortization of goodwill of $1.7
million and higher interest and amortization of debt issuance costs of $6.0
million associated with the additional advance from KeySpan.


FORWARD-LOOKING INFORMATION

This report and other Company reports and statements issued or made from time to
time contain certain "forward-looking statements" concerning projected future
financial performance, expected plans or future operations. The Company cautions
that actual results and developments may differ materially from such projections
or expectations.

Investors should be aware of important factors that could cause actual results
to differ materially from the forward-looking projections or expectations. These
factors include, but are not limited to: the effect of strategic initiatives on
earnings and cash flow, the impact of any merger-related activities, the ability
to successfully integrate operations, temperatures above or below normal,
changes in economic conditions, including interest rates and fuel prices,
regulatory and court decisions, developments with respect to previously-
disclosed environmental liabilities and such other factors detailed from time to
time in reports filed by the Company with the SEC. Most of these factors are
difficult to predict accurately and are generally beyond the control of the
Company.


LIQUIDITY AND CAPITAL RESOURCES

The Company believes that projected cash flow from operations, in combination
with currently available resources, is sufficient to meet 2001 capital
expenditures, working capital requirements, dividend payments and debt
repayments.

The Company expects capital expenditures for 2001 to be approximately $25
million. Capital expenditures will be primarily for system expansion associated
with customer growth and improvements to the delivery infrastructure.
<PAGE>


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



ITEM 1.  LEGAL PROCEEDINGS
--------------------------

     None.


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

     None.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

(a)  List of Exhibits

     None

(b)  Reports on Form 8-K

     No reports on Form 8-K have been filed during the quarter for which this
     report is filed.
<PAGE>


SIGNATURES
----------


It is the Company's opinion that the financial information contained in this
report reflects all normal, recurring adjustments necessary to present a fair
statement of results for the period reported, but such results are not
necessarily indicative of results to be expected for the year due to the
seasonal nature of the business of the Company.  Except as otherwise herein
indicated, all accounting policies have been applied in a manner consistent with
prior periods.  Such financial information is subject to year-end adjustments
and an annual audit by independent public accountants.


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



                                              Colonial Gas Company
                                   D/B/A KEYSPAN ENERGY DELIVERY NEW ENGLAND
                                   -----------------------------------------
                                                 (Registrant)



                                               Joseph F. Bodanza
                                   ------------------------------------------
                                      J.F. Bodanza, Senior Vice President
                                    Finance, Accounting and Regulatory Affairs
                                   (Principal Financial and Accounting Officer)



Dated:    August 14, 2001
      ------------------------