FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999

                                       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 1-3490


                                 PG ENERGY INC.
             (Exact name of registrant as specified in its charter)


         Pennsylvania                                   24-0717235
(State or other jurisdiction of              (IRS Employer Identification No.)
 incorporation or organization)

            One PEI Center
        Wilkes-Barre, Pennsylvania                             18711-0601
(Address of principal executive offices)                       (Zip Code)

                                 (570) 829-8843
               (Registrant's telephone number including area code)



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

                                    Yes X No __

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

    Registrant had 3,494,418  shares of common stock, no par value,  outstanding
as of April 30, 1999.


<PAGE>

                                 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, 1999 and 1998..............        2

                 Consolidated Balance Sheets as of March 31, 1999
                    and December 31, 1998.............................        3

                 Consolidated Statements of Cash Flows for
                    the three months ended March 31, 1999 and 1998....        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....................        15
<PAGE>

<TABLE>
<CAPTION>
                          PART I. FINANCIAL INFORMATION

                          PG ENERGY INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME

                                                               Three Months Ended
                                                                    March 31,
                                                            --------------------------
                                                                1999         1998
                                                            --------------------------


<S>                                                         <C>            <C>        
OPERATING REVENUES ......................................   $    84,344    $    65,015
     Cost of gas ........................................        50,252         37,825
                                                            -----------    -----------
OPERATING MARGIN ........................................        34,092         27,190
                                                            -----------    -----------

OTHER OPERATING EXPENSES:
     Operation ..........................................         6,531          6,763
     Maintenance ........................................         1,228          1,127
     Depreciation .......................................         2,588          2,439
     Income taxes .......................................         6,864          4,196
     Taxes other than income taxes ......................         4,306          4,014
                                                            -----------    -----------
         Total other operating expenses .................        21,517         18,539
                                                            -----------    -----------

OPERATING INCOME ........................................        12,575          8,651

OTHER INCOME (DEDUCTIONS), NET ..........................             4           (127)
                                                            -----------    -----------

INCOME BEFORE INTEREST CHARGES ..........................        12,579          8,524
                                                            -----------    -----------

INTEREST CHARGES:
    Interest on long-term debt ..........................         2,543          2,625
    Other interest ......................................           153            124
    Allowance for borrowed funds used during construction           (26)           (23)
                                                            -----------    -----------
       Total interest charges ...........................         2,670          2,726
                                                            -----------    -----------

NET INCOME ..............................................         9,909          5,798

DIVIDENDS ON PREFERRED STOCK ............................            52            321
                                                            -----------    -----------

EARNINGS APPLICABLE TO COMMON STOCK .....................   $     9,857    $     5,477
                                                            ===========    ===========

EARNINGS PER SHARE OF COMMON STOCK ......................   $      2.82    $      1.65
                                                            ===========    ===========

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ...........     3,494,418      3,317,978
                                                            ===========    ===========

CASH DIVIDENDS PER SHARE ................................   $      --      $      --
                                                            ===========    ===========

</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


<PAGE>

                          PG ENERGY INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                                                      March 31,  December 31,
                                                        1999         1998
                                                     ---------    ----------
                                                     (Thousands of Dollars)
ASSETS

UTILITY PLANT:
    At original cost .............................   $ 379,134    $ 376,685
    Accumulated depreciation .....................     (97,781)     (95,735)
                                                     ---------    ---------
                                                       281,353      280,950
                                                     ---------    ---------
OTHER PROPERTY AND INVESTMENTS ...................       3,942        3,981
                                                     ---------    ---------
CURRENT ASSETS:
    Cash and cash equivalents ....................       2,845          768
    Accounts receivable -
       Customers .................................      30,750       18,475
       Affiliates, net ...........................         113         --
       Others ....................................         266          269
       Reserve for uncollectible accounts ........      (1,527)      (1,080)
    Accrued utility revenues .....................       8,831       11,472
    Materials and supplies, at average cost ......       2,695        2,758
    Gas held by suppliers, at average cost .......       6,940       22,320
    Deferred cost of gas and supplier refunds, net        --          6,058
    Prepaid income taxes .........................        --          1,560
    Prepaid expenses and other ...................       7,340        2,582
                                                     ---------    ---------
                                                        58,253       65,182
                                                     ---------    ---------
DEFERRED CHARGES:
    Regulatory assets -
       Deferred taxes collectible ................      31,257       31,097
       Other .....................................       8,509        8,598
    Unamortized debt expense .....................         914          964
    Other ........................................        --             25
                                                     ---------    ---------
                                                        40,680       40,684
                                                     ---------    ---------




TOTAL ASSETS .....................................   $ 384,228    $ 390,797
                                                     =========    =========
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
<PAGE>

                          PG ENERGY INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                                                      March 31, December 31,
                                                        1999       1998
                                                     ---------  ---------
                                                    (Thousands of Dollars)
CAPITALIZATION AND LIABILITIES

CAPITALIZATION:
    Common shareholder's investment ..............   $136,495   $126,638
    Preferred stock
       Not subject to mandatory redemption .......      4,745      4,831
       Subject to mandatory redemption ...........        240        240
    Long-term debt ...............................     95,000     95,000
                                                     --------   --------
                                                      236,480    226,709
                                                     --------   --------
CURRENT LIABILITIES:
    Current portion of long-term debt -
       Parent ....................................     13,200      6,900
       Other .....................................     29,836     61,348
    Preferred stock subject to repurchase ........         44       --
    Notes payable ................................      2,050      1,200
    Accounts payable -
       Suppliers .................................      9,330     15,659
       Parent ....................................         12        674
       Affiliates, net ...........................       --            3
    Deferred cost of gas and supplier refunds, net     10,859       --
    Accrued general business and realty taxes ....      1,013      1,464
    Accrued income taxes .........................      5,179       --
    Accrued interest .............................      1,454      1,807
    Other ........................................        927      1,149
                                                     --------   --------
                                                       73,904     90,204
                                                     --------   --------
DEFERRED CREDITS:
    Deferred income taxes ........................     60,556     60,211
    Unamortized investment tax credits ...........      4,381      4,424
    Operating reserves ...........................      2,642      2,836
    Other ........................................      6,265      6,413
                                                     --------   --------
                                                       73,844     73,884
                                                     --------   --------
COMMITMENTS AND CONTINGENCIES (Note 4)

TOTAL CAPITALIZATION AND LIABILITIES .............   $384,228   $390,797
                                                     ========   ========
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


<PAGE>

<TABLE>
<CAPTION>
                          PG ENERGY INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                     Three Months Ended
                                                                                         March 31,
                                                                                  ----------------------
                                                                                    1999         1998
                                                                                  --------     ---------
                                                                                  (Thousands of Dollars)

<S>     <C>    <C>    <C>    <C>    <C>    <C>
CASH FLOW FROM OPERATING ACTIVITIES:
      Net income ...............................................................   $  9,909    $  5,798
      Effects of noncash charges to income -
          Depreciation .........................................................      2,607       2,459
          Deferred income taxes, net ...........................................        184         595
          Provisions for self insurance ........................................        141         150
          Other, net ...........................................................        894         554
      Changes in  working  capital,  exclusive  of cash and  current  portion of
           long-term debt and preferred stock -
               Receivables and accrued utility revenues ........................     (9,297)        618
               Gas held by suppliers ...........................................     15,380      13,948
               Accounts payable ................................................     (6,080)     (4,938)
               Deferred cost of gas and supplier refunds, net ..................     16,917       4,478
               Other current assets and liabilities, net .......................      1,022      (4,042)
      Other operating items, net ...............................................       (937)       (237)
                                                                                   --------    --------
                Net cash provided by operating activities ......................     30,740      19,383
                                                                                   --------    --------

CASH FLOW FROM INVESTING ACTIVITIES:
      Additions to utility plant ...............................................     (3,306)     (4,477)
      Other, net ...............................................................          5          33
                                                                                   --------    --------
               Net cash used for investing activities ..........................     (3,301)     (4,444)
                                                                                   --------    --------

CASH FLOW FROM FINANCING ACTIVITIES:
      Issuance of long-term debt - parent ......................................      6,300        --
      Repurchase of preferred stock ............................................        (42)       --
      Dividends on preferred stock .............................................        (52)       (321)
      Issuance of common stock .................................................       --           640
      Repayment of long-term debt ..............................................       --        (2,500)
      Net decrease in bank borrowings ..........................................    (31,576)    (11,725)
      Other, net ...............................................................          8          (1)
                                                                                   --------    --------
               Net cash used for financing activities ..........................    (25,362)    (13,907)
                                                                                   --------    --------

NET INCREASE IN CASH AND CASH EQUIVALENTS ......................................      2,077       1,032
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................................        768         304
                                                                                   --------    --------
CASH AND CASH EQUIVALENTS AT END OF YEAR .......................................   $  2,845    $  1,336
                                                                                   ========    ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the period for:
         Interest (net of amount capitalized) ..................................   $  2,878    $  3,187
                                                                                   ========    ========
         Income taxes ..........................................................   $   --      $    388
                                                                                   ========    ========


The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<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"),  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
(collectively  referred  to  as  the  "Company")  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 its  subsidiary,  Honesdale.  All material
intercompany  accounts  have been  eliminated  in  consolidation.  The financial
information that is incorporated in these consolidated  financial statements has
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.

(2)    RATE MATTERS

       Rate  Increase.  By Order adopted  October 16, 1998, the PPUC approved an
overall  4.1%  increase in PG  Energy's  base  rates,  designed to produce  $7.4
million of additional annual revenue, effective October 17, 1998.

       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, 1998, to the gas costs  contained in its
tariff rates:

                          Change in                   Calculated
  Effective              Rate per MCF             Increase (Decrease)
                    ---------------------
     Date              From        To              in Annual Revenue
 ---------------    ---------   ---------     ---------------------------

 March 1, 1999       $4.53       $4.39               $(3,200,000)
 December 1, 1998     4.25        4.53                 7,100,000
 September 1, 1998    4.18        4.25                 1,900,000
 June 1, 1998         3.95        4.18                 5,800,000
 March 1, 1998        4.05        3.95                (2,100,000)

       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

       Accounting for Derivative  Instruments  and Hedging  Activities.  In June
1998, FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued.  The provisions of this  statement,  which are effective
for fiscal  quarters  beginning  after June 15, 1999,  establish  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts,  and for hedging activities.  While the
Company generally has not used derivative  instruments,  it expects to adopt, to
the extent  necessary,  the  provisions  of FASB  Statement No. 133 in the third
quarter of 1999. The impact of such adoption on the Company's  future  financial
condition  and  results of  operations  will  depend  upon a number of  factors,
including the extent to which the Company may use  derivative  instruments,  and
the designation and effectiveness of such derivative hedging market risk.

(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.  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, however,  constitute a legal prohibition  against further regulatory action
under CERCLA or other  applicable  federal or state law, and even in the absence
of any  further  action by the EPA,  some of the sites  may  ultimately  require
remediation.  In any event, 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.

<PAGE>

                          PG ENERGY INC. AND SUBSIDIARY

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULT 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 period ended March 31, 1999 and 1998:

                                       Three Months Ended
                                            March 31,
                                       -----------------
                                         1999      1998
                                       -------    ------

OPERATING REVENUES ................     100.0%    100.0%
    Cost of gas ...................      59.6      58.2
                                        -----     -----
OPERATING MARGIN ..................      40.4      41.8
                                        -----     -----
OPERATING EXPENSES:
    Operation .....................       7.7      10.4
    Maintenance ...................       1.5       1.7
    Depreciation ..................       3.1       3.7
    Income taxes ..................       8.1       6.5
    Taxes other than income taxes .       5.1       6.2
                                        -----     -----
     Total operating expenses .....      25.5      28.5
                                        -----     -----
OPERATING INCOME ..................      14.9      13.3

OTHER INCOME (DEDUCTIONS),  NET ...       0.0      (0.2)

INTEREST CHARGES ..................      (3.2)     (4.2)
                                        -----     -----
NET INCOME ........................      11.7       8.9

DIVIDENDS ON PREFERRED STOCK ......      (0.0)     (0.5)
                                        -----     -----
EARNINGS APPLICABLE TO COMMON STOCK      11.7%      8.4%
                                        =====     =====
o  Three Months Ended March 31, 1999, Compared With Three Months Ended March
   31, 1998

       Operating  Revenues.  Operating  revenues increased $19.3 million (29.7%)
from $65.0  million for the quarter  ended March 31, 1998,  to $84.3 million for
the quarter  ended March 31, 1999,  primarily as a result of a 1.8 billion cubic
feet (21.2%)  increase in sales by PG Energy to its  residential  and commercial
heating  customers.  This increase in sales was  attributable to more seasonable
weather  during  the  first  quarter  of 1999,  as well as  higher  levels in PG
Energy's  gas cost rate and the  impact of the rate  increase  granted PG Energy
effective October 16, 1998 (see "-Rate  Matters").  The number of heating degree
days  increased  by 452 (17.8%)  from 2,533  (79.4% of normal)  during the first
quarter of 1998 to 2,985 (93.6% of normal) during the first quarter of 1999.

       Cost of Gas. The cost of gas increased  $12.4 million  (32.9%) from $37.8
million for the first  quarter of 1998 to $50.3 million for the first quarter of
1999, primarily because of the aforementioned  increase in the volume of natural
gas sold by PG Energy to its  residential and commercial  heating  customers and
higher levels in PG Energy's gas cost rate (see "-Rate Matters").

       Operating  Margin.  The operating  margin  increased $6.9 million (25.4%)
from $27.2  million in the first  quarter of 1998 to $34.1  million in the first
quarter of 1999. As a percentage  of operating  revenues,  the margin  decreased
slightly  from 41.8% in the first  quarter of 1998 to 40.4% in the first quarter
of 1999 due to the proportionately higher cost of gas during the period.

       Other Operating Expenses. Other operating expenses increased $3.0 million
(16.1%)  from $18.5  million for the  quarter  ended  March 31,  1998,  to $21.5
million for the quarter  ended  March 31,  1999.  This  increase  was  primarily
attributable  to a $2.7  million  increase in income taxes from $4.2 million for
the first  quarter of 1998 to $6.9 million for the first  quarter of 1999 due to
an increase in income before income taxes (for this  purpose,  operating  income
net of interest  charges).  Also  contributing  to this  increase was a $292,000
(7.3%)  increase in taxes other than income taxes  resulting from a higher level
of gross  receipts  tax related to the  increase in sales and a $149,000  (6.1%)
increase in depreciation expense as a result of additions to utility plant. As a
percentage of operating revenues,  other operating expenses decreased from 28.5%
during the quarter ended March 31, 1998, to 25.5% during the quarter ended March
31, 1999,  primarily  because of the  proportionately  higher level of operating
revenues.

       Operating Income. As a result of the above, operating income increased by
$3.9 million  (45.4%)  from $8.7 million for the first  quarter of 1998 to $12.6
for the first quarter of 1999, and increased as a percentage of total  operating
revenues for such periods from 13.3% in 1998 to 14.9% in 1999.

       Preferred  Stock  Dividends.   Dividends  on  preferred  stock  decreased
$269,000  (83.8%) from $321,000 for the first quarter of 1998 to $52,000 for the
first  quarter of 1999,  as a result of the  repurchase  by PG Energy of all its
remaining 9% cumulative preferred stock as of December 1, 1998.

       Earnings Applicable to Common Stock. The $4.4 million (80.0%) increase in
earnings  applicable  to common  stock,  from $5.5  million for the  three-month
period ended March 31, 1998,  to $9.9 million for the  three-month  period March
31,  1999,  and the $1.17 per share  increase  in  earnings  per share of common
stock, from $1.65 per share for the three-month  period ended March 31, 1998, to
$2.82 per share for the three-month  period ended March 31, 1999, were primarily
the result of the increased operating income, as discussed above.

RATE MATTERS

       Rate  Increases.  By Order adopted October 16, 1998, the PPUC approved an
overall  4.1%  increase in PG  Energy's  base  rates,  designed to produce  $7.4
million of additional annual revenue, effective October 17, 1998.

       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, 1998, to the gas costs  contained in its
gas tariff rates:

                       Change in                      Calculated
 Effective            Rate per MCF                Increase (Decrease)
                  --------------------
   Date             From        To                 in Annual Revenue
--------------    -------    ---------     ------------------------------

March 1, 1999      $4.53      $4.39                   $(3,200,000)
December 1, 1998    4.25       4.53                     7,100,000
September 1, 1998   4.18       4.25                     1,900,000
June 1, 1998        3.95       4.18                     5,800,000
March 1, 1998       4.05       3.95                    (2,100,000)

       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 PG Energy and its  wholly-owned  subsidiary,
Honesdale Gas Company (collectively  referred to as the "Company"),  continue to
be the funding of PG Energy's  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.

       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 Company's  practice 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 $67.0 million of unsecured  revolving bank credit,  which is deemed  adequate
for its needs. Specifically,  PG Energy currently has seven bank lines of credit
with an  aggregate  borrowing  capacity  of  $64.0  million  which  provide  for
borrowings  at  interest  rates  generally  less than prime and which  mature at
various times during 1999 and 2000.  Honesdale has a $3.0 million revolving bank
line of credit which  provides for  borrowing at a fixed rate of 6.75% and which
matures in November,  1999. The Company  intends to renew or replace these lines
of credit as they expire.  As of April 30, 1999, the Company had $7.3 million of
borrowings  outstanding  under these bank lines of credit.  In  addition,  as of
April 30, 1999,  PG Energy had $13.2  million  outstanding  under its  borrowing
arrangement with Pennsylvania  Enterprises,  Inc.  ("PEI"),  its parent company.
Such interim  borrowings by PG Energy from PEI will be repaid with proceeds from
bank borrowings by PG Energy.

       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, 1999.

Construction Expenditures and Related Financings

       Expenditures  for the  construction of utility plant totaled $3.2 million
during the three months ended March 31, 1999 and are  currently  estimated to be
$15.2  million  during the  remainder of the year.  These  expenditures  will be
financed  with  internally  generated  funds and bank  borrowings,  pending  the
periodic issuance of stock and long-term debt.

Current Maturities of Long-Term Debt

       As of March 31, 1999,  $43.0  million of PG Energy's  long-term  debt was
required to be repaid within twelve months.  The $43.0 million of long-term debt
includes $19.8 million  outstanding under PG Energy's bank lines of credit which
is due at various times during 1999 and 2000, $10.0 million of PG Energy's 9.23%
series first mortgage bonds which mature September 1, 1999, and $13.2 million of
borrowings from PEI which are due December 31, 1999.

       PG Energy  intends to finance its current  maturities  of long-term  debt
with  internally  generated  funds  and bank  borrowings  pending  the  periodic
issuance of long-term debt and capital stock.

Year 2000 Readiness Disclosure

       The Company has  performed an inventory  and  assessment  of its computer
systems  and  applications,  as well as devices  with  embedded  technology,  to
identify  year 2000 issues and to develop a plan for  addressing  those  issues.
This plan,  which was initiated in 1996,  was completed in March,  1999, for all
applications  and  devices  that could have a material  effect on the  Company's
operations,  and all such  applications and devices are now year 2000 compliant.
The plan is scheduled  to be  completed  by June 30,  1999,  with respect to all
other  issues.  The plan  involves  the  replacement  of  certain  systems  with
purchased software, the renovation of other systems, and the purchase of certain
hardware and other devices. The Company is utilizing both internal resources and
contract personnel to implement the plan, which is currently on schedule.

       It is estimated that the total cost of the Company's plan to address year
2000 issues will be approximately  $2.0-2.5 million. This amount, which had been
largely  expended  as of March 31,  1999,  includes  costs for the  purchase  of
hardware and software, external contractors and internal resources. The internal
resources,  which are estimated to account for approximately $1.0 million of the
total  cost,  involved  the  redeployment  of  existing  personnel  and  did not
represent an  incremental  cost. In view of the  estimated  cost and because the
plan is now largely  complete,  management  does not  believe  the  expenditures
necessary  to carry out the plan to address  year 2000  issues  will be material
relative to the Company's financial position or results of operations.

       As key  elements  of its plan to address  year 2000  issues,  the Company
replaced its financial and human resource systems with purchased  software.  The
installation  of  these  new  systems,  along  with  modifications  made  to the
Company's  customer  information  system and upgrading of its  operating  system
software  which were  completed in March,  1999,  resolved the primary year 2000
issues.

       The Company's plan to address year 2000 issues  includes an assessment of
its critical suppliers and vendors, and also its largest customers, to determine
their  status  relative  to year  2000  compliance.  The  Company  has  surveyed
approximately  200 such  suppliers,  vendors and  customers  and to date has not
identified  any situations  that would appear to pose a significant  risk to the
Company.  The Company intends to continue  monitoring the progress being made by
its suppliers,  vendors and largest  customers  relative to year 2000 compliance
and will promptly make any changes in its  contingency  planning as the occasion
warrants.

       The Company is subject to potential  disruptions  in its  operations as a
result of year 2000  related  failures of its  critical  suppliers  and vendors.
Although there is presently no basis for suggesting  such situation would occur,
management  believes the worst case  scenario in such regard  might  involve the
temporary disruption in the gas service of certain of its customers.  To provide
for this and other  possible  contingencies  related  to year 2000  issues,  the
Company is continuing to evaluate its existing  emergency and disaster  recovery
plans. These plans will be modified,  as deemed appropriate,  based, among other
considerations,  on the Company's  assessment of the year 2000 compliance of its
critical  suppliers and vendors.  These plans,  as so modified,  will attempt to
mitigate, to the extent reasonably possible, the effect of any year 2000 related
failures by a third party. However, the Company is dependent on its suppliers of
natural  gas,  interstate  gas  pipelines  and  utility  and   telecommunication
companies,  over which it has no control, to serve its customers. Any disruption
in service by one of these key suppliers  could,  depending  upon its nature and
extent, have a material adverse effect on the Company's operations.

Natural Gas Industry Restructuring

       PG Energy believes that in 1999  Pennsylvania may enact legislation which
provides all customers of the larger natural gas utilities in the state that are
regulated by the PPUC with the right to choose their  natural gas  supplier.  As
currently envisioned,  such legislation would require that PG Energy provide all
of its customers with unbundled  transportation  service within the next year to
18 months.  While the rates for the  transportation  of natural  gas  through PG
Energy's distribution system and the storage services offered by PG Energy would
continue to be price  regulated by the PPUC, the commodity cost of gas purchased
from suppliers other than PG Energy would not be so regulated.  Customers could,
however,  continue to receive a bundled sales service from PG Energy which would
be subject to price regulation by the PPUC.  Essentially,  the legislation would
extend the transportation  service which is now available to a limited number of
PG Energy's  customers to all its customers,  and customers could choose to have
their  natural  gas  provided  by a  supplier  other  than PG  Energy,  based on
nonregulated market prices and other considerations.

       If  Pennsylvania  enacts  legislation  which permits all customers of the
larger regulated LDCs to choose their supplier of natural gas, PG Energy will be
faced with significant competition from marketers for the sale of natural gas to
its customers.  However,  under current  regulations of the PPUC, PG Energy does
not  realize a profit or incur any loss with  respect to the  commodity  cost of
natural gas.  Moreover,  PG Energy would not expect the pending  legislation  to
result in the bypass of its  distribution  system by any  significant  number of
customers  because of the nature of its  customer  base and the cost of any such
bypass.  Additionally,  based on various provisions of the legislation currently
being considered, PG Energy does not believe that the legislation will result in
any  significant  amount of transition  costs (such as the negotiated  buyout of
contracts  with  interstate  pipelines,  the recovery of deferred  purchased gas
costs or the recovery of regulated assets). Further, PG Energy believes that the
transition  costs  it  would  incur  in  offering  choice  to all its  customers
(including  those involving  information  systems and customer  education) would
generally be recoverable  through rates or other customer charges.  Accordingly,
although it cannot be certain,  because the terms of such  legislation  have not
been  finalized and the ultimate  effect on PG Energy cannot be  determined,  PG
Energy  does not  believe  that  the  enactment  of  legislation  providing  for
customers of the larger  regulated LDCs to purchase their natural gas from third
parties  would have any  material  adverse  impact on its  earnings or financial
condition despite the increased  competition to which PG Energy would be subject
regarding the sale of natural gas to its customers.

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,   such   statements   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.  The  Company
cautions  that  assumptions,  projections,  expectations,  intentions or beliefs
about future events,  while  expressed in good faith and believed by the Company
to have a reasonable  basis,  may and often do vary from actual  results and the
differences  between  assumptions,  projections,   expectations,  intentions  or
beliefs  and  actual  results  can be  material.  Accordingly,  there  can be no
assurance that actual results will not differ materially from those expressed or
implied by the forward-looking statements. The following are some of the factors
that could cause actual  achievements and events to differ materially from those
expressed  or  implied  in  such  forward-looking   statements:  the  nature  of
Pennsylvania  legislation  restructuring the natural gas industry; the impact of
year 2000  disruption;  industrial,  commercial  and  residential  growth in the
service  territories  of the Company and its  subsidiary;  the weather and other
natural  phenomena;  the timing and  extent of changes in  commodity  prices and
interest rates; changes in environmental and other laws and regulations to which
the Company and its subsidiary are subject or other external  factors over which
the Company has no control;  and general economic  conditions and  uncertainties
relating  to such  growth  during the  periods  covered  by the  forward-looking
statements.  Also, it is not possible for the Company to predict any new factors
which may emerge and affect the  Company and its  subsidiary,  nor can it assess
the effect of each such factor on the Company's  business or the extent to which
any such factor,  or combination of factors,  may cause actual results to differ
materially from those contained in any forward-looking  statements.  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.
<PAGE>


                           PART II. OTHER INFORMATION

Item 6.       Exhibits and Reports on Form 8-K

(a)    Exhibits

       10-1     Form of Stock  Option  Agreement  -- filed  as  Exhibit  10-1 to
                Pennsylvania  Enterprises,  Inc.'s Quarterly Report on Form 10-Q
                for the quarter ended March 31, 1999, File No. 0-7812.

       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.


<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 6, 1999               By:      /s/ Donna M. Abdalla              
                                                Donna M. Abdalla
                                                  Secretary

Date:    May 6, 1999               By:      /s/ John F. Kell, Jr.             
                                                John F. Kell, Jr.
                                        Vice President, Financial Services
                                         (Principal Financial Officer and
                                           Principal Accounting Officer)