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 JUNE 30, 1998

                                       OR

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


          For the transition period from ____________ to _____________

                          Commission file number 0-7812


                         PENNSYLVANIA ENTERPRISES, INC.
             (Exact name of registrant as specified in its charter)


         Pennsylvania                                     23-1920170
(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)

                                 (717) 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 10,053,593 shares of common stock, no par value,  outstanding
as of July 30, 1998.

<PAGE>

                         PENNSYLVANIA ENTERPRISES, INC.

                                TABLE OF CONTENTS


                                                                           PAGE

PART I.        FINANCIAL INFORMATION

    Item 1.      Financial Statements

                 Consolidated Statements of Income for the three and six months
                    ended June 30, 1998 and 1997..........................    2

                 Consolidated Balance Sheets as of June 30, 1998
                    and December 31, 1997.................................    3

                 Consolidated Statements of Cash Flows for
                    the six months ended June 30, 1998 and 1997...........    5

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

    Item 2.      Management's Discussion and Analysis of Financial
                    Condition and Results of Operations...................   10



PART II.  OTHER INFORMATION

    Item 4.      Submission of Matters to a Vote of Security Holders......   17

    Item 5.      Other Information........................................   18

    Item 6.      Exhibits and Reports on Form 8-K.........................   18


<PAGE>


                          PART I. FINANCIAL INFORMATION

                 PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                                    Three Months Ended               Six Months Ended
                                                                         June 30,                        June 30,
                                                                ---------------------------     ---------------------------
                                                                   1998           1997             1998           1997
                                                                ------------   ------------     ------------   ------------
                                                                                  (Thousands of Dollars)
OPERATING REVENUES:
<S>                                                                <C>            <C>              <C>           <C>      
     Regulated                                                     $ 25,004       $ 33,210         $ 90,010      $ 113,149
     Nonregulated -
         Gas sales and services                                       7,576          5,991           16,601         13,366
         Pipeline construction and services                           3,204          2,627            5,608          4,780
         Other                                                           87             36              541             60
                                                                        ---            ---             ----             --
             Total operating revenues                                35,871         41,864          112,760        131,355
                                                                    -------        -------         --------        -------

OPERATING EXPENSES:
     Cost of gas                                                     18,112         22,726           64,263         79,434
     Operation and maintenance                                       11,408         10,976           22,741         21,308
     Depreciation                                                     2,610          2,379            5,211          4,678
     Income taxes                                                      (693)            83            3,463          5,682
     Taxes other than income taxes                                    2,916          3,338            6,977          7,664
                                                                     ------         ------           ------          -----
         Total other operating expenses                              34,353         39,502          102,655        118,766
                                                                    -------        -------         --------        -------

OPERATING INCOME                                                      1,518          2,362           10,105         12,589

OTHER INCOME, NET                                                       938            339              935            728
                                                                       ----           ----             ----            ---

INCOME BEFORE INTEREST CHARGES                                        2,456          2,701           11,040         13,317
                                                                     ------         ------          -------         ------

INTEREST CHARGES:
    Interest on long-term debt                                        2,445          2,099            5,033          4,141
    Other interest                                                      110            166              269            401
    Allowance for borrowed funds used during construction               (29)           (33)             (52)           (99)
                                                                       ----           ----             ----           ----
       Total interest charges                                         2,526          2,232            5,250          4,443
                                                                      ------         ------           ------         -----

INCOME (LOSS) BEFORE SUBSIDIARY'S PREFERRED
    STOCK DIVIDENDS                                                     (70)           469            5,790          8,874

SUBSIDIARY'S PREFERRED STOCK DIVIDENDS                                  321            318              642            671
                                                                       ----           ----             ----            ---

NET INCOME (LOSS)                                                    $ (391)         $ 151          $ 5,148        $ 8,203
                                                                     =======        ======         ========        =======

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
     OF COMMON STOCK:
     Before discount on repurchase of subsidiary's preferred
         stock                                                      $ (0.04)        $ 0.02           $ 0.52         $ 0.85
     Discount on repurchase of subsidiary's preferred stock               -           0.08                -           0.09
                                                                         --          -----               --           ----
     Earnings (loss) per share of common stock                      $ (0.04)        $ 0.10           $ 0.52         $ 0.94
                                                                    ========       =======          =======         ======

WEIGHTED AVERAGE NUMBER OF SHARES
      OUTSTANDING:
           Basic                                                 9,899,397      9,643,642        9,826,776      9,629,606
                                                                 ==========     ==========       ==========     =========
           Diluted                                               9,999,017      9,701,991        9,916,915      9,681,514
                                                                 ==========     ==========       ==========     =========

CASH DIVIDENDS PER SHARE                                            $ 0.30         $ 0.30           $ 0.60         $ 0.59
                                                                    ======         ======           ======         ======
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


<PAGE>


                 PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   June 30,          December 31,
                                                                     1998                1997
                                                                ---------------     ---------------
                                                                      (Thousands of Dollars)
ASSETS

UTILITY PLANT:
<S>                                                                  <C>                 <C>      
      At original cost                                               $ 362,560           $ 351,106
      Accumulated depreciation                                         (92,954)            (88,129)
                                                                       --------            -------
                                                                       269,606             262,977
                                                                       --------            -------

OTHER PROPERTY AND INVESTMENTS:
      Nonutility property and equipment                                 25,377              16,335
      Accumulated depreciation                                          (5,226)             (4,875)
      Other                                                              2,360               2,171
                                                                        ------               -----
                                                                        22,511              13,631
                                                                       -------              ------

CURRENT ASSETS:
      Cash and cash equivalents                                          1,379               2,202
      Restricted cash - common stock subscribed (Note 3)                   633                   -
      Accounts receivable -
          Customers                                                     17,667              28,681
          Others                                                           875                 850
          Reserve for uncollectible accounts                            (1,758)             (1,340)
      Unbilled revenues                                                  2,721              12,108
      Materials and supplies, at average cost                            3,517               3,110
      Gas held by suppliers, at average cost                            16,515              21,933
      Deferred cost of gas and supplier refunds, net                     5,470               6,316
      Prepaid expenses and other                                         4,222               1,686
                                                                        ------               -----
                                                                        51,241              75,546
                                                                       -------              ------

DEFERRED CHARGES:
     Regulatory assets -
         Deferred taxes collectible                                     30,932              30,592
         Other                                                           6,290               4,415
     Unamortized debt expense                                            1,189               1,361
     Other                                                                 230                 308
                                                                          ----                ---
                                                                        38,641              36,676
                                                                       -------              ------


TOTAL ASSETS                                                         $ 381,999           $ 388,830
                                                                    ==========           =========


</TABLE>



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


<PAGE>


                 PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                     June 30,          December 31,
                                                                       1998                1997
                                                                  ---------------     ---------------
                                                                        (Thousands of Dollars)

CAPITALIZATION AND LIABILITIES

CAPITALIZATION:
<S>                                                                    <C>                 <C>      
      Common shareholders' investment (Note 3)                         $ 126,786           $ 122,105
      Preferred stock of PG Energy -
           Not subject to mandatory redemption, net                       15,864              15,864
           Subject to mandatory redemption                                   560                 640
      Long-term debt                                                     109,000             127,000
                                                                        --------             -------
                                                                         252,210             265,609
                                                                        --------             -------

CURRENT LIABILITIES:
      Current portion of long-term debt                                   27,500              24,776
      Preferred stock subject to repurchase or
          mandatory redemption                                                80                  80
      Notes payable                                                        1,050               2,170
      Accounts payable                                                    22,343              18,448
      Accrued general business and realty taxes                              655               2,953
      Accrued income taxes                                                 5,043               4,618
      Accrued interest                                                     1,563               1,783
      Accrued natural gas transition costs                                   561               1,087
      Other                                                                1,897               1,722
                                                                          ------               -----
                                                                          60,692              57,637
                                                                         -------              ------

DEFERRED CREDITS:
      Deferred income taxes                                               54,105              52,511
      Unamortized investment tax credits                                   4,510               4,596
      Operating reserves                                                   2,684               2,825
      Other                                                                7,798               5,652
                                                                          ------               -----
                                                                          69,097              65,584
                                                                         -------              ------

COMMITMENTS AND CONTINGENCIES (Note 5)





TOTAL CAPITALIZATION AND LIABILITIES                                   $ 381,999           $ 388,830
                                                                      ==========           =========


</TABLE>




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

<PAGE>


                 PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                               Six Months Ended
                                                                                   June 30,
                                                                           -------------------------
                                                                             1998           1997
                                                                           ---------      ----------
                                                                            (Thousands of Dollars)

CASH FLOW FROM OPERATING ACTIVITIES:
<S>                                                                         <C>             <C>    
      Net income                                                            $ 5,148         $ 8,203
      Gain on sales of other property                                        (1,174)              -
      Effects of noncash charges to income -
          Depreciation                                                        5,252           4,711
          Deferred income taxes, net                                          1,254             389
          Provisions for self insurance                                         381             406
          Other, net                                                            945             895
      Changes in working capital, exclusive of cash
           and current portion of long-term debt -
               Receivables and unbilled revenues                             20,794          10,220
               Gas held by suppliers                                          5,418           8,241
               Accounts payable                                               1,225          (5,802)
               Deferred cost of gas and supplier refunds, net                   320          14,602
               Other current assets and liabilities, net                     (4,858)        (11,307)
      Other operating items, net                                             (1,387)           (924)
                                                                            -------           -----
                Net cash provided by operating activities                    33,318          29,634
                                                                            -------          ------

CASH FLOW FROM INVESTING ACTIVITIES:
      Additions to utility plant                                            (12,257)        (13,923)
      Additions to nonutility property                                       (9,253)         (1,234)
      Proceeds from the sales of other property                               1,505               -
      Acquisition of regulated business                                           -          (2,009)
      Other, net                                                                140             126
                                                                               ----             ---
               Net cash used for investing activities                       (19,865)        (17,040)
                                                                            --------        --------

CASH FLOW FROM FINANCING ACTIVITIES:
      Issuance of common stock                                                4,801           1,211
      Common stock subscribed, net                                              633               -
      Repurchase of subsidiary's preferred stock                                (80)         (3,108)
      Dividends on common stock                                              (5,901)         (5,682)
      Repayment of long-term debt                                                 -            (446)
      Net decrease in bank borrowings                                       (13,726)         (5,753)
      Other, net                                                                 (3)            822
                                                                                 ---            ---
               Net cash used for financing activities                       (14,276)        (12,956)
                                                                            --------        --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                      (823)           (362)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                2,202           1,126
                                                                             ------           -----
CASH AND CASH EQUIVALENTS AT END OF YEAR                                    $ 1,379           $ 764
                                                                           ========           =====

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the period for:
         Interest (net of amount capitalized)                               $ 5,195         $ 3,963
                                                                           ========         =======
         Income taxes                                                       $ 1,801        $ 14,674
                                                                            =======        ========
                                                                           
</TABLE>

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


<PAGE>


                 PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Nature of the Business. Pennsylvania Enterprises, Inc. (the "Company") is a
holding company which,  through its  subsidiaries,  is engaged in both regulated
and nonregulated activities. The Company's regulated activities are conducted by
its principal  subsidiary,  PG Energy Inc.  ("PG  Energy"),  a regulated  public
utility,  and  PG  Energy's  wholly-owned  subsidiary,   Honesdale  Gas  Company
("Honesdale"),  also a regulated  public  utility which was acquired on February
14,  1997.  Together  PG  Energy  and  Honesdale  distribute  natural  gas  to a
thirteen-county area in northeastern Pennsylvania, a territory that includes the
cities of  Scranton,  Wilkes-Barre  and  Williamsport.  In 1997,  PG Energy  and
Honesdale   collectively  accounted  for  approximately  84%  of  the  Company's
operating revenues.

     The  Company,  through  its other  subsidiaries,  PG Energy  Services  Inc.
("Energy  Services"),  PEI Power Corporation  ("Power Corp") which was formed in
October,  1997, Theta Land Corporation ("Theta") and Keystone Pipeline Services,
Inc. ("Keystone"),  a wholly-owned  subsidiary of Energy Services, is engaged in
various nonregulated activities,  including the sale of natural gas, propane and
electricity  and other  energy-related  services,  as well as the  construction,
maintenance and  rehabilitation  of natural gas  distribution  pipelines and the
sale of property  for  residential,  commercial  and other  development.  In the
fourth quarter of 1997,  Energy Services began  marketing  electricity and other
products and  services,  under the name PG Energy  PowerPlus,  in 26 counties in
northeastern  and  central   Pennsylvania.   Power  Corp,  an  exempt  wholesale
electricity  generator,  began generating and selling electricity in July, 1998,
upon completion of modifications to its cogeneration  facility that enable it to
burn both natural gas and methane.

     Principles of Consolidation.  The consolidated financial statements include
the accounts of the Company and its  subsidiaries,  PG Energy,  Energy  Services
(including  Keystone),   Power  Corp  and  Theta.  The  consolidated   financial
statements also include the accounts of Honesdale  beginning  February 14, 1997,
the date Honesdale was acquired by PG Energy. All material intercompany accounts
have been eliminated in consolidation.

     Both PG Energy and Honesdale  (collectively  referred to as the  "Regulated
Subsidiaries")  are  subject  to the  jurisdiction  of the  Pennsylvania  Public
Utility Commission (the "PPUC") for rate and accounting purposes.  The financial
statements  of  the  Regulated  Subsidiaries  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 the Company 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  December 19, 1996,  the PPUC approved an
overall 5.3%  increase in PG Energy's  base gas rates,  designed to produce $7.5
million of additional  annual  revenue,  effective  January 15, 1997.  Under the
terms of the Order, the billing for the impact of the rate increase  relative to
PG Energy's  residential  heating customers,  which totaled $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 PG Energy,
on an interim  basis when  circumstances  dictate,  to reflect  changes in their
purchased gas costs. The procedure  includes a process for the reconciliation of
actual gas costs incurred and actual revenues received and also provides for the
refund of any  overcollections,  plus interest thereon, or the recoupment of any
undercollections of gas costs.

     In accordance  with these  procedures PG Energy has been  permitted to make
the following  changes since January 1, 1997, to the gas costs  contained in its
tariff rates:


                                          Change in         Calculated
       Effective                          Rate per MCF    Increase (Decrease)
          Date                            From    To      in Annual Revenue
--------------------------------------   -----   -----     ------------
        
         
June 1, 1998                             $ 3.95  $ 4.18    $  5,800,000
March 1, 1998                              4.05    3.95      (2,100,000)
December 1, 1997                           4.49    4.05     (12,100,000)
March 1, 1997                              4.18    4.49       8,300,000

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



(3)    RESTRICTED CASH-COMMON STOCK SUBSCRIBED

     The Company  reinstated  its Customer  Stock  Purchase Plan (the  "Customer
Plan")  effective  February 4, 1998. The Customer Plan provides the  residential
customers  of all  the  Company's  subsidiaries  with  a  method  of  purchasing
newly-issued  shares of the  Company's  common  stock at a 5% discount  from the
market price.  On July 1, 1998,  the Company  issued 25,065 shares of its common
stock for an  aggregate  consideration  of  $645,000  with  respect to  payments
received pursuant to the Customer Plan during the subscription period ended June
30, 1998.  Such payments are  reflected  under the captions  "Restricted  cash -
common  stock  subscribed"  and  "Common  shareholders'   investment"  in  these
consolidated  financial  statements  as of June 30, 1998.  The proceeds from the
issuance  of shares  through  the  Customer  Plan were  used by the  Company  to
purchase common stock of PG Energy.

(4)    ACCOUNTING CHANGES

     Reporting  Comprehensive  Income.  Effective  January 1, 1998,  the Company
adopted the provisions of FASB Statement 130 "Reporting  Comprehensive  Income."
However,  because there were no items comprising other comprehensive income, the
adoption of FASB 130 has no effect on the Company's financial statements for the
periods ended June 30, 1998.

     Disclosures  about  Segments of an Enterprise and Related  Information.  In
June, 1997, FASB Statement 131, "Disclosures about Segments of an Enterprise and
Related  Information"  was issued.  The provisions of this statement,  which are
effective  for  fiscal  years  beginning  after  December  15,  1997,  establish
standards for reporting information about operating segments in annual financial
statements and selected segment  information in interim financial reports issued
to shareholders.  The Company expects to adopt the reporting  provisions of FASB
Statement 131 by the fourth quarter of 1998.

(5)    COMMITMENTS AND CONTINGENCIES

     Environmental  Matters.  PG Energy,  like many gas distribution  companies,
once utilized  manufactured  gas plants in connection with providing gas service
to its  customers.  None of these plants has been in operation  since 1972,  and
several of the plant  sites are no longer  owned by PG Energy.  Pursuant  to the
Comprehensive  Environmental  Response,  Compensation  and Liability Act of 1980
("CERCLA"),  PG  Energy  filed  notices  with the  United  States  Environmental
Protection  Agency (the "EPA") with respect to the former  plant sites.  None of
the sites is or was formerly on the proposed or final National  Priorities List.
The EPA has conducted site inspections and made preliminary  assessments of each
site  and  has   concluded   that  no  further   remedial   action  is  planned.
Notwithstanding  this determination by the EPA, some of the sites may ultimately
require remediation.  One site that was owned by PG Energy from 1951 to 1967 and
at which it operated a  manufactured  gas plant from 1951 to 1954 was subject to
remediation  in 1996. The  remediation at this site,  which was performed by the
party from whom PG Energy  acquired  the site in 1951,  required  the removal of
materials from two former gas holders. The cost of such remediation is purported
to  have  been  approximately  $525,000,  of  which  the  party  performing  the
remediation is seeking to recover a material portion from PG Energy.  PG Energy,
however,  believes  that  any  liability  it  may  have  with  respect  to  such
remediation  would be considerably  less than the amount that the other party is
seeking.  While the final resolution of the matter is uncertain,  PG Energy does
not believe that it will have any material  impact on its financial  position or
results of operations. Although the conclusion by the EPA that it anticipates no
further  remedial  action with respect to the sites at which PG Energy  operated
manufactured gas plants does not constitute a legal prohibition  against further
regulatory  action  under CERCLA or other  applicable  federal or state law, the
Company  does not  believe  that  additional  costs,  if any,  related  to these
manufactured  gas plant sites would be  material  to its  financial  position or
results of  operations  since  environmental  remediation  costs  generally  are
recoverable through rates over a period of time.


<PAGE>


                 PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES

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

RESULTS OF OPERATIONS

     The following table expresses  certain items in the Company's  consolidated
statements of income as percentages of operating  revenues for each of the three
and six-month periods ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>

                                              Three Months Ended              Six Months Ended
                                                   June 30,                       June 30,
                                         --------------------------      --------------------------
                                           1998             1997           1998             1997
                                         ----------       ---------      ---------        ---------

OPERATING REVENUES:
<S>                                           <C>             <C>            <C>              <C>   
    Regulated                                 69.7 %          79.3 %         79.8 %           86.1 %
    Nonregulated -
        Gas sales and services                21.1            14.3           14.7             10.2
        Pipeline construction and services     8.9             6.3            5.0              3.6
        Other                                  0.3             0.1            0.5              0.1
                                              ----        ------------       ----         -----------
             Total operating revenues        100.0           100.0          100.0            100.0
                                            ------          ------         ------           -----

OPERATING EXPENSES:
    Cost of gas                               50.5            54.3           57.0             60.5
    Operation and maintenance                 31.8            26.2           20.2             16.2
    Depreciation                               7.3             5.7            4.6              3.6
    Income taxes                              (1.9)            0.2            3.1              4.3
    Taxes other than income taxes              8.1             8.0            6.1              5.8
                                              ----            ----           ----             ---
        Total operating expenses              95.8            94.4           91.0             90.4
                                             -----           -----          -----            ----

OPERATING INCOME                               4.2             5.6            9.0              9.6

OTHER INCOME, NET                              2.6             0.8            0.8              0.5

INTEREST CHARGES                              (7.0)           (5.3)          (4.7)            (3.4)

SUBSIDIARY'S PREFERRED
      STOCK DIVIDENDS                         (0.9)           (0.7)          (0.5)            (0.5)
                                              -----           -----          -----            -----

NET INCOME (LOSS)                             (1.1)%           0.4  %         4.6  %           6.2  %
                                              =====           ====           ====             ====  
</TABLE>


     o Three Months Ended June 30, 1998,  Compared  With Three Months Ended June
30, 1997

     Operating Revenues.  Operating revenues decreased $6.0 million (14.3%) from
$41.9  million for the quarter  ended June 30,  1997,  to $35.9  million for the
quarter  ended June 30,  1998,  largely as a result of an $8.2  million  (24.7%)
decrease in  regulated  operating  revenues,  the impact of which was  partially
offset by a $1.6 million (26.5%) increase in gas sales and services by PG Energy
Services Inc. ("Energy Services"),  a nonregulated affiliate of the Company, and
a $577,000  (22.0%) increase in pipeline  construction and services  revenues by
Keystone  Pipeline  Services,  Inc.("Keystone"),  a  nonregulated  subsidiary of
Energy Services.

     The $8.2 million  (24.7%)  decrease in regulated  operating  revenues  from
$33.2  million for the quarter  ended June 30,  1997,  to $25.0  million for the
quarter  ended June 30, 1998,  was  primarily  the result of a 0.8 billion cubic
feet  (22.5%)  decrease  in  sales  by PG  Energy  Inc.  ("PG  Energy")  to  its
residential  and  commercial  heating  customers.  This  reduction  in sales was
attributable to the unseasonably  warm weather during the second quarter of 1998
and the  unseasonably  cool weather  during the same period in 1997,  as well as
lower levels in PG Energy's gas cost rate (see "-Rate Matters"). There was a 313
(32.4%)  decrease in heating  degree days from 965 (126.1% of normal) during the
second  quarter of 1997 to 652 (85.2% of  normal)  during the second  quarter of
1998.

     The $1.6 million (26.5%)  increase in  nonregulated  gas sales and services
from $6.0 million for the quarter  ended June 30, 1997,  to $7.6 million for the
quarter  ended June 30, 1998,  was  primarily the result of a 560,000 cubic feet
(35.1%) increase in sales of natural gas by Energy Services during the quarter.

     Operating Expenses.  Operating expenses,  including depreciation and income
taxes,  decreased $5.1 million (13.0%) from $39.5 million for the second quarter
of 1997 to $34.4  million for the second  quarter of 1998.  As a  percentage  of
operating  revenues,  total operating  expenses  increased from 94.4% during the
second quarter of 1997 to 95.8% during the second quarter of 1998 because of the
lower level of operating revenues.

     The cost of gas decreased  $4.6 million  (20.3%) from $22.7 million for the
second  quarter  of 1997 to  $18.1  million  for the  second  quarter  of  1998,
primarily  because  of the  aforementioned  decrease  in  sales  to PG  Energy's
residential and commercial heating customers and lower levels in PG Energy's gas
cost rate (see "-Rate  Matters").  The effects of these  factors were  partially
offset by the increased sales by Energy Services.

     Other than the cost of gas and income taxes,  operating  expenses increased
by $241,000  (1.4%) from $16.7  million for the second  quarter of 1997 to $16.9
million for the second quarter of 1998.  This increase was largely  attributable
to a $432,000 (3.9%) increase in operation and maintenance expense, primarily as
a result of increased  payroll and other costs  associated with the expansion of
the Company's nonregulated activities. Also contributing to the higher operating
expenses  was a $231,000  (9.7%)  increase in  depreciation  expense,  primarily
because of additions to utility plant.

     Income taxes decreased  $776,000 from tax expense of $83,000 for the second
quarter of 1997 to a tax benefit of $693,000 for the second  quarter of 1998 due
to a decrease in income before income taxes (for this purpose,  operating income
net of interest charges).

     Operating Income.  As a result of the above,  operating income decreased by
$844,000  (35.7%)  from $2.4 million for the  three-month  period ended June 30,
1997, to $1.5 million for the  three-month  period ended June 30, 1998, and also
decreased as a percentage of total operating revenues for such periods from 5.6%
in the three-month period ended June 30, 1997, to 4.2% in the three-month period
ended June 30, 1998.

     Other Income,  Net. Other income,  net increased $599,000 from $339,000 for
the  three-month  period  ended June 30, 1997,  to $938,000 for the  three-month
period  ended June 30,  1998,  largely  because of a gain on the sale of land in
June, 1998.  Interest Charges.  Interest charges increased $294,000 (13.2%) from
$2.2  million  for the  second  quarter of 1997 to $2.5  million  for the second
quarter of 1998.  This  increase was largely  attributable  to a higher level of
long-term debt outstanding in 1998.

     Net Income  (Loss).  The decrease in net income of $542,000  from income of
$151,000  for the second  quarter of 1997 to a loss of  $391,000  for the second
quarter of 1998 was the result of the matters  discussed above,  principally the
decrease in operating revenues and the increase in interest charges, the effects
of which were  partially  offset by  decreased  operating  expenses.  These same
factors,  along with an $.08 per share  discount on the  repurchase of preferred
stock in 1997,  accounted  for the  decrease in basic and diluted  earnings  per
share of common stock from earnings of $.10 per share for the second  quarter of
1997 to a loss of $.04 per share for the second quarter of 1998.

o Six Months Ended June 30, 1998, Compared With Six Months Ended June 30, 1997

     Operating Revenues. Operating revenues decreased $18.6 million (14.2%) from
$131.4  million for the six-month  period ended June 30, 1997, to $112.8 million
for the  six-month  period ended June 30,  1998,  largely as a result of a $23.1
million (20.5%) decrease in regulated  operating  revenues,  the impact of which
was  partially  offset  by a $3.2  million  (24.2%)  increase  in gas  sales and
services by Energy  Services  and an $828,000  (17.3%)  increase in the pipeline
construction and services revenues of Keystone.

     The $23.1 million  (20.5%)  decrease in regulated  operating  revenues from
$113.1  million for the  six-month  period ended June 30, 1997, to $90.0 million
for the six-month  period ended June 30, 1998, was primarily the result of a 2.5
billion cubic feet (17.8%) decrease in sales by PG Energy to its residential and
commercial  heating  customers.  This reduction in sales was attributable to the
unseasonably  warm weather during the period and lower levels in PG Energy's gas
cost rate (see "-Rate  Matters").  There was a 770  (19.5%)  decrease in heating
degree days from 3,955 (100.0% of normal) during the first six months of 1997 to
3,185 (80.5% of normal) during the first six months of 1998.

     The $3.2 million increase in nonregulated gas sales and services from $13.4
million for the  six-month  period ended June 30, 1997, to $16.6 million for the
six-month  period ended June 30, 1998, was primarily the result of a 1.3 million
cubic feet (36.8%)  increase in sales of natural gas by Energy  Services  during
the period.

     Operating Expenses.  Operating expenses,  including depreciation and income
taxes,  decreased  $16.1 million  (13.6%) from $118.8  million for the six-month
period ended June 30, 1997,  to $102.7  million for the  six-month  period ended
June 30, 1998. As a percentage of operating  revenues,  total operating expenses
increased  from 90.4% during the six-month  period ended June 30, 1997, to 91.0%
during the six-month  period ended June 30, 1998,  because of the lower level of
operating revenues.

     The cost of gas decreased  $15.2 million (19.1%) from $79.4 million for the
six-month  period ended June 30, 1997, to $64.3 million for the six-month period
ended June 30, 1998,  primarily because of the aforementioned  decrease in sales
to PG Energy's  residential and commercial heating customers and lower levels in
PG Energy's gas cost rate (see "-Rate  Matters").  The effects of these  factors
were partially offset by the increased sales by Energy Services.

     Other than the cost of gas and income taxes,  operating  expenses increased
by $1.3 million  (3.8%) from $33.6 million for the  six-month  period ended June
30, 1997, to $34.9 million for the  six-month  period ended June 30, 1998.  This
increase was largely attributable to a $1.4 million (6.7%) increase in operation
and maintenance  expense,  primarily as a result of increased  payroll and other
costs  associated with the expansion of the Company's  nonregulated  activities.
Also  contributing  to the higher  operating  expenses  was a  $533,000  (11.4%)
increase in depreciation expense,  primarily as a result of additions to utility
plant.

     Income  taxes  decreased  $2.2  million  (39.1%)  from $5.7 million for the
six-month  period ended June 30, 1997, to $3.5 million for the six-month  period
ended June 30, 1998,  due to a decrease in income  before income taxes (for this
purpose, operating income net of interest charges).

     Operating Income.  As a result of the above,  operating income decreased by
$2.5 million (19.7%) from $12.6 million for the six-month  period ended June 30,
1997, to $10.1 million for the  six-month  period ended June 30, 1998,  and also
decreased as a percentage of total operating revenues for such periods from 9.6%
in the six-month  period ended June 30, 1997,  to 9.0% in the  six-month  period
ended June 30, 1998.

     Other Income,  Net. Other income,  net increased $207,000 from $728,000 for
the six-month  period ended June 30, 1997, to $935,000 for the six-month  period
ended  June 30,  1998,  largely  because  of a gain on the sale of land in June,
1998.

     Interest  Charges.  Interest charges  increased  $807,000 (18.2%) from $4.4
million for the  six-month  period ended June 30, 1997,  to $5.2 million for the
six-month period ended June 30, 1998. This increase was largely  attributable to
a higher level of long-term debt outstanding in 1998.

     Subsidiary's  Preferred  Stock  Dividends.  Dividends  on  preferred  stock
decreased  $29,000 (4.3%) from $671,000 for the six-month  period ended June 30,
1997, to $642,000 for the six-month  period ended June 30, 1998,  primarily as a
result of repurchases of preferred stock in 1997.

     Net Income (Loss).  The decrease in net income of $3.1 million (37.2%) from
$8.2 million for the  six-month  period ended June 30, 1997, to $5.1 million for
the  six-month  period  ended  June 30,  1998,  was the  result  of the  matters
discussed above, principally the decrease in operating revenues and the increase
in interest  charges,  the effects of which were  partially  offset by decreased
operating  expenses.  The same factors,  along with a $.09 per share discount on
the repurchase of preferred  stock in 1997,  accounted for the decrease in basic
and  diluted  earnings  per  share of common  stock  from $.94 per share for the
six-month period ended June 30, 1997, to $.52 per share for the six-month period
ended June 30, 1998.

RATE MATTERS

     Rate Increase.  By Order adopted December 19, 1996, the Pennsylvania Public
Utility Commission (the "PPUC") approved an overall 5.3% increase in PG Energy's
base gas rates,  designed to produce $7.5 million of additional  annual revenue,
effective  January 15, 1997.  Under the terms of the Order,  the billing for the
impact  of  the  rate  increase  relative  to PG  Energy's  residential  heating
customers,  which  totaled $2.4 million  through  June 30, 1997,  was  deferred,
without carrying charges, until July, 1997.

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

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

     In accordance with these  procedures,  PG Energy has been permitted to make
the following  changes since January 1, 1997, to the gas costs  contained in its
gas tariff rates:

<TABLE>
<CAPTION>

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

<S>                                <C>     <C>       <C>         
June 1, 1998                       $ 3.95  $ 4.18    $  5,800,000
March 1, 1998                        4.05    3.95      (2,100,000)
December 1, 1997                     4.49    4.05     (12,100,000)
March 1, 1997                        4.18    4.49       8,300,000
</TABLE>

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

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

         The primary capital needs of the Company  continue to be the funding of
PG Energy's  construction  program and the  seasonal  funding of PG Energy's gas
purchases  and  increases  in its  customer  accounts  receivable.  PG  Energy'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.

         Additionally,  as the  Company's  nonregulated  activities  continue to
expand,  further capital will be required for those activities.  It is currently
anticipated  that such  expenditures  will be funded by a combination of capital
provided by the Company, bank borrowings and other debt financing.

         The cash flow from PG Energy'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 PG Energy to use bank borrowings to
fund such  expenditures,  pending the periodic  issuance of stock and  long-term
debt. Bank borrowings are also used by PG Energy 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, PG Energy has made arrangements for a total
of $70.0 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  $70.0  million  which  provide  for
borrowings  at  interest  rates  generally  less than prime and which  mature at
various  times  during  1998 and 1999 and  which PG Energy  intends  to renew or
replace as they  expire.  As of July 30,  1998,  PG Energy had $17.0  million of
borrowings outstanding under these bank lines of credit.

         The Company  believes that its regulated  subsidiaries  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.
Likewise,  the Company believes that its nonregulated  subsidiaries will be able
to raise such funds as are required for their future needs.

Long-Term Debt and Capital Stock Financings

         Both  the  Company  and  its  subsidiaries,  most  notably  PG  Energy,
periodically  engage 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 either  the  Company  or PG Energy  during the
six-month period ended June 30, 1998.

         The Company also obtains  external  funds from the sale of common stock
through its Dividend  Reinvestment  and Stock  Purchase Plan, its Customer Stock
Purchase  Plan,  its 1992 Stock  Option Plan and its  Employees'  Savings  Plan.
During  1998  (through  July 30) the  Company  realized  $7.5  million  from the
issuance of common stock under these plans.

Capital Expenditures and Related Financings

         Capital  expenditures totaled $21.8 million during the first six months
of 1998, including $12.1 million of expenditures for the construction of utility
plant and $8.5 million for the conversion of Power Corp's cogeneration  facility
and construction of the related methane recovery facility.

         The Company  estimates that its capital  expenditures  will total $25.8
million for the remainder of the year,  consisting of $24.2 million  relative to
utility  plant and $1.6  million  with  respect  to the  Company's  nonregulated
activities.  It is anticipated that such capital  expenditures  will be financed
with  internally  generated  funds  and  bank  borrowings,  and by the  periodic
issuance of stock and long-term debt.

Current Maturities of Long-Term Debt and Preferred Stock

         As of June 30, 1998,  $27.5 million of long-term debt and $80,000 of PG
Energy's preferred stock was required to be repaid within twelve months.

Year 2000

         The Company is currently  replacing its  financial  and human  resource
systems with purchased software packages. The installation of these new systems,
along  with  modifications  currently  being  made to its  customer  information
system,  will resolve the primary year 2000 issues.  The new financial and human
resource systems are anticipated to be fully operational by January, 1999, while
modifications to the new customer  information  system are now anticipated to be
completed and tested by March 31, 1999.

         The  Company  has  completed  a review of the  program  coding of other
significant  in-house  developed  applications  and  determined  that  they  are
presently  year 2000  compliant.  Additionally,  the  Company is  reviewing  its
installed  base of personal  computers to identify  non-compliant  machines that
would be in service at year 2000.

Forward-Looking Statements

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


<PAGE>


                           PART II. OTHER INFORMATION

Item 4.       Submission of Matters to a Vote of Security Holders

(a) The Annual Meeting of Shareholders of the Company was held on May 6, 1998.

(b) The following  persons were elected directors of the Company with the voting
as indicated:

<TABLE>
<CAPTION>

                                  No. of Shares            No. of Shares
         Name                    Voted in Favor              Withheld
------------------------         ----------------          --------------

<S>                                 <C>                       <C>   
Kenneth L. Pollock                  8,178,160                 99,353

William D. Davis                    8,189,800                 87,713

Thomas F. Karam                     8,193,640                 83,873

Robert J. Keating                   8,180,954                 96,559

James A. Ross                       8,182,748                 94,765

John D. McCarthy                    8,190,164                 87,349

Ronald W. Simms                     8,190,080                 87,433

Kenneth M. Pollock                  8,184,579                 92,934

Paul R. Freeman                     8,187,189                 90,324

John D. McCarthy, Jr.               8,180,239                 97,274

Richard A. Rose, Jr.                8,189,643                 87,870

</TABLE>


<PAGE>


Item 5.       Other Information

     Effective  August 4,  1998,  Paul R.  Freeman  resigned  as a  Director  of
Pennsylvania Enterprises, Inc.

Item 6.       Exhibits and Reports on Form 8-K

(a)    Exhibits

       10-1     Form of Stock Option Grant,  dated as of May 6, 1998,  between
                the Company and certain of its Officers - - filed herewith.

       10-2     Form of Stock Option Grant, dated as of May 6, 1998, between the
                Company  and  certain of its  non-employee  directors  - - filed
                herewith.

       10-3     Stock Option Grant, dated as of May 6, 1998, between the
                Company and Thomas F. Karam - - filed herewith.

       10-4     Amended  Employment  Agreement  dated as of May 6, 1998,  by and
                among the Company,  PG Energy Inc. and Thomas F. Karam - - filed
                herewith.

       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>


                         PENNSYLVANIA ENTERPRISES, 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.



                                             PENNSYLVANIA ENTERPRISES, INC.
                                                     (Registrant)

Date:  August 11, 1998              By:          /s/ Donna M. Abdalla  
      -------------------              ---------------------------------------
                                                     Donna M. Abdalla
                                                     Acting Secretary

Date:  August 11, 1998              By:         /s/ John F. Kell, Jr.  
      -------------------              ---------------------------------------
                                                    John F. Kell, Jr.
                                          Vice President, Financial Services
                                           (Principal Financial Officer and
                                             Principal Accounting Officer)