PG ENERGY INC.

                             TABLE OF CONTENTS


                                                                         PAGE

PART I.  FINANCIAL INFORMATION

  Item 1.  Financial Statements

            Consolidated Statements of Income for the three and nine
              months ended September 30, 1997 and 1996. . . . . . . . .    2

            Consolidated Balance Sheets as of September 30, 1997,
              and December 31, 1996 . . . . . . . . . . . . . . . . . .    3

            Consolidated Statements of Cash Flows for the nine
              months ended September 30, 1997 and 1996. . . . . . . . .    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 . . . . . . . . . . . . . .   16






























                                    -1-
<PAGE>

                             PART I.  FINANCIAL INFORMATION

                                     PG ENERGY INC.

                            Consolidated Statements of Income
<TABLE>
<CAPTION>
                                                Three Months Ended      Nine Months Ended
                                                  September 30,           September 30,    
                                                 1997       1996        1997        1996   
                                             (Thousands of Dollars, Except for Share Amounts)
<S>                                            <C>        <C>         <C>         <C>
OPERATING REVENUES                             $  16,276  $  13,998   $ 129,444   $ 108,870
  Cost of gas                                      7,137      5,979      74,547      58,532
OPERATING MARGIN                                   9,139      8,019      54,897      50,338

OTHER OPERATING EXPENSES:
  Operation                                        6,065      5,716      18,730      18,499
  Maintenance                                      1,503      1,379       3,945       4,085
  Depreciation                                     2,242      1,969       6,719       5,838
  Income taxes                                    (2,184)    (2,005)      3,406       3,408
  Taxes other than income taxes                    1,997      1,619       9,613       8,331
    Total other operating expenses                 9,623      8,678      42,413      40,161

OPERATING INCOME (LOSS)                             (484)      (659)     12,484      10,177

OTHER INCOME (DEDUCTIONS), NET                        92         (8)        244         311

INCOME (LOSS) BEFORE INTEREST CHARGES               (392)      (667)     12,728      10,488

INTEREST CHARGES:
  Interest on long-term debt                       2,329      1,665       6,737       4,680
  Other interest                                     199         68         540         556
  Allowance for borrowed funds used
    during construction                              (45)       (73)       (144)       (169)
    Total interest charges                         2,483      1,660       7,133       5,067

INCOME (LOSS) FROM CONTINUING OPERATIONS          (2,875)    (2,327)      5,595       5,421

LOSS WITH RESPECT TO DISCONTINUED
  OPERATIONS                                           -          -           -        (386)

NET INCOME (LOSS)                                 (2,875)    (2,327)      5,595       5,035

DIVIDENDS ON PREFERRED STOCK                         320        363         991       1,383

EARNINGS (LOSS) APPLICABLE TO COMMON STOCK     $  (3,195) $  (2,690)  $   4,604   $   3,652

COMMON STOCK
  Earnings (loss) per share of common stock:
    Continuing operations                      $    (.96) $    (.81)  $    1.39   $    1.09
    Discontinued operations                            -          -           -        (.10)
    Net income (loss) before discount (premium)
      on repurchase of preferred stock              (.96)      (.81)       1.39         .99
    Discount (premium) on repurchase of
      preferred stock                               (.01)      (.03)        .23        (.37)
    Total                                      $    (.97) $    (.84)  $    1.62   $     .62

  Weighted average shares outstanding          3,314,155  3,314,155   3,314,155   3,697,410

  Cash dividends per share (Note 2)            $       -  $       -   $       -   $  10.217

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

</TABLE>

<PAGE>

                                            -2-



























































<PAGE>

                                PG ENERGY INC.

                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                  September 30,    December 31,
                                                      1997            1996     
                                                      (Thousands of Dollars)

ASSETS
<S>                                               <C>             <C>
UTILITY PLANT:
  At original cost                                $     344,242   $     319,205
  Accumulated depreciation                              (86,933)        (79,783)
                                                        257,309         239,422

OTHER PROPERTY AND INVESTMENTS                            4,471           4,894

CURRENT ASSETS:
  Cash and cash equivalents                                 256             690
  Accounts receivable -
    Customers                                            10,454          17,183
    Affiliates, net                                           -              58
    Others                                                  284             565
    Reserve for uncollectible accounts                   (1,254)         (1,140)
  Accrued utility revenues                                2,388          11,830
  Materials and supplies, at average cost                 2,811           2,460
  Gas held by suppliers, at average cost                 25,970          20,265
  Natural gas transition costs collectible                1,512           2,525
  Deferred cost of gas and supplier refunds, net          9,207          19,316
  Prepaid expenses and other                              1,365           1,313
                                                         52,993          75,065

DEFERRED CHARGES:
  Regulatory assets -
    Deferred taxes collectible                           30,638          29,771
    Other                                                 4,329           4,274
  Unamortized debt expense                                1,095           1,153
  Other                                                     457               -
                                                         36,519          35,198













TOTAL ASSETS                                      $    351,292    $     354,579




The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
                                      -3-
<PAGE>

                                PG ENERGY INC.

                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                  September 30,    December 31,
                                                      1997            1996     
                                                      (Thousands of Dollars)

CAPITALIZATION AND LIABILITIES
<S>                                               <C>             <C>
CAPITALIZATION:
  Common shareholder's investment                 $     101,254   $      96,005
  Preferred stock of PGE -
    Not subject to mandatory redemption, net             15,848          18,851
    Subject to mandatory redemption                         640             739
  Long-term debt                                        105,000          55,000
                                                        222,742         170,595

CURRENT LIABILITIES:
  Current portion of long-term debt -                                   
    Parent                                               24,700          31,400
    Other                                                14,720          38,721
  Preferred stock subject to repurchase or
    mandatory redemption                                     80             115
  Note payable                                            4,500          10,000
  Accounts payable -
    Suppliers                                            12,277          17,831
    Parent                                                   34             348
    Affiliates, net                                          17               -
  Accrued general business and realty taxes               1,539           2,239
  Accrued income taxes                                    2,858          14,559
  Accrued interest                                        1,319           1,936
  Accrued natural gas transition costs                    1,154           2,095
  Other                                                   2,076           3,375
                                                         65,274         122,619

DEFERRED CREDITS:
  Deferred income taxes                                  51,293          49,119
  Unamortized investment tax credits                      4,639           4,767
  Operating reserves                                      2,805           3,086
  Other                                                   4,539           4,393
                                                         63,276          61,365




COMMITMENTS AND CONTINGENCIES (Note 5)





TOTAL CAPITALIZATION AND LIABILITIES              $     351,292   $     354,579




The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
                                      -4-
<PAGE>

                                PG ENERGY INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                               Nine Months Ended    
                                                                 September 30,      
                                                               1997          1996   
                                                             (Thousands of Dollars)
<S>                                                          <C>           <C>
CASH FLOW FROM OPERATING ACTIVITIES:
  Income from continuing operations                          $  5,595      $  5,421
  Effects of noncash charges to income -
    Depreciation                                                6,764         5,890
    Deferred income taxes, net                                    904           519
    Provisions for self insurance                                 443           742
    Other, net                                                  1,335           953
  Changes in working capital, exclusive of cash
   and current portion of long-term debt -
    Receivables and accrued utility revenues                   17,314        18,997
    Gas held by suppliers                                      (5,705)      (10,299)
    Accounts payable                                           (6,528)       (4,639)
    Deferred cost of gas and supplier refunds, net             10,316       (16,801)
    Other current assets and liabilities, net                  (1,260)        1,291
  Other operating items, net                                   (1,509)       (4,636)
      Net cash provided by (used for) continuing operations    27,669        (2,562)
  Net cash used for discontinued operations, principally
    for the payment of income taxes                           (13,655)      (35,470)
      Net cash provided by (used for) operating activities     14,014       (38,032)

CASH FLOW FROM INVESTING ACTIVITIES:
  Additions to utility plant                                  (22,810)      (18,501)
  Proceeds from the sale of discontinued operations                 -       261,752
  Acquisition of regulated business                            (2,019)            -
  Other, net                                                      530           212
      Net cash provided by (used for) investing activities    (24,299)      243,463

CASH FLOW FROM FINANCING ACTIVITIES:
  Issuance of common stock                                          -           339
  Repurchase of common stock                                        -       (85,007)
  Repurchase/redemption of preferred stock                     (3,137)      (15,364)
  Dividends on common and preferred stock                        (991)      (35,151)
  Issuance of long-term debt                                   25,000             -
  Issuance of long-term debt to parent                              -        49,900
  Repayment of long-term debt to parent                        (6,700)      (12,600)
  Repayment of long-term debt                                       -       (50,000)
  Net decrease in bank borrowings                              (5,021)      (55,854)
  Other, net                                                      700        (1,390)
      Net cash provided by (used for) financing activities      9,851      (205,127)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             (434)          304
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                  690           328
CASH AND CASH EQUIVALENTS AT END OF PERIOD                   $    256      $    632

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest (net of amount capitalized)                     $  7,203      $  5,704
    Income taxes                                             $ 15,042      $ 34,386

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

                                      -5-
<PAGE>

                                PG ENERGY INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Nature of the Business.  PG Energy Inc. ("PGE") a wholly-owned subsidiary of
Pennsylvania Enterprises, Inc. ("PEI"),  and Honesdale Gas Company ("Honesdale")
a wholly-owned subsidiary of PGE  acquired  on  February 14, 1997, are regulated
public utilities.   Together  PGE  and  Honesdale  distribute  natural  gas to a
thirteen-county area in northeastern Pennsylvania, a territory that includes 130
municipalities,  in  addition  to  the  cities  of  Scranton,  Wilkes-Barre  and
Williamsport.  

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

    Both PGE and Honesdale are  subject  to the jurisdiction of the Pennsylvania
Public Utility  Commission  ("PPUC")  for  rate  and  accounting  purposes.  The
financial statements  of  PGE  and  Honesdale  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 by  PGE, 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 PGE 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.  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  financial  statements  and  the  notes thereto included in
PGE'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  which  are difficult to
predict and are beyond  the  control  of  PGE.   Therefore, actual amounts could
differ from these estimates.





                                      -6-
<PAGE>

(2) CASH DIVIDENDS

    The cash dividends per share for  the  nine months ended September 30, 1997,
include $9.077 with respect to a special $30.0 million dividend in the form of a
10.125% promissory note that was issued by  PGE  to PEI on February 16, 1996, in
connection with the sale of PGE's  water  utility operations on such date.  This
note was paid in full by PGE on March 8, 1996.

(3)  RATE MATTERS

    Rate Increase.  By Order  adopted  December  19,  1996, the PPUC approved an
overall 5.3% increase in PGE'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 PGE's
residential heating customers, which totaled $2.4 million through June 30, 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  local  gas distribution companies ("LDCs") be
adjusted on an annual basis, and, in the  case of larger LDCs such as PGE, 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,  PGE  has  been  permitted to make the
following changes since January 1, 1996,  to  the gas costs contained in its gas
tariff rates:
[CAPTION]
                                    Change in              
             Effective             Rate per MCF        Calculated Increase
                Date              From     To           in Annual Revenue 
           [S]                    [C]     [C]              [C]
           March 1, 1997          $4.18   $4.49            $ 8,300,000
           December 1, 1996        3.01    4.18             32,400,000
           September 1, 1996       2.88    3.01              3,600,000
           June 1, 1996            2.75    2.88              3,400,000

    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.

(4)  ACCOUNTING CHANGES

    Earnings Per Share.  In  February,  1997,  FASB Statement 128, "Earnings per
Share"  was  issued.    The  provisions  of  this  statement,  which  supersedes
Accounting Principles Board Opinion No.  15,  "Earnings per Share", simplify the
computation of earnings per share.    FASB  Statement  128 will be effective for
financial statements for both interim  and  annual periods ending after December
15, 1997.  PGE does not  expect  the  adoption  of  FASB Statement 128 to have a
material effect on its calculation of earnings per share.

    Reporting  Comprehensive  Income.    In   June,  1997,  FASB  Statement  130
"Reporting Comprehensive Income", was issued.  The provisions of this statement,
which  are  effective  for  fiscal  years  beginning  after  December  15, 1997,
establish standards for reporting  and  display  of comprehensive income and its
components in financial statements.   The reporting provisions of FASB Statement
130, which PGE will adopt in 1998, are not expected to have a material impact on
its reported results of operations.

                                      -7-
<PAGE>

(5)  COMMITMENTS AND CONTINGENCIES

    Environmental Matters.   PGE,  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 PGE.  Pursuant to the Comprehensive
Environmental Response, Compensation and  Liability  Act of 1980 ("CERCLA"), PGE
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 PGE from 1951 to  1967  and at which it operated a manufactured gas
plant from 1951 to 1954 was subject  to remediation in 1996.  The remediation at
this site, which was performed by the  party  from whom PGE 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 PGE. PGE, 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, PGE 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 PGE operated
manufactured gas plants does not  constitute a legal prohibition against further
regulatory action under CERCLA  or  other  applicable  federal or state law, PGE
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.

          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.  ("PGE")  as  percentages of operating revenues for
each of the three and nine-month periods ended September 30, 1997, and September
30, 1996:
<TABLE>
<CAPTION>
                                                   Percentage of Operating Revenues  
                                                Three Months Ended  Nine Months Ended
                                                   September 30,      September 30,  
                                                 1997        1996    1997       1996 
<S>                                              <C>         <C>     <C>        <C>
OPERATING REVENUES...........................    100.0%      100.0%  100.0%     100.0%
  Cost of gas................................     43.9        42.7    57.6       53.8
OPERATING MARGIN.............................     56.1        57.3    42.4       46.2

OTHER OPERATING EXPENSES:
  Operation..................................     37.2        40.8    14.5       17.0
  Maintenance................................      9.2         9.8     3.1        3.8     
  Depreciation...............................     13.8        14.1     5.2        5.4     
  Income taxes...............................    (13.4)      (14.3)    2.6        3.1
  Taxes other than income taxes..............     12.3        11.6     7.4        7.6
    Total other operating expenses...........     59.1        62.0    32.8       36.9

OPERATING INCOME (LOSS)......................     (3.0)       (4.7)    9.6        9.3

OTHER INCOME, NET............................      0.6           -     0.2        0.3

INTEREST CHARGES.............................    (15.3)      (11.9)   (5.5)      (4.6)

INCOME (LOSS) FROM CONTINUING OPERATIONS.....    (17.7)      (16.6)    4.3        5.0

LOSS WITH RESPECT TO DISCONTINUED OPERATIONS.        -           -       -       (0.4)

NET INCOME (LOSS)............................    (17.7)      (16.6)    4.3        4.6

DIVIDENDS ON PREFERRED STOCK(1)..............     (1.9)       (2.6)   (0.7)      (1.2)

EARNINGS (LOSS) APPLICABLE TO COMMON STOCK...    (19.6)      (19.2)    3.6        3.4
                    
(1)  None of the dividends on  preferred stock was allocated to the discontinued
operations.
</TABLE>
                Three Months Ended September 30, 1997, Compared
                  With Three Months Ended September 30, 1996   

    Operating Revenues.  Operating revenues  increased $2.3 million (16.3%) from
$14.0 million for the  three-month  period  ended  September  30, 1996, to $16.3
million for the three-month  period  ended  September  30,  1997, primarily as a
result of the  rate  increase  granted  PGE  by  the Pennsylvania Public Utility
Commission (the "PPUC") which became  effective  on  January 15, 1997 (see "Rate
Matters"), higher levels in PGE's  gas  cost  rate and the operating revenues of


                                      -9-
<PAGE>

Honesdale Gas  Company  ("Honesdale"),  which  was  acquired  by  the Company on
February 14, 1997, totaling $323,000.   Also  contributing to the increase was a
56 million cubic feet  (3.7%)  increase  in  deliveries to PGE's residential and
commercial heating customers that  was  largely  attributable to cooler weather.
There was an increase of  47  heating  degree  days  from 163 (135.8% of normal)
during the third quarter of  1996  to  210  (175.0%  of normal) during the third
quarter of 1997.

    Cost of Gas.   The  cost  of  gas  increased  $1.2 million (19.4%) from $6.0
million for the three-month period ended September 30, 1996, to $7.1 million for
the three-month  period  ended  September  30,  1997,  primarily  because of the
aforementioned increases in the gas  cost  rate (see "-Rate Matters"), increased
sales to residential and commercial heating  customers and $194,000 of gas costs
related to Honesdale.

    Operating Margin.  The operating  margin increased $1.1 million (14.0%) from
$8.0 million in the third quarter of  1996  to $9.1 million in the third quarter
of 1997, primarily because of the  increase in PGE's gas rates effective January
15, 1997 (see "-Rate Matters"), the  higher  level of sales and the inclusion of
Honesdale's operating margin.  However,  as  a percentage of operating revenues,
the operating margin decreased from  57.3%  for  the quarter ended September 30,
1996, to 56.1% for the  quarter  ended  September  30,  1997, as a result of the
proportionately higher cost of gas in 1997.

    Other Operating  Expenses.    Other  operating  expenses  increased $945,000
(10.9%) for the three-month  period  ended  September  30, 1997, compared to the
three-month period  ended  September  30,  1996.    This  increase was partially
attributable to  a  higher  level  of  operation  expenses,  which  increased by
$349,000 (6.1%), largely as a result  of  the inclusion of $189,000 of operation
expenses of Honesdale.   Also  contributing  to  the increase in other operating
expenses was a  $378,000  (23.3%)  increase  in  taxes  other  than income taxes
resulting from a higher level  of  gross  receipts  tax because of the increased
sales by PGE and the  sales  of  Honesdale,  and  a $273,000 (13.9%) increase in
depreciation  expense  attributable  to  additions  to  utility  plant.    As  a
percentage of operating revenues, other  operating expenses decreased from 62.0%
in the third quarter of 1996 to 59.1% in the third quarter of 1997, primarily as
a result of the  proportionately  greater  increase in operating revenues during
the period.

    Income taxes decreased $179,000 (8.9%) from  a credit of $2.0 million in the
third quarter of 1996 to a credit  of  $2.2 million in the third quarter of 1997
due to a lower level of  loss  before  income taxes (for this purpose, operating
income net of interest charges). 

    Operating Income (Loss).   As  a  result  of  the  above, the operating loss
decreased by $175,000 (26.6%)  from  $659,000  for  the three-month period ended
September 30, 1996, to $484,000  for  the three-month period ended September 30,
1997, and decreased as a percentage of total operating revenues for such periods
from 4.7% in 1996 to 3.0% in 1997.

    Interest Charges.  Interest charges  increased by $823,000 (49.6%) from $1.7
million for the three-month period ended September 30, 1996, to $2.5 million for
the three-month period ended  September  30,  1997.    This increase was largely
attributable to bank borrowings by  PGE to finance construction expenditures and
for other working capital needs  and  the  reduction  in interest expense in the
third quarter of 1996 resulting from  the  repayment of PGE's $50.0 million term
loan and all of its then outstanding  bank borrowings on February 16, 1996, with
proceeds from the sale of its regulated water utility operations on such date.

                                     -10-
<PAGE>

    Income  (Loss)  From  Continuing  Operations.    The  loss  from  continuing
operations increased $548,000 (23.5%)  from  $2.3  million for the quarter ended
September 30, 1996, to $2.9  million  for  the quarter ended September 30, 1997.
This increase was largely the result of the matters discussed above, principally
the increases in other operating  expenses  and interest charges, the effects of
which were partially offset by the increased operating margins.

    Dividends on  Preferred  Stock.    Dividends  on  preferred  stock decreased
$43,000 (11.8%) from $363,000  for  the  three-month  period ended September 30,
1996, to $320,000 for the three-month period ended September 30, 1997, primarily
as a result of the  repurchase  by  PGE  in  1997  of 30,375 shares of its 4.10%
cumulative preferred stock.

    Earnings (Loss) Applicable to Common Stock.  The increase in loss applicable
to common stock of $505,000 (18.8%) from $2.7 million for the three-month period
ended September 30,  1996,  to  $3.2  million  for  the three-month period ended
September 30, 1997, as well as the increase in loss per share of common stock of
$.13 from a  loss  of  $.84  per  share  for  the  third  quarter of 1996 (after
reflecting a $.03 per share premium on  redemption of preferred stock) to a loss
of $.97 per share for the  third  quarter  of  1997 (after reflecting a $.01 per
share premium on redemption of preferred stock) were primarily the result of the
increase  in  loss  from  continuing  operations,  as  discussed  above.   While
discounts and premiums on  the  repurchase  of  preferred stock are reflected in
retained earnings and are not  a  determinant  of  net income, the discounts and
premiums associated with repurchases must  be  taken into account in calculating
the earnings (loss) per share of common stock.
 
                Nine Months Ended September 30, 1997, Compared
                   With Nine Months Ended September 30, 1996  

    Operating Revenues.  Operating revenues increased $20.6 million (18.9%) from
$108.9 million for the  nine-month  period  ended  September  30, 1996 to $129.4
million for the  nine-month  period  ended  September  30,  1997, primarily as a
result of higher levels  in  PGE's  gas  cost  rate  and  the effect of the rate
increase granted PGE by the PPUC which became effective on January 15, 1997 (see
"Rate Matters").  The effect of  the  increases in rates was partially offset by
an 896 million cubic feet (5.0%) decrease in deliveries to PGE's residential and
commercial heating customers.  There was a decrease of 192 (4.4%) heating degree
days from 4,356 (106.9% of normal) during the first nine months of 1996 to 4,164
(102.2% of normal) during the first nine  months of 1997.  Operating revenues of
Honesdale totaling $1.9 million  from  its  February  14, 1997, acquisition date
through  September  30,  1997,  also  contributed  to  the  increased  operating
revenues.
 
    Cost of Gas.  The  cost  of  gas  increased $16.0 million (27.4%) from $58.5
million for the nine-month period ended September 30, 1996, to $74.5 million for
the nine-month period  ended  September  30,  1997,  primarily because of higher
levels in PGE's gas cost  rate  (see  "-Rate  Matters")  and $1.3 million of gas
costs related to Honesdale from its  February 14, 1997, acquisition date through
September 30, 1997.

    Operating Margin.  The operating  margin  increased $4.6 million (9.1%) from
$50.3 million in  the  nine-month  period  ended  September  30,  1996, to $54.9
million in the nine-month period ended  September 30, 1997, primarily because of
the increase in PGE's gas rates effective January 15, 1997 (see "-Rate Matters")
and the inclusion of Honesdale's  operating  margin  from its February 14, 1997,
acquisition date.  As a percentage of operating revenues, however, the operating
margin decreased from 46.2% in the  first  nine  months  of 1996 to 42.4% in the

                                     -11-
<PAGE>

first nine months of 1997 as a  result of the proportionately higher cost of gas
in 1997.

    Other Operating Expenses.   Other  operating expenses increased $2.3 million
(5.6%) from $40.2 million for the first nine months of 1996 to $42.4 million for
the first nine months of 1997.    This increase was primarily attributable to an
$881,000 (15.1%) increase in depreciation  expense,  as a result of additions to
utility plant, and a $1.3  million  (15.4%)  increase in taxes other than income
taxes resulting from  a  higher  level  of  gross  receipts  tax  because of the
increased sales by PGE and the sales by Honesdale from its acquisition date.  As
a percentage of  operating  revenues,  other  operating  expenses decreased from
36.9% during the first  nine  months  of  1996,  to  32.8% during the first nine
months of 1997, primarily as a result of the proportionately greater increase in
operating revenues during the period.

    Operating Income  (Loss).    As  a  result  of  the  above, operating income
increased by $2.3 million (22.7%)  from  $10.2 million for the nine-month period
ended September 30,  1996,  to  $12.5  million  for  the nine-month period ended
September 30, 1997, primarily  because  of  the  increased operating margin, the
effect of which was  partially  offset  by  the  higher level of other operating
expenses.   As  a  percentage  of  total  operating  revenues,  operating income
increased from 9.3% in 1996 to 9.6% in 1997. 

    Interest Charges.  Interest charges  increased  by $2.1 million (40.8%) from
$5.1 million for the first nine  months  of  1996  to $7.1 million for the first
nine months of 1997.  This  increase was largely attributable to bank borrowings
by PGE to finance construction expenditures  and for other working capital needs
and the reduction in PGE's  interest  expense  in  the first nine months of 1996
resulting from the repayment of its $50.0  million term loan and all of its then
outstanding bank borrowings on February 16, 1996, with proceeds from the sale of
its regulated water utility operations on such date.

    Income (Loss) From Continuing Operations.  Income from continuing operations
increased $174,000 (3.2%) from $5.4 million  for the nine months ended September
30, 1996, to $5.6 million for  the  nine  months ended September 30, 1997.  This
increase was largely the result of  the matters discussed above, principally the
increase in operating income,  the  effect  of  which  was largely offset by the
increased interest charges.

    Net Income (Loss).  The increase in net income of $560,000 (11.1%) from $5.0
million for the first nine months  of  1996  to  $5.6 million for the first nine
months of 1997 was the result  of  the higher income from continuing operations,
as discussed above, and the  absence  of  any  loss with respect to discontinued
operations.

    Dividends on  Preferred  Stock.    Dividends  on  preferred  stock decreased
$392,000 (28.3%) from $1.4 million for the nine-month period ended September 30,
1996, to $991,000 for the nine-month  period ended September 30, 1997, primarily
as a result of  the  repurchase  by  PGE  in  1996  of  134,359 shares of its 9%
cumulative preferred stock, 9,408 shares of its 5.75% cumulative preferred stock
and 20,330 shares of its  4.10%  cumulative  preferred stock, largely during the
second quarter of that year, as  well  as its repurchase of an additional 30,375
shares of the 4.10% cumulative preferred stock in 1997. 






                                     -12-
<PAGE>

    Earnings (Loss)  Applicable  to  Common  Stock.    The  increase in earnings
applicable to common stock of $952,000  (26.1%)  from $3.7 million for the nine-
month period ended September 30, 1996, to $4.6 million for the nine-month period
ended September 30, 1997,  as  well  as  the  increase  in earnings per share of
common stock of $1.00 from  $.62  per  share  for  the first nine months of 1996
(after reflecting a $.37 per share  premium on redemption of preferred stock) to
$1.62 per share for the first nine  months  of 1997 (after reflecting a $.23 per
share discount on redemption of preferred  stock)  were the result of the higher
income from continuing operations and  the reduced dividends on preferred stock,
as discussed above, and the  absence  of  any  loss with respect to discontinued
operations.  The increase in earnings  applicable to common stock also reflected
a 10.4% decrease in  the  weighted  average  number  of  shares outstanding as a
result of the repurchase by PGE  of  shares  of its common stock on February 16,
1996, with proceeds from the sale of its regulated water utility operations.

RATE MATTERS

    Rate Increase.  By Order  adopted  December  19,  1996, the PPUC approved an
overall 5.3% increase in PGE'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 PGE's
residential heating customers, which totaled $2.4 million through June 30, 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  local  gas distribution companies ("LDCs") be
adjusted on an annual basis, and, in the  case of larger LDCs such as PGE, 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,  PGE  has  been  permitted to make the
following changes since January 1, 1996,  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]
           December 1, 1997       $4.49   $3.95           $(15,700,000)
           March 1, 1997           4.18    4.49              8,300,000
           December 1, 1996        3.01    4.18             32,400,000
           September 1, 1996       2.88    3.01              3,600,000
           June 1, 1996            2.75    2.88              3,400,000

    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.

    Recovery of FERC Order 636 Transition  Costs.   By Order of the PPUC entered
August 26, 1994, PGE  began  recovering  the  Non-Gas Transition Costs (i.e. Gas
Supply Realignment and Stranded Costs)  that  it estimates it will ultimately be
billed pursuant to Federal  Energy  Regulatory  Commission Order 636 through the
billing of a surcharge to  its  customers  effective  September 12, 1994.  It is
currently estimated that  $10.7  million  of  Non-Gas  Transition  Costs will be
billed to PGE, generally  over  a  six-year  period extending through January 1,

                                     -13-
<PAGE>

1999, of which $9.3 million had  been  billed  to  PGE and $9.2 million had been
recovered from its customers as  of  September  30,  1997.  PGE has recorded the
estimated Non-Gas Transition  Costs  that  remain  to  be  billed  to it and the
amounts remaining to be recovered from its customers.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

    The primary  capital  needs  of  PGE  continue  to  be  the  funding  of its
construction program and the seasonal funding of its gas purchases and increases
in its customer accounts  receivable.    PGE'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  PGE'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 PGE to use bank borrowings to fund
such expenditures, pending the  periodic  issuance  of stock and long-term debt.
Bank borrowings are  also  used  by  PGE  for  the  seasonal  funding of its gas
purchases and increases in customer accounts receivable.

    In order to temporarily  finance  construction  expenditures and to meet its
seasonal borrowing requirements, PGE has made  arrangements for a total of $68.5
million of unsecured revolving  bank  credit,  which  is deemed adequate for its
presently anticipated needs.  Specifically,  PGE  currently has seven bank lines
of credit with an aggregate  borrowing  capacity  of $68.5 million which provide
for borrowings at interest rates generally less than prime and mature at various
times during 1998 and 1999 and  which  PGE  intends  to renew or replace as they
expire.  As of November 3, 1997, PGE had $21.2 million of borrowings outstanding
under these bank lines of credit.  

    In addition, as of September 30,  1997,  PGE had borrowed $24.7 million from
Pennsylvania Enterprises, Inc.  ("PEI"),  its  parent  Company.    The terms and
conditions regarding such borrowing provide for the payment of interest at rates
generally less than prime and the  repayment  of principal on December 31, 1997.
It is anticipated that the repayment  date  of this loan will be extended beyond
December 31, 1997, until such date as the funds borrowed thereunder are required
for use by  PEI.    PGE  plans  to  ultimately  repay  this  loan  from PEI with
borrowings under its bank lines of credit.

    PGE, as well as Honesdale,  believe  that  they  will  be able to raise in a
timely  manner  such  funds  as  are  required  for  their  future  construction
expenditures, refinancings and other working capital requirements.  

Long-Term Debt and Capital Stock Financings

    PGE 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. 

    On September 12, 1997, PGE  borrowed  $25.0  million pursuant to a five-year
term loan agreement dated  August  14,  1997  (the "Term Loan Agreement"), which
matures on August 14,  2002.    Borrowings  under  the  Term Loan Agreement bear
interest at LIBOR ("London  Interbank  Offered  Rates")  plus one-quarter of one
percent (5.875% as of November  3,  1997).    Under  the  terms of the Term Loan
Agreement, PGE can  choose  interest  rate  periods  of  one,  two, three or six
months.  PGE utilized the proceeds from  such loan to repay $25.0 million of its
bank borrowings.

                                     -14-
<PAGE>

    On September 30, 1997, PGE  issued  $25.0  million of its 6.92% Senior Notes
due September 30, 2004 (the "Senior Notes").   The proceeds from the issuance of
the Senior Notes were used by PGE to repay $25.0 million of its bank borrowings.

    No capital stock financings  were  consummated  by PGE during the nine-month
period ended September 30, 1997.

Construction Expenditures and Related Financings

    Expenditures for the  construction  of  utility  plant totaled $22.7 million
during the first nine months  of  1997  and  are currently estimated to be $10.9
million during  the  remainder  of  the  year.    It  is  anticipated  that such
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 and Preferred Stock

    As of September 30, 1997,  $39.5  million of PGE's long-term debt, including
$24.7 million borrowed from PEI, and $80,000 of its preferred stock was required
to be repaid within twelve months.

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.




























                                     -15-
<PAGE>

                          PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

     10-1   Form of Stock Option Agreement,  dated  as of June 20, 1997, between
            PEI and certain of its  Officers  --  filed as Exhibit 10-1 to PEI's
            Quarterly Report on Form  10-Q  for  the quarter ended September 30,
            1997, File No. 0-7812.

     10-2   Form of Stock Option Agreement,  dated  as of June 20, 1997, between
            PEI and certain of  its  non-employee  directors -- filed as Exhibit
            10-2 to PEI's Quarterly Report  on  Form  10-Q for the quarter ended
            September 30, 1997, 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.





































                                     -16-
<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:  November 7, 1997              By:           /s/ Thomas J. Ward           
                                                       Thomas J. Ward
                                                         Secretary



Date:  November 7, 1997              By:         /s/ John F. Kell, Jr.          
                                                     John F. Kell, Jr.
                                            Vice President, Financial Services
                                             (Principal Financial Officer and
                                               Principal Accounting Officer)




























                                     -17-
<PAGE>