<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 September 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)


                                  617-723-5512
               --------------------------------------------------
              (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>

                                                                       FORM 10-Q
                                                                          PAGE 2

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

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

Company or group of companies for which report is filed:

COLONIAL GAS COMPANY ("Company")

CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------------

<TABLE>
<CAPTION>

                                                                  (In Thousands)

                                                       For the                         For the
                                                  Three Months Ended               Nine Months Ended
                                                  ------------------               -----------------
                                             September 30,    September 30,   September 30,   September 30,
                                                  2001            2000            2001            2000
                                                 -------        --------        --------        --------
                                                              (Predecessor)                   (Predecessor)
<S>                                              <C>            <C>             <C>             <C>
OPERATING REVENUES                               $19,482        $ 16,222        $183,716        $129,275
  Cost of gas sold                                12,919           9,568         120,717          67,161
                                                 -------        --------        --------        --------
  Operating Margin                                 6,563           6,654          62,998          62,114
                                                 -------        --------        --------        --------

OPERATING EXPENSES:
  Operations                                       6,427           6,395          19,775          16,660
  Maintenance                                        749             783           2,508           2,645
  Depreciation and amortization                    3,643           1,746          11,143          10,515
  Amortization of goodwill                         2,334           1,506           7,001           4,518
  Income taxes                                    (4,598)         (5,630)          2,635           4,143
  Taxes, other than income                         1,071             776           3,553           3,428
  Restructuring Charge                                 -           7,000               -           7,000
                                                 -------        --------        --------        --------
  Total Operating Expenses                         9,626          12,576          46,615          48,909
                                                 -------        --------        --------        --------
OPERATING EARNINGS (LOSS)                         (3,064)         (5,922)         16,384          13,205

OTHER EARNINGS (LOSS), NET                            (4)           (280)            (75)            278
                                                 -------        --------        --------        --------

EARNINGS (LOSS) BEFORE INTEREST EXPENSE           (3,068)         (6,202)         16,309          13,483
                                                 -------        --------        --------        --------

INTEREST EXPENSE:
  Long-term debt                                   2,133           2,133           6,382           6,400
  Other, including amortization
    of debt expense                                4,050           1,916          12,546           5,239
  Less - Interest during construction                (22)            (22)            (90)            (57)
                                                 -------        --------        --------        --------
  Total Interest Expense                           6,161           4,027          18,838          11,582
                                                 -------        --------        --------        --------

NET EARNINGS (LOSS)                              $(9,227)       $(10,229)       $ (2,530)       $  1,901
                                                 =======        ========        ========        ========

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

                                                                       FORM 10-Q
                                                                          PAGE 3

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

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


<TABLE>
<CAPTION>
                                                    (In Thousands)
                                       September 30, September 30, December 31,
                                           2001         2000          2000
                                       -----------  -----------  ------------
                                                   (Predecessor)
ASSETS
<S>                                     <C>         <C>         <C>
GAS PLANT, at cost                      $ 401,290   $ 387,423   $ 394,509
  Construction work-in-progress            17,292      10,756       7,751
  Less-Accumulated depreciation          (130,518)   (120,522)   (119,564)
                                        ---------   ---------   ---------
       Net plant                          288,064     277,657     282,696
                                        ---------   ---------   ---------


CURRENT ASSETS:

  Cash and cash equivalents                   151         204         124
  Accounts receivable, less reserves
    of $3,779 and $2,900 at
    September 30, 2001 and 2000,
    respectively, and $2,964 at
    December 31, 2000                      11,884       5,509      24,285
  Accounts receivable - affiliates          8,449      13,181       5,235
  Accrued utility revenue                   2,806       2,051      22,414
  Unbilled gas costs receivable            29,289      19,621      33,550
  Natural gas and other inventories        20,960      18,185      13,246
  Materials and supplies                    1,575       2,272       1,709
  Prepaid expenses                            162         389         262
                                        ---------   ---------   ---------
       Total Current Assets                75,276      61,412     100,825
                                        ---------   ---------   ---------

OTHER ASSETS:

  Goodwill, net of amortization           364,849     234,713     371,850
  Deferred charges and other assets         4,430       4,821       4,077
                                        ---------   ---------   ---------
       Total Other Assets                 369,279     239,534     375,927
                                        ---------   ---------   ---------

TOTAL ASSETS                            $ 732,619   $ 578,603   $ 759,448
                                        =========   =========   =========

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

                                                                       FORM 10-Q
                                                                          PAGE 4


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

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

<TABLE>
<CAPTION>
                                                                        (In Thousands)

                                                          September 30,  September 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                                              4,326          3,909          6,856
                                                             --------       --------       --------
   Total common stockholder's investment                      257,884        221,758        210,414
 Long-term obligations, less current portion                  120,620        120,620        120,621
                                                             --------       --------       --------
   Total Capitalization                                       378,504        342,378        331,035
                                                             --------       --------       --------
ADVANCE FROM KEYSPAN                                          200,000              -        250,000
ADVANCE FROM EASTERN                                                -        100,000              -
                                                             --------       --------       --------
Total Capitalization and advances                             578,504        442,378        581,035
                                                             --------       --------       --------

CURRENT LIABILITIES:
  Current portion of long-term obligations                        247            573            572
  Notes payable - utility pool                                 24,554              -         47,209
  Notes payable-utility pool gas inventory financing           19,394              -         19,216
  Notes payable                                                     -         45,800              -
  Gas inventory financing                                           -         15,020              -
  Accounts payable                                             21,724         16,033         38,765
  Accounts payable-affiliates                                   1,988              -          6,486
  Accrued income taxes                                            121          1,087            291
  Accrued interest                                             18,947          2,667          4,263
  Customer deposits                                               596            632            738
  Refunds due customers                                           528          3,361          2,681
  Other                                                         1,774            597            781
                                                             --------       --------       --------
     Total Current Liabilities                                 89,873         85,770        121,002
                                                             --------       --------       --------

RESERVES AND DEFERRED CREDITS:
  Deferred income taxes                                        41,938         34,271         36,641
  Unamortized investment tax credits                            2,453          2,656          2,605
  Postretirement benefits obligation                            6,844          5,436          5,972
  Other                                                        13,007          8,092         12,193
                                                             --------       --------       --------
    Total Reserves and Deferred Credits                        64,242         50,455         57,411
                                                             --------       --------       --------

TOTAL CAPITALIZATION AND LIABILITIES                         $732,619       $578,603       $759,448
                                                             ========       ========       ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>

                                                                       FORM 10-Q
                                                                          PAGE 5


COLONIAL GAS COMPANY
--------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
                                                               (In Thousands)
                                                          For the Nine Months Ended
                                                          -------------------------
                                                         September 30,   September 30,
                                                            2001            2000
                                                          --------        --------
                                                                        (Predecessor)
<S>                                                         <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net earnings (loss)                                      $ (2,530)       $  1,901
   Adjustments to reconcile net earnings to
    cash provided by operating activities:
    Depreciation and amortization                             18,144          15,033
    Deferred taxes                                             5,297           1,995
    Other changes in assets and liabilities:
     Accounts receivable                                      12,401          10,478
     Accounts receivable-affiliates                           (3,214)        (13,181)
     Accrued utility revenue                                  19,608           9,079
     Unbilled gas costs receivable                             4,261          (8,874)
     Inventories                                              (7,580)         (6,599)
     Accounts payable                                        (17,041)           (545)
     Accounts payable affiliates                              (4,498)        (17,916)
     Federal and state income taxes                             (170)          1,087
     Accrued Interest                                         14,684            (269)
     Refunds due customers                                    (2,153)         (1,982)
     Other                                                     2,131           9,378
                                                            --------        --------
Cash provided by (used for) operating activities              39,340            (415)
                                                            --------        --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, net of retirements                  (16,836)        (10,067)
                                                            --------        --------

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                                   (22,655)         16,800
   Change in inventory financing                                 178              11
   Retirement of long-term debt, including premiums                -            (475)
                                                            --------        --------
Cash provided by (used for) financing activities             (22,477)         10,297
                                                            --------        --------

   INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS               27            (185)

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

CASH AND CASH EQUIVALENTS AT END OF PERIOD                  $    151        $    204
                                                            ========        ========

</TABLE>

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

                                                                       FORM 10-Q
                                                                          PAGE 6


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

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

                               September 30, 2001
                               ------------------



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 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>

                                                                       FORM 10-Q
                                                                          PAGE 7

     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 third quarter of 2001, payments approximating $.3
     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 business
<PAGE>

                                                                       FORM 10-Q
                                                                          PAGE 8


     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
     annually 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, 2002, 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

     THIRD QUARTER

     The seasonal net loss for the third quarter of 2001 was $9.2 million, a
     decrease of $1.0 million, from the third quarter of 2000.

     Operating revenues in the third quarter of 2001 increased $3.3 million,
     principally due to higher gas prices.

     Operating margin approximated the margin from the corresponding quarter in
     2000.

     Operations and maintenance expenses were unchanged from the corresponding
     quarter in 2000.

     Depreciation and property taxes increased $1.9 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 third quarter of 2001 reflects increased amortization of goodwill of
     $0.8 million and higher interest and amortization of debt issuance costs of
     $2.4 million associated with the additional $100 million advance from
     KeySpan.
<PAGE>

                                                                       FORM 10-Q
                                                                          PAGE 9

     YEAR-TO-DATE


     Net loss for the first nine months of 2001 was $2.5 million, compared to
     earnings of $1.9 million, from the same period last year.  Weather was 1.4%
     colder than normal and 0.8% warmer than 2000.

     Operating revenues in the first nine months of 2001 increased $54 million,
     principally due to higher gas prices.

     Operating margin increased $0.9 million, or 1.4%, principally due to
     customer growth.

     Operations and maintenance expenses increased $3.0 million, principally due
     to a higher provision for bad debts associated with the higher gas prices
     and increased employee benefit costs.

     Depreciation and property taxes increased $0.6 million and $0.1 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 nine months of 2001 reflects increased amortization of goodwill
     of $2.5 million and higher interest and amortization of debt issuance costs
     of $9.2 million associated with the additional $100 million 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>

                                                                       FORM 10-Q
                                                                         PAGE 10


                           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>

                                                                       FORM 10-Q
                                                                         PAGE 11


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:    November 14, 2001
      --------------------------