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, 1997 and 1996. . . . . . . . . . .    2

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

            Consolidated Statements of Cash Flows for
              the three months ended March 31, 1997 and 1996. . . . . .    5

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

  Item 2.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations. . . . . . . . . . . .    8


PART II. OTHER INFORMATION

  Item 6.  Exhibits and Reports on Form 8-K . . . . . . . . . . . . . .   13





























                                      -1-
<PAGE>


                        PART I.  FINANCIAL INFORMATION

                                PG ENERGY INC.

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                              March 31,       
                                                         1997          1996   
                                                       (Thousands of Dollars) 

<S>                                                    <C>           <C>
OPERATING REVENUES                                     $  79,939     $  69,415
  Cost of gas                                             49,139        39,978
OPERATING MARGIN                                          30,800        29,437

OTHER OPERATING EXPENSES:
  Operation                                                6,462         6,557
  Maintenance                                              1,126         1,214
  Depreciation                                             2,211         1,899
  Income taxes                                             5,831         5,927
  Taxes other than income taxes                            4,306         3,807
    Total other operating expenses                        19,936        19,404

OPERATING INCOME                                          10,864        10,033

OTHER INCOME, NET                                            239           150

INCOME BEFORE INTEREST CHARGES                            11,103        10,183

INTEREST CHARGES:
  Interest on long-term debt                               2,191         1,772
  Other interest                                             204           335
  Allowance for borrowed funds used
    during construction                                      (66)          (46)
      Total interest charges                               2,329         2,061

INCOME FROM CONTINUING OPERATIONS                          8,774         8,122

LOSS WITH RESPECT TO DISCONTINUED OPERATIONS                   -          (365)

NET INCOME                                                 8,774         7,757

DIVIDENDS ON PREFERRED STOCK                                 353           637

EARNINGS APPLICABLE TO COMMON STOCK                    $   8,421     $   7,120

COMMON STOCK:
  Earnings per share of common stock:
    Continuing operations                              $    2.54     $    1.67
    Discontinued operations                                    -          (.08)
    Total                                              $    2.54     $    1.59

  Weighted average number of shares outstanding        3,314,155     4,468,130

  Cash dividends per share                             $       -     $  10.217






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

</TABLE>
                                      -2-
<PAGE>


                                PG ENERGY INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                    March 31,     December 31,
                                                      1997            1996    
                                                      (Thousands of Dollars)

<S>                                               <C>             <C>
ASSETS

UTILITY PLANT:
  At original cost                                $     329,179   $    319,205
  Accumulated depreciation                              (82,961)       (79,783)
                                                        246,218        239,422

OTHER PROPERTY AND INVESTMENTS                            4,644          4,894

CURRENT ASSETS:
  Cash and cash equivalents                                 968            690
  Accounts receivable -
    Customers                                            29,250         17,183
    Affiliates, net                                           7             58
    Others                                                  854            565
    Reserve for uncollectible accounts                   (1,436)        (1,140)
  Accrued utility revenues                               10,414         11,830
  Materials and supplies, at average cost                 2,705          2,460
  Gas held by suppliers, at average cost                  2,874         20,265
  Natural gas transition costs collectible                1,637          2,525
  Deferred cost of gas and supplier refunds, net         10,744         19,316
  Prepaid expenses and other                              4,048          1,313
                                                         62,065         75,065

DEFERRED CHARGES:
  Regulatory assets -                                                    
    Deferred taxes collectible                           30,293         29,771
    Other                                                 4,460          4,274
  Unamortized debt expense                                1,118          1,153
  Other                                                     612              -
                                                         36,483         35,198











TOTAL ASSETS                                      $     349,410   $    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>
                                                    March 31,      December 31,
                                                      1997            1996     
                                                      (Thousands of Dollars)

<S>                                               <C>             <C>
CAPITALIZATION AND LIABILITIES

CAPITALIZATION:
  Common shareholder's investment                 $     104,461   $      96,005
  Preferred stock of PGE -
    Not subject to mandatory redemption, net             18,804          18,851
    Subject to mandatory redemption                         739             739
  Long-term debt                                         65,392          55,000
                                                        189,396         170,595

CURRENT LIABILITIES:
  Current portion of long-term debt -
    Parent                                               28,600          31,400
    Other                                                29,679          38,721
  Preferred stock subject to repurchase or
    mandatory redemption                                     80             115
  Note payable                                                -          10,000
  Accounts payable -
    Suppliers                                            10,088          17,831
    Parent                                                  752             348
  Accrued general business and realty taxes               1,264           2,239
  Accrued income taxes                                   19,845          14,559
  Accrued interest                                        2,351           1,936
  Accrued natural gas transition costs                    1,506           2,095
  Other                                                   3,097           3,375
                                                         97,262         122,619

DEFERRED CREDITS:
  Deferred income taxes                                  50,322          49,119
  Unamortized investment tax credits                      4,725           4,767
  Operating reserves                                      3,046           3,086
  Other                                                   4,659           4,393
                                                         62,752          61,365




COMMITMENTS AND CONTINGENCIES (Note 3)




TOTAL CAPITALIZATION AND LIABILITIES              $     349,410   $     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>

                                                         Three Months Ended    
                                                               March 31,       
                                                           1997         1996  
                                                        (Thousands of Dollars)
<S>                                                     <C>          <C>
CASH FLOW FROM OPERATING ACTIVITIES:
  Income from continuing operations                     $   8,774    $   8,122
  Effects of noncash charges to income -
    Depreciation                                            2,225        1,912
    Deferred income taxes, net                                351           92
    Provisions for self insurance                             140          241
    Other, net                                                350          530
  Changes in working capital, exclusive of cash
   and current portion of long-term debt -
    Receivables and accrued utility revenues               (9,903)      (5,037)
    Gas held by suppliers                                  17,391       13,414
    Accounts payable                                       (9,181)      (1,885)
    Deferred cost of gas and supplier refunds, net          8,751       (2,955)
    Other current assets and liabilities, net               1,295        4,995
  Other operating items, net                                 (585)      (2,895)
      Net cash provided by continuing operations           19,608       16,534
  Net cash provided by discontinued operations                  -        2,133
      Net cash provided by operating activities            19,608       18,667

CASH FLOW FROM INVESTING ACTIVITIES:
  Additions to utility plant                               (6,529)      (2,973)
  Proceeds from the sale of discontinued operations             -      261,752
  Acquisition of regulated business                        (2,009)           -
  Other, net                                                  423           68
      Net cash provided by (used for) investing 
        activities                                         (8,115)     258,847

CASH FLOW FROM FINANCING ACTIVITIES:
  Issuance of common stock                                      -          339
  Repurchase of common stock                                    -      (85,000)
  Repurchase of preferred stock                               (82)           -
  Dividends on common and preferred stock                    (356)     (34,407)
  Repayment of long-term debt                              (2,941)     (50,000)
  Net decrease in bank borrowings                          (7,874)     (76,443)
  Other, net                                                   38          (80)
      Net cash used for financing activities              (11,215)    (245,591)

NET INCREASE IN CASH AND CASH EQUIVALENTS                     278       31,923
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                690          328
CASH AND CASH EQUIVALENTS AT END OF YEAR                $     968    $  32,251

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest (net of amount capitalized)                $   1,716    $   3,082
    Income taxes                                        $     610    $     445


The accompanying notes are an integral part of the consolidated 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
twelve-county area in northeastern  Pennsylvania,  a territory that includes 129
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 rates 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 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 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 and regulatory matters which
are difficult to predict and are  beyond  the control of PEI.  Therefore, actual
amounts could differ from these estimates.


                                      -6-
<PAGE>


(2)  RATE MATTERS
<TABLE>
<CAPTION>
    <S>             <C>       >c?
    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 it is  estimated will total $6.6 million on
an annual basis) is being deferred, without carrying charges, until July, 1997.  
</TABLE>
    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]
           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.

(3)  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 1960, 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.    While  this  conclusion  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.






                                      -7-
<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 PGE's consolidated statements
of income as  percentages  of  operating  revenues  for  each of the three-month
period ended March 31, 1997 and 1996:

[CAPTION]
                                                            Three Months Ended
                                                                 March 31,    
                                                             1997        1996 
[S]                                                          [C]         [C]
OPERATING REVENUES....................................       100.0%      100.0%
  Cost of gas.........................................        61.5        57.6 
OPERATING MARGIN......................................        38.5        42.4 

OTHER OPERATING EXPENSES:
  Operation...........................................         8.1         9.4 
  Maintenance.........................................         1.4         1.8 
  Depreciation........................................         2.7         2.7 
  Income taxes........................................         7.3         8.5 
  Taxes other than income taxes.......................         5.4         5.5 
    Total operating expenses..........................        24.9        27.9 

OPERATING INCOME......................................        13.6        14.5 

OTHER INCOME, NET.....................................         0.3         0.2 

INTEREST CHARGES......................................        (2.9)       (3.0)

INCOME FROM CONTINUING OPERATIONS.....................        11.0        11.7 

LOSS WITH RESPECT TO DISCONTINUED OPERATIONS..........           -        (0.5)

NET INCOME ...........................................        11.0        11.2 

DIVIDENDS ON PREFERRED STOCK (1)......................        (0.5)       (0.9)

EARNINGS APPLICABLE TO COMMON STOCK...................        10.5%       10.3%

                    
(1)  None of the dividends on  preferred stock was allocated to the discontinued
operations.

o   Three  Months  Ended  March  31,  1997,  Compared  With  Three  Months Ended
    March 31, 1996

    Operating Revenues.  Operating revenues increased $10.5 million (15.2%) from
$69.4 million for the quarter  ended  March  31,  1996, to $79.9 million for the
quarter ended March 31,  1997,  primarily  as  a  result  of higher levels in PG
Energy Inc.'s ("PGE") gas cost rate and  the effect of the rate increase granted
PGE by the  Pennsylvania  Public  Utility  Commission  (the "PPUC") which became
effective on January 15, 1997 (see "Rate  Matters").  The effect of the increase
in rates was partially offset  by  a  1.2  billion cubic feet (9.3%) decrease in


                                      -8-
<PAGE>


sales to PGE's residential and  commercial  heating  customers.  There was a 331
(10.0%) decrease in heating degree days from 3,321 (104.1% of normal) during the
first quarter of 1996 to  2,990  (93.7%  of  normal) during the first quarter of
1997.   Operating  revenues  of  Honesdale  Gas  Company  ("Honesdale") totaling
$834,000 from Honesdale's February 14,  1997, acquisition date through March 31,
1997, also contributed to the increased operating revenues.

    Cost of Gas.  The  cost  of  gas  increased  $9.2 million (22.9%) from $40.0
million for the first quarter of 1996  to $49.1 million for the first quarter of
1997, primarily because of  higher  levels  in  PGE's  gas cost rate (see "-Rate
Matters") and the inclusion in  the  first  quarter  of  1997 of $574,000 of gas
costs with respect to  Honesdale  from  its  February 14, 1997, acquisition date
through March 31, 1997.  

    Operating Margin.  The operating  margin  increased $1.4 million (4.6%) from
$29.4 million in the first quarter of 1996 to $30.8 million in the first quarter
of 1997, primarily because  of  the  aforementioned  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, the  margin  decreased from 42.4% in the first
quarter of 1996 to  38.5%  in  the  first  quarter  of  1997  as a result of the
proportionately higher cost of gas during the period.

    Other Operating  Expenses.    Other  operating  expenses  increased $532,000
(2.7%) from $19.4 million for the quarter ended March 31, 1996, to $19.9 million
for the quarter ended March 31,  1997.  This increase was primarily attributable
to a $312,000 (16.4%) increase in depreciation expense, as a result of additions
to PGE's utility plant,  and  a  $499,000  (13.1%)  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.
The effects  of  these  increases  were  partially  offset  by  lower  levels of
operation and maintenance expense.  As a percentage of operating revenues, other
operating expenses decreased from 27.9% during the quarter ended March 31, 1996,
to 24.9% during the quarter ended March  31,  1997, primarily as a result of the
significantly greater increase in operating revenues during the period.

    Operating Income.  As a result  of  the above, operating income increased by
$831,000 (8.3%) from  $10.0  million  for  the  first  quarter  of 1996 to $10.9
million for the first  quarter  of  1997.    However,  as  a percentage of total
operating revenues, operating income  decreased  for  such periods from 14.5% in
the first quarter of  1996  to  13.6%  in  the  first quarter of 1997, primarily
because of the proportionately higher cost of gas in 1997.

    Other Income,  Net.    Other  income,  net  increased  $89,000  (59.3%) from
$150,000 for the three-month period  ended  March  31, 1996, to $239,000 for the
three-month period ended March 31, 1997,  largely  as  a result of a gain on the
condemnation of certain property of PGE for highway construction.

    Interest Charges.  Interest charges  increased by $268,000 (13.0%) from $2.1
million for the first quarter of 1996  to  $2.3 million for the first quarter 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 quarter 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.


                                      -9-
<PAGE>


    Income  From  Continuing  Operations.    Income  from  continuing operations
increased $652,000 (8.0%) from  $8.1  million  for  the  quarter ended March 31,
1996, to $8.8 million for the quarter  ended  March 31, 1997.  This increase was
largely the result of the  matters  discussed above, principally the increase in
operating margin, the  effects  of  which  were  partially  offset by the higher
levels of other operating expenses and interest charges.

    Net Income.  The increase in  net  income  of $1.0 million (13.1%) from $7.8
million for the first quarter of 1996  to  $8.8 million for the first quarter of
1997, was largely 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
$284,000 (44.6%) from $637,000 for the first quarter of 1996 to $353,000 for the
first quarter of 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 the year.

    Earnings Applicable to Common Stock.  The increase in earnings applicable to
common stock of  $1.3  million  (18.3%)  from  $7.1  million for the three-month
period ended March 31, 1996,  to  $8.4  million for the three-month period ended
March 31, 1997, as well as the increase in earnings per share of common stock of
$.95 (59.7%) from $1.59 per  share  for  the  three-month period ended March 31,
1996, to $2.54 per share for  the  three-month period ended March 31, 1997, were
the result of the higher income from continuing operations and 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  25.8%  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
<TABLE>
<CAPTION>
    <S>             <C>       <C>
    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 it is  estimated will total $6.6 million on
an annual basis) is being deferred, without carrying charges, until July, 1997.  
</TABLE>
    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.  







                                     -10-
<PAGE>


    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]
           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  $10.2  million  of  Non-Gas  Transition  Costs will be
billed to PGE, generally  over  a  six-year  period extending through January 1,
1999, of which $8.7 million had  been  billed  to  PGE and $8.5 million had been
recovered from its  customers  as  of  March  31,  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  finance  construction  expenditures  and  to  meet its seasonal
borrowing requirements, PGE has made  arrangements  for a total of $70.5 million
of unsecured revolving bank credit,  which  is deemed adequate for its immediate
needs.  Specifically,  PGE  currently  has  six  bank  lines  of  credit with an
aggregate borrowing capacity of  $70.5  million  which provide for borrowings at
interest rates generally  less  than  prime  and  which  mature at various times
during 1997 and 1998.  As of  May  1,  1997, PGE had $39.4 million of borrowings
outstanding under these bank lines of credit.  



                                     -11-
<PAGE>


    In addition, as of March 31, 1997,  PGE had borrowed $28.6 million from PEI.
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.   PGE  plans  to  arrange  new  and replacement bank lines of
credit when the funds that are  available  for  borrowing from PEI are no longer
available and as it requires  additional  funding  for working capital and other
purposes.

    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.    No  long-term debt or
capital stock financings were consummated  by  PGE during the three-month period
ended March 31,  1997.    A  $40.0-$50.0  million  long-term debt financing, the
proceeds from which will be used  to  repay bank borrowings is, however, planned
by PGE for later in 1997.

Construction Expenditures and Related Financings

    Expenditures for the  construction  of  utility  plant  totaled $6.5 million
during the first three months of  1997  and  are currently estimated to be $27.2
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 March 31, 1997, $29.7 million  of PGE's long-term debt, and $80,000 of
PGE's preferred stock was required to be repaid within twelve months.

    On April 18, 1997, PGE announced  an  offer  to  purchase any and all of the
78,853 outstanding shares of its 4.10%  cumulative preferred stock at a price of
$70.00 per share for an  aggregate  consideration  of $5.5 million, exclusive of
fees and other expenses.  The  offer,  which is not conditioned upon any minimum
number of shares being tendered  by  shareholders,  will expire on May 16, 1997,
unless extended at the option of  PGE.   Although PGE cannot presently determine
the number of shares  which  will  be  tendered  by shareholders pursuant to the
offer, it is anticipated that payment  for  any shares tendered will be financed
with borrowings under PGE's bank lines of credit.

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.



                                     -12-
<PAGE>


                          PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

     27-1   Financial Data Schedule -- filed herewith.

(b)  Reports on Form 8-K

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














































                                     -13-
<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)

[CAPTION]
[S]       [C]                         [C]
Date:     May 13, 1997                By:          /s/ Thomas J. Ward           
                                                       Thomas J. Ward
                                                         Secretary



Date:     May 13, 1997                By:        /s/ John F. Kell, Jr.          
                                                     John F. Kell, Jr.
                                            Vice President, Financial Services
                                             (Principal Financial Officer and
                                               Principal Accounting Officer)



























                                     -14-
<PAGE>