<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549
                                   FORM 10-K


/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE 
    ACT OF 1934 (FEE REQUIRED)

                  For the fiscal year ended September 30, 1998
                                    OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES 
    EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                                                  Commission File Number 0-449

                          FALL RIVER GAS COMPANY
-------------------------------------------------------------------------------
           (Exact name of Registrant as specified in its charter)


       Massachusetts                                        04-1298780
-------------------------------                         -------------------
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization                          Identification No.)


155 North Main Street, Fall River, Massachusetts      02720
--------------------------------------------------  ----------
  (Address or principal executive offices)          (Zip Code)

Registrant's telephone number, including area code   (508) 675-7811
                                                     --------------------------

Securities registered pursuant to Section 12 (b) of the Act:

                                                       Name of each exchange on
         Title of each class                              which registered
Common Stock par value $.83 1/3 per share              American Stock Exchange
-----------------------------------------             -------------------------

Securities registered pursuant to Section 12 (g) of the Act:

         Common Stock par value $.83 1/3 per share
         -----------------------------------------
                     (Title of Class)

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

                               Yes  X  No     .

                  Indicate by check mark if disclosures of delinquent filers 
pursuant to Item 405 of Regulation S-K is not contained herein, and will not 
be contained, to the best of Registrant's knowledge, in definitive proxy or 
information statements incorporated by references in Part III of this Form 
10-K or any amendment to this Form 10-K. [ ]

                  The aggregate market value of the voting stock held by 
non-affiliates of the Registrant (1,918,928) shares was $33,160,995 as of 
December 14, 1998 of $17.281.

                  Indicate the number of shares outstanding of each of the 
Registrant's classes of the latest practicable date.

           Class                              Outstanding at December 14, 1998
--------------------------------              --------------------------------
Common Stock, $.83 1/3 par value                       2,193,912

Documents incorporated by reference:

         Definitive Proxy Statement dated December 14, 1998 (Part III)
                           FALL RIVER GAS COMPANY
                           ----------------------

<PAGE>

                         1998 FORM 10-K ANNUAL REPORT

                               Table of Contents

                                    PART I

<TABLE>

                                                                          Page
<S>                                                                       <C>
Item 1.   Business                                                           3
            General                                                          3
            Sales And Transportation                                         4
            Rates and Regulation                                             6
            Gas Supply And Storage                                           9
            Competition                                                     12
            Employees                                                       14

Item 2.  Properties                                                         14

Item 3.  Legal Proceedings/Environmental Matters                            15

Item 4.  Submission of Matters to a Vote of Security Holders                16


                               PART II
 
Item 5.  Market for the Registrant's Common Stock and                       19
           Related Stockholder Matters

Item 6.  Selected Financial Data                                            20

Item 7.  Management's Discussion and Analysis of Financial                  21
           Condition and Results of Operations

Item 8.  Financial Statements and Supplementary Data                     26-37

Item 9.  Disagreements on Accounting and Financial Disclosure               36


                              PART III

Item 10. Directors and Executive Officers of the Registrant                 36

Item 11. Executive Compensation                                             36

Item 12. Security Ownership of Certain Beneficial Owners and                36
           Management

Item 13. Certain Relationships and Related Transactions                     36


                              PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports                37
           of Form 8-K
</TABLE>

                                       2

<PAGE>

                                    PART I

ITEM 1. Business

General

         The Company, organized as a Massachusetts corporation on September 
25, 1880, is an investor-owned public utility company that sells, distributes 
and transports natural gas (mixed with propane and liquefied natural gas 
during winter months) at retail through a pipeline distribution system in the 
City of Fall River and the towns of Somerset, Swansea and Westport, all 
located within the southeastern portion of the Commonwealth of Massachusetts. 
The principal markets served by the Company are (1) residential customers 
using gas for heating, cooking and water heating, (2) industrial customers 
using gas for processing items such as textile and metal goods, (3) 
commercial customers using gas for cooking and heating, and (4) federal and 
state housing projects using gas for heating, cooking and water heating.

         The Company is engaged in only one line of business as described 
above, and in activities incidental thereto. The Company has one wholly-owned 
subsidiary, Fall River Gas Appliance Company, Inc., a Massachusetts 
corporation, which rents water heaters and conversion burners (primarily for 
residential use) in the Company's gas service area. Earnings from the 
Appliance Company are primarily the result of revenues from the rental of 
water heaters and conversion burners. As of September 30, 1998, the water 
heater program had 14,453 rentals in service and the conversion burner 
program had 4,558 rentals in service. The Appliance Company also derives 
revenues from the sale of central heating and air-conditioning systems and 
water heaters.

         This Annual Report contains forward-looking statements within the 
meaning of Section 27A of the Securities Act and Section 21E of the Exchange 
Act, particularly in the "Management's Discussion and Analysis of

                                       3

<PAGE>

Financial Condition and Results of Operations-Liquidity and Capital 
Resources" and "Business" sections. Forward-looking statements are generally 
identified with the following phrases: "believes", "expects", and 
"anticipates", or words of similar import. Actual results could differ 
materially from those expressed or implied in such forward-looking statements 
as a result of the risk factors set forth below and other information 
contained elsewhere in the Annual Report. In addition to the other 
information contained and incorporated by reference in this Annual Report, 
the following factors should be carefully considered in evaluating the 
Company and its business.

Sales and Transportation

         The Company's service territory is approximately 50 square miles in 
the area surrounding the City of Fall River, Massachusetts. The Company had 
an average of 47,544 sales customers during the twelve months ended September 
30, 1998, of which approximately 94% were residential and 6% were commercial 
and industrial. For the twelve months ended September 30, 1998 approximately 
71% of the Company's gas operating revenues were derived from sales to 
residential customers and 29% were derived from sales or transportation to 
commercial and industrial customers. At September 30, 1998 the Company had 38 
commercial and industrial transportation customers, which, in the aggregate, 
accounted for 22% of the total gas carried over the Company's pipeline system 
("throughput") and approximately 4% of gas operating revenues for the twelve 
months ended September 30, 1998. The Company's tariffs currently do not allow 
for residential transportation service. The Company's residential customers 
take service only under firm sales tariffs and use natural gas for heating, 
cooking and water heating, of which heating use constitutes most of such 
consumption. Commercial customers (such as stores, restaurants and offices) 
generally use gas for cooking and heating. Under currently effective tariffs, 
commercial

                                       4

<PAGE>

customers may take the Company's transportation service and purchase their 
own gas. At this time, however, most commercial customers take firm sales 
service from the Company. Industrial customers primarily use natural gas in 
manufacturing and processing applications, such as for metal or textile 
goods. Such firm industrial sales and transportation load is fairly level 
throughout the year because generally a small part of those customers' usage 
is for heating. Certain of the Company's industrial customers also take 
interruptible service- either on a sales or transportation basis. These 
customers are subject to service discontinuance on short notice as system 
firm requirements may demand. Such customers generally use interruptible 
natural gas service for boiler or plant heating and are able to change to an 
alternate fuel when there are supply constraints (generally during the 
heating season). Also, the prices of alternative sources of energy impact the 
interruptible markets. Prices for these customers are based on the price of 
the customers' alternative fuel.

         The following table shows the Company's throughput during each of 
the periods shown below in millions of cubic feet ("MMcf"):

                                       5

<PAGE>

                                    For the Fiscal
                                     Year Ended
                                    September 30,
<TABLE>
<CAPTION>

                                     1998   1997  1996   1995   1994
                                     -------------------------------
<S>                                 <C>    <C>    <C>    <C>    <C>
Residential........................ 3,823  4,063  4,351  3,858  4,309
Commercial......................... 1,302  1,400  1,454  1,262  1,327
Industrial-firm....................   261    383    418    443    850
Industrial-interruptible...........    32     15     71    430    317
Special Contracts..................     0      0    498    441     78
Transportation..................... 1,523  1,701  1,101    818    716
                                    -----  -----  -----  -----  -----
TOTAL.............................. 6,941  7,562  7,893  7,252  7,597
                                    -----  -----  -----  -----  -----
                                    -----  -----  -----  -----  -----
</TABLE>

         The Company's utility sales business is seasonal. See "Management's 
Discussion and Analysis of Financial Condition and Results of 
Operations-Seasonality".

Rates and Regulation

         The Company is subject to the regulatory authority of the 
Massachusetts Department of Telecommunications and Energy ("MDTE") with 
respect to various matters, including the rates it charges for services, 
financings, certain gas supply contracts and planning and safety matters.

         The Company's principal firm sales rate classifications are 
residential, commercial and industrial. The Company also provides 
transportation service and, from time to time subject to specific MDTE

                                       6

<PAGE>

approval, may provide service under special contracts. As of and after 
October 1, 1997, the Company had no special contracts. The Company's rate 
structure is based on the cost of providing service to each class of 
customer. The Company's firm rate structure is based on generally seasonal 
rates, whereby base rates are higher in the winter (November through April) 
and lower in the summer (May through October). In addition to its base rates, 
the Company has a seasonal cost of gas adjustment rate schedule (the "CGAC"), 
which provides for the recovery from firm customers of all purchased gas 
costs. Through the CGAC, the Company also imposes charges, subject to MDTE 
approval, that are estimated semi-annually and include credits for gas 
pipeline refunds and profit margins applicable to interruptible sales. Actual 
gas costs are reconciled annually and any difference is included as an 
adjustment in the calculation of the CGAC charges for the two subsequent 
six-month periods. Charges under the CGAC rate schedule are added to the base 
rates and are designed generally to recover higher costs in the winter and 
refund lower gas costs in the summer. Pursuant to MDTE approvals, the Company 
has collected all Federal Energy Regulatory Commission ("FERC") Order 636 
transition costs billed to it.

         On May 17, 1996 the Company filed revised tariffs with the MDTE to 
unbundle its commercial and industrial service classes and to increase annual 
revenues. By order dated October 16, 1996, the MDTE authorized the Company to 
increase its rates for sales of gas effective December 1, 1996. The amount of 
this increase on an annualized basis was $3,200,000. That MDTE order also 
approved various changes to the Company's commercial and industrial rates to 
facilitate the ability of customers on such rates to choose between 
purchasing their gas supplies from the Company on a "bundled" basis or 
purchasing from third parties and having the Company transport and deliver 
such supplies. Such rates were also designed to make the Company economically 
indifferent to a customer's choice of bundled

                                       7

<PAGE>

sales service or transportation service. Such transition to local 
distribution companies ("LDC's"), such as the Company, providing more service 
by transporting, as opposed to selling, natural gas has continued. Over the 
past year, LCDs, unregulated gas marketers, customer groups and the 
Massachusetts Attorney General have worked together to address a variety of 
issues relating to restructuring the natural gas industry. This effort, known 
as the Massachusetts Gas Collaborative has led to further unbundling by 
several Massachusetts LDCs and an agreement by such industry participants on 
the basic rules governing the relationships and transactions between LDCs and 
marketers. Such developments will likely lead to increased activity by 
marketers and a greater percentage of LDCs' (including the Company's) 
throughput being transportation rather than sales. Also the MDTE is currently 
considering, and is expected soon to rule on, other issues that are central 
to the structure and extent of competition within the natural gas industry in 
Massachusetts. Specifically, the MDTE has undertaken to resolve the issue of 
whether natural gas marketers or customers must accept portions of the LDC's 
supply and transportation contract capacity rights when customers shift from 
purchasing their gas supplies from LDCs to marketers. Other issues such as 
LDCs auctioning their supply portfolio and exiting the business of selling 
natural gas generally are also being considered.

         The regulation of prices, terms and conditions of interstate 
pipeline transportation and sales of natural gas is subject to the 
jurisdiction of FERC. Although the Company is not under the direct 
jurisdiction of FERC, the Company monitors, and periodically participates in, 
proceedings before FERC that affect the Company's pipeline gas transporters, 
the Company's operations and other matters pertinent to the Company's 
business.

         The Company is also subject to standards prescribed by the Secretary 
of Transportation under the Natural Gas Pipeline Safety Act of 1968 with 
respect to the design, installation, testing, construction and maintenance

                                       8

<PAGE>

of pipeline facilities. The enforcement of these standards has been delegated 
to the MDTE.

Gas Supply and Storage

         For several decades, until 1993, the Company primarily relied upon a 
single supplier, Algonquin Gas Transmission Company ("Algonquin"), for its 
gas supply needs. In its merchant role, Algonquin provided all the Company's 
pipeline-supplied natural gas and storage, as well as transported such 
pipeline and storage supplies to the Company's system. This supply paradigm 
changed, however, in 1993 following FERC's issuance of Order 636. Order 636 
was intended to encourage more competition among natural gas suppliers and 
required interstate pipelines to unbundle or separate gas sales, 
transportation and storage services. With the implementation of Order 636, 
most pipeline companies (including Algonquin) discontinued their traditional 
merchant function. Order 636 allowed pipeline companies to recover from their 
customers, gas distribution companies such as the Company, costs associated 
with the service unbundling and discontinuation of merchant service. This 
resulted in each local distribution company becoming responsible for 
obtaining all of its gas supply in the open market. While unbundling of these 
services allows a local distribution company, such as the Company, more 
flexibility in selecting and managing the type of services required to 
provide its customers with the lowest possible priced gas while maintaining a 
reliable gas supply, it also places additional responsibility on a 
distribution company to obtain its natural gas supply in the open market on a 
timely basis to fulfill commitments during peak demand periods.

         With the advent of FERC Order 636, which was implemented on June 1, 
1993, the Company assumed the full responsibility for aggregating, gathering 
and arranging for the transmission of all required pipeline gas supplies to 
its distribution system.

                                       9

<PAGE>

         The pipelines serving the Company, Algonquin and its affiliate Texas 
Eastern Transmission Company ("Texas Eastern"), have made the required 
compliance filings of tariff sheets and have fully implemented the provisions 
of Order 636. The primary related issue of the billing by Algonquin and Texas 
Eastern of transition costs has been resolved. The Company has made 
appropriate arrangements for supplies to replace the sales service formerly 
provided by Algonquin, or "Conversion Supplies".

         The Company is required to obtain the approval of the MDTE for gas 
supplies that are to be purchased over a period in excess of one year, 
including any Conversion Supplies. Through its arrangements for the 
Conversion Supplies, the Company has contracted for a "city gate management 
service", which includes the provision of transportation, sales and storage 
services by a third party. The Company has maintained reliability and 
flexibility of service through this arrangement at a cost very competitive 
with any other combination of unbundled services, but with much less 
administrative risk and costs than would pertain to alternatives. 
Approximately 90% of the Company's Conversion Supplies are provided under a 
multi-year contract with Sempra Energy Trading (formerly CNG Energy Services 
Corporation) ("SEMPRA") in quantities described below. Such contract remains 
effective through May,2000. In June 1995, the MDTE approved the Company's 
contract with SEMPRA. The Company also has short-term arrangements in place 
for supplemental supplies for the 1998-1999 winter heating season. The 
Company is currently analyzing the proper amount of such supply for future 
years and plans to file a "Forecast and Supply Plan" with the MDTE, in the 
near future, along with a request for approval thereof and certain 
supplemental supplies.

         The Company has contracted with SEMPRA for the purchase of all 
pipeline commodity supplies for delivery to the Company's distribution 
system, as well as storage services, management of Company-owned pipeline and 
storage capacity and provision of significant amounts of back-up

                                       10

<PAGE>

deliveries from a different gas production area. SEMPRA's firm, year-round 
contract deliveries to the Company provide for an annual contract quantity of 
5,219,255 Mcf delivered to the Company's facilities ("City Gate") on a 
365-day basis and for deliveries into storage for the Company in an annual 
amount of 841,355 Mcf. The maximum daily quantity ("MDQ") of City Gate 
deliveries are 17,461 Mcf and the storage MDQ is 11,441 Mcf with 7,124 Mcf of 
that total MDQ available for City Gate deliveries from November 16 through 
April 15 as winter service supplies delivered via Algonquin.

         The remainder of the MDQ is available each day of the year. All 
commodity deliveries are priced at an index price reflective of the market 
price. This type of pricing mechanism is designed to allow the Company to 
obtain its gas supply at competitive prices. The SEMPRA supply contract 
includes a mechanism whereby alternative market indices may be used in 
conjunction with the futures market to fix the price of all or part of the 
gas supplied if the market is such that additional price security is deemed 
prudent. The SEMPRA contract commenced on June 1, 1993 and continues for 7 
years.

         In addition to the supplemental gas supplies described below, the 
Company has requirements for a supply of approximately 1,479,000 Mcf during 
the 1998-1999 heating season (November through March). To fulfill this 
portion of its supply portfolio, the Company has obtained bids from several 
potential suppliers and has entered into supply contracts for a term 
encompassing that period with Distrigas of Massachusetts Corporation 
("DOMAC") and Duke Energy Services.

         The Company has a renewable one-year Firm Liquid Contract with DOMAC 
for 200,000 MMBTU of liquefied natural gas ("LNG"), to be delivered by truck 
to the Company's storage tank for use in "peak shaving" operations which 
supplement pipeline volumes in peak requirement situations.

         In addition to the LNG peak shaving facilities, the Company also 
maintains storage and send out facilities for liquefied propane gas ("LPG")

                                     11

<PAGE>

that provide an additional 88,000 MMBTU of sendout capacity when needed. The 
Company's projected peak day requirements are 68,598 Mcf for the 1998-1999 
heating season compared to the Company's peak day capacity of 70,000 Mcf.

         The Company's peak day capacity is comprised of 29,859 Mcf of 
pipeline deliveries pursuant to the SEMPRA contracts to the City Gate; 12,000 
Mcf of DOMAC and Duke Energy gas, delivered by pipeline; vaporization of 
Company stored liquid propane ("LP") into gas for injection (all by 
Company-owned equipment) into the Company's distribution system in daily 
amounts of about 10,000 Mcf; and vaporization of Company-stored LNG and 
injection into the distribution system in daily amounts of about 20,000 Mcf.

Competition

         Historically, the Company was not subject to competition from any 
other gas public utility or gas marketers, but rather only from electricity, 
oil, coal and other fuels for heating, water heating, cooking, air 
conditioning and other purposes. As discussed above, however, the status of 
competition among suppliers of natural gas service has significantly 
increased with the level of marketer activity and tariff and regulatory 
changes that facilitate competition. As a result, marketers are currently 
selling natural gas to several large volume end-users to whom the Company has 
historically made sales. Marketers can be expected to seek to provide an 
increasing volume of sales services to end-users located within the Company's 
service territory. At the current time, for all third-party commodity sales 
that are occurring in the Company's service territory, the Company transports 
those gas supplies within the Company's service territory and delivers the 
supplies to the customers. The margins earned by the Company for such 
transportation services are the same as margins earned on bundled 
supply/delivery sales to the same end-users. Similar

                                     12

<PAGE>

opportunities may exist for the Company to broker gas to new or existing 
customers, whether or not located within the Company's service territory, 
although the Company has not done so to date.

         The principal considerations in the competition between the Company 
and suppliers of other fuel or energy include price, equipment operational 
efficiencies and ease of delivery. In addition, the type of equipment already 
installed in the businesses and residences significantly affects the 
customer's choice of fuel or energy source, and in some cases whether a 
customer will choose to transport gas supplied by marketers, or to purchase 
from the Company.

         The price of natural gas currently compares favorably to electricity 
but is generally higher than fuel oil, especially the grade of oil used by 
certain commercial and industrial customers. As price is generally considered 
the most significant factor affecting competition among the various energy 
sources, there is always uncertainty in the continuing competition among such 
energy sources, due to variations in price. Equipment operational 
efficiencies and ease of delivery give natural gas advantages over oil and 
also makes natural gas comparable to electricity in these respects. Because 
of the environmental advantages associated with natural gas and the 
efficiency and security of its supply, the demand for natural gas is expected 
to continue to increase. Also, manufacturing, processing and other equipment 
requirements are such that the use of gas rather than another fuel is 
virtually a necessity for certain large commercial and industrial customers. 
Heating, water heating and other domestic or commercial equipment is 
generally designed for a particular energy source, and especially with 
respect to heating equipment, the cost of conversion is a disincentive for 
individuals and businesses to change their energy source. Currently, the 
Company estimates that its gas heating saturation in areas in which it has 
been in active service is approximately 89%.

                                       13

<PAGE>

         For all of these reasons, the Company believes that competition from 
natural gas brokers and marketers, as well as from other fuel sources, will 
intensify in the future.

Employees

         The Company employed 166 full-time and 5 part-time employees as of 
September 30, 1998. Of those employees, 74 are represented by the Utility 
Workers Union of America, AFL-CIO, Local No. 431. The Company and its union 
employees currently have a contract through April 30, 2002. The Company 
believes that it enjoys generally good labor relations.

ITEM 2. Properties

                 The Company owns approximately 635 miles of distribution 
mains, the major portion of which are constructed of coated steel, plastic or 
cast iron. The Company owns and operates LP vaporizing equipment with an 
approximate daily capacity of 14,000 Mcf and six LP storage tanks with a 
total capacity of approximately 320,000 gallons. The Company also owns and 
operates an LNG storage tank with a capacity of 45,000 barrels, equivalent to 
approximately 157,000 Mcf of vaporized gas, and LNG vaporization equipment 
with a daily vaporization rate of approximately 20,000 Mcf. The Company has 
three gate stations receiving gas from the Algonquin pipeline. The Company 
also owns four office and operations buildings in the service area.

     All of the principal properties of the Company are owned in fee, subject 
to the lien of the mortgage securing the Company's First Mortgage Bonds (the 
"Indenture of First Mortgage"), and further subject to covenants, 
restrictions, easements, leases, rights-of-way and other similar minor 
encumbrances common to properties of comparable size and character, and none 
of which, in the opinion of the Company's management, materially interferes 
with the Company's use of its properties for the conduct of its

                                       14

<PAGE>

business. The Company's gas mains are primarily located under public highways 
and streets. Where they are under private property, the Company has obtained 
easements or rights-of-way from the record holders of title. These easements 
and rights are deemed by the Company to be adequate for the purpose for which 
they are being used.

ITEM 3. Legal Proceedings/Environmental Matters

    In January 1990 the Company received notification from the Massachusetts 
Department of Environmental Protection ("DEP") that it is one of numerous 
"potentially responsible parties" under Massachusetts laws in connection with 
two sites in Massachusetts which were the subject of alleged releases of 
hazardous materials, including lead, by a company which had purchased scrap 
meters from various utilities including the Company. The Company has entered 
into an agreement with a group of other potentially responsible parties (the 
"Group") to respond jointly and to share costs associated with the DEP's 
investigation. The Group negotiated an agreement with the DEP to conduct 
limited response actions at one of the sites without admission of liability, 
at a cost of about $100,000 to the entire Group, pursuant to which members of 
the Group would be released from any further liability at the site. Remedial 
actions were commenced September 5, 1995 and are substantially complete, 
subject to final DEP approval of the action taken. The investigation of the 
second site is in the early stages and potential remediation costs at the 
second site and the Company's degree of responsibility have not been 
determined. The Company does not expect its allocated share of costs of 
response actions at the first site or of any response actions which it may 
take or which may be required at the second site to be significant.

     Although the Company is not involved in any material litigation at this 
time, it may from time to time be involved in litigation in the ordinary 
course of its business.

                                      15

<PAGE>

ITEM 4. Submission of Matters To A Vote Of Security Holders

                 On February 10, 1998 the holders of the Company's Common 
Shares approved an amendment to the Company's Articles of Organization that 
increased the number of authorized Common Shares by 750,000 shares to 
2,951,334. The purpose of such change was to replenish the Company's shares 
available for issuance to the public, where the Company had recently 
completed a secondary offering of 390,000 shares and issues shares on an 
ongoing basis through its Common Share Owner Dividend Reinvestment and Stock 
Purchase Plan.

                                      16

<PAGE>

Additional Item - Executive Officers of the Registrant

Executive Officers:

                 Raymond H. Faxon*

                 Age 91, currently Vice Chairman of the Board of Directors 
and assistant Treasurer of the Registrant. His current business function is 
Vice Chairman of the Board of Directors and Assistant Treasurer. He is the 
father of Bradford J. Faxon. Positions held for the past five years are as 
follows:

  1/1/88 - 12/31/93 - Chairman of the Board of Directors and Assistant Treasurer
  1/1/94 - to Present - Vice Chairman of the Board of Directors and 
                          Assistant Treasurer
 
                His principal occupation for the past five years has been 
employment with the Registrant.

                 Bradford J. Faxon*

                       Age 60, currently chairman of the Board of Directors, 
President and a Director of the Registrant. His current business function is 
Chief Executive Officer. Positions held with the Registrant for the past five 
years are as follows:

    12/1/78 to Present - Director
     8/1/86 to Present - President
     1/1/94 to Present - Chairman of the Board of Directors

                 He is the son of Raymond H. Faxon. His principal occupation 
for the past five years has been employment with the Registrant.

                 Peter H. Thanas

                       Age 54, currently Senior Vice President and Treasurer 
of the Registrant. His current business function is Chief Financial and 
Accounting

                                       17

<PAGE>

Officer of the Registrant. Positions held for the past five years are as 
follows:

    8/ 1/86 to 9/19/94 - Financial Vice President and Treasurer
    9/20/94 to Present - Senior Vice President and Treasurer

                 His principal occupation for the past five years has been 
employment with the Registrant.

                 John F. Fanning

                       Age 52, currently Vice President of Production and Gas 
Supply. His current business function is Vice President of Production and Gas 
Supply of the Registrant. Positions held with the Registrant for the past 
five years are as follows:

    7/ 1/87 - 12/31/89 - Manager of Gas Supply
    1/ 1/90 - 9/20/93 - Superintendent of Production and Gas Supply 9/21/93 to
    Present - Vice President of Production and Gas Supply

                 His principal occupation for the past five years has been 
employment with the Registrant.

                 Wallace E. Fletcher

                       Age 65, currently Comptroller and Assistant Treasurer. 
His current business function is Comptroller and Assistant Treasurer of the 
Registrant. Positions held with the Registrant for the past five years are as 
follows:

    5/27/92 to Present - Comptroller and Assistant Treasurer 

                 His principal occupation for the past five years has been 
employment with the Registrant.

                 All officers are either elected or appointed at the Directors'
Meeting following the annual Stockholders' meeting. Their terms of office are to
be for one year or until their successors have been duly elected or appointed.

    *Members of the Executive Committee.

                                       18

<PAGE>

                                    PART II

ITEM 5. Market For The Registrant's Common Stock And Related 
        Stock-Holders Matters

       (a) Common Stock Quotations

                       October 31, 1997 - Present   AMEX
                       Prior to October 31, 1997    OTC Market

3 Months

Ended  9/30/98 6/30/98 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97 12/31/96
(See Note)

High   16-3/8  16-3/4  17-1/4   16-5/8  13-1/2     16   16-1/2   18-1/4
Low    14-3/8  14-1/4  14-7/8   13      12-3/4     13   16       16

National Quotation Bureau

Because of the infrequency of trading of the Registrant's Common Stock, such
quotations may reflect inter-dealer prices, not actual transactions.

         (b) Number of Stockholders at September 30, 1998 is 819.

         (c) Dividends:

<TABLE>
<CAPTION>
                1998                                   1997
                ----                                   ----
          <S>                                 <C>
          November 15, 1997 - $.24            November 15, 1996 - $.24
          February 15, 1998 -  .24            February 15, 1997 -  .24
          May 15, 1998      -  .24            May 15, 1997      -  .24
          August 15, 1998   -  .24            August 15, 1997   -  .24
</TABLE>

         As of September 30, 1998 the Registrant had retained earnings 
totalling $10,672,783 of which $6,693,309 was restricted against payment of 
cash dividends under the terms of the Registrant's Indenture of Trust.

ITEM 6.  Selected Financial Data

         The following table summarizes certain consolidated financial data 
and is qualified in its entirety by the more detailed Consolidated Financial 
Statements included herein.

                                       19

<PAGE>

Selected Financial Data

         Fall River Gas Company and Subsidiary

         The following table summarizes certain consolidated financial data and
is qualified in its entirety by the more detailed Consolidated Financial
Statements included herein.

<TABLE>
<CAPTION>
                                                          Twelve Months ended September 30,

                                                1998             1997         1996         1995       1994
                                            -----------      -----------   ----------  -----------  --------
<S>                                         <C>               <C>          <C>         <C>          <C>
Balance Sheet Data:

Assets (in thousands)
   Utility plant-net...................      $39,650           $39,340      $38,653      $36,209     $33,213
   Non-utility plant-net...............        4,248             2,924        2,762        2,613       2,327
   Current assets......................       11,269            10,154        9,088        9,934      12,150
   Other assets........................          472             2,517        2,688        2,201       1,936
                                            --------           -------      -------      -------     -------
         Total.........................      $55,639           $54,935      $53,191      $50,957     $49,626
                                            --------           -------      -------      -------     -------
                                            --------           -------      -------      -------     -------
Capitalization and liabilities
  Capitalization
    Common equity.......................     $17,430           $12,618      $12,637      $12,922     $13,014
    Long-term debt (less current
     maturities)........................      19,500            13,500       13,500        6,500       7,380
                                            --------           -------      -------      -------     -------
         Total..........................      36,930            26,118       26,137       19,422      20,394
  Current Liabilities...................      10,915            21,390       20,014       24,692      22,763
  Other Liabilities.....................       7,794             7,427        7,040        6,843       6,469
                                            --------           -------      -------      -------     -------
         Total..........................     $55,639           $54,935      $53,191      $50,957     $49,626
                                            --------           -------      -------      -------     -------
                                            --------           -------      -------      -------     -------
Income Statement Data:

Gas operating revenues...................    $42,671           $45,261      $48,966      $44,418     $48,331
Operating expenses:
  Cost of gas sold.......................     22,921            25,315       31,133       28,097      31,162
  Other operation and maintenance........     12,601            13,314       12,257       10,992      10,953
  Depreciation...........................      2,050             1,935        1,609        1,499       1,392
  Taxes-other than Federal income taxes..      1,434             1,408        1,283        1,053       1,059
  Federal income.........................        687               428          342          471         988
                                            --------           -------      -------      -------     -------
         Total...........................     39,693            42,400       46,624       42,112      45,554
                                            --------           -------      -------      -------     -------
Operating income.........................      2,978             2,861        2,342        2,306       2,777
Other income-net of tax..................        871               850          790          772         815
Total interest charges...................      1,769             2,086        1,708        1,461       1,101
                                            --------           -------      -------      -------     -------
Net income...............................     $2,080            $1,625       $1,424       $1,617      $2,491
                                            --------           -------      -------      -------     -------
                                            --------           -------      -------      -------     -------
Shares outstanding-average...............  2,146,119         1,784,993    1,780,542    1,780,542   1,780,542
Earnings per share.......................      $0.97             $0.91        $0.80        $0.91       $1.40
Dividends declared per share.............      $0.96             $0.96        $0.96        $0.96       $0.98
Appliance Company net income.............       $851              $825         $779         $753        $799
</TABLE>

                                       20

<PAGE>

ITEM 7. Management's Discussion and Analysis

OVERVIEW

Operating results are derived from two major classifications - utility and 
non-utility. Utility revenues are generated from the operations of the 
regulated natural gas distribution company and include the sale and 
distribution, as well as the transportation, of natural gas to firm and 
interruptible customers. Non-utility revenues are almost entirely from the 
rental of water heaters and conversion burners.

The sale and distribution, as well as the transportation, of natural gas to 
customers on a year-round basis for heating, water heating, cooking and 
processing are the sources of firm utility revenues, as described below. Firm 
customers can be residential, commercial or industrial. The revenues from 
firm sales customers are determined by regulated tariff schedules and through 
Massachusetts Department of Telecommunications and Energy ("MDTE") approved 
commodity charge factors. These factors include the Cost of Gas Adjustment 
Clause ("CGAC"), which requires the Company to collect from or return to 
customers changes in gas cost from those included in the regulated tariffs, 
on a semi-annual basis. The CGAC also provides for collection of: (i) 
carrying costs on gas purchases; (ii) pipeline transition costs; (iii) costs; 
incentives and lost base revenues associated with demand side management, 
(DSM) programs; and (iv) certain costs of compliance with environmental 
regulations. In accordance with the Company's approved CGAC, increases or 
decreases in the cost of gas sold continue to be passed directly to firm 
customers, dollar for dollar.

Sales to other utilities ("off-system sales") and to dual-fuel customers 
("interruptible sales") are made when excess gas supplies are available and 
prices are competitive. Interruptible sales are generally made in non-winter 
months and can be interrupted by the Company at any time.

Transportation, the delivery of gas purchased by customers from marketers and 
other third parties through the Company's distribution system, has recently 
become a growing portion of the Company's business. With the restructuring of 
the natural gas pipeline industry and the development of the state-level 
policy of unbundling of delivery and commodity sales functions, the Company's 
largest customers have moved first from firm tariffed sales service to firm 
sales service under special contracts and more recently to transportation 
service. The movement to the Company's transportation service occurred 
primarily after implementation of new rates on December 1, 1996. Under these 
rates, the Company earns the same margins on transportation service as it 
does on bundled commodity sales and delivery. Accordingly, the Company is 
generally indifferent as to whether customers take bundled sales and delivery 
or unbundled transportation service only. To date, only the Company's largest 
customers have moved to transportation service, although it is likely that 
additional customers will as well. Such movement to transportation results in 
reduced gas operating revenues, because no commodity is bought by the Company 
for such customers. Correspondingly, cost of gas sold is reduced. 
Consequently, there is no impact on earnings because the Company earns no 
margin on the sale of natural gas itself.

The Appliance Company generates non-utility revenues primarily from the 
rental of water heaters and conversion burners. The Appliance Company also 
sells such equipment and other gas-burning appliances such as central heating 
and air conditioning systems and water heaters. Such rentals and sales are 
made to the Company's gas customers and thereby assist the utility sales 
efforts. For income statement purposes, the net earnings of the Appliance 
Company are shown under "Other Income." A breakdown of the revenue and 
expenses of the Appliance Company is found in the Notes to Consolidated 
Financial Statements.

                                     21

<PAGE>

SEASONALITY

The nature of the Company's business is highly seasonal and 
temperature-sensitive. As a result, the Company's operating results in any 
given period reflect, in addition to other matters, the impact of the 
weather, with colder temperatures resulting in increased sales and 
transportation by the Company. The substantial impact of this sensitivity to 
seasonal conditions is reflected in the Company's results of operations and 
the Company anticipates that it will continue to be so reflected in future 
periods.

Short-term borrowing requirements vary according to the seasonal nature of 
sales and expense activities of the Company. Accordingly, there is a greater 
need for short-term borrowings during periods when internally generated funds 
are not sufficient to cover all capital and operating requirements, 
particularly in the fall and winter. Short-term borrowings utilized for 
construction expenditures generally are replaced by permanent financing when 
it becomes economical and practical to do so and where appropriate to 
maintain an acceptable relationship between borrowed and equity resources.

RESULTS OF OPERATION

                      Fiscal 1998 versus Fiscal 1997

Operating revenues in fiscal 1998 totalled $42,671,000 a decrease of 5.7% 
from fiscal 1997. The decrease in revenues from the prior year was 
attributable to a weather related decline in firm sales and a decrease in gas 
costs recovered through the Company's CGAC. As discussed earlier, 
fluctuations in the cost of gas does not impact the profitability of the 
Company as these changes are recovered or returned to customers through the 
CGAC.

Firm gas sendout, firm gas sales and firm transportation, was 6,910,000 Mcf 
in fiscal 1998, a decrease of 6.1% from fiscal 1997. The primary factor for 
the decline in gas sendout was weather, which was 8.4% warmer than a normal 
year and 6.5% warmer than the prior year.

Cost of gas sold includes costs for gas operation including supplemental 
fuels, such as, propane (LPG), liquefied natural gas (LNG), and storage, 
which are used to augment the Company's primary supply of natural gas during 
periods of peak usage. The average cost per Mcf of gas distributed in fiscal 
1998 and 1997 was $4.39 and $4.46, respectively.

Other operations expense in fiscal 1998 totalled $11,113,000, a 2.0% decrease 
from the prior period. A reduction in the costs of employee benefits and 
pensions were primarily responsible for this decrease.

Maintenance expense totalled $1,487,000 in fiscal 1998, a 24.8% decrease from 
the prior period. More efficient use of Company labor and a strict cost 
cutting program generated substantial savings for the year.

Other income totalled $871,000 in fiscal 1998 and $850,000 in fiscal 1997. 
Earnings of Fall River Gas Appliance Company, Inc., the Company's 
wholly-owned subsidiary, totalled $850,000 and $824,000 in fiscals 1998 and 
1997, respectively.

Fiscal 1998 interest expense was $1,769,000, a 15.2% decrease from the prior 
fiscal period as a result of decreased short-term interest expense offset by 
increased interest expense on long-term debt. The net proceeds of the Fall 
River Gas Company debt and equity offerings during the first quarter of the 
1998 fiscal year were used to reduce the short-term borrowing for utility 
operations resulting in the decreased in interest expense.

                                      22

<PAGE>

                         Fiscal 1997 versus Fiscal 1996

Operating revenues in fiscal 1997 totalled $45,261,000, a decrease of 7.6% 
from fiscal 1996. The decrease in revenues from the prior year was 
attributable to a decrease of $4,562,000 in gas costs recovered in CGAC and 
the transfer of customers from firm sales to firm transportation. While the 
transfer of firm sales customers to transportation does not affect operating 
margins, it does provide less revenue.

Firm gas sendout was 7,360,000 Mcf in fiscal 1997, slightly below the 
7,580,000 that was recorded in the prior fiscal year due to a slight decrease 
in degree days.

Other operations expense increased 10.4% over fiscal 1996. Wage increases, 
esclating health care cost, and inflationary pressures on goods and services 
were the primary factors causing this increase.

Depreciation expense increased by $326,000, 20.3%, due to increase in 
depreciation accrual rates as authorized by the MDTE on October 16, 1996.

Other Income totalled to $850,000 in fiscal 1997 and $791,000 in fiscal 1996. 
This increase was primarily the result of increased earnings in the appliance 
company attributable to increased rental fees.

Interest expense increased by $379,000, 22.2%, due to increased cost on 
Long-term Debt related to the issuance of $7,000,000 of 30 year Mortgage 
Bonds with a 7.99% coupon rate, offset by lower interest cost on reduced 
short-term borrowings. The proceeds from the debt issue were used to reduce 
the Company's short-term borrowing.

LIQUIDITY AND CAPITAL RESOURCES

On October 31, 1997 the Company began trading on the American Stock Exchange 
(AMEX) under the symbol "FAL".

During the first quarter of fiscal 1998 Fall River Gas Company issued 390,000 
additional shares of common stock and $6,000,000 of 7.24% Mortgage Bonds due 
2027. The net proceeds of these issues, $10,859,000 before deduction of 
expenses payable by the Company, were used to reduce the short-term 
indebtedness. These financings favorably impacted liquidity.

The Company's major capital requirements result from upgrading the efficiency 
of existing plant and expanding plant to serve additional customers. Such 
capital expenditures are primarily for expansion and improvements of the 
Company's distribution system. For the fiscal year 1998, capital expenditures 
totalled approximately $2,289,000 compared to $2,467,000 in fiscal 1997 and 
$3,780,000 in fiscal 1996.

Capital expenditures and accounts receivable balances were financed by 
internally generated funds and supplemented by short-term borrowings. During 
fiscal 1998 gas cost billings were lower than the Company's cost of gas, 
thereby having a negative impact on cash flow of approximately $1,837,000. 
Lower gas cost billings also increased the Company's deferred gas balance to 
$3,618,000 in fiscal 1998 from $1,781,000.

The Company's net cash generated from operating activities in fiscal 1998 was 
$4,253,000 compared to $3,289,000 and $1,215,000 in fiscal years 1997, and 
1996, respectively. The Company had capital expenditures for utility and 
non-utility operations in the amounts of $2,672,000, $2,894,000, and 
$4,247,000 in fiscal years 1998, 1997, and 1996, respectively.

                                     23

<PAGE>

As is customary in the utility industry, cash for construction requirements 
in excess of internally generated funds are provided through short-term 
borrowings under existing lines of credit, then from time to time repaid with 
the proceeds from equity and long-term financing as deemed appropriate by 
management. On September 30, 1998 the Company had $14,900,000 of available 
borrowings under its lines of credit. These lines are reviewed annually by 
our lending banks and management believes they will be renewed or replaced. 
Management believes the available financings are sufficient to meet cash 
requirements for the foreseeable future.

Cash flow patterns reflect the seasonality of the Company's business. Sales 
of natural gas are seasonal, generating approximately seventy percent of the 
Company's annual revenues between November 1 and March 31. The greatest 
demand for cash is in the late fall and winter as construction projects are 
brought to completion and accounts receivable balances rise.

The Company anticipates utility construction expenditures over the next 
fiscal year to be approximately $2,500,000 and non-utility capital 
expenditures to be approximately $400,000 over the same period. It is 
anticipated that such expenditures will be financed from internally generated 
sources supplemented, as required, by short-term borrowing.

Factors That May Affect Future Results

The private Securities Litigation Reform Act of 1995 encourages the use of 
cautionary statements accompanying forward-looking statements. The preceding 
Management's Discussion and Analysis of Financial Condition and Results of 
Operations includes forward-looking statements concerning the impact of 
changes in the cost of gas and of the CGAC mechanism on total margin; 
projected capital expenditures and sources of cash to fund expenditures; and 
estimated costs of environmental remediation and anticipated regulatory 
approval of recovery mechanisms. The Company's future results generally and 
with respect to such forward-looking statements, may be affected by many 
factors, among which are uncertainty as to the regulatory allowance of 
recovery of changes in the cost of gas; uncertain demands for capital 
expenditures and the availability of cash from various sources; uncertainty 
as to whether transportation rates will be reduced in future regulatory 
proceedings with resulting decreases in transportation margins; and 
uncertainty as to environmental costs and as to regulatory approval of the 
full recovery of environmental costs, transition costs and other regulatory 
assets.

New Accounting Standards and Pronouncements

During fiscal year 1998, the Company implemented Statement of Financial 
Accounting Standards (SFAS) No. 128, "Earnings per Share," which establishes 
standards for computing and presenting earnings per share and SFAS No. 129, 
"Disclosure of Information about Capital Structure," which establishes 
standards for disclosure repuirements regarding capital structure. Both SFAS 
No. 128 and No. 129 have no material impact on the Company's financial 
reporting.

The Financial Accounting Standards Board issued new accounting standards that 
the Company will adopt in future periods. SFAS No. 130, "Reporting 
Comprehensive Income," establishes standards for reporting and the disclosure 
of comprehensive income and its components. This standard is effective in 
fiscal year 1999 and is not expected to have a material impact on the 
Company's financial reporting. SFAS No. 131, "Disclosures About Segments of 
an Enterprise and Related Information," requires disclosure of operating 
segments, including disclosures about products and services, geographic areas 
and major customers. It is effective in fiscal year 1999 and is not expected 
to have a material impact on the Company's financial reporting.

                                     24

<PAGE>

SFAS No. 132, "Employer's Disclosures About Pensions and Other Postretirement 
Benefits," revises employer's disclosures about pension and other 
postretirement benefit plans. It does not change the measurement of 
recognition of those plans. Effective in fiscal year 1999, no significant 
affect is expected on the Company's financial reporting. SFAS No. 133, 
"Accounting for Derivative Instruments and Hedging Activities," establishes 
standards for recording all derivative instruments as assets and liabilities 
measured at fair value. The standard is effective in quarter four of fiscal 
year 1999 and the Company is currently evaluating the impact on financial 
position.

The American Institute of Certified Public Accountants issued Statement of 
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed 
and Obtained for Internal Use," and SOP 98-5, "Reporting on the Costs of 
Start-up Activities." Both are effective in fiscal year 2000 and adoption is 
not expected to have a material impact on the Company's financial position.

The "Year 2000" Issue

The Company has evaluted its principal computer systems and noninformation 
technology systems including, but not limited to, telecommunication systems, 
automated meter reading systems, SCADA, regulator stations, plant remote 
control systems and security systems to determine readiness for the year 
2000. These systems are currently capable of processing the year 2000, or are 
in the process of being upgraded or replaced by systems that are similarly 
capable. All necessary program modifications and system upgrades and testing 
are expected to be completed by the year 2000. Costs incurred to date and 
costs expected to be incurred to complete the year 2000 readiness are not 
significant and will not have a material impact on the Company's financial 
position or results of operations. The Company is currently assessing year 
2000 issues with material third parties. Except for the Company's major 
pipeline supplier, who has provided assurance of compliance, the Company has 
not determined the level of third-party risk. Preparation of a contingency 
plan is in process and is expected to be finalized during fiscal year 1999.

                                     25

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Fall River Gas Company:

We have audited the accompanying consolidated balance sheets of FALL RIVER 
GAS COMPANY (a Massachusetts corporation) and subsidiary as of September 30, 
1998 and 1997 and the related consolidated statements of income, retained 
earnings and cash flows for each of the three years in the period ended 
September 30, 1998. These financial statements and the schedule referred to 
below are the responsibility of the Company's management. Our responsibility 
is to express an opinion on these financial statements and schedule based on 
our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of Fall River Gas Company and 
subsidiary as of September 30, 1998 and 1997, and the results of their 
operations and their cash flows for each of the three years in the period 
ended September 30, 1998, in conformity with generally accepted accounting 
principles.

Our audit was made for the purpose of forming an opinion on the basic 
consolidated financial statements taken as a whole. The financial statement 
schedule under part IV, Item 14, presented for purposes of additional 
analysis and is not a required part of the basic consolidated financial 
statements. This information has been subject to the auditing procedures 
applied in our audit of the basic consolidated financial statements and, in 
our opinion, is fairly stated, in all material respects, in relation to the 
basic consolidated financial statements taken as a whole.

                                           /S/ARTHUR ANDERSEN LLP


Boston, Massachusetts
November 17, 1998


                                       26

<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

Fall River Gas Company and Subsidiary
For the Years Ended September 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                1998                  1997                1996
                                                                                ----                  ----                ----
<S>                                                                          <C>                  <C>                  <C>        
 
GAS OPERATING REVENUES.......................                                $42,670,838          $45,261,249          $48,965,547

OPERATING EXPENSES:

   Operations -
    Cost of gas sold..........................                                22,920,783           25,314,769           31,132,828
    Other.....................................                                11,113,369           11,337,000           10,268,772
   Maintenance................................                                 1,487,345            1,977,172            1,987,782
   Depreciation ..............................                                 2,050,207            1,934,959            1,608,641
   Taxes -
    Local property and other..................                                 1,433,887            1,408,507            1,283,389
    Federal and state income (Note 3).........                                   686,909              427,768              341,432
                                                                             -----------          -----------          -----------
                                                                              39,692,500           42,400,175           46,622,844
                                                                             -----------          -----------          -----------
OPERATING INCOME..............................                                 2,978,338            2,861,074            2,342,703

OTHER INCOME (EXPENSE):
   Earnings of Fall River Gas Appliance
    Company Inc.(Note 2)......................                                   850,517              824,724              778,813

   Interest income............................                                    13,661               13,775               14,489
   Other......................................                                     6,836               11,375               (2,505)
                                                                             -----------          -----------          ------------
INCOME BEFORE INTEREST EXPENSE................                                 3,849,352            3,710,948            3,133,500
                                                                             -----------          -----------          -----------

INTEREST EXPENSE:

    Long-term debt............................                                 1,534,900            1,172,900              683,387
    Other.....................................                                   234,390              913,405            1,024,405
                                                                             -----------          -----------          -----------
                                                                               1,769,290            2,086,305            1,707,792
                                                                             -----------          -----------          -----------
NET INCOME....................................                               $ 2,080,062          $ 1,624,643          $ 1,425,708
                                                                             -----------          -----------          -----------
                                                                             -----------          -----------          -----------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.......                             2,146,119            1,784,993            1,780,542
                                                                             -----------          -----------          -----------
                                                                             -----------          -----------          -----------
EARNINGS PER AVERAGE COMMON SHARE.............                                    $ 0.97               $ 0.91               $ 0.80
                                                                             -----------          -----------          -----------
                                                                             -----------          -----------          -----------

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

For the Years Ended September 30, 1998, 1997, and 1996

                                                                                 1998                1997                 1996
                                                                                 ----                ----                 ----

BALANCE AT BEGINNING OF YEAR.................                                $10,693,309          $10,865,648          $11,149,260
Net Income...................................                                  2,080,062            1,624,643            1,425,708
                                                                             -----------          -----------          -----------
    Total....................................                                 12,773,371           12,490,291           12,574,968
Dividends declared...........................                                  2,100,588            1,796,982            1,709,320
                                                                             -----------          -----------          -----------
BALANCE AT END OF YEAR.......................                                $10,672,783          $10,693,309          $10,865,648
                                                                             -----------          -----------          -----------
                                                                             -----------          -----------          -----------
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                       27

<PAGE>

CONSOLIDATED BALANCE SHEETS

Fall River Gas Company and Subsidiary
September 30, 1998 and 1997

<TABLE>
<CAPTION>
                      ASSETS

                                                                                     1998                 1997
                                                                                     ----                 ----
<S>                                                                               <C>                  <C>         
PROPERTY, PLANT AND EQUIPMENT, at original cost:

   Gas...................................................                         $ 60,448,647         $ 58,413,337
     Nonutility, principally rented gas appliances.........                          6,288,100            6,287,417
                                                                                  ------------         ------------
                                                                                    66,736,747           64,700,754

     Less-Accumulated depreciation.........................                         22,839,053           21,152,109
                                                                                  ------------         ------------
                                                                                    43,897,694           43,548,645
                                                                                  ------------         ------------

CURRENT ASSETS:
     Cash..................................................                            356,005              329,400
     Accounts receivable, less allowance for doubtful accounts
      of $957,000 in 1998 and $907,000 in 1997.............                          1,807,487            1,972,301

     Inventories, at average cost -
      Liquefied natural gas, propane, and natural gas in storage                      3,148,31            3,108,887
     Materials and supplies................................                          1,273,772            1,341,567
     Deferred gas costs....................................                          3,617,512            1,780,798
     Prepaid taxes.........................................                            401,160              990,515
     Prepayments and other.................................                            665,243              630,581
                                                                                  ------------         ------------
                                                                                    11,269,490           10,154,049
                                                                                  ------------         ------------



DEFERRED CHARGES:

     Regulatory asset (Note 6).............................                            453,471              758,832
     Other.................................................                             18,885              473,901
                                                                                  ------------         ------------
                                                                                       472,356            1,232,733
                                                                                  ------------         ------------
                                                                                  $ 55,639,540         $ 54,935,427
                                                                                  ------------         ------------
                                                                                  ------------         ------------
</TABLE>

          The accompanying notes are an integral part of these consolidated 
                               financial statement.

                                       28

<PAGE>

CONSOLIDATED BALANCE SHEETS(Cont.)

Fall River Gas Company and Subsidiary
September, 30, 1998 and 1997

CAPITALIZATION:
<TABLE>
<CAPTION>
                                                                                     1998                 1997
                                                                                     ----                 ----
<S>                                                                               <C>                  <C>
     Stockholders' investment-
       Common stock, par value $.83-1/3 per share, 2,951,334
        shares authorized and 2,201,334 issued................                    $ 1,834,445          $ 1,834,445
       Premium paid-in on common stock........................                      4,954,532            1,474,850
       Retained earnings (Note 4).............................                     10,672,783           10,693,309
                                                                                  -----------          -----------
                                                                                   17,461,760           14,002,604

     Less - 9,326 shares in 1998 and 410,511 in 1997 of
       common stock held in treasury, at cost................                          31,443            1,384,079
                                                                                  -----------          -----------
                                                                                   17,430,317           12,618,525

     Long-term debt (Note 4)                                                       19,500,000           13,500,000
                                                                                  -----------           ----------
           Total capitalization..............................                      36,930,317           26,118,525
                                                                                  -----------          -----------

CURRENT LIABILITIES:

     Notes payable to banks (Note 4).........................                       5,100,000           15,400,000
     Dividends payable.......................................                         526,173              511,655
     Accounts payable........................................                       3,074,673            3,545,644
     Other...................................................                       2,214,022            1,932,403
                                                                                  -----------          -----------
                                                                                   10,914,868           21,389,702
                                                                                  -----------          -----------

COMMITMENTS AND CONTINGENCIES (Note 7)
DEFERRED CREDITS:
     Accumulated deferred income taxes (Note 3)..............                       4,462,626            4,273,840
     Unamortized investment tax credits (Note 3).............                         485,453              529,737
     Other...................................................                       2,390,716            2,129,057
     Regulatory liability (Note 3)...........................                         455,560              494,566
                                                                                  -----------          -----------
                                                                                    7,794,355            7,427,200
                                                                                  -----------          -----------
                                                                                  $55,639,540          $54,935,427
                                                                                  -----------          -----------
                                                                                  -----------          -----------
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                       29

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
Fall River Gas Company and Subsidiary
For the Years Ended September 30, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                          1998              1997                 1996
                                                                          ----              ----                 ----
<S>                                                                   <C>                <C>                 <C>
Cash Provided by (Used for)
   Operating Activities:
      Net Income...........................................           $ 2,080,062        $ 1,624,643          $ 1,425,708
      Items not requiring (providing) cash:
        Depreciation.......................................             2,292,374          2,121,759            1,807,808
        Deferred income taxes..............................               188,786            149,854              218,869
        Investment tax credits, net........................               (44,284)           (37,958)             (37,958)
        Change in working capital..........................            (1,278,188)          (939,194)          (1,573,387)
        Other sources, net.................................             1,013,970            370,037             (626,514)
                                                                      -----------        -----------          ------------
         Net cash provided by operating activities.........             4,252,720          3,289,141            1,214,526
                                                                      -----------        -----------          -----------
     Investing Activities:
      Additions to utility property, plant and equipment...            (2,288,562)        (2,467,988)          (3,779,718)
      Additions to nonutility property.....................              (383,801)          (426,502)            (466,862)
                                                                      ------------       ------------         ------------
        Net cash used for investing activities.............            (2,672,363)        (2,894,490)          (4,246,580)
                                                                      ------------       ------------         ------------
   Financing Activities:
      Cash dividends paid on common stock..................            (2,086,070)        (1,712,657)          (1,709,320)
      Retirement of long-term debt through sinking fund....                     0                  0             (880,000)
      Common stock transactions............................             4,832,318            153,471                    0
      Proceeds from long-term debt issue...................             6,000,000                  0            7,000,000
      Increase(decrease) in notes payable to banks, net....           (10,300,000)         1,100,000           (1,300,000)
                                                                      ------------       ------------         ------------
       Net cash provided by (used for) financing activities.           (1,553,752)          (459,186)           3,110,680
Increase (decrease) in cash................................                26,605            (64,535)              78,626
Cash, beginning of year....................................               329,400            393,935              315,309
                                                                      -----------        ------------         -----------
Cash, end of year..........................................           $   356,005        $   329,400          $   393,935
                                                                      -----------        ------------         -----------
                                                                      -----------        ------------         -----------
Changes in Components of Working Capital(excluding
     cash): (Increase) decrease in current assets:
       Accounts receivable.................................           $   164,814        $    704,021         $ (517,152)
       Inventories.........................................                28,371             179,311           (488,868)
       Prepayments and other...............................               554,694            (434,175)          (676,920)
       Deferred gas cost...................................            (1,836,714)         (1,579,533)         2,607,617
     Increase (decrease) in current liabilities:
       Accounts payable....................................              (470,971)             (8,980)           (30,676)
       Gas supplier refunds due customers..................                     0                   0         (1,367,969)
       Accrued taxes.......................................                     0                   0           (838,617)
       Other...............................................               281,618             200,162           (260,802)
                                                                      -----------        ------------         -----------
        Change in working capital..........................           $(1,278,188)       $   (939,194)        $(1,573,387)
                                                                      ------------       ------------         ------------
                                                                      ------------       ------------         ------------
Supplemental Disclosure of Cash Flow Information:
     Cash paid for:
       Interest............................................           $ 1,745,556        $  2,015,215         $ 1,743,878
       Income taxes........................................               593,588           1,131,624           2,111,259
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                       30

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fall River Gas Company and Subsidiary
September 30, 1998

1) ACCOUNTING POLICIES

Principles of Consolidation

    The Consolidated financial statements include the accounts of Fall River 
Gas Company (the Company) and subsidiary, Fall River Gas Appliance Company, 
Inc., (the Appliance Company). The Company's principal business is the 
operation of a regulated gas distribution company in southeastern 
Massachusetts, while its wholly-owned subsidiary rents gas appliances. All 
significant intercompany accounts and transactions have been eliminated in 
consolidation.

Regulation

     The Company's rates, operations, accounting and certain other practices 
are subject to the regulatory authority of the Massachusetts Department of 
Telecommunications & Energy (MDTE). The Company's accounting policies conform 
to generally accepted accounting principles applicable to rate regulated 
enterprises and the reported amounts of revenues and expenses during the 
reported period.

Use of Estimates

     The preparation of financial statements in conformity with generally 
accepted accounting principles requires the Company to make estimates and 
assumptions that affect the reporting and disclosure of assets and 
liabilities, including those that are of a contingent nature, at the date of 
the financial statements and the reported amounts of revenues and expenses 
during the reported period. Actual results could differ from those estimates.

Depreciation & Amortization

     Depreciation of property, plant and equipment is provided using the 
straight-line method at rates designed to amortize the cost of these assets 
over their estimated useful lives. The composite depreciation rate for gas 
plant is 3.5%. Rented gas appliances have estimated useful lives of 10 to 20 
years. Installation costs of rented appliances are amortized over the 
estimated life of the lease period.

Gas Operating Revenues and Cost of Gas Sold

     Gas operating revenues are recorded based on meter readings made on a 
cycle basis throughout the month. Accordingly, in any period, the actual 
volume of gas supplied to customers may be more or less than the usage for 
which the customers have been billed.

     The Company's approved rate tariffs include a cost of gas adjustment 
(CGAC) factor allowing dollar-for-dollar recovery of the cost of gas sendout 
to firm customers. Actual costs incurred at the end of any period may differ 
from amounts recovered through application of the CGAC. Any excess or 
deficiency in amounts billed as compared to costs is deferred and either 
refunded to, or recovered from, the customers over a subsequent period.

Regulatory Assets

     Regulatory assets relate to unrecovered SFAS 106 expenses. These 
regulatory assets do not earn a return on investment.

                                      31

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)

2) FALL RIVER GAS APPLIANCE COMPANY, INC.

     The earnings of the Fall River Gas Appliance Company, Inc. are shown as
Other Income in the accompanying Consolidated Statements of Income. Condensed
operating information of the Appliance Company for the years ended September 30,
1998, 1997, and 1996 is as follows:

<TABLE>
<CAPTION>
                                                          1998              1997                  1996
                                                          ----              ----                  ----
<S>                                                   <C>                <C>                  <C>
Operating revenues..........................          $3,409,506         $3,176,526           $2,941,885
Costs and expenses..........................           1,976,501          1,786,944            1,629,693
                                                      ----------         ----------           ----------
    Income before income taxes..............           1,433,005          1,389,582            1,312,192
Income tax expense..........................             582,488            564,858              533,379
                                                      ----------         ----------           ----------
      Net income............................          $  850,517         $  824,724           $  778,813
                                                      ----------         ----------           ----------
                                                      ----------         ----------           ----------
</TABLE>

3) INCOME TAXES

     The Company and its subsidiary file a consolidated Federal income tax
return. Each company provides Federal income taxes on a separate company basis.
The following is a summary of the provision for Federal and State income taxes:

<TABLE>
<CAPTION>
                                                1998                         1997                         1996
                                       -----------------------------------------------------------------------------
                                       Federal         State         Federal      State           Federal      State
<S>                                    <C>           <C>            <C>           <C>            <C>          <C>
Current....................            $891,431      $235,811       $693,858      $194,129       $  535,480   $159,195
Deferred...................             155,731        33,056        123,690        26,164          181,356     37,513
Investment tax credits.....             (44,284)            -        (37,958)            -          (37,958)         -
                                       --------      --------       --------      --------       ----------   --------
     Total provision.......          $1,002,878      $268,867      $779,590       $220,293       $  678,878   $196,708
                                       --------      --------       --------      --------       ----------   --------
                                       --------      --------       --------      --------       ----------   --------

Provision for income taxes included in:
  Operating expenses.......            $562,784      $124,125       $348,708      $ 79,060       $  277,028   $ 64,404
  Other income-
    Fall River Gas
       Appliance Company...             438,145       144,343        424,858       140,001          401,207    132,172
  Other....................               1,949           399          6,024         1,232              643        132
                                       --------      --------       --------      --------       ----------   --------
      Total provision......          $1,002,878      $268,867       $779,590      $220,293       $  678,878   $196,708
                                       --------      --------       --------      --------       ----------   --------
                                       --------      --------       --------      --------       ----------   --------
</TABLE>

     On October 1, 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") 109, "Accounting for Income Taxes". SFAS 109 requires
adjustments of deferred tax assets and liabilities to reflect the future tax
consequences, at currently enacted tax laws and rates, of items already
reflected in the financial statements. The implementation of SFAS 109 resulted
in the recognition of a regulatory liability of approximately $412,000 for the
tax benefit of unamortized investment tax credits, which SFAS 109 requires to be
treated as a temporary difference. This benefit is being passed on to customers
over the lives of the property giving rise to the investment tax credit.

     The tax effect of the cumulative differences that gave rise to the deferred
tax liabilities and deferred tax assets for the year ended September 30, 1998
and 1997 are detailed on the following page (in thousands):

                                       32

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

<TABLE>
<CAPTION>
                                                             1998           1997
                                                             ----           ----
<S>                                                     <C>            <C>
Deferred Tax Assets:
       Allowance for doubtful accounts...............   $  362,311     $  343,472
       Unamortized investment tax credits............      189,326        206,597
       Contributions in aid of construction..........      226,199        202,018
       Unbilled revenue..............................      340,971        376,728
       Deferred pension..............................      253,461        253,461
       Deferred compensation.........................      257,323        245,294
       Regulatory liability..........................      195,035        195,035
       Other.........................................      903,024        619,218
                                                        ----------     ----------
Total Deferred Tax Assets............................   $2,727,650      2,441,823

Deferred Tax Liabilities:
       Property related..............................    5,272,976      5,116,921
       Deferred gas costs............................    1,410,829        694,511
       Other.........................................      513,494        301,337
                                                        ----------     ----------
Total Deferred Tax Liabilities.......................    7,197,299      6,112,769
                                                         ---------     ----------
Net Deferred Tax Liability...........................   $4,469,649     $3,670,946
                                                         ---------     ----------
                                                         ---------     ----------
</TABLE>

   The combined Federal and State income tax provision set forth above 
represents approximately 38% of income taxes in 1998, 1997 and 1996. The 
combined statutory rate for Federal and State income tax was approximately 
39% in 1998, 1997, and 1996. The difference between the effective income tax 
rate and statutory rate results primarily from the amortization of investment 
tax credits

   Investment tax credits are amortized over the life of the property giving 
rise to the credits.

4) CAPITALIZATION

Common Stock Issuance

During Fiscal 1998 the Company issued 390,000 shares of common stock out if its
treasury shares with net proceeds of approximately $5,000,000

Long-Term Debt And Notes Payable to Banks

Long-term debt consists of:

<TABLE>
<CAPTION>
                                                               Amounts Outstanding
                                                           ---------------------------
                                          Amounts            Sept 30,       Sept. 30,
                                        Authorized             1998           1997
                                        ----------         ------------   ------------
<S>                                     <C>                <C>            <C>
FIRST MORTGAGE BONDS:
     9.44% Series, due 2020............ $6,500,000         $ 6,500,000    $ 6,500,000
     7.99% Series, due 2026............  7,000,000           7,000,000      7,000,000
     7.24% Series, due 2027............  6,000,000           6,000,000              -
                                                           -----------    -----------
                                                           $19,500,000    $13,500,000
                                                           -----------    -----------
                                                           -----------    -----------
</TABLE>

     There are no aggregate maturities and sinking fund requirements for the
next five years applicable to the issues outstanding at September 30, 1998. The
First Mortgage Bonds are secured by a lien on substantially all of the Company's
gas plant. Under the terms of the most restrictive supplemental indenture,
retained earnings of $6,865,648 were restricted against payment of dividends at
September 30, 1998.

     If long-term debt outstanding at September 30, 1998 had been refinanced
using new issue debt rates of interest that are lower than the outstanding
rates, the present value of those obligations would have increased from the
amounts outstanding in the September 30, 1998 balance sheet by 26.5%.

                                       33

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Cont.)

     The Company maintains lines of credit with various banks under which it 
may borrow up to $20,000,000. These lines are reviewed periodically by the 
various banks and may be renewed or cancelled. The Company pays a commitment 
fee on the lines of credit at rates ranging from 5/16 of 1% to 1/2 of 1%. At 
September 30, 1998, there were $5,100,000 borrowings under these lines of 
credit.

The following table summarizes certain information related to the Company's 
short-term borrowings for the years ended September 30, 1998 and 1997:

<TABLE>
<CAPTION>

                                                           1998            1997
                                                           ----            ----
<S>                                                     <C>             <C>
Average daily balance outstanding for the period....    $ 6,917,000     $15,449,000
Weighted average interest rate for the period.......            6.2%            6.1%
Maximum amount outstanding during the
     period based on month-end balances.............    $16,900,000     $23,500,000
Weighted average interest rate at end of period.....            6.0%            7.1%
</TABLE>

5) EMPLOYEES' PENSION PLANS

The Company has defined benefit plans covering substantially all of its
employees. The benefits under these plans are based on years of service and
employees' compensation levels. The Company's policy is to fund pension costs
accrued including amortization of past service costs.

The following table sets forth the funding status of the pension plan as of
September 30, 1998 and 1997:


Actuarial present value of benefit obligations:

<TABLE>
<CAPTION>
                                                        1998                         1997
                                                        ----                         ----
                                                 Union       Salaried          Union          Salaried
                                                 -----       --------          -----          --------
<S>                                          <C>           <C>              <C>               <C>
     Vested................................  $(6,365,981)  $(6,261,757)     $(6,292,407)      $(5,678,595)
     Non vested............................      (13,216)      (44,939)         (11,818)          (35,926)
                                             -----------   -----------      -----------       -----------
     Total accumulated benefit obligation... $(6,379,197)  $(6,306,696)     $(6,304,225)      $(5,714,521)
                                             -----------   -----------      -----------       -----------
                                             -----------   -----------      -----------       -----------
     Projected benefit obligation........... $(7,342,996)  $(7,516,071)     $(6,450,299       $(6,897,893)
Plan assets at fair value...................   7,888,434     7,619,218        7,085,208         6,382,336
                                             -----------   -----------      -----------       -----------
Projected benefit obligation (in excess)
  or less than plan assets..................     545,438       103,147          634,909          (515,557)
Unrecognized net gain.......................  (1,070,741)   (1,745,402)      (1,244,143)       (1,383,806)
Unrecognized prior service cost
  due to plan amendment.....................     231,684     1,063,112          270,298          1,181,236
Unrecognized net obligation.................     299,616       112,883          374,520            141,102
                                             -----------   -----------      -----------       -----------
Prepaid pension cost (pension liability)
  Recognized on the consolidated
     balance sheet.......................... $     5,997   $  (466,260)     $    35,584       $  (577,025)
                                             -----------   -----------      -----------       -----------
                                             -----------   -----------      -----------       -----------

Net pension cost included the following components:            1998           1997           1996
                                                               ----           ----           ----
     Service cost...........................               $   422,619      $  389,258     $  365,511
     Interest cost..........................                 1,067,855       1,041,044        906,500
     Return on assets.......................                (2,331,614)     (2,178,265)    (1,320,522)
     Net deferral and amortization..........                 1,301,403       1,289,404        520,684
                                                           -----------      ----------     ----------
     Net periodic pension cost..............               $   460,263      $  541,441     $  472,173
                                                           -----------      ----------     ----------
                                                           -----------      ----------     ----------

Assumptions used to determine the projected benefit obligation were as follows:

                                                                          1998         1997
                                                                          ----         ----
     Discount rate..............................................           8.0%        8.0%
     Rate of increase in future compensation levels.............           3.0%        3.0%
     Expected long-term rate of return on assets-Salaried Plan..           9.0%        9.0%
     Expected long-term rate of return on assets-Union Plan.....           8.0%        9.0%
</TABLE>

                                       34

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

6) OTHER POST-EMPLOYMENT BENEFITS

   In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits to qualified retired employees.

   In 1994, the Company adopted Statement of Financial Accounting Standards No.
106 "Employers' Accounting for Postretirement Benefits Other Than Pensions"
(SFAS 106). Prior to 1994, expense was recognized when benefits were paid. In
accordance with SFAS 106, the Company began recording the Cost for this plan on
an accrual basis for 1994. As permitted by SFAS 106, the Company is recording
the transition obligation over a twenty year period.

The following table sets forth the status of the plans at September 30, 1998 and
1997:

<TABLE>
<CAPTION>

Accumulated postretirement benefit obligation:                        1998              1997
                                                                      ----              ----
<S>                                                               <C>                <C>
     Retirees...................................                  $(1,092,032)       $  (943,560)
     Fully eligible active plan participants....                      ( 8,713)           (26,808)
     Other active plan participants.............                     (697,824)          (898,620)
                                                                 ------------         -----------
                                                                   (1,798,569)        (1,868,988)
Plan assets.....................................                      220,940            210,489
Unrecognized transition obligation..............                    2,120,800          2,262,177
Unrecognized past service costs.................                      101,283            112,389
Unrecognized gain...............................                   (1,445,572)        (1,360,927)
                                                                  ------------        -----------
Accrued postretirement benefit cost.............                  $  (801,118)        $ (644,860)
                                                                  ------------        -----------
                                                                  ------------        -----------
</TABLE>

   Net periodic postretirement benefit cost for fiscal 1998, 1997 and 1996 
included the following components:
<TABLE>
<CAPTION>
                                                                               1998      1997        1996
                                                                               ----      ----        ----
<S>                                                                          <C>        <C>        <C>
     Service Costs-benefits attributable to service during the period.....   $ 49,345   $ 58,403   $ 80,022
     Iterest cost on accumulated postretirement benefit obligation........    132,889    137,005    140,210
     Net amortization and deferral........................................    141,377    141,377    141,385
     Recognized past service..............................................     11,106     11,106     11,106
     Recognized gain......................................................    (88,898)   (74,678)  (59,909)
                                                                             --------   --------   --------
                                                                             $ 245,819  $273,213   $312,814
                                                                             --------   --------   --------
                                                                             --------   --------   --------
</TABLE>

   For measurement purposes, a 7% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1998. The rate was assumed to
decrease gradually to 4% by fiscal 2005, and to remain at that level thereafter.
The healthcare cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
by 1% in each year would increase the accumulated postretirement benefit
obligation as of September 30, 1998 by $148,495 and the aggregate of the service
and the interest cost components of net periodic postretirement benefit cost
(NPPBC) for the year by $19,258. The discount rate was 7% for the development of
the NPPBC and for disclosure.

                                       35

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)

   As of September 30, 1998, the Company has a regulatory asset amounting to 
$453,471 related to unrecovered SFAS 106 expenses. On October 16, 1996 the 
MDTE approved a settlement agreement between the company and intervenors for 
an increase in rates effective December 1, 1996. As part of the settlement 
agreement, the Company was allowed recovery of annual SFAS 106 expenses, as 
well as, amounts recorded as regulatory assets prior to December 1, 1996.

7) COMMITMENTS AND CONTINGENCIES

   The Company and certain of its predecessors owned or operated facilities 
for the manufacture of gas from coal, a process used through the mid-1900's 
that produced by-products that may be considered contaminated or hazardous 
under current law, and some of which may still be present at such facilities. 
The Company accrues environmental investigation and clean-up costs with 
respect to former manufacturing sites and other environmental matters when it 
is probable that a liability exists and the amount or range of amounts is 
reasonably certain.

8) UNAUDITED QUARTERLY FINANCIAL INFORMATION

   The following is unaudited quarterly information for the fiscal years ended
September 30, 1998 and 1997. Quarterly variations between periods are caused
primarily by the seasonal nature of the gas distribution business.

<TABLE>
<CAPTION>
                                          Quarter Ended                       Quarter Ended
(Thousands except per share amounts)  Dec. 31  Mar. 31  June 30  Sept. 30  Dec. 31  Mar. 31  June 30  Sept. 30
                                     -------------------------------------------------------------------------
<S>                                   <C>       <C>         <C>      <C>     <C>      <C>       <C>     <C>
Operating Revenues...............     $11,273   $18,513     $8,582   $4,303  $11,164  $20,401   $9,789  $3,907
Operating Income.................         791     1,791        429      (33)     453    1,956      556    (104)
Net Income.......................         548     1,512        249     (229)     129    1,596      271    (371)
Net Income per Share.............        0.27     0.69        0.11    (0.10)    0.07     0.90     0.15   (0.21)
</TABLE>

ITEM 9.  Disagreements On Accounting And Financial Disclosures
     None.

                                     PART III

ITEM 10.  Directors and Executive Officers Of Registrant

          Information required under this item regarding directors and 
compliance with Section 16(A) of the Exchange Act is contained in the 
Registrant's 1998 Proxy Statement, to be filed with the commission pursuant 
to Regulation 14A, and is incorporated herein by reference, pursuant to Form 
10-K General Instruction G(3). See also Additional Item - Executive Officers 
of Registrant in above.

ITEM 11.  Management Remuneration And Transactions

          Information required under this item is contained in the Registrant's
1998 Proxy Statement, filed with the commission pursuant to Regulation 14A, and
is incorporated herein by reference, pursuant to Form 10-K General Instruction
G(3).

ITEM 12.  Security Ownership Of Certain Beneficial Owners And Management

          Information required under this item is contained in the 
Registrant's 1998 Proxy Statement, filed with the commission pursuant to 
Regulation 14A, and is incorporated herein by reference, pursuant to Form 10K 
General Instruction G(3).

ITEM 13.  Certain Relationships And Related Transactions
          Not applicable.

                                       36

<PAGE>

                                     PART IV

ITEM 14.  Exhibits, Financial Statement Schedules, And Reports On Form 8-K

               (a) (1) and (2) The response to this portion if Item 14 is 
submitted in the following pages.

                    (b) The Registrant was not required to file a Form 8-K
during fiscal year 1998.








                                       37

<PAGE>

                                  SIGNATURES

          Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                    FALL RIVER GAS COMPANY

                    BY /S/  Peter H. Thanas
                    -----------------------
                    Senior Vice President and Treasurer

          Pursuant to the requirements of the Securities Exchange Act of 1934,
this report signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

<S>                               <C>                             <C>
                                  President, Chairman of
                                  the Board and Director
/S/  Bradford J. Faxon            (Chief Executive Officer         12/17/98

                                  Vice Chairman of the
/S/  Raymond H. Faxon             Board and Director               12/17/98


                                  Senior Vice President
                                     and Treasurer
                                  (Chief Financial and
/S/  Peter H. Thanas                 Accounting Officer            12/17/98


/S/  Cindy L.J. Audette                 Director                   12/17/98


/S/  Thomas K. Barry                    Director                   12/17/98


/S/  Thomas H. Bilodeau                 Director                   12/17/98


/S/  Ronald J. Ferris                   Director                    12/17/98


/S/  Jack R. McCormick                  Director                    12/17/98


/S/  Gilbert C. Oliveira Jr.            Director                    12/17/98


/S/  Donald R. Patnode                  Director                    12/17/98
</TABLE>

                                          38

<PAGE>

<TABLE>
<CAPTION>
                                                                                              Page Number or
Exhibit                                                                                       Incorporation Or
Numbers                              Description                                                Reference To
-------                              -----------                                              ----------------
<S>                                  <C>                                                      <C>
 (3)                                 Articles of Incorporation and                            Exhibit 3 to Report
                                     By-Laws                                                  on Form 10-K for
                                                                                              calender year ended
                                                                                              December 31, 1982

(3a)                                 A copy of an Amendment to the                            Exhibit 3a to Report
                                     Articles of Incorporation to                             on Form 10-K for
                                     increase the number of Common                            calendar year ended
                                     Shares from 366,889 to 1,100,667                         December 31, 1987
                                     and to change the Par Value from
                                     $5.00 to $1 2/3

(3b)                                 A copy of an Amendment to the By-Laws                    Exhibit 3b to Report
                                                                                              on Form 10-K for
                                                                                              calendar year ended
                                                                                              December 31, 1990

(3c)                                 A copy of an Amendment to the By-Laws                    Exhibit 3c to Report
                                                                                              on Form 10-K for
                                                                                              calendar year ended
                                                                                              December 31, 1991

(3d)                                 A copy of an Amendment to the Articles                   To report on Form 10-K
                                     of Incorporation, dated December 31, 1993                for calendar year ended
                                     to increase the number of Common Shares                  December 31, 1997
                                     from 1,100,667 to 2,201,334 and to change
                                     the Par Value from $1 2/3 to $0.83 1/3

(3e)                                 A copy of an Amendment to the Articles of
                                     Attached Hereto as Incorporation, dated
                                     February 19, 1998 to Exhibit 3 (e) increase
                                     the number of Common Shares from 2,201,334
                                     to 2,951,334

 (4)                                 Instruments defining the rights                          Exhibit 4 to Report
                                     of security holders, including                           on Form 10-K for
                                     indentures                                               calendar year ended
                                                                                              December 31, 1982

(4a)                                 Thirteenth Supplemental Indenture                        To report Form 10-K for
                                     between the Registrant and                               calendar year ended
                                     State Street Bank and Trust Co.                          December 31, 1997


(10a)                                Purchase of F-1 from Algonquin                           Exhibit 10a to Report
                                     Gas Transmission Company                                 on Form 10-K for
                                                                                              calendar year ended

(10b)                                Purchase of SNG from Algonquin                           Exhibit 10b to Report
                                     Gas Transmission Company                                 on Form 10-K for
                                                                                              calendar year ended
                                                                                              December 31, 1982

(10c)                                A copy of the contract between                           Exhibit 10c to Report
                                     the Registrant and Utility                               on Form 10-K for
                                     Workers Union of America, AFL-CIO                        calendar year ended
                                     and Local No. 431, dated May 1, 1984                     December 31, 1984

(10d)                                A copy of an Employment and Con-                         Exhibit 10d to Report
                                     sulting Agreement dated as of                            on Form 10-K for
                                     September 18, 1984, between the                          calendar year ended
                                     Registrant and Jack R. McCormick                         December 31, 1984

(10e)                                A copy of an Employment and con-                         Exhibit 10e to Report
                                     sulting Agreement dated as of                            on Form 10-K for
                                     September 18, 1984, between the                          calendar year ended
                                     Registrant and Bradford J. Faxon                         December 31, 1984
</TABLE>

                                       39

<PAGE>

<TABLE>
<CAPTION>
                                                                                              Page Number or
Exhibit                                                                                       Incorporation Or
Numbers                              Description                                                Reference to
-------                              -----------                                              ----------------
<S>                                  <C>                                                      <C>

(10f)                                A copy of an Employment and Con-                         Exhibit 10f to Report
                                     sulting Agreement dated as of                            on Form 10-K for
                                     September 18, 1984                                       calendar year ended
                                     Registrant and Norman J. Meyer                           December 31, 1984

(10g)                                A copy of the Restatement of Con-                        Exhibit 10g to Report
                                     sulting Agreement dated as of                            on Form 10-K for
                                     December 13, 1983, between the                           calendar year ended
                                     Registrant and Thomas H. Bilodeau                        December 31, 1984

(10h)                                A copy of an Agreement, Combined Sup-                    Exhibit 10h to Report
                                     plementary Agreement, and Amendment                      on Form 10-K for
                                     to Agreement for Employment and                          calendar year ended
                                     Consulting Services between the                          December 31, 1984
                                     Registrant and Raymond H. Faxon

(10i)                                A copy of an Amendment to Employment                     Exhibit 10i to Report
                                     and Consulting Agreement dated                           on Form 10-K for
                                     January 1, 1987 between the Regi-                        calendar year ended
                                     strant and Bradford J. Faxon                             December 31, 1986

(10j)                                A copy of an Amendment to Employment                     Exhibit 10j to Report
                                     and Consulting Agreement dated                           on Form 10-K for
                                     January 1, 1987 between the Regi-                        calendar year ended
                                     strant and Norman J. Meyer                               December 31, 1986

(10k)                                A copy of an Employment and Consulting                   Exhibit 10k to Report
                                     Agreement dated as of August 1, 1986                     on Form 10-K for
                                     between the Registrant and Peter H.                      calendar year ended
                                     Thanas                                                   December 31, 1986

(10L)                                A copy of an Amendment to Employment                     Exhibit 10L to Report
                                     and Consulting Agreement dated                           on Form 10-K for
                                     January 1, 1987 between the Regi-                        calendar year ended
                                     strant and Peter H. Thanas                               December 31, 1986

(10m)                                A copy of the Contract between the                       Exhibit 10m to Report 
                                     Registrant and Utility Workers                           on Form 10-K for 
                                     Union of America, AFL-CIO and                            calendar year ended 
                                     Local, 431, dated May 31, 1987                           December 31, 1987

(10n)                                A copy of Precedent Agreement for                        Exhibit 10n to Report
                                     Firm Sales Service under Rate                            on Form 10-K for
                                     Schedule F-4                                             calendar year ended
                                                                                              December 31, 1987

(10o)                                Settlement Agreement between DOMAC                       Exhibit 10o to Report
                                     and Registrant to terminate and                          on Form 10-K for
                                     abandon GS-1 and TS-1 Service                            calendar year ended
                                     Agreements                                               December 31, 1988

(10p)                                A copy of Service Agreement for Firm                     Exhibit 10p to Report
                                     Liquid Service between Distrigas                         on Form 10-K for
                                     and Registrant                                           calendar year ended
                                                                                              December 31, 1988

(10q)                                A copy of Service Agreement for                          Exhibit 10q to Report
                                     Interruptible Vapor Service be-                          on Form 10-K for
                                     tween Distrigas and Registrant                           calendar year ended
                                                                                              December 31, 1988

(10r)                                A copy of Service Agreement for Firm                     Exhibit 10r to Report
                                     Vapor Service between Distrigas                          on Form 10-K for
                                     and Registrant                                           calendar year ended
                                                                                              December 31, 1988
</TABLE>

                                       40

<PAGE>

<TABLE>
                                                                                              Page Number or
                                                                                              Incorporation Or
Numbers                              Description                                                Reference To
-------                              -----------                                              ----------------
<S>                                  <C>                                                      <C>
(10s)                                A copy of a Deferred Compensation                        Exhibit 10s to Report
                                     Agreement with Bradford J. Faxon                         on Form 10-K for
                                                                                              calendar year ended
                                                                                              December 31, 1989


(10t)                                A copy of a Deferred Compensation                        Exhibit 10t to Report
                                     Agreement with Peter H. Thanas                           on Form 10-K for
                                                                                              calendar year ended
                                                                                              December 31, 1989

(10u)                                A copy of the Contract between the                       Exhibit 10u to Report 
                                     Registrant and Utility Workers                           on Form 10-K for 
                                     Union of America, AFL-CIO and                            calendar year ended 
                                     Local 431, dated May 1, 1990                             December 31, 1990

(10v)                                A copy of an Employment Contract                         Exhibit 10v to Report
                                     with Bradford J. Faxon                                   on Form 10-K for
                                                                                              calendar year ended
                                                                                              December 31, 1991

(10w)                                A copy of an Employment Contract                         Exhibit 10w to Report
                                     with Peter H. Thanas                                     on Form 10-K for
                                                                                              calendar year ended
                                                                                              December 31, 1991

(10x)                                A copy of the Contract between the                       Exhibit 10x to Report 
                                     Registrant and Utility Workers                           on Form 10-K for 
                                     Union of America, AFL-CIO and                            calendar year ended 
                                     Local 431, dated May 1, 1995                             September 30, 1995

(10y)                                A copy of Gas Sales Agreement                            Exhibit 10y to Report 
                                     between CNG Gas Service Corporation                      on Form 10-K for fiscal 
                                     and Fall River Gas Company                               year ended
                                                                                              September 30, 1995

(10z)                                A copy of the Contract between the                       Attached Hereto as 
                                     Registrant and Utility Workers                           Exhibit 10(z) 
                                     Union of America, AFL-CIO and
                                     Local 431, dated May 1, 1998                             September 30, 1998




(22)                                 The Registrant has one Subsidiary,
                                     Fall River Gas Appliance Company, Inc.,
                                     that is incorporated in Massachusetts,
                                     and does business under said name

(23)                                 Consent of Independent Public Accountants                Attached
                                     To the Stockholders and Board of Directors
                                     of Fall River Gas Company
</TABLE>

                                       41

<PAGE>

                        FALL RIVER GAS COMPANY AND SUBSIDIARY

                             INDEX TO FINANCIAL STATEMENTS

                     (Submitted in Answer to Item 14 of Form 10-K,
                          Securities and Exchange Commission)

<TABLE>
<CAPTION>
                                                    Reference
<S>                                                 <C>
Report of independent public accountants            Page   26

Fall River Gas Company and Subsidiary
Consolidated balance sheets - As of
September 30, 1998 and September 30, 1997           Page   28 & 29

Consolidated statements for the years ended
September 30, 1998, 1997, and 1996
                  Income                            Page   27
                  Retained earnings                 Page   27
                  Cash flows                        Page   30

Notes to consolidated financial statements          Page   31-37
</TABLE>

                                  SCHEDULES


VIII  - Valuation and Qualifying Accounts and Reserves for the
          years ended September 30,
          1998, 1997, and 1996                                  Attached


Schedules, other than the one listed to above, are either not required or not
applicable or the required information is shown in the financial statements or
notes thereto.





                                       42

<PAGE>

                       FALL RIVER GAS COMPANY AND SUBSIDIARY      SCHEDULE VIII

                  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                          FOR YEAR ENDED SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
                                                     ADDITIONS                                        DEDUCTIONS
                                                  ---------------                                   --------------
                           Balance at          Charges to          Charges           Charges for                        Balance at
                           Beginning            Costs and          to Other         Which Reserves                        End of
        Description        of Period            Expenses           Accounts          Were Created            Other        Period
---------------------     --------------     --------------      --------------     ---------------        ----------    ---------
<S>                       <C>                <C>                 <C>                <C>                    <C>           <C>

Allowance for
 doubtful accounts        $907,357            $823,500                       -        $472,625              ($48,916)     $1,307,148
                          --------------     --------------      --------------     ---------------        ----------    ---------
</TABLE>

                          FOR YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>

                                                          ADDITIONS                               DEDUCTIONS
                                                       ---------------                          --------------
                            Balance at                                                                                  Balance at
                            Beginning           Costs and           to Other         Which Reserves                        End of
      Description           of Period           Expenses            Accounts          Were Created            Other        Period
---------------------     --------------     --------------      --------------     ---------------        ----------    ---------
<S>                       <C>                <C>                 <C>                <C>                    <C>           <C>
Allowance for
 doubtful accounts        $670,038             $761,500                    -          $563,691              ($39,510)     $907,357
                          --------------     --------------      --------------     ---------------        ----------    ---------
</TABLE>

                          FOR YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
                                                         ADDITIONS                              DEDUCTIONS
                                                      ---------------                        --------------
                            Balance at                                                                                  Balance at
                            Beginning           Costs and           to Other         Which Reserves                        End of
      Description           of Period           Expenses            Accounts          Were Created            Other        Period
---------------------     --------------     --------------      --------------     ---------------        ----------    ---------
<S>                       <C>                <C>                 <C>                <C>                    <C>           <C>
Allowance for
  doubtful accounts       $686,650            $411,500                    -          $456,348               ($28,235)     $670,038
                          --------------     --------------      --------------     ---------------        ----------    ---------
</TABLE>

                                       43