PG ENERGY INC.

                             TABLE OF CONTENTS


                                                                         PAGE

PART I.  FINANCIAL INFORMATION

  Item 1.  Financial Statements

            Consolidated Statements of Income for the three
              months ended March 31, 1998 and 1997. . . . . . . . . . .    2

            Consolidated Balance Sheets as of March 31, 1998
              and December 31, 1997 . . . . . . . . . . . . . . . . . .    3

            Consolidated Statements of Cash Flows for
              the three months ended March 31, 1998 and 1997. . . . . .    5

            Notes to Consolidated Financial Statements. . . . . . . . .    6

  Item 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations. . . . . . . . . . . .    9


PART II. OTHER INFORMATION

  Item 6.  Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .   14






























                                      -1-
<PAGE>

                        PART I.  FINANCIAL INFORMATION

                         PG ENERGY INC. AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                              March 31,       
                                                         1998          1997   
                                                       (Thousands of Dollars) 
<S>                                                    <C>           <C>
OPERATING REVENUES                                     $  65,015     $  79,939
  Cost of gas                                             37,825        49,139
OPERATING MARGIN                                          27,190        30,800

OTHER OPERATING EXPENSES:
  Operation                                                6,763         6,462
  Maintenance                                              1,127         1,126
  Depreciation                                             2,439         2,211
  Income taxes                                             4,196         5,831
  Taxes other than income taxes                            4,014         4,306
    Total other operating expenses                        18,539        19,936

OPERATING INCOME                                           8,651        10,864

OTHER INCOME (DEDUCTIONS), NET                              (127)          239

INCOME BEFORE INTEREST CHARGES                             8,524        11,103

INTEREST CHARGES:
  Interest on long-term debt                               2,625         2,191
  Other interest                                             124           204
  Allowance for borrowed funds used
    during construction                                      (23)          (66)
      Total interest charges                               2,726         2,329

NET INCOME                                                 5,798         8,774

DIVIDENDS ON PREFERRED STOCK                                 321           353

EARNINGS APPLICABLE TO COMMON STOCK                    $   5,477     $   8,421

Earnings per share of common stock                     $    1.65     $    2.54

Weighted average number of shares outstanding          3,317,978     3,314,155

Cash dividends per share                               $       -     $       -













The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
                                      -2-
<PAGE>

                         PG ENERGY INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                    March 31,     December 31,
                                                      1998            1997    
                                                      (Thousands of Dollars)

ASSETS
<S>                                               <C>             <C>
UTILITY PLANT:
  At original cost                                $     355,243   $    351,106
  Accumulated depreciation                              (90,607)       (88,129)
                                                        264,636        262,977

OTHER PROPERTY AND INVESTMENTS                            4,106          4,459

CURRENT ASSETS:
  Cash and cash equivalents                               1,336            304
  Accounts receivable -
    Customers                                            26,409         23,551
    Parent                                                  991              -
    Affiliates, net                                         424             63
    Others                                                  604            280
    Reserve for uncollectible accounts                   (1,436)        (1,168)
  Accrued utility revenues                                6,801         11,680
  Materials and supplies, at average cost                 2,911          2,716
  Gas held by suppliers, at average cost                  7,985         21,933
  Deferred cost of gas and supplier refunds, net          1,593          6,316
  Prepaid expenses and other                              5,506          1,633
                                                         53,124         67,308

DEFERRED CHARGES:
  Regulatory assets -                                                   
    Deferred taxes collectible                           30,761         30,592
    Other                                                 6,316          4,415
  Unamortized debt expense                                1,116          1,164
  Other                                                     175            225
                                                         38,368         36,396












TOTAL ASSETS                                      $     360,234   $    371,140


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


                                      -3-
<PAGE>

                              PG ENERGY INC. AND SUBSIDIARY

                               CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                    March 31,      December 31,
                                                      1998            1997     
                                                      (Thousands of Dollars)

CAPITALIZATION AND LIABILITIES
<S>                                               <C>             <C>
CAPITALIZATION:
  Common shareholder's investment                 $     113,215   $     107,425
  Preferred stock of PG Energy -
    Not subject to mandatory redemption, net             15,864          15,864
    Subject to mandatory redemption                         640             640
  Long-term debt
    Parent                                               21,000          23,500
    Other                                               105,000         106,000 
                                                        255,719         253,429

CURRENT LIABILITIES:
  Current portion of long-term debt                      16,337          24,776
  Preferred stock subject to repurchase or
    mandatory redemption                                     80              80
  Notes payable                                             245           2,170
  Accounts payable -
    Suppliers                                             9,415          14,515
    Parent                                                    -             199
  Accrued general business and realty taxes                 755           2,797
  Accrued income taxes                                    7,685           4,946
  Accrued interest                                        1,266           1,844
  Accrued natural gas transition costs                      842           1,087
  Other                                                   1,092           1,188
                                                         37,717          53,602

DEFERRED CREDITS:
  Deferred income taxes                                  52,971          52,207
  Unamortized investment tax credits                      4,553           4,596
  Operating reserves                                      2,779           2,825
  Other                                                   6,495           4,481
                                                         66,798          64,109





COMMITMENTS AND CONTINGENCIES (Note 4)




TOTAL CAPITALIZATION AND LIABILITIES              $     360,234   $     371,140



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

                                      -4-
<PAGE>

                            PG ENERGY INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                         Three Months Ended    
                                                               March 31,       
                                                           1998         1997  
                                                        (Thousands of Dollars)
<S>                                                     <C>          <C>
CASH FLOW FROM OPERATING ACTIVITIES:
  Net income                                            $   5,798    $   8,774
  Effects of noncash charges to income -
    Depreciation                                            2,459        2,225
    Deferred income taxes, net                                595          351
    Provisions for self insurance                             150          140
    Other, net                                                554          350
  Changes in working capital, exclusive of cash
   and current portion of long-term debt -
    Receivables and accrued utility revenues                  618       (9,903)
    Gas held by suppliers                                  13,948       17,391
    Accounts payable                                       (4,938)      (9,181)
    Deferred cost of gas and supplier refunds, net          4,478        8,751
    Other current assets and liabilities, net              (4,042)       1,295
  Other operating items, net                                 (237)        (585)
      Net cash provided by operating activities            19,383       19,608

CASH FLOW FROM INVESTING ACTIVITIES:
  Additions to utility plant                               (4,477)      (6,529)
  Acquisition of regulated business                             -       (2,009)
  Other, net                                                   33          423
      Net cash used for investing activities               (4,444)      (8,115)

CASH FLOW FROM FINANCING ACTIVITIES:
  Issuance of common stock                                    640            -
  Repurchase of preferred stock                                 -          (82)
  Dividends on common and preferred stock                    (321)        (356)
  Repayment of long-term debt                              (2,500)      (2,941)
  Net decrease in bank borrowings                         (11,725)      (7,874)
  Other, net                                                   (1)          38
      Net cash used for financing activities              (13,907)     (11,215)

NET INCREASE IN CASH AND CASH EQUIVALENTS                   1,032          278
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                304          690
CASH AND CASH EQUIVALENTS AT END OF YEAR                $   1,336    $     968

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest (net of amount capitalized)                $   3,187    $   1,716
    Income taxes                                        $     388    $     610







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


                                      -5-
<PAGE>

                         PG ENERGY INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Nature of the  Business.    PG  Energy  Inc.  ("PG  Energy"), a wholly-owned
subsidiary of  Pennsylvania  Enterprises,  Inc.  ("PEI"),  and  its wholly-owned
subsidiary Honesdale Gas Company  ("Honesdale")  acquired  on February 14, 1997,
are regulated public utilities subject  to  the jurisdiction of the Pennsylvania
Public  Utility  Commission  (the  "PPUC")  for  rate  and  accounting purposes.
Together PG Energy and  Honesdale  distribute  natural  gas to a thirteen-county
area in northeastern  Pennsylvania,  a  territory  that  includes  the cities of
Scranton, Wilkes-Barre and Williamsport.  

    Principles of Consolidation.   The consolidated financial statements include
the accounts of PG Energy and also its subsidiary, Honesdale, beginning February
14,  1997,  the  date  Honesdale  was  acquired  by  PG  Energy.    All material
intercompany accounts have been eliminated in consolidation.

    Both PG Energy and Honesdale (collectively referred to as the "Company") are
subject to the jurisdiction of the  PPUC  for rate and accounting purposes.  The
financial statements of the Company  that are incorporated in these consolidated
financial statements have been  prepared  in  accordance with generally accepted
accounting  principles,  including   the   provisions  of  Financial  Accounting
Standards Board ("FASB") Statement  71,  "Accounting  for the Effects of Certain
Types  of  Regulation,"  which  give  recognition  to  the  rate  and accounting
practices of regulatory agencies such as the PPUC.

    Interim Financial Statements.  The interim consolidated financial statements
included herein have been  prepared  without  audit,  pursuant  to the rules and
regulations of the Securities and  Exchange Commission.  Certain information and
footnote disclosures  normally  included  in  financial  statements  prepared in
accordance with generally accepted accounting  principles have been condensed or
omitted pursuant to such  rules  and  regulations, although the Company believes
that  the  disclosures  are  adequate  to  make  the  information  presented not
misleading.

    The results for the interim periods are  not indicative of the results to be
expected for the year, primarily  due  to  the  effect of seasonal variations in
weather on the sale of natural gas.   However, in the opinion of management, all
adjustments, consisting of only normal  recurring accruals, necessary to present
fairly  the  results  for  the  interim  periods  have  been  reflected  in  the
consolidated financial statements.    It  is  suggested  that these consolidated
financial statements be  read  in  conjunction  with  the consolidated financial
statements and the notes thereto included  in the Company's latest annual report
on Form 10-K.

    Use of Accounting Estimates.    The  preparation  of financial statements in
conformity with generally accepted  accounting principles requires management to
make estimates and assumptions that  affect  the  reported amounts of assets and
liabilities and disclosure of contingent  assets  and liabilities at the date of
the financial statements  and  the  reported  amounts  of  revenues and expenses
during the reporting period.  These estimates involve judgments with respect to,
among other things, various future economic factors and regulatory matters which
are difficult to predict and are beyond  the control of the Company.  Therefore,
actual amounts could differ from these estimates.

                                      -6-
<PAGE>

(2)  RATE MATTERS

    Rate Increase.  By Order  adopted  December  19,  1996, the PPUC approved an
overall 5.3% increase in PG  Energy's  base  gas rates, designed to produce $7.5
million of additional annual  revenue,  effective  January 15,  1997.  Under the
terms of the Order, the billing for  the impact of the rate increase relative to
PG Energy's residential heating  customers,  which  totaled $1.7 million through
March 31, 1997, was deferred, without carrying charges, until July, 1997.  

    Gas Cost Adjustments.   The  provisions  of  the Pennsylvania Public Utility
Code require that the tariffs of  LDCs  be  adjusted on an annual basis, and, in
the  case  of  larger  LDCs  such  as  PG  Energy,  on  an  interim  basis  when
circumstances dictate, to reflect  changes  in  their  purchased gas costs.  The
procedure includes a process for the reconciliation of actual gas costs incurred
and  actual  revenues  received  and  also   provides  for  the  refund  of  any
overcollections,   plus   interest   thereon,   or   the   recoupment   of   any
undercollections of gas costs.

    In accordance with these procedures PG Energy has been permitted to make the
following changes since January  1,  1997,  to  the  gas  costs contained in its
tariff rates:
[CAPTION]
                                    Change in              Calculated
             Effective             Rate per MCF        Increase (Decrease)
                Date              From     To           in Annual Revenue 
           [S]                    [C]     [C]             [C]
           March 1, 1998          $4.05   $3.95           $ (2,100,000)
           December 1, 1997        4.49    4.05            (12,100,000)
           March 1, 1997           4.18    4.49              8,300,000

    The changes in gas rates on account of purchased gas costs have no effect on
earnings since the change in revenue is  offset by a corresponding change in the
cost of gas.

(3)  ACCOUNTING CHANGES

    Reporting Comprehensive Income.    Effective  January  1,  1998, the Company
adopted the provisions of  FASB  Statement 130 "Reporting Comprehensive Income."
However, because there were no  items comprising other comprehensive income, the
adoption of FASB 130 had no effect on the Company's financial statements for the
first quarter of 1998.

(4)  COMMITMENTS AND CONTINGENCIES

    Environmental Matters.   PG  Energy,  like  many gas distribution companies,
once utilized manufactured gas plants  in  connection with providing gas service
to its customers.  None of  these  plants  has been in operation since 1972, and
several of the plant sites are no  longer  owned  by PG Energy.  Pursuant to the
Comprehensive Environmental Response,  Compensation  and  Liability  Act of 1980
("CERCLA"),  PG  Energy  filed  notices  with  the  United  States Environmental
Protection Agency (the "EPA") with respect  to  the former plant sites.  None of
the sites is or was formerly on  the proposed or final National Priorities List.
The EPA has conducted site inspections  and made preliminary assessments of each
site  and  has  concluded   that   no   further   remedial  action  is  planned.
Notwithstanding this determination by the EPA,  some of the sites may ultimately
require remediation.  One site that was owned by PG Energy from 1951 to 1967 and
at which it operated a manufactured gas  plant  from 1951 to 1954 was subject to


                                      -7-
<PAGE>

remediation in 1996.  The remediation  at  this site, which was performed by the
party from whom PG Energy  acquired  the  site  in 1951, required the removal of
materials from  two  former  gas  holders.    The  cost  of  such remediation is
purported to have been approximately $525,000, of which the party performing the
remediation is seeking to recover a material portion from PG Energy.  PG Energy,
however,  believes  that  any  liability  it  may  have  with  respect  to  such
remediation would be considerably less than  the  amount that the other party is
seeking.  While the final resolution of  the matter is uncertain, PG Energy does
not believe that it will have  any  material impact on its financial position or
results of operations.  Although the  conclusion  by the EPA that it anticipates
no further remedial action with respect to the sites at which PG Energy operated
manufactured gas plants does not  constitute a legal prohibition against further
regulatory action under CERCLA  or  other  applicable  federal or state law, the
Company does  not  believe  that  additional  costs,  if  any,  related to these
manufactured gas plant sites  would  be  material  to  its financial position or
results  of  operations  since  environmental  remediation  costs  generally are
recoverable through rates over a period of time.










































                                      -8-
<PAGE>

                         PG ENERGY INC. AND SUBSIDIARY

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS                 

RESULTS OF CONTINUING OPERATIONS

    The following table expresses  certain  items in the consolidated statements
of income of PG Energy Inc.  ("PG  Energy") as percentages of operating revenues
for each of the three-month periods ended March 31, 1998 and 1997:
[CAPTION]
                                                            Three Months Ended
                                                                 March 31,    
                                                             1998        1997 
[S]                                                          [C]         [C]
OPERATING REVENUES....................................       100.0%      100.0%
  Cost of gas.........................................        58.2        61.5 
OPERATING MARGIN......................................        41.8        38.5 

OTHER OPERATING EXPENSES:
  Operation...........................................        10.4         8.1 
  Maintenance.........................................         1.7         1.4 
  Depreciation........................................         3.7         2.7 
  Income taxes........................................         6.5         7.3 
  Taxes other than income taxes.......................         6.2         5.4 
    Total operating expenses..........................        28.5        24.9 

OPERATING INCOME......................................        13.3        13.6 

OTHER INCOME (DEDUCTIONS), NET........................        (0.2)        0.3 

INTEREST CHARGES......................................        (4.2)       (2.9)

NET INCOME ...........................................         8.9        11.0 

DIVIDENDS ON PREFERRED STOCK..........................        (0.5)       (0.5)

EARNINGS APPLICABLE TO COMMON STOCK...................         8.4%       10.5%


o   Three  Months  Ended  March  31,  1998,  Compared  With  Three  Months Ended
    March 31, 1997

    Operating Revenues.  Operating revenues decreased $14.9 million (18.7%) from
$79.9 million for the quarter  ended  March  31,  1997, to $65.0 million for the
quarter ended March 31, 1998, primarily as  a result of a 1.7 billion cubic feet
(16.2%) decrease in sales by PG Energy to its residential and commercial heating
customers.  This reduction in  sales  was  attributable to the unseasonably warm
weather during the quarter and lower levels in PG Energy's gas cost rate (see "-
Rate Matters").  There was a  457  (15.3%)  decrease in heating degree days from
2,990 (93.7% of normal) during  the  first  quarter  of  1997 to 2,533 (79.4% of
normal) during the first quarter of 1998.

    Cost of Gas.  The  cost  of  gas  decreased $11.3 million (23.0%) from $49.1
million for the first quarter of 1997  to $37.8 million for the first quarter of
1998, primarily because of the  aforementioned  decrease in sales to PG Energy's
residential and commercial heating customers and lower levels in PG Energy's gas
cost rate (see "-Rate Matters").


                                      -9-
<PAGE>

    Operating Margin.  The operating  margin decreased $3.6 million (11.7%) from
$30.8 million in the first quarter of 1997 to $27.2 million in the first quarter
of  1998,  primarily  because  of  the  aforementioned  reduction  in  sales  to
residential and commercial  heating  customers.    As  a percentage of operating
revenues, the margin increased from 38.5% in  the first quarter of 1997 to 41.8%
in the first quarter of 1998  as  a  result of the proportionately lower cost of
gas during the period.

    Other Operating Expenses.   Other  operating expenses decreased $1.4 million
(7.0%) from $19.9 million for the quarter ended March 31, 1997, to $18.5 million
for the quarter ended March 31,  1998.  This decrease was primarily attributable
to a $1.6 million (28.0%)  decrease  in  income  taxes from $5.8 million for the
first quarter of 1997 to $4.2  million  for  the  first quarter of 1998 due to a
decrease in income before income  taxes  (for this purpose, operating income net
of interest charges), and a $292,000  (6.8%) decrease in taxes other than income
taxes resulting from a lower level of  gross receipts tax related to PG Energy's
decrease in sales.  The effects  of  these  decreases were partially offset by a
higher  level  of  operation  expense   and   a  $228,000  (10.3%)  increase  in
depreciation expense as a result of additions  to PG Energy's utility plant.  As
a percentage of  operating  revenues,  other  operating  expenses increased from
24.9% during the quarter ended March 31, 1997, to 28.5% during the quarter ended
March 31, 1998, primarily as a  result  of the significant decrease in operating
revenues during the period.

    Operating Income.  As a result  of  the above, operating income decreased by
$2.2 million (20.4%) from $10.9 million  for  the  first quarter of 1997 to $8.7
million for the first quarter  of  1998,  and  also decreased as a percentage of
total operating revenues for such  periods  from  13.6%  in the first quarter of
1997 to 13.3% in the first quarter of 1998.

    Other Income (Deductions), Net.    Other  income (deductions), net decreased
$366,000 from income of  $239,000  for  the  three-month  period ended March 31,
1997, to a deduction  of  $127,000  for  the  three-month period ended March 31,
1998, largely  because  the  first  quarter  of  1997  included  a  gain  on the
condemnation of certain property for highway construction.

    Interest Charges.  Interest charges  increased by $397,000 (17.0%) from $2.3
million for the first quarter of 1997  to  $2.7 million for the first quarter of
1998.  This increase was largely attributable to bank borrowings by PG Energy to
finance construction expenditures and for other working capital needs.

    Net Income.  The decrease in  net  income  of $3.0 million (33.9%) from $8.8
million for the first quarter of 1997  to  $5.8 million for the first quarter of
1998, was largely the result of  the  lower levels of operating and other income
and increased interest charges, as discussed above.

    Dividends on  Preferred  Stock.    Dividends  on  preferred  stock decreased
$32,000 (9.1%) from $353,000 for the  first  quarter of 1997 to $321,000 for the
first quarter of 1998, primarily as a  result of the repurchase of 30,560 shares
of PG Energy's 4.10% cumulative preferred stock in 1997.

    Earnings Applicable to Common Stock.  The decrease in earnings applicable to
common stock of  $2.9  million  (35.0%)  from  $8.4  million for the three-month
period ended March 31, 1997,  to  $5.5  million for the three-month period ended
March 31, 1998, as well as the decrease in earnings per share of common stock of
$.89 (35.0%) from $2.54 per  share  for  the  three-month period ended March 31,
1997, to $1.65 per share for  the  three-month period ended March 31, 1998, were
the result of the reduced net income as discussed above.

                                     -10-
<PAGE>

RATE MATTERS

    Rate Increase.  By Order adopted  December 19, 1996, the Pennsylvania Public
Utility Commission (the "PPUC") approved an overall 5.3% increase in PG Energy's
base gas rates, designed to  produce  $7.5 million of additional annual revenue,
effective January 15, 1997.  Under the  terms  of the Order, the billing for the
impact  of  the  rate  increase  relative  to  PG  Energy's  residential heating
customers, which totaled  $1.7  million  through  March  31, 1997, was deferred,
without carrying charges, until July, 1997.  

    Proposed Rate Increase.  On March  16,  1998, PG Energy filed an application
with the PPUC seeking an  increase  in  its  base gas rates, designed to produce
$15.0 million in additional annual revenue,  to  be  effective May 15, 1998.  On
April 23, 1998, the PPUC  suspended  this  rate increase for seven months (until
December 15, 1998) in order  to  investigate  the reasonableness of the proposed
rates.  It is not  presently  possible  to  determine  what action the PPUC will
ultimately take in this matter.

    Gas Cost Adjustments.   The  provisions  of  the Pennsylvania Public Utility
Code require that the tariffs  of  local  gas distribution companies ("LDCs") be
adjusted on an annual basis, and, in the  case of larger LDCs such as PG Energy,
on an interim basis  when  circumstances  dictate,  to  reflect changes in their
purchased gas costs.  The procedure includes a process for the reconciliation of
actual gas costs incurred and actual revenues received and also provides for the
refund of any overcollections, plus  interest  thereon, or the recoupment of any
undercollections of gas costs.  

    In accordance with these procedures,  PG  Energy  has been permitted to make
the following changes since January 1,  1997,  to the gas costs contained in its
gas tariff rates:
[CAPTION]
                                    Change in              Calculated
             Effective             Rate per MCF        Increase (Decrease)
                Date              From     To           in Annual Revenue 
           [S]                    [C]     [C]             [C]
           March 1, 1998          $4.05   $3.95           $ (2,100,000)
           December 1, 1997        4.49    4.05            (12,100,000)
           March 1, 1997           4.18    4.49              8,300,000

    The changes in gas rates on account of purchased gas costs have no effect on
earnings since the change in revenue is  offset by a corresponding change in the
cost of gas.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

    The primary capital needs of the  Company  continue to be the funding of its
construction program and the seasonal funding of its gas purchases and increases
in its customer accounts receivable.  The Company's revenues are highly seasonal
and weather-sensitive, with  approximately  75%  of  its revenues normally being
realized in  the  first  and  fourth  quarters  of  the  calendar  year when the
temperatures in its service area are the coldest.






                                     -11-
<PAGE>

    The cash flow from the Company's  operations is generally sufficient to fund
a portion of its  construction  expenditures.    However, to the extent external
financing is required, it is the practice  of the Company to use bank borrowings
to fund such expenditures, pending the  periodic issuance of stock and long-term
debt.  Bank borrowings are also  used  for the seasonal funding of the Company's
gas purchases and increases in its customer accounts receivable.

    In order to temporarily  finance  construction  expenditures and to meet its
seasonal borrowing requirements, the Company  has  made arrangements for a total
of $79.5 million of unsecured  revolving  bank  credit, which is deemed adequate
for its immediate needs.  Specifically, PG Energy currently has eight bank lines
of credit with an aggregate  borrowing  capacity  of $78.5 million which provide
for borrowings at interest rates generally  less  than prime and which mature at
various times during 1998 and 1999.  Honesdale has a $1.0 million revolving bank
line of credit which provides for  borrowing at the prime rate (currently 8.50%)
and which matures in June, 1998.   The Company intends to renew or replace these
lines of credit as they expire.  As of May 1, 1998, the Company had $7.7 million
of borrowings outstanding under these  bank  lines  of  credit.  In addition, PG
Energy can borrow up to  $70.0  million  from  PEI through December 31, 1999 (at
interest rates generally less  than  prime),  to  repay  bank borrowings and for
construction expenditures and other working  capital requirements, to the extent
that PEI has funds available for lending  to  PG  Energy.  As of May 1, 1998, PG
Energy had $21.0 million outstanding  under  its borrowing arrangement with PEI.
Such interim borrowings by PG Energy from  PEI will be repaid with proceeds from
bank borrowings by PG Energy.   PG  Energy  plans to arrange new and replacement
bank lines of credit when the  funds  that  are available for borrowing from PEI
are no longer  available  and  as  it  requires  additional  funding for working
capital and other purposes.

    The Company believes it will be able  to raise in a timely manner such funds
as are required  for  future  construction  expenditures, refinancings and other
working capital requirements.

Long-Term Debt and Capital Stock Financings

    The  Company  periodically  engages  in  long-term  debt  and  capital stock
financings in order to obtain  funds required for construction expenditures, the
refinancing of existing debt and various working capital purposes.  No long-term
debt or capital stock  financings  were  consummated  by  the Company during the
three-month period ended March 31, 1998.

    PG Energy also obtains external funds  from  the sale of its common stock to
PEI in connection with PEI's Dividend  Reinvestment and Stock Purchase Plan (the
"DRP") and Customer Stock  Purchase  Plan  (the  "Customer  Plan").  During 1998
(through May 1) PG Energy realized  $2.6  million and $855,000 from the issuance
of common stock  to  PEI  in  connection  with  the  DRP  and the Customer Plan,
respectively.

Construction Expenditures and Related Financings

    Expenditures for the  construction  of  utility  plant  totaled $4.4 million
during the first three months of  1998  and  are currently estimated to be $31.9
million during  the  remainder  of  the  year.    It  is  anticipated  that such
expenditures  will  be  financed  with   internally  generated  funds  and  bank
borrowings and by the periodic issuance of stock and long-term debt.




                                     -12-
<PAGE>

Current Maturities of Long-Term Debt and Preferred Stock

    As of March 31, 1998,  $16.3  million  of  long-term debt, and $80,000 of PG
Energy's preferred stock was required to be repaid within twelve months.

Year 2000

    The Company is currently  replacing  its  financial and customer information
systems with purchased software packages.  The installation of these new systems
will resolve the  primary  year  2000  issues.    The  new financial systems are
anticipated  to  be  operational  by  the  end  of  1998  and  the  new customer
information system is now anticipated to be operational in 1999.

    The  Company  has  completed  a  review  of  the  program  coding  of  other
significant  in-house  developed  applications  and  determined  that  they  are
presently year 2000  compliant.    Additionally,  the  Company  is reviewing its
installed base of  personal  computers  to  identify non-compliant machines that
would be in service  at  year  2000.    The  Company,  as a contingency, is also
presently  evaluating  the  feasibility   of  modifying  its  existing  customer
information system to make it year 2000  compliant in the event its new customer
system is not fully operational in 1999, as now scheduled.

Forward-Looking Statements

    Certain statements made above relating  to plans, conditions, objectives and
economic  performance  go  beyond  historical  information  and  may  provide an
indication  of  future  results.    To  that  extent,  they  are forward-looking
statements within the meaning of Section  21E  of the Securities Exchange Act of
1934, and each is subject to  factors  that could cause actual results to differ
from those in the forward-looking statement,  such as the nature of Pennsylvania
legislation  restructuring  the  natural   gas  industry  and  general  economic
conditions  and  uncertainties  relating  to  the  expansion  of  the  Company's
nonregulated activities.    The  Company  undertakes  no  obligation to publicly
release any revision to  these  forward-looking  statements to reflect events or
circumstances after the date of this filing.
























                                     -13-
<PAGE>

                          PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

     27-1   Financial Data Schedule -- filed herewith.

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed  during the quarter for which this report
     is filed.















































                                     -14-
<PAGE>

                                PG ENERGY INC.

                                  SIGNATURES

Pursuant to  the  requirements  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.






                                                       PG ENERGY INC.           
                                                       (Registrant)



Date:     May 5, 1998                By:           /s/ Thomas J. Ward           
                                                       Thomas J. Ward
                                                         Secretary



Date:     May 5, 1998                By:         /s/ John F. Kell, Jr.          
                                                     John F. Kell, Jr.
                                            Vice President, Financial Services
                                             (Principal Financial Officer and
                                               Principal Accounting Officer)




























                                     -15-
<PAGE>