<PAGE>
 
                                   FORM 10-K
                      SECURITIES AND EXCHANGE COMMISSION
                           Washington, D. C.  20549

[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

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
 
For the transition period from ____________________ to ___________________
Commission file number 1-10032
                       ------- 

                         PROVIDENCE ENERGY CORPORATION
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

          Rhode Island                                     05-0389170
-------------------------------------------------------------------------
  (State or other jurisdiction of                      (I. R. S. Employer
   incorporation or organization)                      Identification No.)

100 Weybosset Street, Providence, Rhode Island                02903
--------------------------------------------------------------------------------
   (Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code 401-272-9191
                                                   -----------------------------

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

Title of each class                               Name of each exchange on which
-------------------                               ------------------------------
                                                  registered
                                                  ----------

Common Stock, $1.00 Par Value                     NEW YORK STOCK EXCHANGE
-------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:

                                     NONE
--------------------------------------------------------------------------------
                               (Title of Class)

     Indicate by checkmark 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 disclosure 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 reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     State the aggregate market value of the voting stock held by non-affiliates
of the Registrant, as of December 2, 1998: $125,381,227

     Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.

Common Stock, $1.00 Par Value:  5,981,898 shares outstanding at December 2, 
---------------------------------------------------------------------------
1998.
-----

DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------

Portions of the annual report to shareholders for the fiscal year ended
September 30, 1998 are incorporated by reference into Part II.
<PAGE>
 
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I                                                              PAGE
<S>                                                                <C>
Item 1 - Business
          General                                                   I-1
          Operations of the Gas Companies                           I-2
          Nonregulated Businesses                                   I-9
          Special Factors Affecting the
           Natural Gas Industry                                     I-10
          Environmental Regulations                                 I-11
          Other Standards                                           I-13

Item 2 - Properties                                                 I-14

Item 3 - Legal Proceedings                                          I-14

Item 4 - Submission of Matters to a Vote of Security Holders        I-14


PART II

Item 5 -  Market for Registrant's Common Equity and Related
          Stockholders' Matters                                     II-1

Item 6 -  Selected Financial Data                                   II-1

Item 7 -  Management's Discussion and Analysis of Financial
          Condition and Results of Operations                       II-1

Item 8 -  Financial Statements and Supplementary Data               II-1

Item 9 -  Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure                      II-1


PART III

Item 10 -  Directors and Executive Officers of the Registrant      III-1

Item 11 -  Executive Compensation                                  III-4

Item 12 -  Security Ownership of Certain Beneficial Owners
            and Management                                         III-4

Item 13 -  Certain Relationships and Related Transactions          III-4


PART IV

Item 14 -  Exhibits, Financial Statement Schedules and Reports
            on Form 8-K                                             IV-1

Experts Consent                                                     IV-5

Supplemental Schedule                                               IV-6

Signatures                                                          IV-10
</TABLE>
<PAGE>
 
PART I
------

ITEM 1. BUSINESS
----------------

     Providence Energy Corporation (the Registrant) and its subsidiaries and
their representatives may from time to time make written or oral statements,
including statements contained in the Registrant's filings with the Securities
and Exchange Commission (SEC) and in its reports to shareholders, including this
Form 10-K and annual report to shareholders, which constitute "forward-looking"
statements as that term is defined in the Private Securities Litigation Reform
Act of 1995 or by the SEC in its rules, regulations and releases.

     All statements other than statements of historical facts included in this
Form 10-K and annual report regarding the Registrant's financial position and
strategic initiatives and addressing industry developments are forward-looking
statements.  Where, in any forward-looking statement, the Registrant, or its
management, expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished.  The following
are some of the factors which could cause actual results to differ materially
from those anticipated:  general economic, financial and business conditions;
changes in government regulations; effectiveness of hedging strategies;
competition in the energy services sector; regional weather conditions; the
availability and cost of natural gas and oil;  development and operating costs;
the success and costs of  advertising and promotional efforts; the availability
and terms of capital; the business abilities and judgment of personnel; the
ability of the Registrant and its suppliers and customers to modify or redesign
their computer systems to work properly by the Year 2000; unanticipated
environmental liabilities; the Registrant's ability to grow its business through
acquisitions and/or significant customer growth;  the costs and effects of
unanticipated legal proceedings; the impacts of unusual items resulting from
ongoing evaluations of business strategies and asset valuations; and changes in
business strategy.  For more information, please see "Special Factors Affecting
the Natural Gas Industry".

General
-------

     The Registrant was organized in 1981 as a Rhode Island business
corporation. The Registrant's outstanding common shares are listed on the New
York Stock Exchange under the ticker symbol (PVY).

     The Registrant is the parent of two wholly-owned natural gas distribution
utilities, The Providence Gas Company (ProvGas) and North Attleboro Gas Company
(North Attleboro Gas), together referred to as the Gas Companies.

     In August 1996, the Registrant incorporated Providence Energy Services,
Inc. (ProvEnergy Services) to market natural gas and energy services. In May
1998, the Registrant and Southern Energy, Inc., (Southern) agreed to end their
joint efforts to develop a New England retail energy business using ProvEnergy
Services, which was doing business under the name Providence-Southern. The
Registrant will continue to use ProvEnergy Services as the vehicle to grow its
natural gas, oil, and electricity business to retail accounts in New England.

                                      I-1
<PAGE>
 
     In November 1997, as part of the Registrant's strategic plan to strengthen
its position in the energy industry, the Registrant purchased two Rhode Island-
based oil distribution companies, Super Service Oil and Mohawk Oil.  Together
with three smaller acquisitions that the Registrant also completed during 1998,
the Registrant's oil business serves over 4,000 residential customers and a
large commercial base.

     ProvGas, Rhode Island's largest natural gas distributor, was founded in
1847 and serves approximately 166,000 customers in Providence, Newport and 23
other cities and towns in Rhode Island. North Attleboro Gas serves approximately
4,000 customers in North Attleboro and Plainville, Massachusetts, towns adjacent
to the northeastern Rhode Island border. The total natural gas service territory
of the Gas Companies encompasses 760 square miles and has a population of
approximately 850,000.

     The corporate offices of the Registrant are located at 100 Weybosset
Street, Providence, Rhode Island 02903 (Telephone 401-272-5040).

Operations of the Gas Companies
-------------------------------

Customers
---------

     The Gas Companies had an average number of customers of approximately
170,000 for the twelve months ended September 30, 1998, of which approximately
90% were residential and 10% were commercial and industrial.

     The net increase in the average number of customers during fiscal 1998 over
fiscal 1997 was approximately 1,800 or 1.0%.  This increase was the result of
new housing construction and conversions from other energy sources.

     This increase was achieved in a local economy which is just now beginning
to prosper. Seasonally adjusted unemployment stood at 4.9 percent in September
1998, down from 5.2 percent twelve months earlier, and slightly above the
national average of 4.6 percent. Also, there is considerable new construction
throughout the state, especially in Providence, where the Providence Place Mall
is expected to be completed by August 1999, and six new hotels have been
proposed. A recent University of Rhode Island study predicts economic stability
in the state for the immediate future.

Gas Service
-----------

     The gas services provided by the Gas Companies can be grouped into four
categories -- firm sales, firm transportation, non-firm sales and non-firm
transportation.  Firm service is provided to those residential, commercial and
industrial customers that use natural gas throughout the year.  Non-firm service
is provided to those commercial and industrial customers that do not require
assured gas service because they can utilize an alternative fuel or otherwise
operate without gas service. Transportation service is a service where the Gas
Companies transport to certain large customers gas owned by those customers or
by third parties selling gas to those customers.

                                      I-2
<PAGE>
 
     The following table shows the distribution of gas to various customer
classes, and the total gas sold and transported by year since 1994:

<TABLE> 
<CAPTION> 
                          1998     1997     1996      1995     1994  
                          ----     ----     ----      ----     ----  
<S>                       <C>      <C>      <C>       <C>      <C>    
Firm Sales                 73.9%    80.4%    85.8%     76.4%    81.9%
Firm Transportation        16.6      6.7      1.3       0.7       -
Non-Firm Sales              5.6      9.6      9.3      17.6     15.8
Non-Firm Transportation     3.9      3.3      3.6       5.3      2.3
                          -----    -----    -----     -----    -----
                          100.0%   100.0%   100.0%    100.0%   100.0%
                          =====    =====    =====     =====    =====   
</TABLE> 

Total Gas Sold and Transported
------------------------------

<TABLE> 
<CAPTION> 
                       1998     1997     1996      1995     1994
                       ----     ----     ----      ----     ----
  <S>                  <C>      <C>      <C>       <C>      <C>     
  BCF(*)               25.4     27.3     28.1      28.1     28.7
                       ====     ====     ====      ====     ====     
</TABLE> 

(*) Gas sales are denominated in billions of cubic feet (Bcf) of natural gas.
Total gas sales include gas sold and transported by the Gas Companies.

Firm Sales
----------

     In the recent year, the distribution of the Gas Companies' firm sales was
approximately 70% to residential and 30% to commercial and industrial customers.
Firm sales represent the highest percentage of operating margin and represent
the core of the Gas Companies' business.

Non-Firm
--------

     Non-firm customers consist of two types: seasonal customers that typically
use gas only during the nonwinter months and dual-fuel customers that contract
for gas service on a year round basis, but agree to service interruption during
certain peak periods.  By retaining the right to interrupt service to the dual-
fuel customers, the Gas Companies can balance daily demand from firm customers
with available gas supply and pipeline capacity.  Non-firm customers may
interrupt their gas service, as well, when it is more economical to utilize an
alternative fuel.  Accordingly, the amount of the Gas Companies' non-firm sales
fluctuates depending upon the relative price of natural gas to alternative
fuels.

     Non-firm sales produce substantially less margin to the Gas Companies than
firm sales due to the more competitive nature of non-firm sales. Service rates
charged to dual-fuel customers are based on the price that the customer would
otherwise pay for its alternative fuel.  In fiscal year 1998, under the terms of
the Price Stabilization Plan Settlement Agreement, any margin earned from these
non-firm customers was retained by the Registrant - See "Rates and Regulation"
                                                         -------------------- 
and "Competition and Marketing".
     -------------------------  

Transportation Service
----------------------

     The Registrant provides both firm and non-firm transportation of gas.
Margin from the firm transportation of gas purchased by certain large customers
from third parties is likely to represent an increasing percentage of the Gas
Companies' future total margin due to the continuing developments affecting the
natural gas industry - see "Competition and Marketing."  In general, these
                            --------------------------                    
developments now allow customers to buy gas directly from the producer-supplier
rather than solely from the local gas distribution company. Customer-owned gas
is transported to the customer's premises through a combination of the
interstate pipelines and the Gas Companies' distribution systems.

                                      I-3
<PAGE>
 
     For a given quantity of gas, the Gas Companies' margin from firm
transportation service is comparable to the margin from firm sales.  Margin from
nonfirm transportation service is less than the margin from firm sales, but is
generally comparable to the margin from interruptible sales, depending on the
price of alternative fuels.  To the extent that the Gas Companies' existing
customers buy gas directly from producer-suppliers, the Gas Companies' revenue
will decrease although firm margin will not be materially impacted.  In fiscal
year 1998, under the terms of the Price Stabilization Plan Settlement Agreement,
any margin earned from these non-firm customers will be retained by the
Registrant - See "Rates and Regulation" and "Competition and Marketing."
                  --------------------       -------------------------- 

Gas Supply
----------

     The Registrant's principal subsidiary, ProvGas, entered into a full
requirements gas supply contract with Duke Energy Trading and Marketing, L.L.C.
(DETM) for a term of three years. Under the contract, DETM guarantees to meet
ProvGas' supply requirements; however, ProvGas must purchase all of its gas
supply exclusively from DETM.  Under the contract, ProvGas transferred
responsibility for its pipeline capacity resources, storage contracts and all
liquified natural gas capacity to DETM.  As a result, ProvGas' gas inventories
of approximately $18 million as of September 30, 1997 were sold at book value to
DETM on October 1, 1997.

     As well as providing supply for firm customers at a fixed price, DETM
provides gas at market prices to cover ProvGas' non-firm sales customers' needs
and to make up the supply imbalances of transportation customers.  DETM also
provides various other services to ProvGas' transportation service customers
including enhanced balancing, standby and the storage and peaking services
available under ProvGas' firm transportation storage service in effect since
December 1, 1997.  DETM receives the supply-related revenues from these services
in exchange for providing the supply management inherent in these services.

     Included in the DETM contract are a number of other important features.
ProvGas has retained the right to continue to make portfolio changes to reduce
supply costs.  To the extent ProvGas makes such changes, ProvGas must keep DETM
whole for the value lost over the remainder of the contract period. The contract
relieves ProvGas of the need to perform certain upstream supply management
functions which makes it possible for ProvGas to take on the additional supply
management workload required by the further unbundling of firm sales customers
without major staffing additions.

     As a result of Federal Energy Regulatory Commission (FERC) Order 636 and
other related orders (the Orders), pipeline transportation companies have
incurred significant costs, collectively known as transition costs.  The
majority of these costs will be reimbursed by the pipeline's customers,
including ProvGas. ProvGas estimates its transition costs to be approximately
$21.7 million, of which $16.2 million has been included in the Gas Charge Clause
(GCC) and collected from customers through September 30, 1997.  At September 30,
1997, the remaining minimum obligation of $5.5 million was recorded in the
accompanying Consolidated Balance Sheets along with a regulatory asset
anticipating future recovery. As part of the above supply contract, DETM assumed
liability for these transition costs during the contract's three-year term. At
the end of the three-year term of the contract, ProvGas will assume any
remaining liability, which is not expected to be material.

                                      I-4
<PAGE>
 
Rates and Regulation
--------------------

     ProvGas is subject to the regulatory jurisdiction of the Rhode Island
Public Utilities Commission (RIPUC) and North Attleboro Gas is subject to the
jurisdiction of the Massachusetts Department of Telecommunications and Energy
(MDTE) with respect to rates and charges, standards of service, accounting and
other matters.

     In August 1997, the RIPUC approved the Price Stabilization Plan Settlement
Agreement (Energize RI or the Plan) among ProvGas, the Rhode Island Division of
Public Utilities and Carriers (the Division), The Energy Council of Rhode Island
(TEC-RI), and the George Wiley Center.  Effective October 1, 1997 through
September 30, 2000, Energize RI provides customers with an initial price
decrease of approximately four percent in addition to a three-year price freeze.
Under Energize RI, the GCC was suspended for the entire term.  Energize RI also
requires ProvGas to make significant capital investments to improve its
distribution system.  In addition, Energize RI requires ProvGas to fund the Low-
Income Assistance Program at an annual level of $1 million, the Demand Side
Management Rebate Program at annual level of $.5 million and the Low-Income
Weatherization Program at an annual level of $.2 million.  Energize RI also
continues the process of unbundling by requiring ProvGas to provide unbundled
service offerings for up to 10 percent per year of firm deliveries.

     As part of Energize RI, ProvGas will amortize approximately $4.0 million of
environmental costs previously charged to the accumulated depreciation reserve.
These costs and all environmental costs incurred during the term of the Plan
will be amortized over a 10-year period.  Also, in connection with the Plan,
ProvGas wrote off approximately $1.5 million of previously deferred gas costs in
October 1997.

     Under Energize RI, ProvGas may earn up to 10.9 percent annually on its
average common equity of up to $81.0 million, $86.2 million and $92.0 million in
fiscal 1998, 1999 and 2000, respectively. In addition, ProvGas may not earn less
than a seven percent return on average common equity. In the event that ProvGas
earns in excess of 10.9 percent or less than seven percent, ProvGas will defer
revenues or costs through a deferred revenue account over the term of the Plan.
Any balance in the deferred revenue account at the end of the Plan will be
refunded to or recovered from customers in a manner to be determined by all
parties to the Plan and to be approved by the RIPUC.

     As part of Energize RI, ProvGas is permitted to file with the Division for
the recovery of the impact of exogenous Changes (Changes) which may occur during
the three-year term of the Plan.  Changes are defined as "...significant
increases or decreases in ProvGas' costs or revenues which are beyond ProvGas'
reasonable control."  Any disputes regarding either the nature or quantification
of the Changes are to be resolved by the RIPUC.  The impact of any such Changes
will be debited or credited to a regulatory asset or liability account
throughout the term of Energize RI and will be recovered or refunded at the
expiration of the Plan through a method to be determined.

    During 1998, due to the extremely warm temperatures, ProvGas experienced a
margin loss of approximately $4.0 million.  ProvGas also experienced a non-firm
margin loss of approximately $2.2 million due to adverse market prices of
natural gas versus alternate fuels.  ProvGas believes the causes of these two
events were beyond its control and thus considers them as Changes.  In fiscal
1999, ProvGas intends to file with the Division for recovery of a portion of
these losses.

                                      I-5
<PAGE>
 
    In 1998, ProvGas did not earn its allowed rate of return primarily as a
result of the extremely warm weather and the loss of non-firm margin.  Under the
Plan's design, which assumed normal weather, ProvGas should have had earnings in
year one of the Plan in excess of 10.9 percent.  The earnings in excess of 10.9
percent were to be deferred in the deferred revenue account to fund capital
investments and other Plan commitments in the remaining two years of the Plan.
Absent favorable recovery for the Changes discussed above, and/or other factors
such as colder than normal weather, ProvGas' ability to earn a 10.9 percent
return on average common equity in future Plan years is substantially impaired.

    The following table sets forth the results of ProvGas' applications
before the RIPUC, prior to Energize RI, for revenue increases since 1990.

<TABLE>
<CAPTION>
                                                        Authorized                
  Date of      Revenue Increase    Date Rates        Revenue Increase      Return on     
Application      Requested         Effective           Allowed  (*)      Common Equity 
-------------  --------------     ------------      -----------------    --------------
<S>            <C>                <C>               <C>                  <C>           
 5/17/90       $15,800,000            03/15/91       $9,176,000               12.8%
 1/15/93         9,100,000 (**)       11/14/93          694,000               11.2 
 2/16/95        14,880,000 (***)      12/17/95        4,161,572 (****)        10.9  
</TABLE>                                     

(*)    Although the RIPUC reviews and approves all changes in gas costs billed
to customers through the GCC, such changes are not part of the general rate
filings described above. See Footnotes 1 and 9 in the Notes to the Consolidated
Financial Statements contained in the Registrant's 1998 Annual Report to
Shareholders filed herewith as Exhibit 13.

(**)   Rate increase requested on January 15, 1993 of $9.1 million was
recalculated to $6,970,000 on September 14, 1993 due to cost of service
adjustments reflecting cost savings.

(***)  Rate increase requested on February 16, 1995 of $14.9 million was revised
to $13,222,000 on July 18, 1995 due to lower projected costs.

(****) The allowed annualized revenue increase of $4,161,572 is comprised of an
initial award of $3,990,000 plus a revenue adjustment of $171,572 due to a
reconsideration motion.

     In May 1996, the RIPUC approved a Rate Design Settlement Agreement (the
Agreement) among ProvGas, the Division, TEC-RI, and a consortium of oil heat
organizations.  The Agreement began a process of unbundling natural gas service
in Rhode Island, enabling customers to choose their gas suppliers.

    The Agreement included changes to ProvGas' gas cost recovery mechanism.
Specifically, the Agreement replaced the previous Cost of Gas Adjustment Clause
(CGA) with Gas Charge Clauses (GCC) effective June 2, 1996. In addition to the
commodity and related pipeline transportation costs historically included in the
CGA, the GCC provided for the recovery of: (1) inventory financing costs; (2)
working capital associated with gas supply purchases; (3) bad debt expenses
associated with the gas revenue portion of customer bills; and (4) a substantial
portion of liquefied natural gas operating and maintenance expenses, all of
which were previously recovered in base rates. Similar to the former CGA, the
GCC provided for reconciliation of total gas costs billed with the actual cost
of gas incurred. Any excess or deficiency in amounts billed as compared to costs
incurred was deferred and either refunded to, or recovered from, customers over
a subsequent period. As a result of the Price Stabilization Plan Settlement
Agreement described in Note 9 of the Consolidated Financial Statements 
included in the

                                      I-6
<PAGE>
 
Annual Report to Shareholders filed as Exhibit 13, the GCC will be suspended for
the period of October 1, 1997 through September 30, 2000. Any excess or
deficiency in amounts billed as compared to costs incurred will be retained or
borne by ProvGas during this period.

     In a decision issued September 1, 1998, the Division rejected allegations
made in a complaint brought by Aurora Natural Gas that ProvGas provided advance
information and undue preference in pricing to its marketing affiliate,
ProvEnergy Services.  As part of its investigation, the Division ordered
marketer refunds of $.3 million.  The Division ordered this refund based on its
belief that an unfair rate was charged to customers who did not have operational
telemeters in place when they began transporting gas.  ProvGas intends to pursue
all available options in order to reverse this decision.

Competition and Marketing
-------------------------

     In addition to funding investments related to system integrity, Energize RI
provides opportunities for ProvGas to expand sales.  For example, high pressure
service to Quonset/Davisville Industrial Port & Commerce Park, a key area for
State economic development, provides tremendous opportunities for sales growth
as commercial and industrial businesses locate within the park.  In addition,
Demand-Side Management, an equipment rebate program, provides opportunities to
expand sales to nontraditional applications, such as air conditioning and fuel
cells.  ProvGas has redirected its sales and marketing efforts to leverage
Energize RI, as well as other opportunities to promote sales growth within its
service territory.

     In response to the large increase of both state-owned and private fleet
vehicles powered by natural gas, ProvGas invested approximately $.3 million to
renovate its Providence "quick-fill" station for natural gas vehicles - one of
three stations ProvGas operates in the state.  Fleet operators throughout the
region are expressing greater interest in alternative-fuel vehicles.  One of
these operators is the Rhode Island Public Transit Authority, which recently
launched a major program to replace a large number of its 200 diesel buses with
buses that operate solely on natural gas.  A new Rhode Island law provides
substantial tax incentives which, along with the Federal Department of Energy's
designation of Providence as a "clean city" should increase use and awareness of
the benefits of natural gas vehicles.

     Per the Agreement with the RIPUC that went into effect in June 1996, the
initial phase of unbundling was available to approximately 120 of the largest
commercial and industrial customers. In August 1997, the RIPUC approved a plan,
called Business Choice, to further unbundle services to an additional 3,400
medium and large commercial and industrial customers. ProvGas commenced Business
Choice in December 1997. Energize RI continues the process of unbundling by
requiring ProvGas to provide unbundled service offerings for up to 10 percent
per year of firm deliveries. At the conclusion of the latest enrollment period
on October 1, 1998, an additional 530 customers had signed up for Business
Choice. The program now has approximately 1,500 firm transportation customers
with annual deliveries of over 5 billion cubic feet per year which is
approximately 25 percent of ProvGas' total annual firm deliveries. There are 14
different marketers serving ProvGas' customers and transporting on the system.

                                      I-7
<PAGE>
 
     In 1996, ProvGas implemented a Demand Side Management (DSM) Program, which
furnishes rebates to customers installing new technologies, such as gas fired
air conditioning, cogeneration and gas motors.  These technologies use
proportionately more natural gas during the summer months, when the distribution
system has available capacity.  The DSM Program also allows for the utilization
of existing resources, such as mains, services and year-round supply contracts.
This DSM Program will continue to be funded under Energize RI.

     The discussion of Competition and Marketing for the Registrant's non-
regulated businesses can be found in the "Nonregulated Businesses" section.
                                          -----------------------          

Employees
---------

     As of September 30, 1998, the Registrant had 637 full-time employees.
Approximately 269 of ProvGas' distribution and customer service employees are
covered by a collective bargaining agreement with Local 12431-01 of the United
Steelworkers of America, which became effective in January 1996.

     The bargaining agreement was developed by a labor-management negotiations
committee and contains a provision allowing the agreement to be reopened for any
reason at any time in order for the committee to deal with new issues as they
arise. The provision results in increased flexibility in the use of employees.
The original agreement called for a general wage increase of 3.25% each year 
from 1997 to 2000. 

     In April 1998 the contract with Local 12431-01 was renegotiated and 
extended to January 2002.  This negotiation provides for a 3.5% wage increase 
in January 1999, January 2000, and January 2001.

     Additionally, in March 1996, a 38 month Labor Agreement was ratified by
Local 12431-02 of the United Steelworkers of America, which represents 90 office
and clerical employees of ProvGas.  The agreement called for an average general
wage increase of 2.9 percent in 1998.

     In April 1998 the contract with Local 12431-02 was renegotiated and 
extended to May 2002.  This negotiation provides for a 3.5% wage increase in 
June 1999, June 2000, and June 2001.

Gas Distribution Systems
------------------------

     The Gas Companies' distribution systems consist of approximately 2,400
miles of gas mains ranging in size from 2 to 36 inches in diameter,
approximately 144,000 services (a "service" meaning a pipe connecting a gas main
with piping on a customer's premises), and approximately 168,000 active gas
meters together with related facilities and equipment. The Gas Companies have
regulating and metering facilities at nine points of delivery from Algonquin Gas
Transmission Company and one point of delivery from Tennessee Gas Pipeline
Company, which the Gas Companies presently believe to be adequate for receiving
gas into their distribution systems.

                                      I-8
<PAGE>
 
Nonregulated Businesses
-----------------------

    In November 1997, as part of the Registrant's strategic plan to strengthen
its position in the energy industry, the Registrant purchased two Rhode Island-
based oil distribution companies, Super Service Oil and Mohawk Oil.  Together
with three smaller acquisitions that the Registrant also completed during 1998,
the Registrant's oil business serves over 4,000 residential customers with a
large commercial base.  While these acquisitions further the Registrant's
transition to a diversified energy provider, the oil business sustained
substantial operating losses in 1998 during the first year of operations.  These
losses were primarily due to lost operating margin from warmer than normal
weather, lower than anticipated commercial margins and the costs associated with
liquidating fixed purchase commitments and option contracts for oil when market
prices dropped significantly.

    An increase in sales to customers to be acquired by acquisition, as well as
a planned return to typical profit margins, are expected to reduce the loss
sustained in 1998 so that only a small loss is generated in 1999.  More
favorable profit margins should be achieved as substantially all sales
commitments have been hedged with financial instruments to protect the business
from the impact of dramatic price movements.  Additionally, management is
focusing its marketing efforts on the higher margin residential segment.

    The Registrant's retail energy marketing subsidiary, ProvEnergy Services,
also has substantial growth opportunities as the New England energy markets
deregulate.  ProvEnergy Services experienced natural gas sales volume growth of
150 percent and a fifteen-fold increase in the number of customers in 1998.
ProvEnergy Services expects significant customer growth again in 1999, but
forecasts a small operating loss.

    In May 1998, the Registrant and Southern Energy, Inc. (Southern) agreed to
end their joint efforts to develop a New England retail energy business using
ProvEnergy Services, which was doing business under the name Providence-
Southern. The Registrant will continue to use ProvEnergy Services as the vehicle
to grow its natural gas, oil and electricity business to retail accounts
throughout New England.

    During 1998, ProvEnergy Services made a successful transition from Southern
to other natural gas suppliers, including DETM, to provide its wholesale natural
gas supply. In the future, ProvEnergy Services anticipates the continued
availability of competitively priced wholesale energy supplies.

    Through May 1998, Southern funded 60 percent of the net retail start-up
operating expenses incurred by ProvEnergy Services.  ProvEnergy Services
anticipates growing the business sufficiently to generate only a small operating
loss for 1999.

    In July 1998, the Registrant and ERI Services, Inc. (ERI Services) formed a
joint venture, Capital Center Energy Company, LLC (CCEC).  CCEC is owned 50
percent by the Registrant's subsidiary, ProvEnergy Power Company, LLC, and 50
percent by ERI Services' subsidiary, ERI Providence, LLC.  CCEC's wholly-owned
subsidiary, DownCity Energy Company, LLC (DownCity Energy), was selected as the
exclusive electric, heat and air conditioning (HVAC) and related service
provider for most of the Providence Place Mall (the Mall) for the next thirty
years.

                                      I-9
<PAGE>
 
    DownCity Energy will serve more than three million square feet of retail
stores, common areas, offices and parking facilities in the Mall.  Currently,
the Mall's three anchor stores and the cinema are not included in the plan.  The
electric demand to be met by DownCity Energy is expected to be 12 megawatts, the
approximate consumption of more than 6,500 households. The system being
developed for the Mall includes three on-site natural gas powered electric
generators.

    Under the agreement with Commonwealth Development Group, developers of the
Mall, DownCity Energy will perform the following:

    .  Own, operate and maintain the HVAC systems.
    .  Provide electric supply and emergency power.
    .  Own, operate and maintain a six megawatt on-site generation plant to
       provide electric and emergency supply.
    .  Provide metering services for each of the tenants.
    .  Manage all energy billing to the tenants and the developer.

    Construction of the energy systems began this summer. The entire energy
project will be operational in advance of the scheduled August 1999 opening of
the Mall. DownCity Energy did not have a significant impact on the Registrant's
results of operations in 1998.  The projected investment in CCEC is $30 million.
As of September 30, 1998, the Registrant had invested $2 million of its total
projected investment of $15 million. This contract, the largest of its kind in
New England, has the potential to increase the Registrant's earnings by five
percent within five years.

Special Factors Affecting the Natural Gas Industry
--------------------------------------------------

General
-------

    The natural gas industry is subject to numerous legislative and regulatory
requirements, standards and restrictions that are subject to change and that
affect the Gas Companies to varying degrees. Significant industry factors that
have affected or may affect the Gas Companies from time to time include: lack of
assurance that rate increases can be obtained from regulatory authorities in
adequate amounts on a timely basis; changes in the regulations governing the Gas
Companies' operations; ability to adapt to FERC regulatory changes; reductions
in the prices of oil and propane, which can make those fuels less costly than
natural gas in some markets; and increases in the price of natural gas.

FERC Regulations
----------------

    In recent years, FERC has been attempting to increase competition with
regard to the transportation and sale of natural gas in interstate commerce.
Beginning in late 1985, FERC began promulgating orders that allow all industry
participants access to pipeline transportation on an open, nondiscriminatory
basis to the extent of available capacity.

    Recent FERC orders are in furtherance of its policy to make gas
transportation and alternate supply sources more accessible to all parties,
including local distribution companies and their customers. Such open access
allows the Gas Companies to obtain their supply through a more competitive
national gas pipeline system, where and when capacity is available.

                                      I-10
<PAGE>
 
    FERC Order 636 and other related orders (the Orders) have significantly
changed the structure and types of services offered by pipeline transportation
companies.  The most significant components of the restructuring occurred in
November 1993.  In response to these changes, the Gas Companies have negotiated
new pipeline transportation and gas storage contracts.

    To meet the requirements of the Orders, the pipelines have incurred
significant costs, collectively known as transition costs.  The majority of
these costs will be reimbursed by the pipelines' customers including ProvGas.
ProvGas anticipates its transition costs to be approximately $21.7 million of
which $16.2 million has been included in the GCC and has been collected from
customers through September 30, 1997.  At September 30, 1997 the remaining
minimum obligation of $5.5 million has been recorded in the accompanying
Consolidated Balance Sheets (filed herewith as part of Item 8) along with a
regulatory asset anticipating future recovery.  As part of the supply contract
with DETM, which was effective October 1, 1997, DETM assumed liability for the
transition costs during the contract's three-year term.  At the end of the
three-year term of the contract, ProvGas will assume any remaining liability,
which is not expected to be material.

Environmental Regulations
-------------------------

    Federal, state and local laws and regulations establishing standards and
requirements for the protection of the environment have increased in number and
in scope in recent years.  The Registrant cannot predict the future impact of
such standards and requirements, which are subject to change and can take effect
retroactively.  The Registrant continues to monitor the status of these laws and
regulations.  Such monitoring involves the review of past activities and current
operations, and may include expending funds to investigate or clean up certain
sites.  To the best of its knowledge, subject to the following, the Registrant
believes it is in substantial compliance with such laws and regulations.

    At September 30, 1998, ProvGas was aware of five sites at which future costs
may be incurred.

    ProvGas has been designated as a potentially responsible party (PRP) under
the Comprehensive Environmental Response Compensation and Liability Act of 1980
at two sites in Plympton, Massachusetts on which waste material is alleged to
have been deposited by disposal contractors employed in the past either directly
or indirectly by ProvGas and other PRPs. With respect to one of the Plympton
sites, ProvGas has joined with other PRPs in entering into an Administrative
Consent Order with the Massachusetts Department of Environmental Protection. The
costs to be borne by ProvGas, in connection with both Plympton sites, are not
anticipated to be material to the financial condition of ProvGas.

    During 1995, ProvGas began a study at its primary gas distribution facility
located in Providence, Rhode Island.  This site formerly contained a
manufactured gas plant operated by ProvGas. As of September 30, 1998,
approximately $2.0 million was spent primarily on studies at this site.  In
accordance with state laws, such a study is monitored by the Rhode Island
Department of Environmental Management (DEM).  The purpose of this study was to
determine the extent of environmental contamination at the site.  ProvGas has
completed the study which indicated that remediation will be required  for two-
thirds of the property. The remediation is expected to begin in February 1999
and will continue for a duration of three to six months. During the remediation
process, the remaining one-third of the property will also be investigated and
remediated if necessary.

                                      I-11
<PAGE>
 
    At September 30, 1998, ProvGas compiled a preliminary range of costs, based
on removal and off-site disposal or recycling of contaminated soil, ranging from
$1.8 million to in excess of $5.0 million. However, because of the uncertainties
associated with environmental assessment and remediation activities, the future
cost of remediation could be higher than the range noted. Based on the proposals
for remediation work, ProvGas has accrued $1.8 million at September 30, 1998,
for anticipated future remediation costs at this site.

    Tests conducted following the discovery of an abandoned underground oil
storage tank at ProvGas' Westerly, Rhode Island operations center in 1996
confirmed the existence of contaminants at this site. ProvGas is currently
conducting tests at this site, the costs of which are being shared equally with
the prior owner, to determine the nature and extent of the contamination. Due to
the early stages of investigation, management cannot offer any conclusions as to
whether any remediation will be required at this site.  In addition, in 1997,
contamination from scrapped meters and regulators was discovered at this site.
ProvGas has reported this to DEM and the Rhode Island Department of Health and
is in the process of remediation.  It is anticipated that remediation will cost
approximately $10,000. Accordingly, ProvGas has accrued $10,000 at September 30,
1998 for anticipated future remediation costs.

    In November 1998, ProvGas received a letter of responsibility from DEM
relating to possible contamination on previously-owned property on Allens Avenue
in Providence.  The current owner of the property has been similarly notified.
The Registrant lacks sufficient information at this time to determine the
validity of the claim, the amount of the clean-up costs or any defenses which
may be available with respect to such claim.

    In prior rate cases filed with the RIPUC, ProvGas requested that
environmental investigation and remediation costs be recovered by inclusion in
its depreciation factors consistent with the rate recovery treatment for all
types of cost of removal. Due to the magnitude of ProvGas' environmental
investigation and remediation expenditures, ProvGas sought current recovery for
these amounts. As a result, in accordance with the Price Stabilization Plan
Settlement Agreement described in "Rates and Regulation", effective October 1,
1997, all environmental investigation and remediation costs incurred through
September 30, 1997, as well as all costs incurred during the three-year term of
the Plan, will be amortized over a ten-year period. Additionally, it is ProvGas'
practice to consult with the RIPUC on a periodic basis when, in management's
opinion, significant amounts might be expended for environmental-related costs.
As of September 30, 1998, ProvGas charged environmental assessment and
remediation costs of $2.6 million and an estimated $1.8 million to the
accumulated depreciation reserve and has amortized $.4 million of these costs.

    Management has begun discussions with other parties who may assist ProvGas
in paying any future costs at the above sites. Management believes that its
program for managing environmental issues, combined with rate recovery and
financial contributions from others, will likely avoid any material adverse
effect on its results of operations or its financial condition as a result of
the ultimate resolution of the above sites.

                                      I-12
<PAGE>
 
Other Standards
---------------

     The Gas Companies are 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 of pipeline
facilities. The enforcement of these standards has been delegated to the RIPUC
and MDTE and management believes that the Gas Companies are in substantial
compliance with all present requirements imposed by these agencies.

                                      I-13
<PAGE>
 
ITEM 2. PROPERTIES
------------------

    In addition to the Registrant's gas distribution system and storage
facilities, which constitute the principal properties of the Registrant, the
Registrant owns several buildings and other facilities in Newport, Warwick,
Providence, Johnston and Westerly that house its offices and provide floor space
for its energy distribution and maintenance facilities.

    Substantially all the foregoing properties are mortgaged as collateral for
the outstanding First Mortgage Bonds of ProvGas.

ITEM 3. LEGAL PROCEEDINGS
-------------------------

    The Registrant is involved in legal and administrative proceedings in the
normal course of business, including certain proceedings involving material
amounts in which claims have been or may be made.  However, management believes,
after review of insurance coverage and consultation with legal counsel, that the
ultimate resolution of the legal proceedings to which it is or can at the
present time be reasonably expected to be a party, will not have a materially
adverse effect on the Registrant's results of operations or financial condition.

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

 Not Applicable

                                      I-14
<PAGE>
 
                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCK-
--------------------------------------------------------------------
        HOLDERS' MATTERS
        ----------------

      The Registrant's common stock is listed on the New York Stock Exchange and
      trades under the symbol "PVY".  As of December 2, 1998, there were 5,649
      registered holders of record of the Registrant's outstanding common stock.
      For the balance of the information called for by this item, reference is
      made to the materials under 'Dividends' and 'Common stock information' in
      the Registrant's Annual Report to Shareholders for the fiscal year ended
      September 30, 1998, which is filed herewith under Part IV as Exhibit 13.

ITEM 6. SELECTED FINANCIAL DATA
-------------------------------

      For the information called for by this item, reference is made to page 20
      of the Registrant's Annual Report to Shareholders (pages 13 through 14 of
      this Form 10-K) for the fiscal year ended September 30, 1998, which is
      filed herewith under Part IV as Exhibit 13.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-------------------------------------------------------------------
        AND RESULTS OF OPERATIONS
        -------------------------

      Regarding the information that relates to this item, reference is made to
      pages 12 through 18 of the Registrant's Annual Report to Shareholders
      (pages 1 through 10 of this Form 10-K) for the fiscal year ended September
      30, 1998, which is filed herewith under Part IV as Exhibit 13.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------

      For the information called for by this item, reference is made to pages 21
      through 36 of the Registrant's Annual Report to Shareholders (pages 15
      through 37 of this Form 10-K) for the fiscal year ended September 30,
      1998, which is filed herewith under Part IV as Exhibit 13.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-------------------------------------------------------------------
        AND FINANCIAL DISCLOSURE
        ------------------------

      Not applicable


                                     II-1
<PAGE>
 
                                   PART III
                                   --------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
     The following information is furnished with respect to the executive
officers of the Registrant:

<TABLE>
<CAPTION>
                                                                   Year         
                                                                  Office
Name and Age                              Office                First Held
------------                              ------                ----------
<S>                      <C>    <C>                             <C>  
James H. Dodge           (58)   Chairman, President and Chief
                                Executive Officer                   1992
 
James DeMetro            (50)   Senior Vice President               1996
 
Gary S. Gillheeney       (43)   Senior Vice President, Chief
                                Financial Officer, Treasurer
                                and Assistant Secretary             1996
 
Robert W. Owens          (50)   Senior Vice President               1996
 
James A. Grasso          (44)   Vice President, Public and
                                Government Affairs                  1997
 
Royalynne J. Hourihan    (54)   Vice President, Human Resources     1998*
 
Susann G. Mark           (51)   Vice President, General Counsel
                                and Secretary                       1998
 
Gerald A. Yurkevicz      (41)   Vice President, Marketing           1996
 
Harry J. Bishop          (52)   Assistant Treasurer                 1998**
</TABLE>

     Mr. Dodge was elected President and Chief Executive Officer of the
Registrant and ProvGas in August 1990 after the retirement of Louis R. Hampton.
Mr. Dodge subsequently became Chairman of the Board in January 1992. Mr. Dodge
currently serves as a member of the Board of Capital Properties, Inc., a non-
affiliated real estate leasing company.

     Mr. DeMetro was elected Senior Vice President of the Registrant and ProvGas
in February 1996. For more than four years prior thereto, Mr. DeMetro served the
Registrant and ProvGas as Vice President, Energy Services.

     Mr. Gillheeney was elected Senior Vice President and Chief Financial
Officer of the Registrant and ProvGas in February 1996, and Treasurer and
Assistant Secretary of the Registrant and ProvGas in January 1994. For more than
two years prior to February 1996, Mr. Gillheeney served ProvGas as Vice
President, Financial Information Services. For more than five years prior
thereto, Mr. Gillheeney served ProvGas in various management positions, with his
last position as Assistant Treasurer and Controller.

     Mr. Owens was elected Senior Vice President of the Registrant and ProvGas
in February 1996. For more than a year prior thereto, Mr. Owens served the
Registrant and ProvGas as Vice President Operations. For more than five years
prior thereto, Mr. Owens served the Registrant and ProvGas in various management
positions, with his last position as Vice President, Treasurer and Chief
Financial Officer.

                                     III-1
<PAGE>
 
     Mr. Grasso was elected Vice President, Public and Government Affairs in May
1997. For three years prior thereto, Mr. Grasso served as Director of Public and
Government Relations of the Eastern Region of Pan Energy Corporation and Manager
of Public and Government Relations of Algonquin Gas Transmission Company. For
ten years prior thereto, Mr. Grasso served as Manager of Land, Public and
Government Relations of Algonquin Gas Transmission Company.

     Mrs. Hourihan was elected Vice President, Human Resources effective
November 1998. For two years prior thereto, Mrs. Hourihan served as the senior
human resources professional of the Boston Public Schools District, Boston,
Massachusetts. For two years prior thereto, Mrs. Hourihan served as Vice
President, Human Resources of the Philadelphia Inquirer & Daily News. For four
                                               ---------------------
years prior thereto, Mrs. Hourihan served as Director, Human Resources - Eastern
Region of Wang Laboratories, Inc.

     Ms. Mark was elected Vice President, General Counsel and Secretary of the
Registrant in April 1998. For one year prior to that, Ms. Mark was a partner in
the Business Law Group at Brown, Rudnick, Freed & Gesmer and for eight years
prior to that was a partner in the Corporate Law Practice Group at Licht and
Seminoff.
 
     Mr. Yurkevicz was elected Vice President, Marketing of the Registrant in
August 1996.  For ten years prior thereto, Mr. Yurkevicz served as Principal in
the Energy Practice at Mercer Management Consulting.

     Mr. Bishop was elected Assistant Treasurer effective October 1, 1998.  For
four years prior thereto, Mr. Bishop served as Director of Finance and Revenue
Requirements for ProvGas.

* Effective November 30, 1998.
** Effective October 1, 1998.

                                     III-2
<PAGE>
 
DIRECTORS OF THE REGISTRANT
---------------------------

     For information called for by this item, reference is made to pages 2
through 6 of the Registrant's proxy statement filed December 16, 1998 with the
Securities and Exchange Commission for the annual meeting of shareholders to be
held January 14, 1999.

                                     III-3
<PAGE>
 
ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

  For the information called for by this item, reference is made to pages 7
through 14 of the Registrant's proxy statement filed December 16, 1998 with the
Securities and Exchange Commission for the annual meeting of shareholders to be
held January 14, 1999.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------

  For the information called for by this item, reference is made to page 15 of
the Registrant's proxy statement filed December 16, 1998 with the Securities and
Exchange Commission for the annual meeting of shareholders to be held January
14, 1999.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

  For the information called for by this item, reference is made to page 6 of
the Registrant's proxy statement filed December 16, 1998 with the Securities and
Exchange Commission for the annual meeting of shareholders to be held January
14, 1999.

                                     III-4
<PAGE>
 
                                    PART IV
                                    -------


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------

PROVIDENCE ENERGY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES


(a) Financial Statements and Schedules
    ----------------------------------

Consolidated Balance Sheets--September 30, 1998 and 1997
Consolidated Statements of Income for the years ended September 30,
 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended September 30,
 1998, 1997 and 1996
Consolidated Statements of Capitalization--September 30, 1998
 and 1997
Consolidated Statements of Changes in Common Stockholders' Investment for
 the years ended September 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Consent of Independent Public Accountants

The financial statements and related notes listed above are incorporated
by reference from Providence Energy Corporation's Annual Report to Shareholders
(see pages 15 through 37 of this Form 10-K) for the year ended September 30,
1998, filed herewith as Exhibit 13.

Schedule II.  Reserves for the years ended September 30, 1998, 1997 and 1996.

  Schedules I to XIII not listed above are omitted as not applicable or not
required under Regulation S-X.

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

  On September 16, 1998 the Registrant filed a report on Form 8-K regarding the
Rhode Island Division of Public Utilities and Carrier's rejection of allegations
of preferential treatment received by the Registrant's marketing affiliate.

                                     IV-1
<PAGE>
 
(c) Exhibits
    --------

  The following exhibits are filed as part of this report:

  3.1    Articles of Incorporation, as amended (incorporated by reference to
         Exhibit 4(e) to the Registration Statement of the Registrant on Form S-
         2 (Registration No. 33-24125)).

  3.2    Bylaws (incorporated by reference to Exhibit C to the Proxy
         Statement/Prospectus forming a part of the Registrant's Registration
         Statement on Form S-14 (Registration No. 2-69473), as amended at the
         annual meetings of the shareholders held January 14, 1985 and January
         14, 1991, the text of such amendments being set forth in each case as
         Exhibit A to the proxy statement for such annual meeting, heretofore
         filed with the Securities and Exchange Commission and being
         incorporated herein by this reference).
 
  4.1    First Mortgage Indenture of The Providence Gas Company dated as of
         January 1, 1922, as supplemented by First through Twelfth Supplemental
         Indentures (incorporated by reference to Exhibit 10.10 to the
         Registration Statement of The Providence Gas Company on Form S-1
         (Registration No. 2-72726)).

  4.2    Fourteenth, Fifteenth and Sixteenth Supplemental Indentures of The
         Providence Gas Company dated as of August 1, 1988, June 1, 1990 and
         November 1, 1992, respectively (incorporated by reference to Exhibit 4
         to the report of the Registrant to the Securities and Exchange
         Commission on Form 10-Q for the quarter ended March 31, 1993).

  4.3    Seventeenth Supplemental Indenture of The Providence Gas Company dated
         as of November 1, 1993. (Filed as Exhibit 4.5 to the report of the
         Registrant on Form 10-K for the year ended September 30, 1993
         incorporated herein by this reference.)

  4.4    Eighteenth Supplemental Indenture of The Providence Gas Company dated
         as of December 1, 1995.  (Filed as Exhibit 4.6 to the report of the
         Registrant on Form 10-K for the year ended September 30, 1995
         incorporated herein by this reference.)

  4.5    Nineteenth Supplemental Indenture of The Providence Gas Company dated
         as of April 1, 1998. (Filed as Exhibit 4.5 to the report of The
         Providence Gas Company on Form 10-K for the year ended September 30,
         1998, incorporated herein by this reference.)

  4.6    Stock Rights Agreement (Filed as Exhibit 4.1 to the report of the
         Registrant on Form 8-K  File No. 001-10632 dated July 29, 1998,
         incorporated herein by this reference.)

 10.1    Material contracts filed as Exhibit 10 (a) through 10 (ff) to
         Registration Statement of the Registrant on Form S-2 (Registration No.
         33-24125), incorporated herein by this reference.

 10.2    Employment Agreement dated October 29, 1997 between James H. Dodge,
         Chairman, President and Chief Executive Officer of the Registrant.
         (Filed as Exhibit 10.2 to the report of The Registrant in Form 10-K for
         the year ended September 30, 1997, incorporated herein by this
         reference.)

                                     IV-2
<PAGE>
 
  10.3   Employment Agreement dated October 29, 1997 between James DeMetro,
         Senior Vice President of The Registrant. (Filed as Exhibit 10.3 to the
         report of The Registrant in Form 10-K for the year ended September 30,
         1997, incorporated herein by this reference.)

  10.4   Employment Agreement dated October 29, 1997 between Robert W. Owens,
         Senior Vice President of the Registrant. (Filed as Exhibit 10.4 to the
         report of The Registrant in Form 10-K for the year ended September 30,
         1997, incorporated herein by this reference.)

  10.5   Employment Agreement dated October 29, 1997 between Gary S. Gillheeney,
         Senior Vice President, Chief Financial Officer, Treasurer and Assistant
         Secretary of the Registrant. (Filed as Exhibit 10.5 to the report of
         The Registrant in Form 10-K for the year ended September 30, 1997,
         incorporated herein by this reference.)

  10.6   Employment Agreement dated July 23, 1998 between James A. Grasso, Vice
         President, Public and Government Affairs and the Registrant.

  10.7   Employment agreement dated May 26, 1998 between Susann G. Mark, Vice
         President, General Counsel and Secretary and the Registrant.  (Filed as
         Exhibit 10a to Form 10-Q for the quarter ended June 30, 1998,
         incorporated herein by this reference.)

  10.8   Employment Agreement dated October 29, 1997 between Gerald A.
         Yurkevicz, Vice President, Marketing and the Registrant. (Filed as
         Exhibit 10.9 to the report of the Registrant in Form 10-K for the year
         ended September 30, 1997, incorporated herein by this reference.)

  10.9   Redacted gas supply contract dated October 1, 1997 between Duke Energy
         Trading and Marketing, L.L.C. and The Providence Gas Company.  (Filed
         as Exhibit 10 to the report of The Providence Gas Company on Form 10-Q
         for the quarter ended June 30, 1998, incorporated herein by this
         reference.)

  10.10  1989 Non-Employee Director Stock Option Plan (incorporated by reference
         to Exhibit A to the Registrant's proxy statement for the annual meeting
         of shareholders held January 9, 1989, heretofore filed with the
         Securities and Exchange Commission).

  10.11  1989 Stock Option Plan (incorporated by reference to Exhibit B to the
         Registrant's proxy statement for the annual meeting of shareholders
         held January 9, 1989, heretofore filed with the Securities and Exchange
         Commission).

  10.12  Non-Employee Director Stock Plan (incorporated by reference to Exhibit
         4.3 to Form S-8 (Registration No. 333-25415).

  10.13  1998 Performance Share Plan.

  13     Portions of the Annual Report to Shareholders for the fiscal year ended
         September 30, 1998. (Pages 1 through 37)

  21     Subsidiaries of the Registrant.

                                     IV-3
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To The Board of Directors of
Providence Energy Corporation:

  We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in Providence Energy Corporation's
annual report to shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated November 6, 1998.  Our audit was made for
the purpose of forming an opinion on those statements taken as a whole.  The
schedule listed in the accompanying index to the financial statements is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements.  This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states, in all material respects, the financial data
required to be set forth therein, in relation to the basic financial statements
taken as a whole.


Arthur Andersen LLP



/s/ Arthur Andersen LLP
-----------------------
Boston, Massachusetts
November 6, 1998

                                     IV-4
<PAGE>
 
                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


To The Board of Directors of
Providence Energy Corporation:

As independent public accountants, we hereby consent to the incorporation by
reference of our report dated November 6, 1998, included in this Form 10-K, into
the Company's previously filed Registration Statements on Forms S-3,
Registration No. 33-62318; S-3, Registration No. 33-70086; S-3, Registration No.
33-31768; S-8, Registration No. 33-31769; S-8, Registration No. 33-31770; S-8,
Registration No. 33-43031; S-8, Registration No. 33-04209; and S-8, Registration
No. 333-25415. It should be noted that we have not audited any financial
statements of the Company subsequent to September 30, 1998, or performed any
audit procedures subsequent to the date of our report.


Arthur Andersen LLP



/s/ Arthur Andersen LLP
-----------------------
Boston, Massachusetts
December 21, 1998

                                     IV-5
<PAGE>
 
Supplemental Schedule

                       PROVIDENCE ENERGY CORPORATION      Schedule II
                       -----------------------------                 
                        RESERVES FOR THE YEARS ENDED
                        -----------------------------
          SEPTEMBER 30, 1998, SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
         --------------------------------------------------------------
                           (Thousands of Dollars)

<TABLE> 
<CAPTION> 
                                                                         Charge                 
                                                                         for                    
                                                                         Which                  
                                          Additions                      Reserves           
                               Balance    Charged        Other           Were      Balance   
                               9/30/97    to Operations  Add (Deduct)    Created   9/30/98   
                               -------    -------------  ------------    -------   -------  
<S>                            <C>        <C>            <C>             <C>       <C> 
RESERVES DEDUCTED FROM        
 ASSETS:                     
 Accounts receivable         
   Allowance for             
    doubtful accounts          $ 1,811     $ 5,063       $    47          $  4,317   $ 2,604     
   Allowance for lease                                                                 
     receivables -                                                                     
      current                       27           -             -                 1        26      
      other                         48          42             -                 -        90
                               -------     -------       -------          --------   -------      
  Total                        $ 1,886     $ 5,105       $    47          $  4,318   $ 2,720     
                               =======     =======       =======          ========   =======    
 Allowance for lease                                                                   
   receivables -                                                                       
     long-term                 $   401     $    72       $     -          $    101   $   372     
                               =======     =======       =======          ========   =======    
                                                                                       
DEFERRED CREDITS AND                                                                   
 RESERVES:                                                                             
 Accumulated deferred                                                                  
   income taxes                $21,495     $   820       $   (23)         $      -    22,292     
                               -------     -------       -------          --------   -------    
 Unamortized investment                                                                
   tax credit                    2,375           -             -               158     2,217      
                               -------     -------       -------          --------   --------    
 Other-                                                                                
   Liability and                                                                       
     damage reserve                621         (21)            -               121       479     
   Other                         9,236         549          (961)(A)           520     8,304     
                               -------     -------       -------          --------   -------    
     Total other                 9,857         528          (961)              641     8,783     
                               -------     -------       -------          --------   -------    
     Total deferred                                                                    
      credits and                                                                      
       reserves                $33,727     $ 1,348       $  (984)         $    799   $33,292       
                               =======     =======       =======          ========   =======
</TABLE> 

                                     IV-6
<PAGE>
 
                                         Schedule II (cont'd)

<TABLE> 
<CAPTION> 
                                                                           Charge               
                                                                           for                  
                                                                           Which                
                                            Additions                      Reserves             
                                 Balance    Charged        Other           Were      Balance    
                                 9/30/96    to Operations  Add (Deduct)    Created   9/30/97    
                                 -------    -------------  ------------    -------   -------    
<S>                              <C>        <C>            <C>             <C>       <C>          
RESERVES DEDUCTED FROM        
 ASSETS:            
 Accounts receivable
   Allowance for    
    doubtful account               $ 3,195     $ 5,200      $     -         $ 6,584   $ 1,811        
   Allowance for lease                                                                        
     receivables -                                                                            
      current                           27           1            -               1        27         
      other                              9          94            -              55        48         
                                   -------     -------      -------         -------   -------        
  Total                            $ 3,231     $ 5,295      $     -         $ 6,640   $ 1,886        
                                   =======     =======      =======         =======   =======       
 Allowance for lease                                                                          
   receivables -                                                                              
     long-term                     $   403     $   138      $     -         $   140   $   401        
                                   =======     =======      =======         =======   =======       
                                                                                              
DEFERRED CREDITS AND                                                                          
 RESERVES:                                                                                    
 Accumulated deferred                                                                         
   income taxes                    $20,713     $   782      $     -         $     -   $21,495        
                                   -------     -------      -------         -------   -------       
 Unamortized investment                                                                       
   tax credit                        2,533           -            -             158     2,375        
                                   -------     -------      -------         -------   -------       
 Other-                                                                                       
   Liability and                                                                              
     damage reserve                    561         281            -             221       621        
   Other                             7,583       1,265          925(B)          537     9,236        
                                   -------     -------      -------         -------   --------       
     Total other                     8,144       1,546          925             758     9,857        
                                   -------     -------      -------         -------   --------       
     Total deferred                                                                           
      credits and                                                                             
       reserves                    $31,390     $ 2,328      $   925         $   916   $33,727         
                                   =======     =======      =======         =======   =======        
</TABLE> 


                                     IV-7
<PAGE>
 
                             Schedule II (cont'd)


<TABLE> 
<CAPTION> 
                                                                            Charge                 
                                                                            for                    
                                                                            Which                  
                                             Additions                      Reserves               
                                  Balance    Charged        Other           Were      Balance      
                                  9/30/95    to Operations  Add (Deduct)    Created   9/30/96      
                                  -------    -------------  ------------    -------   -------      
<S>                               <C>        <C>            <C>             <C>       <C>           
RESERVES DEDUCTED FROM       
 ASSETS:                     
 Accounts receivable         
   Allowance for             
    doubtful accounts               $  1,995    $ 5,078        $      -      $3,878    $  3,195                    
   Allowance for lease                                                                                        
     receivables -                                                                                           
      current                            337          3               -         313          27                       
      other                               80         17               -          88           9                       
                                    --------     ------        --------      ------    --------                       
  Total                             $  2,412     $5,098        $      -      $4,279    $  3,231                       
                                    ========     ======        ========      ======    ========                       
 Allowance for lease                                                                                         
   receivables -                                                                                             
     long-term                      $    651    $ 1,179        $      -      $1,427    $    403                      
                                    ========    =======        ========      ======    ========                      
DEFERRED CREDITS AND                                                                                         
 RESERVES:                                                                                                   
 Accumulated deferred                                                                                        
   income taxes                                                                                              
                                    $ 18,734    $ 1,943        $     36(C)   $    -     $20,713                      
 Unamortized investment             --------    -------        --------      ------     -------                      
   tax credit                          2,691          -               -         158       2,533                  
 Other-                             --------    -------        --------      ------    --------                  
   Liability and                                                                                             
     damage reserve                                                                                          
   Other                                 334        520               -         293         561                          
                                       5,307      1,303           1,742(B)      769       7,583                         
     Total other                    --------   --------        --------      ------    --------                       
                                       5,641      1,823           1,742       1,062       8,144                        
     Total deferred                 --------   --------        --------      ------    --------                     
      credits and                                                                                            
       reserves                     $ 27,066    $ 3,766        $  1,778      $1,220    $ 31,390                        
                                    ========    =======        ========      ======    ========                       
</TABLE> 


(A)   Principally an adjustment to the regulatory pension liability.
(B)   Principally an accrual for environmental investigation and remediation
      costs in addition to an adjustment to the regulatory pension liability.
(C)   Represents adjustments to the regulatory asset and liability for
      SFAS No. 109 activity.

                                 IV-8
<PAGE>
 
INCORPORATION BY REFERENCE INTO REGISTRATION STATEMENTS ON FORM S-8

    For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into Part II of Registrant's Registration Statements on Form S-8
Nos. 33-31769, 33-31770, 33-43031, 33-04209, and 333-25415.

    Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the Securities being registered, the Registrant will, unless in
the opinion of its counsel that matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act,
will be governed by the final adjudication of such issue.


                                     IV-9
<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.

                  PROVIDENCE ENERGY CORPORATION

                  By   /s/JAMES H. DODGE
                       ----------------------------------------
                        James H. Dodge, Chairman,
                        President and CEO

                  Date December 22, 1998
                       ----------------------------------------

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


        Signature                      Title                           Date
        ---------                      -----                           ----
 
/s/JAMES H. DODGE           Chairman, President and CEO              12/22/98
------------------------                                             --------
James H. Dodge              (Principal Executive Officer)
 
/s/GARY S. GILLHEENEY       Senior Vice President, Chief             12/22/98
------------------------                                             --------
Gary S. Gillheeney          Financial Officer, Treasurer
                            and Assistant Secretary
 
/s/GILBERT R. BODELL, JR.   Director                                 12/22/98
------------------------                                             --------
Gilbert R. Bodell, Jr.
 
/s/JOHN H. HOWLAND          Director                                 12/22/98
------------------------                                             --------
John H. Howland
 
/s/DOUGLAS H. JOHNSON       Director                                 12/22/98
------------------------                                             --------
Douglas H. Johnson
 
/s/WILLIAM KREYKES          Director                                 12/22/98
------------------------                                             --------
William Kreykes

/s/PAUL F. LEVY             Director                                 12/22/98
------------------------                                             --------
Paul F. Levy
 
/s/ROMOLO A. MARSELLA       Director                                 12/22/98
------------------------                                             --------
Romolo A. Marsella
 
/s/M. ANNE SZOSTAK          Director                                 12/22/98
------------------------                                             --------
M. Anne Szostak
 
/s/KENNETH W. WASHBURN      Director                                 12/22/98
------------------------                                             --------
Kenneth W. Washburn
 
/s/W. EDWARD WOOD           Director                                 12/22/98
------------------------                                             --------
W. Edward Wood


                                     IV-10