<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended September 30, 1997                     Commission File
                                                                    Number 0-234
                                                                           -----

                         Mobile Gas Service Corporation
                         ------------------------------
             (Exact name of registrant as specified in its charter)

             Alabama                                                  63-0142930
-------------------------------                              -------------------
(State or other Jurisdiction of                                 (I.R.S. Employer
 incorporation or organization)                              Identification No.)

   2828 Dauphin Street, Mobile, Alabama                                    36606
----------------------------------------                              ----------
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code                (334) 476-2720
                                                                  --------------

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                           Name of each exchange
Title of each class                                          on which registered
-------------------                                        ---------------------
      None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                          Common Stock ($.01 par value)
                          -----------------------------
                                (Title of Class)

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
          ---

     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 
                                             ---  ---

     The aggregate market value of Common Stock, Par Value $.01 per share, held
by non-affiliates (based upon the average of the high and low prices as reported
by NASDAQ on December 4, 1997) was approximately $120,656,624.

     As of December 4, 1997, there were 3,239,104 shares of Common Stock, Par
Value $.01 per share, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on January 30, 1998 are incorporated by reference into Part III.


<PAGE>   2

                                     PART I

Item 1.  Business.

GENERAL

     Mobile Gas Service Corporation (together with its subsidiaries, the
"Company" or "Registrant", and exclusive of its subsidiaries, "Mobile Gas") was
incorporated under the laws of the State of Alabama in 1933. The Company is
engaged in the purchase, distribution, sale and transportation of natural gas to
over 100,000 residential, commercial and industrial customers in southwest
Alabama, including the City of Mobile and adjacent areas. The Company's service
territory covers approximately 300 square miles. Mobile Gas is also involved in
merchandise sales, specifically sales of natural gas appliances.

     MGS Energy Services, Inc. ("MGS Energy"), a wholly-owned subsidiary, was
incorporated in March 1983. Through MGS Energy, the Company provides contract
and consulting work for utilities and industrial customers. MGS Energy owns a
51% interest in Southern Gas Transmission Company ("SGT"), an Alabama general
partnership which was formed in November 1991. SGT was established to provide
transportation services to the facilities of Alabama River Pulp Company, Inc.
During fiscal year 1992, SGT constructed and began operating a 50-mile pipeline
from the facilities of Koch Gateway Pipeline Company ("Koch"), formerly United
Gas Pipe Line Company, near Flomaton, Alabama to the facilities of Alabama River
Pulp Company, Inc. in Claiborne, Alabama.

     MGS Storage Services, Inc. ("MGS Storage"), a wholly-owned subsidiary, was
incorporated on December 4, 1991. MGS Storage holds a general partnership
interest of 87 1/2% in Bay Gas Storage Company, Ltd. ("Bay Gas"), an Alabama
limited partnership, and a 12 1/2% limited partnership interest is held by Olin
Corporation. Bay Gas has constructed an underground gas storage cavern which is
used to provide storage and delivery of natural gas for Mobile Gas and other
customers.

     MGS Marketing Services, Inc. ("MGS Marketing"), a wholly-owned subsidiary,
was incorporated on March 5, 1993 to assist existing and potential customers in
the purchase of natural gas.

CUSTOMERS

     Of the approximately 100,000 customers of the Company, approximately 95%
are residential customers. In the fiscal year ended September 30, 1997,
approximately 64% of the Company's gas revenues was derived from residential
sales, 13% from small commercial and industrial sales, 11% from large commercial
and industrial sales, 10% from transportation services, and 2% from storage and
miscellaneous services. Residential sales in 1997 accounted for approximately
13% of the total volume of gas delivered to the Company's customers, with small
commercial and industrial, large commercial and industrial, and transportation
deliveries accounting for approximately 3%, 5% and 79%, respectively. The ten
largest customers of the Company accounted for approximately 11% of the
Company's gross margin in fiscal 1997, with the largest accounting for
approximately 2%. For further information 


                                       1
<PAGE>   3

with respect to revenues from and deliveries to the various categories of the
Company's customers, see Item 6, "Selected Financial Data".

     In May 1995, the Company entered into a long-term contract with Tuscaloosa
Steel Corporation to transport natural gas to a new iron ore reduction facility
on a site located adjacent to downtown Mobile. In October 1997 the Company made
the first deliveries of gas to Tuscaloosa Steel's facility. When fully
operational in early 1998, that facility is expected to use approximately 40,000
MMBtu of gas per day, making Tuscaloosa Steel the largest volume user of natural
gas on the Company's system. To fulfill its obligations under such contract, the
Company has constructed approximately five miles of new high pressure pipeline
and upgraded certain other segments of its existing facilities.

GAS SUPPLY

     The Company is directly connected to two natural gas processing plants in
south Mobile County. Mobile Gas has contracted for a portion of its firm supply
directly with these producers. For the fiscal year ended September 30, 1997, the
Company obtained approximately 90% of its gas supply from sources located in the
Mobile Bay area, with the balance being obtained from interstate sources.

     To encourage more competition among natural gas suppliers, the Federal
Energy Regulatory Commission ("FERC") issued Order 636 in 1992. Order 636
required interstate pipelines to unbundle or separate gas sales, transportation
and storage services. With the implementation of Order 636, most pipelines
discontinued their traditional merchant function resulting in each local
distribution company becoming responsible for obtaining all of its gas supply in
the open market. While unbundling of these services allows a local distribution
company, such as Mobile Gas, more flexibility in selecting and managing the type
of services required to provide its customers with the lowest possible priced
gas while maintaining a reliable gas supply, it also places additional
responsibility on a distribution company to obtain its natural gas supply in the
open market on a timely basis to fulfill commitments during peak demand periods.
The Company believes that the Bay Gas storage facility, which had already been
planned by the Company prior to Order 636, has enhanced its ability to respond
to the changes in the industry brought about by Order 636.

     The Company has a current peak day firm requirement of 129,870 MMBtus. Firm
supply needs of 80,000 MMBtu/day are expected to be met through the withdrawal
of gas from the storage facility owned by Bay Gas. The Company also has firm
supply contracts with gas suppliers for 10,000 MMBtu/day until October 31, 2000,
and 13,000 MMBtu/day until June 30, 2000, through the direct connections with
Mobil and Shell's processing plants. Additionally, the Company has contracted
for firm transportation and storage service ("No-Notice Service") for 26,870
MMBtu/day from Koch under agreements extending to April 1, 1999. In conjunction
with the No-Notice Service, the Company has contracted with a gas supplier to
provide firm gas supply through March 31, 1999.


                                       2
<PAGE>   4

GAS STORAGE

     Construction of the Bay Gas storage facility was completed in 1994. The
cavern is designed to hold up to 3.7 BCF of natural gas. At full capacity,
approximately 1.3 BCF of the gas to be injected into the storage cavern, called
"base gas," will remain in the cavern to provide sufficient pressure to maintain
cavern integrity, and the remainder, approximately 2.4 BCF, represents working
storage capacity. Bay Gas has pipeline interconnects with Florida Gas
Transmission and Koch which provide access to interstate markets.

     In 1994 Mobile Gas entered into a gas storage agreement with Bay Gas under
which Bay Gas agreed to provide storage of approximately one-third of the
working storage capacity for an initial period of 20 years. Under the Mobile Gas
storage contract, injection and withdrawal capacity of 15,000 MMBtu/day and
80,000 MMBtu/day, respectively, is committed to Mobile Gas. At September 30,
1997, the storage facility's injection capacity was 35,000 MMBtu/day. In
November 1996, Bay Gas completed the installation of additional dehydration
equipment which increased the withdrawal capacity from 100,000 MMBtu/day to
260,000 MMBtu/day. An additional compressor will be added to increase the
injection capacity if significant contracts are entered into which provide for
firm injection services. There can be no assurance that Bay Gas will enter into
additional contracts.

     Under its agreements with Olin, Bay Gas has the right to develop up to 2
additional caverns on the property leased from Olin. Olin has the right, until
Bay Gas makes certain required payments to Olin prior to commencement of the
construction of a second cavern, to increase its ownership interest in Bay Gas
by an additional 12 1/2%, by purchasing from MGS Storage such additional
percentage at a price based on the book equity of MGS Storage in Bay Gas. The
Company is unable to determine at this time whether additional caverns will be
developed at the storage facility, but anticipates that an additional cavern
would be considered with sufficient market demand.

COMPETITION

     Gas Distribution Competition. The Company is not in significant direct
competition with respect to the retail distribution of natural gas to
residential, small commercial and small industrial customers within its service
area. Electricity competes with natural gas for such uses as cooking, water
heating and space heating.

     The Company's large commercial and industrial customers with requirements
of 200 MMBtu per day or more contract with the Company to transport
customer-owned gas while other commercial and industrial customers buy natural
gas from the Company. Some industrial customers have the capability to use
either fuel oil, coal, wood chips or natural gas, and choose their fuel
depending upon a number of factors, including the availability and price of such
fuels. In recent years, the Company has had adequate supplies so that
interruptible industrial customers that are capable of using alternative fuels
have not had supplies curtailed, and the price of natural gas has remained at
levels such that, in most cases, these industrial customers have chosen to use
natural gas rather than other fuels. The Company's rate tariffs include a
competitive fuel clause which allows the Company to adjust its rates to certain
large commercial and industrial customers in order to compete with alternative
energy sources. However, there can be no assurance that the current competitive
advantage of natural gas over alternative fuels will continue. See "Rates and
Regulation."


                                       3
<PAGE>   5

     Due to the close proximity of various pipelines and gas processing plants
to the Company's service area, there exists the possibility that current or
prospective customers could install their own facilities and connect directly to
a supply source and thereby "bypass" the Company's service. The Company believes
that because it has worked closely with major industrial customers to meet those
customers' needs, and because of its ability to provide competitive pricing
under its rate tariffs, none of the Company's customers have bypassed its
facilities to date. Although there can be no assurance as to future
developments, the Company intends to continue its efforts to reduce the
likelihood of bypass by offering competitive rates and services to such
customers.

     Gas Storage Competition. A number of types of competitors may provide
services like or in competition with those of Bay Gas. These include, among
others, natural gas storage facilities, natural gas aggregators (who rebundle
services ordered unbundled by Order 636), and natural gas pipelines. Bay Gas
believes that its strategic geographic location and its ability to charge
market-based rates for interstate storage services will enable it to effectively
compete with such competitors. See "Rates and Regulation."

RATES AND REGULATION

     The Company's natural gas distribution operations are under the
jurisdiction of the Alabama Public Service Commission ("APSC"). The APSC
approves rates which are intended to permit the recovery of the cost of service
including a return on investment. Rates are determined by reference to rate
tariffs approved by the APSC in traditional rate proceedings or, for certain
large customers, on a case-by-case basis. In addition, pursuant to APSC order,
rates for a limited number of large industrial customers are determined on a
privately negotiated basis. Beginning December 1, 1995, the Company also is
allowed to recover costs associated with the Company's replacement of cast iron
mains. This component of rates is adjusted annually through a filing with the
APSC. The rates for service rendered by the Company are on file with the APSC.
The APSC also approves the issuance of debt and equity securities and has
supervision and regulatory authority over service, equipment, accounting, and
other matters.

     On June 10, 1996, the APSC authorized the Company to apply a temperature
rate adjustment to customers' gas bills for the months of November through
April. The temperature rate adjustment helps to level out the effects of
temperature extremes on Company earnings by reducing high gas bills to customers
in colder than normal weather and increasing gas revenues received by the
Company in warmer than normal weather. The temperature rate adjustment was
reflected in customers' gas bills during the months of November 1996 through
April 1997.

     The Company's tariffs include a purchased gas adjustment clause which
allows the Company to pass on to certain of its customers increases or decreases
in gas costs from those reflected in its tariff charges. Adjustments under such
clauses require periodic filings with the APSC but do not require a general rate
proceeding. Under the purchased gas adjustment clause, the Company has a
competitive fuel clause which gives it the right to adjust its rates to certain
large customers in order to compete with alternative energy sources. Any margin
lost as a result of competitive fuel clause adjustments is recoverable from its
other customers.


                                       4
<PAGE>   6

     Gas deliveries to certain industrial customers are subject to regulation by
the APSC through contract approval. The operations of SGT, which consist only of
intrastate transportation of gas, are also regulated by the APSC.

     Bay Gas is a regulated utility governed under the jurisdiction of the APSC.
As a regulated utility, Bay Gas' intrastate storage contracts are subject to
APSC approval. Operation of the storage cavern and well-head equipment are
subject to regulation by the Oil and Gas Board of the State of Alabama. Bay Gas
is allowed by FERC order to charge market-based rates for interstate storage
services. Market-based rates allow Bay Gas to respond to market conditions and
minimizes regulatory involvement in the setting of its rates for storage
services.

     The Company has been granted nonexclusive franchises to construct, maintain
and operate a natural gas distribution system in the areas in which it operates.
Except for the franchise granted by Mobile County, Alabama, which has no stated
expiration date, the franchises have expiration dates, the earliest of which is
in 2007. The Company has no reason to believe that the franchises will not be
renewed upon expiration.

SEASONAL NATURE OF BUSINESS

     The nature of the Company's business is highly seasonal and
temperature-sensitive. As a result, the Company's operating results in any given
period have historically reflected, in addition to other matters, the impact of
weather, with colder temperatures resulting in increased sales by the Company.
The substantial impact of this sensitivity to seasonal conditions has been
reflected in the Company's results of operations. As discussed above under
"Rates and Regulation Results of Operations" and below under "Management's
Discussion and Analysis of Results of Operations and Financial Condition" the
application of a temperature rate adjustment in customers' bills beginning in
November 1996 will help to level out the effects of temperature extremes on
results of operations.

     Due to the seasonality of the Company's business, the generation of working
capital is impaired during the summer months because of reduced gas sales. Cash
needs during this period are met generally through short-term financing
arrangements or the reduction of temporary investments as is common in the
industry.

ENVIRONMENTAL ISSUES

     The Company is subject to various federal, state and local laws and
regulations relating to the environment, which have not had a material effect on
the Company's financial position or results of operations.

     Like many gas distribution companies, prior to the widespread availability
of natural gas, the Company manufactured gas for sale to its customers. In
contrast to some other companies which operated multiple manufactured gas
plants, the Company and its predecessor operated only one such plant, which
discontinued operations in 1933. The process for manufacturing gas produced
by-products and residuals, such as coal tar, and certain remnants of these
residuals are sometimes found at former gas manufacturing sites.


                                       5
<PAGE>   7

     The Company conducted a preliminary assessment in 1994 of its former gas
plant site and has tested certain waters in the vicinity of the site. The
Company developed and has implemented a plan for the site based on the advice of
its environmental consultants, which involves securing and monitoring the site,
and continued testing. Based on the results of tests to date, the Company does
not believe that the site currently poses any threat to human health or the
environment. While no conclusion can be reached at this time as to whether any
further remedial action might ultimately be required, based on currently
available information, it is believed that any costs with respect to the site
are likely to be immaterial, and the Company has therefore established no
reserve for such costs in its financial statements. The Company intends that,
should further investigation or changes in environmental laws or regulations
require material expenditures for investigation, remediation, or clean-up with
regard to the site, it would apply to the APSC for appropriate rate recovery of
such costs. However, there can be no assurance that the APSC would approve the
recovery of such costs or the amount and timing of any such recovery.

EMPLOYEES

     Mobile Gas employed 270 full-time employees as of September 30, 1997. Of
these, approximately 37% are represented by the Oil, Chemical and Atomic Workers
International Union, Local No. 3-541. As of September 30, 1997 Bay Gas employed
six full-time employees. The Company believes that it enjoys generally good
labor relations.

Item 2.  Properties.

     The Company's properties consist of distribution, general, transmission,
and storage plant. The distribution plant is located in Mobile County, Alabama
and is used in the distribution of natural gas to the Company's customers. The
distribution plant consists primarily of mains, services, meters and regulating
equipment, all of which are adequate to serve the present customers. The
distribution plant is located on property which the Company is entitled to use
as a result of franchises granted by municipal corporations, or on easements or
rights-of-way.

     The general plant consists of land, structures (with aggregate floor space
of approximately 118,000 square feet), office equipment, transportation
equipment and miscellaneous equipment, all located in Mobile County, Alabama.

     The transmission plant consists of a pipeline of approximately 50 miles and
related surface equipment which is used in the transmission of natural gas by
SGT and is located primarily in Monroe County, Alabama. The transmission plant
is located on easements or rights-of-way.

     The storage plant, consisting of an underground cavern for the storage of
natural gas and related pipeline and surface facilities, is located primarily in
Washington County, Alabama. The storage plant is constructed on a leasehold
estate with an initial term of 50 years, which will expire in 2040, and which
may be renewed at the Company's option for an additional term of 20 years.

     Substantially all of the property of the Company is pledged as collateral
for the long-term debt.


                                       6
<PAGE>   8

Item 3.  Legal Proceedings.

     The Company is involved in litigation arising in the normal course of
business. Management believes that the ultimate resolution of such litigation
will not have a material adverse effect on the consolidated financial statements
of the Company.

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

     There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 1997.

Executive Officers of the Registrant

     Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in the proxy statement to be filed with the Securities and Exchange
Commission.

     Information relating to executive officers who are also directors is
included under the caption "Election of Directors" contained in the Company's
definitive proxy statement with respect to its 1998 Annual Meeting of
Stockholders and is incorporated herein by reference.

     The following is a list of names and ages of all of the executive officers
who are not also directors or nominees for election as directors of the
Registrant indicating all positions and offices with the Registrant held by each
such person and each such person's principal occupations or employment during
the past five years. All such persons have been elected for terms expiring in
January 1998. Officers are appointed by the Board of Directors of the Company.

<TABLE>
<CAPTION>
                                                                     Business Experience
Name, Age, and Position                                              During Past 5 Years
-----------------------                                              -------------------

<S>                                                                  <C> 
W. G. Coffeen, III, 51                                               Appointed in 1986
Vice President - Marketing; Director/Vice 
President - MGS Marketing Services, Inc.; 
Vice President - MGS Storage Services, Inc.

Gerald S. Keen, 61                                                   Appointed in December 1989 
Vice President - Operations; Director/President - 
MGS Energy Services, Inc.; Director/President - 
MGS Storage Services, Inc.

Charles P. Huffman, 44                                               Appointed in January 1995;
Vice President, Chief Financial Officer, Treasurer,                  Previously: Chief Financial Officer
and Assistant Secretary; Vice                                        (1993-1994); Treasurer (1991-1993)
President/Treasurer - MGS Energy Services, 
Inc.; Director/Vice President/Treasurer - MGS
Storage Services, Inc.; Director/Vice President/ 
Treasurer - MGS Marketing Services, Inc.
</TABLE>


                                       7
<PAGE>   9

<TABLE>
<S>                                                                  <C>  
G. Edgar Downing, Jr., 41                                            Appointed in January 1995;
Vice President, Secretary and General Counsel;                       Previously: Secretary and General
Director/Vice President/Secretary - MGS Energy                       Counsel (1993-1994); Assistant
Services, Inc.; Director/Vice President/Secretary -                  Secretary (1991-1993), General
MGS Storage Services, Inc.; Vice President/                          Attorney (1990-1993)*
Secretary - MGS Marketing Services, Inc.

A. H. Tenhundfeld, Jr., 50                                           Appointed in March 1995; Previously:
Vice President - Administration and Planning                         Vice President - Finance and
                                                                     Treasurer, Dravo Corporation 
                                                                     (December 1989-February 1995)
</TABLE>

* Mr. Downing is the son-in-law of Gaylord C. Lyon, a Director of the Company.

                                     PART II

Item 5.  Market for the Registrant's Common Stock Equity and Related Stockholder
         Matters.

     The Registrant's Common Stock, $.01 par value, is traded on the NASDAQ
National Market under the symbol "MBLE". As of December 3, 1997 there were 1,578
holders of record of the Company's Common Stock. Information regarding Common
Stock dividends and the bid price range for Common Stock during the periods
indicated is as follows:

<TABLE>
<CAPTION>
                         Per Share
                     Dividends Declared                  Bid Price Range
                     ------------------      ----------------------------------------
 Fiscal Year
Quarter Ended         1997       1996               1997                    1996
-------------         ----       ----        ------------------       ---------------
                                             High          Low        High        Low
                                             ----          ---        ----        ---

<S>                   <C>       <C>       <C>          <C>          <C>        <C>  
December 31           $.28      $.27      $ 29         $  23 1/2    $ 22 3/4   $ 20 3/4
March 31               .28       .27        29 1/4        26 1/2      23         21 3/4
June 30                .30       .28        28 1/4        26          25 1/4     22 1/2
September 30           .30       .28        37 1/4        27 1/4      25 1/4     21
</TABLE>

     Over-the-counter quotations reflect inter-dealer prices without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions.

     While the Board of Directors intends to continue the practice of paying
dividends quarterly, amounts and dates of such dividends as may be declared will
be dependent upon the Registrant's future earnings, financial requirements, and
other factors.

     The Registrant's long-term debt instruments contain certain debt to equity
ratio requirements and restrictions on the payment of cash dividends and the
purchase of shares of its capital stock. At September 30, 1997, under the most
limiting of such provisions, retained earnings in the amount of $18,470,000 were
unrestricted.


                                       8
<PAGE>   10

Item 6.  Selected Financial Data.

FINANCIAL SUMMARY

<TABLE>
<CAPTION>
Years Ended September 30,                                  1997        1996        1995        1994        1993
-------------------------                              --------------------------------------------------------
<S>                                                    <C>         <C>         <C>         <C>         <C>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
Gas Revenues                                           $ 69,622    $ 68,334    $ 56,204    $ 60,470    $ 54,292
Merchandise Sales and Jobbing                             3,048       3,044       2,907       2,824       2,525
                                                       --------------------------------------------------------
Total Operating Revenues                               $ 72,670    $ 71,378    $ 59,111    $ 63,294    $ 56,817
                                                       --------------------------------------------------------
Net Income                                             $  8,126    $  8,631    $  4,028    $  4,893    $  4,920
Preferred Stock Dividends                                                                         5          29
                                                       --------------------------------------------------------
Earnings Applicable to Common Stock                    $  8,126    $  8,631    $  4,028    $  4,888    $  4,891
                                                       --------------------------------------------------------
Earnings Per Share of Common Stock                     $   2.50    $   2.68    $   1.26    $   1.78    $   1.79
Cash Dividends Per Share of Common Stock               $   1.16    $   1.10    $   1.06    $   1.02    $   0.96
Average Common Shares Outstanding                         3,255       3,225       3,208       2,752       2,733
Total Assets                                           $161,867    $150,779    $136,567    $134,529    $116,839
Long-Term Debt Obligations                             $ 63,580    $ 54,509    $ 57,328    $ 59,047    $ 60,416

STATISTICAL
Gas Revenue (in thousands):
  Sales:
    Residential                                        $ 44,330    $ 43,929    $ 36,106    $ 40,535    $ 35,204
    Commercial and Industrial - Small                     8,948       8,348       6,813       7,209       6,170
    Commercial and Industrial - Large                     7,638       7,914       6,151       6,188       6,403
  Transportation                                          6,886       6,571       6,172       5,881       5,927
  Storage (other than intercompany)                       1,176         926         245          13      
  Other                                                     644         646         717         644         588
                                                       --------------------------------------------------------
      Total                                            $ 69,622    $ 68,334    $ 56,204    $ 60,470    $ 54,292
                                                       --------------------------------------------------------
Delivery to Customers (in thousand therms):
  Gas Sales:
    Residential                                          48,099      59,403      47,992      56,100      50,046
    Commercial and Industrial - Small                    12,338      14,148      11,669      12,463      11,072
    Commercial and Industrial - Large                    16,975      23,252      19,536      19,045      23,012
  Transportation                                        284,248     279,798     274,859     253,702     237,499
                                                       --------------------------------------------------------
      Total                                             361,660     376,601     354,056     341,310     321,629
                                                       --------------------------------------------------------
Customers Billed (peak month):
  Residential                                            95,446      95,338      94,822      94,424      91,936
  Commercial and Industrial - Small                       5,267       5,257       5,235       5,195       4,812
  Commercial and Industrial - Large                         101         105         108         106         105
  Transportation                                             30          30          29          31          30
                                                       --------------------------------------------------------
      Total                                             100,844     100,730     100,194      99,756      96,883
                                                       --------------------------------------------------------
Degree Days (1)                                           1,487       2,030       1,331       1,837       1,611

NUMBER OF EMPLOYEES (END OF PERIOD)                         276         276         275         260         243
</TABLE>

Note: (1) The number of degrees that the daily mean temperature falls below 65
          degrees F.  The Company's rates were designed assuming annual normal
          degree days of 1,640 beginning December, 1, 1995 and an annual normal
          of 1,695 for prior periods.


                                       9
<PAGE>   11

Item 7.  Management's Discussion and Analysis of Results of Operations and
         Financial Condition.

THE COMPANY

     The consolidated financial statements include the accounts of Mobile Gas
Service Corporation, its wholly-owned subsidiaries, MGS Energy Services, Inc.,
MGS Storage Services, Inc., MGS Marketing Services, Inc., its 87.5% owned
partnership, Bay Gas Storage Company, Ltd., (Bay Gas), and its 51% owned
partnership, Southern Gas Transmission Company (collectively the "Company"). The
Company is engaged principally in the distribution of natural gas to
residential, commercial and industrial customers in Southwest Alabama, which is
subject to regulation by the Alabama Public Service Commission (APSC). The
Company's rate tariffs allow a pass-through to customers of the cost of gas
supplies, certain taxes, and beginning December 1, 1995, incremental costs
associated with the Company's replacement of cast iron mains. These costs,
therefore, ultimately have little impact on the Company's earnings. Other costs,
including a return on investment, have historically been recovered through rates
approved in traditional rate proceedings.

     The nature of the Company's distribution business is highly seasonal and
temperature-sensitive. As a result, the Company's operating results in any given
period historically have reflected, in addition to other matters, the impact of
weather, through either increased or decreased sales volumes. On November 1,
1996, the Company implemented a temperature rate adjustment rider designed to
level out the effects of temperature extremes on Company earnings. This new rate
mechanism is discussed within Results of Operations - Net Income.

     Bay Gas, which commenced operations of its natural gas storage facility in
September 1994, is a regulated utility governed under the jurisdiction of the
APSC. Intrastate storage contracts are subject to APSC approval whereas
interstate storage contracts, by Federal Energy Regulatory Commission order, are
permitted to have market-based rates.

RESULTS OF OPERATIONS

NET INCOME

     The Company's net income was $8.1 million, or $2.50 per share in 1997, $8.6
million, or $2.68 per share in 1996, and $4.0 million, or $1.26 per share in
1995. Fiscal 1996 earnings reflect the effects of weather which was 24% colder
than normal. The impact of colder weather increased 1996 earnings per share $.45
compared to earnings that would have occurred with normal weather. Earnings for
1997 reflect improvement over 1996 earnings without the weather impact primarily
as a result of decreased operation and maintenance expenses and improved
financial results from natural gas storage operations at Bay Gas.

     Even though winter weather during the 1997 fiscal year was 9% warmer than
normal, earnings for 1997 do not reflect the warmer weather impact because of a
temperature rate adjustment rider which was first implemented on November 1,
1996. The rider is designed to level out the effects of temperature extremes on
Company earnings by reducing high gas bills to customers in colder than normal
weather and increasing gas revenues received by 



                                       10
<PAGE>   12

the Company in warmer than normal weather. The rider was applied to residential
and small commercial customers' gas bills during the months of November 1996
through April 1997, resulting in increased net income of $816,000 and earnings
per share of $.25 during 1997.

     A general rate increase which became effective on December 1, 1995
contributed to the 1996 increase in net income as well as the increase in 1997.
Net income for 1996 also increased compared to 1995 due to the effects of
weather which was 53% colder than 1995. Weather during fiscal 1995 was 22%
warmer than normal.

OPERATING REVENUES

     Gas revenues were $69.6 million, $68.3 million and $56.2 million in fiscal
years 1997, 1996 and 1995, respectively. The 1997 increase was attributed to
increased gas revenue from temperature-sensitive, transportation and natural gas
storage customers. Revenues from the transportation of natural gas increased due
to increased plant utilization by existing customers while revenues from natural
gas storage operations increased due to new contracts for storage services.
Despite an 18% decrease in gas volumes sold to temperature-sensitive customers
(residential and small commercial) in 1997 compared to 1996 caused by warmer
weather, gas revenues from these customers increased due to the impact of
increased billings pursuant to the Purchased Gas Adjustment (PGA) provision and
the temperature rate adjustment rider within the Company's rate schedules. The
PGA component of customers' rates allows the Company to pass increases or
decreases in the cost of gas to customers. Fluctuations in billings to customers
under the Company's PGA component of rates are offset in full by changes in the
recorded cost of gas, thereby having no effect on recorded margins.

     Gas revenues in 1996 compared to 1995 increased primarily due to the
general rate increase and to colder weather. As a result of the colder weather
in fiscal 1996, the volume of gas sold and delivered to temperature-sensitive
customers increased 23% compared to 1995. The Company also recorded increased
gas revenues from the sale of natural gas to large commercial and industrial
customers, the transportation of natural gas, and natural gas storage
operations.

EXPENSES

     Cost of gas increased $2.3 million or 12% in 1997 compared to 1996. The
increase in gas costs was attributed primarily to an increase in commodity gas
prices which was passed through to customers under the Company's PGA component
of rates. Cost of gas increased $1.2 million or 7% in 1996 compared to 1995 due
to increased volumes sold during the colder 1996 winter. The 1996 increase in
cost of gas was not as high relative to the percentage increase in gas revenues
for 1996 because of the impact on revenues of the general rate increase and
because the Company was intentionally under-collecting 1996 gas costs through
the PGA component of its rates to customers to refund previously over-collected
gas costs. This under-collection of gas costs had no effect on recorded margins
since revenues were effected by the same amount.

     Operations and maintenance expenses decreased $490,000 in 1997 compared to
1996. The most significant factors contributing to this decrease were: lower
utility maintenance costs of $361,000 due to the completion in 1996 of certain
non-routine 


                                       11
<PAGE>   13

maintenance projects, stable operations costs due to cost control efforts
throughout the Company, increased capitalized administrative and general costs
resulting from a higher level of construction activity, and lower Bay Gas
expenses of $150,000. Operations and maintenance expenses increased $2.8 million
in 1996 compared to 1995. A variety of factors caused this increase. Bay Gas
operations and maintenance expenses increased $160,000 in conjunction with
serving new storage customers. For Mobile Gas, certain non-routine maintenance
projects totaling $450,000 were initiated and completed in 1996. The cold 1996
winter impacted operations expense in two respects. A $190,000 increase in bad
debt expense was associated primarily with higher customer bills from increased
usage caused by the cold winter. Additionally, the Company incurred over
$100,000 in increased overtime expense responding to customer and system needs
during the extreme weather periods. Expenses in 1996 also rose from increased
advertising and additional personnel hired in late 1995 in order to improve the
responsiveness to customers.

     The Company has completed an evaluation of the Company's computer
information systems and has identified the systems which will require program
modifications or new software installations in order to function properly in the
year 2000. The Company expects to incur costs approximating $325,000 to complete
the program modifications and new software installations by October 1998.
Estimated costs of $240,000 to modify existing information systems to be Year
2000 compliant will be expensed as incurred and estimated costs of $85,000
related to new software installation will be capitalized.

     Depreciation expense increased $334,000 or 6% in 1997 compared to 1996 and
$351,000 or 7% in 1996 compared to 1995. Increases for both years reflect the
growth in property, plant and equipment.

     Taxes, other than income taxes, primarily consist of state and local taxes
which are based on gross revenues and fluctuate accordingly. During fiscal 1997,
the State of Alabama approved the Company's claim for refund of a business
license tax. As a result of this approval, the Company reduced its expense for
taxes, other than income taxes, by $246,000.

     Interest expense increased $483,000 in 1997 compared to 1996 due to the
issuance in November 1996 of $12 million in 7.27% First Mortgage Bonds. Interest
expense decreased in 1996 compared to 1995 due to decreased levels of short-term
debt, lower short-term interest rates, and the reduction in long-term debt
principal balances.

     The allowance for borrowed funds used during construction represents the
capitalization of interest costs to construction work-in-progress. Capitalized
interest costs increased $142,000 in 1997 compared to 1996 primarily as a result
of increased construction activity during 1997 to complete a pipeline and
related facilities to service Tuscaloosa Steel, a large industrial customer with
whom Mobile Gas has a long-term contract to transport gas to its facility.

     Interest income increased $107,000 in 1997 compared to 1996 and $446,000 in
1996 compared to 1995. Improved cash positions during 1997 and 1996 provided the
Company more opportunities to invest in short-term financial instruments.


                                       12
<PAGE>   14

     Income tax expense fluctuated with the changes in income before income
taxes. The Company's effective tax rate in 1997 and 1996 was 36.7% and 36.0% in
1995. Income tax expense is detailed in Note 4 to the Consolidated Financial
Statements.

NEW ACCOUNTING STANDARDS

     Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS
121) was effective for the Company October 1, 1996. SFAS 121 establishes
accounting standards for the impairment of long-lived assets. The Company does
not believe that it has any assets which currently are impaired under SFAS 121;
therefore, this Statement had no effect on the Company's financial statements.

     Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) was effective for the Company October 1,
1996. SFAS 123 establishes a fair value method of accounting for stock-based
compensation plans. SFAS 123 allows companies to either measure stock-based
compensation using the fair value method or to continue to apply existing
accounting standards and include footnote disclosure of pro forma net income and
earnings per share calculated as if the fair value method had been applied.
Stock options outstanding at September 30, 1997 are not subject to the
requirements of SFAS 123 since the option grant date is prior to the effective
date of pro forma disclosures. The Company expects to continue to apply existing
accounting standards for stock-based compensation and to include disclosures
required by SFAS 123 for stock options granted in the future.

     Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128), is effective for the Company for the quarter ending December 31,
1997. SFAS 128 establishes standards for computing and presenting earnings per
share. The Company does not expect the implementation of SFAS 128 to have a
significant impact on the Company's reported earnings per share.

     Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) is effective for the Company for the fiscal
year beginning October 1, 1998. SFAS 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. The Company does not currently have any
comprehensive income other than items included in net income and, therefore,
does not expect any material changes to its current reporting in response to
SFAS 130.

     Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131) is effective for
the Company for the fiscal year beginning ending September 30, 1999. SFAS 131
establishes standards for reporting operating segments by public business
enterprises in interim and annual financial statements. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Interim disclosures are not required in
the year of adoption; therefore, the Company expects to report the required
financial and descriptive information about its operating segments beginning
with its annual financial statements for the fiscal year ending September 30,
1999.


                                       13
<PAGE>   15

EFFECTS OF INFLATION

     Inflation impacts the prices the Company must pay for labor and other goods
and services required for operation, maintenance and capital improvements.
Changes in purchased gas costs are passed through to customers in accordance
with the PGA provision of the Company's rate tariffs. Increases in other costs
must be recovered through timely filings for rate relief.

GAS SUPPLY

     A primary goal of the Company is to provide gas at the lowest possible cost
while maintaining a reliable long-term supply. To accomplish this goal the
Company has diversified its gas supply by constructing and purchasing pipelines
to access the vast gas reserves in our area, both offshore and onshore. The
Company has also contracted with certain of these sources for firm supply.
Future minimum payments under third-party contracts for firm gas supply, which
expire at various dates through the year 2000, are as follows: 1998 -
$1,560,000; 1999 - $990,000; and 2000 - $277,000. A portion of firm supply
requirements is met through the withdrawal of gas from the storage facility
owned by Bay Gas. Mobile Gas has a gas storage agreement with Bay Gas to receive
storage services for an initial period of 20 years, which began in September
1994 with the commencement of commercial operations of the storage facility. The
Company's PGA provision in rate tariffs filed with the APSC allows the recovery
of demand and commodity costs of purchased gas from customers. Should the
Company's customer base decline due to deregulation or other reasons, resulting
in costs related to firm gas supply in excess of requirements, management
believes it would be able to take one or more of the following actions: secure,
as part of the regulatory decision allowing other suppliers to serve current
customers, the right to allocate firm gas supply costs to the new company
supplying gas, reduce some excess gas supply costs through a negotiated
settlement with suppliers, or flow excess gas supply costs to existing customers
through the PGA component of customers' rates.

ENVIRONMENTAL

     The Company is subject to various federal, state and local laws and
regulations relating to the environment, which have not had a material effect on
the Company's financial position or results of operations. See Note 9 to the
Consolidated Financial Statements for a discussion of certain environmental
issues.


                                       14
<PAGE>   16

LIQUIDITY AND CAPITAL RESOURCES

     The Company's cash needs reflect the capital-intensive nature of its
business. The following table briefly describes the capital expenditures in the
periods indicated.

<TABLE>
<CAPTION>
Fiscal years ended September 30, (in thousands)        1997      1996      1995
                                                     -------   -------   -------
<S>                                                  <C>       <C>       <C>
System improvement and expansion                     $11,401   $ 7,856   $ 6,060
Gas storage facility                                     831     2,284     4,978
                                                     -------   -------   -------
    Total                                            $12,232   $10,140   $11,038
                                                     =======   =======   =======
</TABLE>

     The Company generally relies on cash generated from operations and, on a
temporary basis, short-term borrowings to meet working capital requirements and
to finance normal capital expenditures. Cash provided by operating activities
was $14.9 million, $13.0 million and $8.9 million in 1997, 1996 and 1995,
respectively. The increased cash flow from operating activities for 1997
compared to 1996 is primarily due to the change in operating assets and
liabilities which reflect the timing of cash receipts and payments. The most
significant component of the change in operating assets and liabilities was the
deferred purchased gas adjustment liability which decreased $1.4 million and
$5.3 million in 1997 and 1996, respectively, due to intentionally
under-collecting gas costs through the PGA mechanism in an effort to refund
previously over-collected gas costs. The under or over-collection of gas costs
has no net effect on gross margin since revenues and gas costs are effected by
the same amount. The increase in cash flows from operating activities for 1996
compared to 1995 is attributed to increased net income and increased non-cash
components of net income, the largest of which is deferred income taxes
resulting from a full year of book and tax depreciation for Bay Gas.

     Additional funding in 1997 for working capital and capital requirements was
obtained from issuance in November 1996 of $12 million in 7.27% First Mortgage
Bonds. In 1997, the Company reduced its short-term borrowings by $4.3 million,
made principal payments on long-term debt of $2.8 million and paid dividends of
$3.3 million. The Company's remaining cash needs in 1996 and 1995 were obtained
by borrowings under the Company's revolving credit agreement. Of the $13.2
million increase in short-term borrowings for 1996, $11 million is related to
the purchase of short-term investments which are reflected within the balance
sheet as cash equivalents at September 30, 1996. During 1995 the Company used
the remaining invested funds from the $22.5 million Bay Gas Senior Secured Notes
issued in fiscal 1993 to complete certain construction activities at Bay Gas.

     Bay Gas will add additional compression at an estimated cost of $3.7
million to increase the gas injection capacity should significant contracts be
entered into which provide for firm injection services. Funding for the
additional compression, if added, will come from internal cash generation and an
equity contribution from the Bay Gas partners. Funds for the equity contribution
by Mobile Gas would be obtained from short-term bank borrowings.

     In addition to the potential cash requirements of Bay Gas, the Company
expects fiscal 1998 capital expenditures related to the Company's regular
construction program to be $7.3 million. Funds for the Company's cash needs are
expected to come from cash provided by operations and borrowings under the
Company's revolving credit agreement. Management 


                                       15
<PAGE>   17

believes it has adequate financial flexibility to meet its expected cash needs
in the foreseeable future.

FORWARD-LOOKING STATEMENTS

     Statements contained in this report which are not historical in nature are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject to risks
and uncertainties that may cause actual future results to differ materially.
Such risks and uncertainties with respect to the Company include, but are not
limited to, its ability to successfully achieve internal performance goals,
competition, the effects of state and federal regulation, including rate relief
to recover increased capital and operating costs, general economic conditions,
and specific conditions in the Company's service area.

Item 8.  Financial Statements and Supplementary Data.

     The financial statements and financial statement schedules and the
Independent Auditors' Report thereon filed as part of this report are listed in
the "Mobile Gas Service Corporation and Subsidiaries Index to Financial
Statements and Schedules" at Page F-1, which follows Part IV hereof.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

     There have been no disagreements on accounting and financial disclosure
with the Company's outside auditors which are required to be disclosed.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

     Information under the captions "Election of Directors" and "Information
Regarding the Board of Directors" contained in the Company's definitive proxy
statement with respect to its 1998 Annual Meeting of Stockholders is
incorporated herein by reference.

     For information with respect to executive officers of the Registrant, see
"Executive Officers of the Registrant" at the end of Part I of this Report.

     Information under the caption "Reports Under Section 16 of the Securities
and Exchange Act" contained in the Company's definitive proxy statement with
respect to its 1998 Annual Meeting of Stockholders is incorporated herein by
reference.

Item 11. Executive Compensation.

     Information under the caption "Executive Compensation" contained in the
Company's definitive proxy statement with respect to its 1998 Annual Meeting of
Stockholders is incorporated herein by reference.


                                       16
<PAGE>   18

Item 12. Security Ownership of Certain Beneficial Owners and Management.

     Information under the caption "Security Ownership of Certain Beneficial
Owners and Management" contained in the Company's definitive proxy statement
with respect to its 1998 Annual Meeting of Stockholders is incorporated herein
by reference.

Item 13. Certain Relationships and Related Transactions.

     There were no transactions required to be disclosed pursuant to this item.

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

         (a), (d)  Financial Statements and Financial Statement Schedules

                   See "Mobile Gas Service Corporation and Subsidiaries Index to
                   Financial Statements and Schedules" at page F-1, which
                   follows Part IV hereof.

             (3)   Exhibits - See Exhibit Index on pages E-1 through E-5.


         (b)       No reports on Form 8-K were filed during the last quarter of
                   the fiscal year ended September 30, 1997.

         (c)       Exhibits filed with this report are attached hereto.


                                       17
<PAGE>   19

                                   Signatures

     Pursuant to the requirements of Section 13 or 15 (d) 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.

                                           MOBILE GAS SERVICE CORPORATION
                                           ------------------------------
                                                     Registrant

December 5, 1997                         By: /s/ Charles P. Huffman
                                         -------------------------------------
                                         Charles P. Huffman, Vice President,
                                         Chief Financial Officer and Treasurer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
        Signature                                 Title                                  Date
        ---------                                 -----                                  ----

<S>                                      <C>                                        <C> 
/s/ William J. Hearin                    Director, Chairman                         December 5, 1997
-----------------------------
William J. Hearin


/s/ Walter L. Hovell                     Director, Vice-Chairman                    December 5, 1997
-----------------------------
Walter L. Hovell
                                                                      
                                                                      
/s/ John S. Davis                        Director, President and                    December 5, 1997
-----------------------------            Chief Executive Officer      
John S. Davis                            (Principal Executive Officer)

                                                                          
/s/ Charles P. Huffman                   Vice President, Chief Financial            December 5, 1997
-----------------------------            Officer and Treasurer (Principal 
Charles P. Huffman                       Financial and Accounting         
                                         Officer)                         


/s/ Joseph G. Hollis                     Director                                   December 5, 1997
-----------------------------
Joseph G. Hollis
</TABLE>


                                       18
<PAGE>   20

                             Signatures (Continued)

<TABLE>
<S>                                      <C>                      <C> 
/s/ John C. Hope                         Director                 December 5, 1997
-----------------------------
John C. Hope


/s/ Gaylord C. Lyon                      Director                 December 5, 1997
-----------------------------
Gaylord C. Lyon


/s/ S. Felton Mitchell, Jr.              Director                 December 5, 1997
-----------------------------
S. Felton Mitchell, Jr.


/s/ G. Montgomery Mitchell               Director                 December 5, 1997
-----------------------------
G. Montgomery Mitchell


/s/ F. B. Muhlfeld                       Director                 December 5, 1997
-----------------------------
F. B. Muhlfeld


/s/ E. B. Peebles, Jr.                   Director                 December 5, 1997
-----------------------------
E. B. Peebles, Jr.


/s/ Thomas B. Van Antwerp                Director                 December 5, 1997
-----------------------------
Thomas B. Van Antwerp
</TABLE>



                                       19
<PAGE>   21

                         MOBILE GAS SERVICE CORPORATION
                                AND SUBSIDIARIES

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

<TABLE>
<S>                                                                                     <C>
Independent Auditors' Report                                                            F-2

Consolidated Statements of Income for the years ended
         September 30, 1997, 1996 and 1995                                              F-3

Consolidated Statements of Cash Flows for the years ended
         September 30, 1997, 1996 and 1995                                              F-4

Consolidated Balance Sheets, September 30, 1997 and 1996                                F-5

Consolidated Statements of Common Stockholders' Equity
         for the years ended September 30, 1997, 1996 and 1995                          F-7

Notes to Consolidated Financial Statements                                              F-8

Financial Statement Schedules

II       Valuation and Qualifying Accounts and Reserves, Years
                  Ended September 30, 1997, 1996 and 1995                               S-1
</TABLE>

Schedules other than that referred to above are omitted and are not applicable
or not required.


                                      F-1
<PAGE>   22

INDEPENDENT AUDITORS' REPORT


Mobile Gas Service Corporation:

     We have audited the accompanying consolidated balance sheets of Mobile Gas
Service Corporation and subsidiaries as of September 30, 1997 and 1996 and the
related consolidated statements of income, common stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1997. Our
audits also included the financial statement schedule listed in the Index
referred to in Item 14. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Mobile Gas Service Corporation
and its subsidiaries at September 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.



/s/ Deloitte & Touche LLP
-------------------------------
Deloitte & Touche LLP
Atlanta, Georgia
November 7, 1997


                                      F-2

<PAGE>   23
CONSOLIDATED
STATEMENTS OF INCOME


<TABLE>
<CAPTION>
Years Ended September 30, (in thousands, except per share data)     1997        1996        1995
                                                                  -------     -------     -------
<S>                                                               <C>         <C>         <C>
OPERATING REVENUES
 Gas Revenues                                                     $69,622     $68,334     $56,204
 Merchandise Sales and Jobbing                                      3,048       3,044       2,907
                                                                  -------     -------     -------
  Total Operating Revenues                                         72,670      71,378      59,111
                                                                  -------     -------     -------
OPERATING EXPENSES
 Cost of Gas                                                       21,895      19,552      18,311
 Cost of Merchandise and Jobbing                                    2,240       2,343       2,148
 Operations                                                        18,006      18,093      15,826
 Maintenance                                                        1,542       1,945       1,419
 Depreciation                                                       5,740       5,406       5,055
 Taxes, Other Than Income Taxes                                     5,269       5,574       4,758
                                                                  -------     -------     -------
  Total Operating Expenses                                         54,692      52,913      47,517
                                                                  -------     -------     -------

OPERATING INCOME                                                   17,978      18,465      11,594
                                                                  -------     -------     -------
OTHER INCOME AND (EXPENSE)
 Interest Expense                                                  (5,792)     (5,309)     (5,485)
 Allowance for Borrowed Funds Used During Construction                177          35          57
 Interest Income                                                      991         884         438
 Minority Interest                                                   (516)       (431)       (312)
                                                                  -------     -------     -------
  Total Other Income (Expense)                                     (5,140)     (4,821)     (5,302)
                                                                  -------     -------     -------

INCOME BEFORE INCOME TAXES                                         12,838      13,644       6,292
 Income Taxes                                                       4,712       5,013       2,264
                                                                  -------     -------     -------
NET INCOME                                                        $ 8,126     $ 8,631     $ 4,028
                                                                  -------     -------     -------
AVERAGE COMMON SHARES OUTSTANDING                                   3,255       3,225       3,208
                                                                  -------     -------     -------
EARNINGS PER SHARE OF COMMON STOCK                                $  2.50     $  2.68     $  1.26
                                                                  -------     -------     -------
</TABLE>

See Accompanying Notes to Consolidated Financial Statements





                                      F-3
<PAGE>   24
CONSOLIDATED
STATEMENTS OF
CASH FLOWS

<TABLE>
<CAPTION>
Years Ended September 30, (in thousands)                1997        1996         1995
                                                     --------     --------     --------
<S>                                                  <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Income                                         $  8,126     $  8,631     $  4,028
  Depreciation and Amortization                         6,069        5,619        5,261
  Provision for Losses on Accounts Receivable             821          441          293
  Provision for Deferred Income Taxes                   1,691        2,939          494
  Provision for Deferred Gas Cost                         (45)         (30)          39
  Minority Interest                                       534          440          176
  Changes in Operating Assets and Liabilities          (2,267)      (5,080)      (1,390)
                                                     --------     --------     --------
    Net Cash Provided by Operating Activities          14,929       12,960        8,901
                                                     --------     --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital Expenditures                                (12,232)     (10,140)     (11,038)
  Net Change in Temporary Investments                                             1,900
                                                     --------     --------     --------
    Net Cash Used In Investing Activities             (12,232)     (10,140)      (9,138)
                                                     --------     --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES
  Repayment of Long-Term Debt                          (2,818)      (1,719)      (1,369)
  Proceeds from Issuance of Long-Term Debt             12,000
  Changes in Short-Term Borrowings                     (4,300)      13,200        1,800
  Payment of Dividends, Net of Dividend Reinvestment   (3,349)      (3,294)      (3,216)
                                                     --------     --------     --------
    Net Cash Provided (Used) by Financing Activities    1,533        8,187       (2,785)
                                                     --------     --------     --------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                           4,230       11,007       (3,022)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR         12,030        1,023        4,045
                                                     --------     --------     --------
CASH AND CASH EQUIVALENTS AT END OF YEAR             $ 16,260     $ 12,030     $  1,023
                                                     --------     --------     --------
CASH PAID DURING THE YEAR FOR:
  Interest                                           $  5,325     $  5,187     $  5,294
                                                     --------     --------     --------
  Income Taxes                                       $  3,289     $  2,697     $  1,938
                                                     --------     --------     --------
</TABLE>

See Accompanying Notes to Consolidated Financial Statements





                                      F-4
<PAGE>   25
<TABLE>
<CAPTION>

CONSOLIDATED 
BALANCE SHEETS

ASSETS 

September 30, (in thousands)                             1997           1996
                                                         ----           ----
<S>                                                    <C>            <C>
PROPERTY, PLANT AND EQUIPMENT                          $165,208       $153,000
  Less: Accumulated Depreciation and Amortization        40,289         36,099
                                                       --------       -------- 
     Property, Plant, and Equipment - Net               124,919        116,901
  Construction Work in Progress                             946          2,579
                                                       --------       --------
     Total Property, Plant, and Equipment               125,865        119,480
                                                       --------       --------

CURRENT ASSETS
  Cash and Cash Equivalents                              16,260         12,030
  Receivables:
     Gas                                                  3,013          3,151
     Merchandise                                          2,715          2,592
     Other                                                  609            566
     Allowance for Doubtful Accounts                       (536)          (349)
  Materials, Supplies, and Merchandise (At Average
   Cost)                                                  1,241          1,163
  Gas Stored Underground For Current Use (At
   Average Cost)                                          2,152          1,951
  Deferred Purchased Gas Adjustment                         809            
  Deferred Gas Costs                                        231            186
  Deferred Income Taxes                                     818          1,240
  Prepayments                                             1,419          1,331
                                                       --------       --------
     Total Current Assets                                28,731         23,861
                                                       --------       --------

REGULATORY ASSETS                                         1,138          1,367

MERCHANDISE RECEIVABLES DUE AFTER ONE YEAR                4,827          4,608

DEFERRED CHARGES                                          1,306          1,463
                                                       --------       --------
     TOTAL                                             $161,867       $150,779
                                                       --------       --------
</TABLE>

See Accompanying Notes to Consolidated Financial Statements    



                                      F-5
<PAGE>   26
CAPITALIZATION AND LIABILITIES

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
September 30, (in thousands, except share data)                         1997            1996
-----------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>
CAPITALIZATION
  Stockholders' Equity:
    Common Stock, $.01 Par Value
    (Authorized 8,000,000 Shares; Outstanding 
    1997 -  3,237,000; 1996 - 3,222,000 Shares)                       $     32         $     32
    Capital in Excess of Par Value                                      17,763           17,364
    Retained Earnings                                                   37,382           33,004
-----------------------------------------------------------------------------------------------
      Total Stockholders' Equity                                        55,177           50,400
 Minority Interest                                                       2,985            2,451
 Long-Term Debt (Less Current Maturities)                               63,580           54,509
-----------------------------------------------------------------------------------------------
      Total Capitalization                                             121,742          107,360
-----------------------------------------------------------------------------------------------

CURRENT LIABILITIES
 Current Maturities of Long-Term Debt                                    2,930            2,818
 Notes Payable                                                          10,700           15,000
 Accounts Payable                                                        4,080            3,687
 Dividends Declared                                                        971              902
 Customer Deposits                                                       1,556            1,549
 Taxes Accrued                                                           2,827            2,607
 Interest Accrued                                                        1,897            1,641
 Deferred Purchased Gas Adjustment                                                          638
 Other Liabilities                                                       2,168            2,380
-----------------------------------------------------------------------------------------------
      Total Current Liabilities                                         27,129           31,222
-----------------------------------------------------------------------------------------------
ACCRUED PENSION COST                                                     1,718            1,778
ACCRUED POSTRETIREMENT BENEFIT COST                                      1,087            1,312
DEFERRED INCOME TAXES                                                    9,747            8,637
DEFERRED INVESTMENT TAX CREDITS                                            444              470
COMMITMENTS AND CONTINGENCIES (NOTE 9)                      
-----------------------------------------------------------------------------------------------
      TOTAL                                                           $161,867         $150,779
-----------------------------------------------------------------------------------------------
</TABLE>

See Accompanying Notes to Consolidated Financial Statements    
     





                                      F-6
<PAGE>   27
CONSOLIDATED
STATEMENTS OF 
COMMON STOCKHOLDERS'
EQUITY

<TABLE>
<CAPTION>
                                                Common Stock          
                                           ----------------------    Capital in
                                           Number of        Par       Excess of      Retained
(in thousands, except per share data)        Shares        Value      Par Value      Earnings
---------------------------------------------------------------------------------------------
<S>                                          <C>            <C>        <C>            <C>
BALANCE AT SEPTEMBER 30, 1994                3,202          $32        $16,934        $27,284
Net income                                                                              4,028
Dividend Reinvestment Plan                       9                         185          
Cash Dividends:
  Common Stock - $1.06 per share                                                       (3,400)
---------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995                3,211           32         17,119         27,912
Net income                                                                              8,631  
Dividend Reinvestment Plan                      11                         245          
Cash Dividends:
  Common Stock - $1.10 per share                                                       (3,539)
---------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996                3,222           32         17,364         33,004
Net income                                                                              8,126
Dividend Reinvestment Plan                      15                         399          
Cash Dividends:
  Common Stock - $1.16 per share                                                       (3,748)
---------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997                3,237          $32        $17,763        $37,382     
---------------------------------------------------------------------------------------------
</TABLE>

See Accompanying Notes to Consolidated Financial Statements




                                      F-7
<PAGE>   28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Mobile Gas Service
Corporation, its wholly-owned subsidiaries, MGS Energy Services, Inc., MGS
Storage Services, Inc., MGS Marketing Services, Inc., its 87.5% owned
partnership, Bay Gas Storage Company, Ltd. (Bay Gas), and its 51% owned
partnership, Southern Gas Transmission Company (collectively the "Company"). All
significant intercompany balances and transactions have been eliminated.

DESCRIPTION OF BUSINESS

The Company is engaged principally in the distribution of natural gas to
residential, commercial, and industrial customers in Southwest Alabama, subject
to regulation by the Alabama Public Service Commission (APSC). For the major
portion of the Company's business, the APSC approves rates which are intended to
permit the recovery of the cost of service including a return on investment. Gas
deliveries to certain industrial customers are subject to regulation by the APSC
through contract approval. The intrastate storage contracts of Bay Gas, which
operates a natural gas storage facility, are subject to APSC approval, whereas
interstate storage contracts, by Federal Energy Regulatory Commission order, are
permitted to have market-based rates. The Company is also engaged in various
unregulated activities including the sale and financing of gas appliances,
jobbing work, and contract and consulting work for utilities and industrial
customers.

REVENUES AND GAS COSTS

Revenues from residential and commercial customers are recorded as meters are
read on a cycle basis throughout each month. The commodity cost of purchased gas
applicable to gas delivered to customers but not yet billed under the cycle
billing method is deferred and classified as deferred gas costs within the
Company's Balance Sheet. Increases or decreases in the cost of gas and certain
other costs are passed through to customers in accordance with provisions in the
Company's rate schedules. Any over or under recoveries of these costs are
charged or credited to cost of gas and included in current assets or liabilities
as the Deferred Purchased Gas Adjustment within the Company's Balance Sheet. A
general rate increase designed to increase the Company's operating margins was
approved by the APSC and became effective on December 1, 1995. The APSC
authorized the Company, effective November 1, 1996, to implement a temperature
rate adjustment rider. Such rider is designed to offset the impact of unusually
warm or cold weather on the Company's operating margin. The rider increased net
income approximately $816,000 in 1997.


                                      F-8
<PAGE>   29

PROPERTY, PLANT, AND EQUIPMENT

Substantially all property, plant, and equipment is considered utility plant.
Included in property, plant, and equipment are acquisition adjustments, net of
amortization, of $8,424,000 and $8,812,000 at September 30, 1997 and 1996,
respectively. Such acquisition adjustments are being amortized to cost of
service over the lives of the assets acquired.

The cost of additions includes direct labor and materials, allocable
administrative and general expenses, pension and payroll taxes, and an allowance
for funds used during construction. The cost of depreciable property retired,
plus cost of dismantling, less salvage, is charged to accumulated depreciation.
Estimated interest cost associated with property under construction, based upon
weighted average interest rates for short-term borrowings or the interest rate
on borrowings for specific projects, is capitalized as an allowance for borrowed
funds used during construction. Maintenance, repairs, minor renewals and
betterment of property are charged to operations.

Provisions for depreciation are computed principally on straight-line rates for
financial statement purposes and on accelerated rates for income tax purposes.
Depreciation for financial statement purposes is provided at an annual rate
averaging approximately 4.0% of depreciable property, excluding the gas storage
facility which is depreciated at an annual rate averaging 2.7%.

CASH EQUIVALENTS

The Company records all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

INCOME TAXES

The Company records deferred tax liabilities and assets, as measured by enacted
tax rates, for all temporary differences caused when the tax basis of an asset
or liability differs from that reported in the financial statements. Investment
tax credits realized after 1980 are deferred and amortized over the average life
of the related property in accordance with regulatory treatment.

EARNINGS PER SHARE

Earnings per share are computed based on the weighted average number of common
shares and common share equivalents outstanding during each period. Common share
equivalents include the dilutive effect of outstanding stock options.


                                      F-9
<PAGE>   30

USE OF 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.
Actual results could differ from those estimates.

LONG-LIVED ASSETS

The Company reviews its long-lived assets whenever indications of impairment are
present. If any assets are determined to be impaired, such assets would be
written down to their estimated fair market values. The Company does not believe
it has any assets which are currently impaired.

NEW ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") was effective for the Company October 1, 1996. SFAS
123 establishes a fair value method of accounting for stock-based compensation
plans. SFAS 123 allows companies to either measure stock-based compensation
using the fair value method or to continue to apply existing accounting
standards and include footnote disclosure of pro forma net income and earnings
per share calculated as if the fair value method had been applied. Stock options
outstanding at September 30, 1997 are not subject to the requirements of SFAS
123 since the option grant date is prior to the effective date of pro forma
disclosures. The Company expects to continue to apply existing accounting
standards for stock-based compensation and to include disclosures required by
SFAS 123 for stock options granted in the future.

Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), is effective for the Company for the quarter ending December 31, 1997.
SFAS 128 establishes standards for computing and presenting earnings per share.
The Company does not expect the implementation of SFAS 128 to have a significant
impact on the Company's reported earnings per share.

Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130) is effective for the Company for the fiscal year beginning
October 1, 1998. SFAS 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements. The Company does not currently have any comprehensive
income other than items included in net income and, therefore, does not expect
any material changes to its current reporting in response to SFAS 130.


                                      F-10
<PAGE>   31

Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (SFAS 131) is effective for the
Company for the fiscal year ending September 30, 1999. SFAS 131 establishes
standards for reporting operating segments by public business enterprises in
interim and annual financial statements. SFAS 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Interim disclosures are not required in the year of adoption;
therefore, the Company expects to report the required financial and descriptive
information about its operating segments beginning with its annual financial
statements for the fiscal year ending September 30, 1999.

RECLASSIFICATIONS

Certain amounts in the prior year financial statements have been reclassified to
conform with the 1997 financial statement presentation.

2.       PROPERTY AND REGULATORY ASSETS

The functional classifications for the cost of property, plant, and equipment
are as follows at September 30, (in thousands):

                                             
                                                     1997                1996 
                                                ----------          ---------
Distribution plant                              $  99,329           $  89,152
Generation plant                                   14,526              13,456
Storage plant                                      38,015              36,908
Transmission plant                                  3,464               3,464
Acquisition adjustment                              9,874              10,020
                                                ----------          ---------
       Total property, plant, and equipment     $ 165,208           $ 153,000 
                                                ----------          ---------

The components of regulatory assets are as follows at September 30, (in
thousands):

                                                     1997                1996 
                                                ----------          ----------
Income tax (Note 4)                             $   1,056           $   1,215
Postemployment benefits (Note 8)                       82                 152 
                                                ----------          ----------
       Total regulatory assets                  $   1,138           $   1,367 
                                                ----------          ----------
                                      F-11
<PAGE>   32

3.       NOTES PAYABLE AND LONG-TERM DEBT

Long-term debt consists of the following at September 30, (in thousands):

<TABLE>
<CAPTION>
                                                     1997              1996
                                                  ----------        ----------
<S>                                               <C>               <C>
Mobile Gas Service Corporation
  First Mortgage Bonds
    10.25% Series, due October 1, 2001            $    5,000        $    6,500
    8.75% Series, due July 1, 2022                    12,000            12,000
    7.48% Series, due July 1, 2023                    12,000            12,000
    7.27% Series, due November 1, 2006                12,000
  9% Note, due May 13, 2013                            3,716             3,819
Bay Gas Storage Company, Ltd.
  8.19% Guaranteed Senior Secured Notes
    due December 1, 2014                              20,967            21,615
Southern Gas Transmission Company
  Revenue Note, Series A, due February 1, 1999
  (Interest varies from 7.95% to 8.05%)                  827             1,393
                                                  ----------        ----------
      Total                                           66,510            57,327
Less amounts due within one year                       2,930             2,818
                                                  ----------        ----------
      Long-term debt                              $   63,580        $   54,509
                                                  ==========        ==========
</TABLE>

Maturities and sinking fund requirements on long-term debt in each of the five
fiscal years subsequent to September 30, 1997 are as follows: 1998 - $2,930,000;
1999 - $2,100,000; 2000 - $1,962,000; 2001 - $2,045,000; and 2002 - $1,634,000.
Substantially all of the property of the Company is pledged as collateral for
the long-term debt.

At September 30, 1997, the Company had a $20 million revolving credit agreement
with a group of banks which expires in July 1999. Borrowings under the
agreement may be made as needed providing that the Company is in compliance with
certain covenants in the revolving credit agreement and other loan agreements.
The Company currently is in compliance with all such covenants. The Company pays
a fee for its committed lines of credit rather than maintain compensating
balances. The commitment fee is 0.125% of the average daily unborrowed amount
during the annual period of calculation. Unused committed lines of credit at
September 30, 1997 and 1996 were $9.3 million and $5.0 million, respectively.
The weighted average interest rates on short-term debt outstanding at September
30, 1997 and 1996 were 6.7% and 6.5%, respectively.


                                      F-12
<PAGE>   33

4.       INCOME TAXES

The components of income tax expense are as follows for the years ended
September 30, (in thousands):


<TABLE>
<CAPTION>
                                                1997      1996      1995
                                               ------    ------    ------
<S>                                            <C>       <C>       <C>
Current:
  Federal                                      $2,750    $1,897    $1,622
  State                                           286       202       172
                                               ------    ------    ------
                                                3,036     2,099     1,794
                                               ------    ------    ------
Deferred:
  Federal                                       1,544     2,667       448
  State                                           158       273        46
                                               ------    ------    ------
                                                1,702     2,940       494
                                               ------    ------    ------
Deferred investment tax credit
  amortization                                    (26)      (26)      (24)
                                               ------    ------    ------
          Total income tax expense             $4,712    $5,013    $2,264
                                               ------    ------    ------
</TABLE>


A reconciliation of income tax expense and the amount computed by multiplying
income before income taxes by the statutory federal income tax rate for the
periods indicated is as follows for the years ended September 30, (in
thousands):


<TABLE>
<CAPTION>
                                                1997      1996      1995
                                               ------    ------    ------
<S>                                            <C>       <C>       <C>
Income tax expense at federal
  statutory rate                               $4,365    $4,639    $2,139
Excess of book over tax depreciation on
  pre-1981 property additions                     113       108       109
State income taxes                                289       307       144
Other - net                                       (55)      (41)     (128)
                                               ------    ------    ------
          Total income tax expense             $4,712    $5,013    $2,264
                                               ------    ------    ------
Effective tax rate                              36.7%     36.7%     36.0%
</TABLE>


The tax effect of differences in book and tax depreciation related to pre-1981
property additions was recognized in income for accounting and ratemaking
purposes prior to 1981. With the adoption in fiscal 1994 of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," the
Company recorded deferred taxes related to this temporary difference and a
corresponding regulatory asset expected to be collected in customer rates when
such taxes become payable in accordance with the current ratemaking practices
followed by the APSC. Such future collections included in regulatory assets are
$1,056,000 and $1,215,000 at September 30, 1997 and 1996, respectively.

No valuation allowance is deemed necessary, as the Company anticipates
generating adequate future taxable income to realize the benefits of all
deferred tax assets on the balance.


                                      F-13
<PAGE>   34

The significant components of the Company's net deferred tax liability as of
September 30, are (in thousands): 

<TABLE>
<CAPTION>
                                          1997         1996
                                        --------      --------
<S>                                     <C>            <C>
Deferred tax liabilities:
   Differences between book and tax
    basis of property                   $10,605        $9,296
   Prepaid insurance                        197           222
   Regulatory assets                        383           440
   Purchased gas adjustment                 293          (231)
   Other                                    150           182
                                        -------        ------
      Total deferred tax liabilities     11,628         9,909
                                        -------        ------
Deferred tax assets:
   Pension                                  622           643
   Gross receipts taxes                     585           571
   Unbilled revenue                         238           232
   Postretirement benefits                  247           256
   Other                                  1,007           810
                                        -------        ------
      Total deferred tax assets           2,699         2,512
                                        -------        ------
      Net deferred tax liability        $ 8,929        $7,397
                                        -------        ------
</TABLE>


5.       CAPITAL STOCK

On January 31, 1997, the stockholders approved a proposed amendment to the
Restated Articles of Incorporation of the Company to increase the authorized
number of shares of common stock of the Company to eight million and to reduce
the par value of such common stock from $2.50 per share to $.01 per share. The
effect of this change on the Company's financial statements at January 31, 1997
was a reduction in the Common Stock Par Value of $8,037,421 and an increase in
the Capital in Excess of Par Value of the same amount. The change in par value
has been retroactively reflected in the financial statements for all dates
presented.

The Mobile Gas Service Corporation 1992 Stock Option Plan (the "Plan") provides
for the granting of incentive stock options, non-qualified stock options, and
stock appreciation rights to key employees. Under the Plan, an aggregate of
150,000 shares of the Company's authorized but unissued Common Stock have been
reserved for issuance. Stock options become 25% exercisable on the first
anniversary of the grant date and an additional 25% become exercisable each
succeeding year. No option may be exercised after the expiration of ten years
from the grant date. During the year ended September 30, 1995, 105,000 options
were granted at an option price of $21.125, representing the market price on the
date of grant. No stock options were granted, exercised or cancelled during the
years ended September 30, 1997 and 1996. At September 30, 1997, 52,500 stock
options are exercisable and 45,000 are available for options granted in
the future.

At September 30, 1997, 198,000 shares of the Company's authorized but unissued
Common Stock were reserved for issuance under the Company's Dividend
Reinvestment and Stock Purchase Plan.


                                      F-14
<PAGE>   35

6.       RESTRICTIONS ON RETAINED EARNINGS

The Company's long-term debt instruments contain certain debt to equity ratio
requirements and restrictions on the payment of cash dividends and the purchase
of shares of its capital stock. At September 30, 1997, under the most
restrictive provisions, retained earnings in the amount of $18,470,000 was
unrestricted.

7.       RETIREMENT PLANS AND OTHER BENEFITS

The Company has a noncontributory, defined benefit retirement plan covering
substantially all of its employees. Benefits are based on the greater of amounts
resulting from two different formulas: years of service and average compensation
during the last five years of employment or years of service and compensation
during the term of employment. The "projected unit credit" actuarial method was
used to determine the service cost and actuarial liability. The Company annually
contributes to the plan the amount deductible for federal income tax purposes.

Net periodic pension cost (credit) included the following components for the
years ended September 30, (in thousands):

<TABLE>
<CAPTION>
                                           1997        1996        1995
                                         -------     -------     -------
<S>                                      <C>         <C>         <C>
Service cost                             $   574     $   527     $   431
Interest cost                              1,248       1,258       1,168
Actual return on plan assets              (5,661)     (1,420)     (3,549)
Net amortization and deferral              3,780        (227)      2,082
                                         -------     -------     -------
    Net pension cost (credit)            $   (59)    $   138     $   132
                                         -------     -------     -------
</TABLE>

Assumptions used in the actuarial computations for the years ended September 30,
were:

<TABLE>
<CAPTION>
                                           1997        1996        1995
                                         -------     -------     -------
<S>                                      <C>         <C>         <C>
Weighted average discount rate             7.5%        7.5%        7.5%
Rate of increase in future compensation    6.1%        6.1%        6.1%
Expected long-term rate of return on
 plan assets                               7.5%        7.5%        7.5%
</TABLE>



                                      F-15
<PAGE>   36

The following table sets forth the plan's funded status and amount recorded in
the financial statements at September 30, (in thousands):

<TABLE>
<CAPTION>
                                                           1997           1996
                                                       --------       --------
<S>                                                    <C>            <C>
Actuarial present value of benefit obligations:
    Vested benefits                                    $(13,328)      $(12,945)
    Nonvested benefits                                     (556)          (692)
                                                       --------       --------
      Accumulated benefit obligation                    (13,884)       (13,637)
Effect of projected future compensation                  (4,125)        (3,950)
                                                       --------       --------
      Projected benefit obligation                      (18,009)       (17,587)
Plan assets at market value, primarily
  marketable securities                                  29,293         24,579
                                                       --------       --------
      Excess of plan assets over projected
        benefit obligations                              11,284          6,992
Unrecognized net gain                                   (12,207)        (7,831)
Prior service cost not yet recognized                       431            471
Remaining unrecognized net asset being 
  recognized over 16.7 years                             (1,226)        (1,410) 
                                                       --------       --------
      Accrued pension cost                             $ (1,718)      $ (1,778)
                                                       --------       --------
</TABLE>

The Company's eligible employees may participate in the Employee Savings Plan or
the Bargaining Unit Employees Savings Plan by investing a percentage of their
compensation in the Plans with the Company matching a part of the employee
investment. The Company's contributions for the years ended September 30, 1997,
1996 and 1995 were $225,000, $199,000, and $177,000, respectively.

8.       OTHER POSTEMPLOYMENT BENEFITS

The Company provides certain health care and life insurance benefits for retired
employees. Substantially all employees may become eligible for such benefits if
they retire under the provisions of the Company's retirement plan.

The Company is accruing the costs over the expected service period of the
employees. The "projected unit credit" actuarial method was used to determine
the service cost and actuarial liability.

Net periodic postretirement benefit cost included the following components for
the years ended September 30, (in thousands):

<TABLE>
<CAPTION>
                                                   1997      1996      1995
                                                  -----     -----     -----
<S>                                               <C>       <C>       <C>
Service cost                                      $  83     $  96     $  78
Interest cost                                       240       256       216
Actual return on plan assets                       (118)     (169)     (150)
Net amortization and deferral                       (38)       65        48
                                                  -----     -----     -----
  Net periodic postretirement benefit cost        $ 167     $ 248     $ 192
                                                  -----     -----     -----
</TABLE>



                                      F-16
<PAGE>   37
Assumptions used in the actuarial computations:

<TABLE>
<CAPTION>
                                                  1997      1996      1995
                                                  ----      ----      ----
<S>                                               <C>       <C>       <C>
Weighted average discount rate                    7.5%      7.5%      7.5%
Rate of increase in future compensation           6.1%      6.1%      6.1%
Expected long-term rate of return on assets       7.0%      7.0%      7.0%
</TABLE>

The accumulated postretirement benefit obligation at September 30, 1997 and 1996
was determined using an assumed health care cost trend rate of 9.6% in 1997 and
1996, gradually declining to 5.0% in the year 2004 and thereafter. If the health
care cost trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation as of September 30, 1997 would be increased by
18.5%. The effect of this change on the sum of the service cost and interest
cost components would be an increase of 20.9%.

The following table sets forth the plan's funded status and amount recorded in
the financial statements at September 30, (in thousands):

<TABLE>
<CAPTION>
                                                          1997           1996
                                                       -------        -------
<S>                                                    <C>            <C>
Accumulated postretirement benefit obligation:
  Portion attributable to retirees                     $(2,178)       $(2,089)
  Fully eligible active plan participants                 (336)          (397)
  Other active plan participants                          (912)        (1,167)
                                                       -------        -------
    Accumulated postretirement benefit obligation       (3,426)        (3,653)
Plan assets at market value, primarily marketable
  securities                                             2,366          1,790
                                                       -------        -------
    Accumulated postretirement benefit obligation
      in excess of plan assets                          (1,060)        (1,863)
Unrecognized net loss                                       83            684
Prior service cost not yet recognized                     (490)          (528)
                                                       -------        -------
    Accrued postretirement benefit cost                 (1,467)        (1,707)
Less: current portion                                      380            395
                                                       -------        -------
Accrued postretirement benefit cost - long-term
  portion                                              $(1,087)       $(1,312)
                                                       -------        -------
</TABLE>

In September 1991, the Company formed two voluntary employees' beneficiary
association (VEBA) trusts to fund postretirement health and life insurance
benefits. The Company's contributions to these trusts in 1997, 1996 and 1995
were $215,000, $200,000 and $218,000, respectively.

Beginning October 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS
112"). SFAS 112 required the Company to record the cost of providing
postemployment benefits to former or inactive employees, their beneficiaries,
and covered dependents after employment but before retirement. For the year
ended September 30, 1995, the Company recorded a liability for postemployment
benefits of $211,000 with a corresponding charge to a regulatory asset. The
regulatory asset is being amortized to expense and collected from customers over
a three year period beginning December 1, 1995 as approved by the APSC. 



                                      F-17
<PAGE>   38

9.       COMMITMENTS AND CONTINGENCIES

The Company has third-party contracts, which expire at various dates through the
year 2000, for the purchase, storage and delivery of gas supplies. Minimum
payments under these contracts in the fiscal years subsequent to September 30,
1997 are as follows: 1998 - $1,560,000; 1999 - $990,000; and 2000 - $277,000. A
portion of firm supply requirements is expected to be met through the withdrawal
of gas from the storage facility owned by Bay Gas. Mobile Gas Service
Corporation has entered into a Gas Storage Agreement under which Bay Gas is to
provide storage services for an initial period of 20 years which began in
September 1994 with the commencement of commercial operations of the storage
facility. The purchased gas adjustment provisions of the Company's rate
schedules permit the recovery of gas costs from customers.

The Company is subject to various federal, state and local laws and regulations
relating to the environment, which have not had a material effect on the
Company's financial position or results of operations.

Like many gas distribution companies, prior to the widespread availability of
natural gas, the Company manufactured gas for sale to its customers. In contrast
to some other companies which operated multiple manufactured gas plants, the
Company and its predecessor operated only one such plant, which discontinued
operations in 1933. The process for manufacturing gas produced by-products and
residuals, such as coal tar, and certain remnants of these residuals are
sometimes found at former gas manufacturing sites.

The Company conducted a preliminary assessment in 1994 of its former gas plant
site and has tested certain waters in the vicinity of the site. The Company
developed and has implemented a plan for the site based on the advice of
environmental consultants, which involves securing and monitoring the site, and
continued testing. Based on the results of tests to date, the Company does not
believe that the site currently poses any threat to human health or the
environment. While no conclusion can be reached at this time as to whether any
further remedial action might ultimately be required, based on currently
available information, it is believed that any costs with respect to the site
are likely to be immaterial, and the Company has therefore established no
reserve for such costs in its financial statements. The Company intends that,
should further investigation or changes in environmental laws or regulations
require material expenditures for investigation, remediation, or clean-up with
regard to the site, it would apply to the APSC for appropriate rate recovery of
such costs. However, there can be no assurance that the APSC would approve the
recovery of such costs or the amount and timing of any such recovery.

The Company is involved in litigation arising in the normal course of business.
Management believes that the ultimate resolution of such litigation will not
have a material adverse effect on the consolidated financial statements of the
Company.


                                      F-18
<PAGE>   39

10.      FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair values of financial instruments have been reported to meet the disclosure
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Values of Financial Instruments", and are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.

The carrying amounts for cash and cash equivalents, gas and other receivables,
notes payable, accounts payable and other current liabilities approximate fair
value. The fair value of merchandise receivables is estimated based on market
interest rates for similar receivables at the end of each respective year. The
carrying amount of merchandise receivables, as shown below, is net of the
reserve for uncollectible merchandise receivables. The fair value of long-term
debt is estimated based on interest rates available to the Company at the end of
each respective year for the issuance of debt with similar terms and remaining
maturities.

The carrying amount and the estimated fair value of such financial instruments
are as follows at September 30, (in thousands):

<TABLE>
<CAPTION>
                                       1997                    1996 
                               ---------------------   --------------------- 
                               Carrying   Estimated    Carrying   Estimated
                                Amount    Fair Value    Amount    Fair Value
                               --------   ----------   --------  -----------
<S>                            <C>         <C>         <C>         <C>
    Merchandise receivables    $ 7,138     $ 7,239     $ 6,938     $ 7,142
    Long-term debt              66,510      73,669      57,327      61,257
</TABLE>


                                      F-19

<PAGE>   40

11.      QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial data for 1997 and 1996 is summarized as follows (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                     Three Months Ended
                                         --------------------------------------------
                                         Dec. 31     Mar. 31     Jun. 30     Sep. 30
                                         --------    --------    --------    --------
<S>                                      <C>         <C>         <C>         <C>
1997
Total operating revenues                 $ 17,961    $ 29,336    $ 13,854    $ 11,519
Total operating income                   $  4,539    $  9,093    $  3,009    $  1,337
Net income                               $  2,038    $  4,861    $  1,096    $    131
Earnings per share of common 
  stock                                  $   0.63    $   1.49    $   0.34    $   0.04

1996
Total operating revenues                 $ 16,816    $ 28,222    $ 15,117    $ 11,223
Total operating income                   $  4,115    $  9,700    $  3,475    $  1,175
Net income                               $  1,804    $  5,315    $  1,391    $    121
Earnings per share of common
  stock                                  $   0.56    $   1.65    $   0.44    $   0.03
</TABLE> 

The pattern of quarterly earnings reflects a seasonal nature because weather
conditions strongly influence operating results.



                                      F-20
<PAGE>   41

12.      FINANCIAL INFORMATION BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
Years Ended September 30, (in thousands)                                1997            1996            1995
                                                                      --------         --------      ---------- 
<S>                                                                   <C>             <C>              <C> 
Operating Revenues, Unaffiliated Customers         
  Natural gas distribution                                             $ 71,494        $ 70,452       $ 58,866
  Natural gas storage                                                     1,176             926            245
                                                                       --------        --------       --------
    Total                                                              $ 72,670        $ 71,378       $ 59,111
                                                                       --------        --------       --------

Intersegment Revenues
  Natural gas distribution                                             $      3        $     25       $    760
  Natural gas storage                                                     4,146           4,141          4,111
                                                                       --------        --------       --------
    Total, eliminated in consolidation                                 $  4,149        $  4,166       $  4,871
                                                                       --------        --------       --------
Operating Expenses, Excluding Income Taxes
  Natural gas distribution                                             $ 56,985        $ 54,761       $ 50,252 
  Natural gas storage                                                     1,856           2,318          2,136
  Eliminated in consolidation                                            (4,149)         (4,166)        (4,871)
                                                                       --------        --------       --------
    Total                                                              $ 54,692        $ 52,913       $ 47,517
                                                                       --------        --------       --------
Operating Income Before Income Taxes
  Natural gas distribution                                             $ 14,511        $ 15,716       $  9,374
  Natural gas storage                                                     3,467           2,749          2,220
                                                                       --------        --------       --------
    Total                                                              $ 17,978        $ 18,465       $ 11,594
                                                                       --------        --------       --------

Depreciation and Amortization       
  Natural gas distribution                                             $  5,102        $  4,682       $  4,374
  Natural gas storage                                                       967             937            887
                                                                       --------        --------       --------
    Total                                                              $  6,069        $  5,619       $  5,261
                                                                       --------        --------       --------
Capital Expenditures                
  Natural gas distribution                                             $ 11,401        $  7,856       $  6,060
  Natural gas storage                                                       831           2,284          4,978
                                                                       --------        --------       --------
    Total                                                              $ 12,232        $ 10,140       $ 11,038
                                                                       --------        --------       --------
Identifiable Assets, at September 30,
  Natural gas distribution                                             $122,656        $113,479       $100,590
  Natural gas storage                                                    39,211          37,300         35,977
                                                                       --------        --------       --------
    Total                                                              $161,867        $150,779       $136,567
                                                                       --------        --------       --------
</TABLE>

                                      F-21
<PAGE>   42

13.      CHANGE IN CORPORATE STRUCTURE

The Company has announced its plan to form a holding company, EnergySouth, Inc.
The change in corporate structure requires, among other things, the approval of
the Company's shareholders and is expected to be voted upon at the at the Annual
Meeting of Shareholders to be held January 30, 1998. If the change in corporate
structure is approved, Mobile Gas, along with its existing subsidiaries, would
become subsidiaries of the new holding company and the shareholders of Mobile
Gas would receive three shares of EnergySouth, Inc. for each two shares of
Mobile Gas.


                                      F-22
<PAGE>   43
                                                                    SCHEDULE II

                MOBILE GAS SERVICE CORPORATION AND SUBSIDIARIES
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                 YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
                                 (in thousands)
<TABLE>
<CAPTION>
     COLUMN A       COLUMN B       COLUMN C           COLUMN D              COLUMN E
     --------       --------       --------           --------               --------

                                   ADDITIONS
                                ---------------

                                    CHARGED        CHARGED   
                    BALANCE AT     TO COSTS       TO OTHER                       BALANCE
                    BEGINNING        AND          ACCOUNTS       DEDUCTIONS       AT END
     DESCRIPTION     OF YEAR       EXPENSES        AMOUNT          AMOUNT        OF YEAR
     -----------    ----------     --------      ---------       ----------      --------
<S>                    <C>          <C>           <C>            <C>              <C>
Reserves deducted 
from assets to 
which they apply - 
Allowance for 
doubtful accounts:

September 30, 1997     $349         $821                          $634(1)        $536
September 30, 1996     $266         $441                          $358(1)        $349
September 30, 1995     $215         $293                          $242(1)        $266


</TABLE>

NOTES:

     (1) Amounts written off - net of recoveries.



                                      S-1
<PAGE>   44

                                  EXHIBIT INDEX

Exhibit No.       Description

  3(a)-1          Restated Articles of Incorporation (incorporated by reference
                  to Exhibit 3(i)-C to Form 8-K Current Report dated January 
                  26, 1996)

  3(a)-2          Articles of Amendment dated January 31, 1997 to Restated
                  Articles of Incorporation of Mobile Gas Service Corporation
                  (incorporated by reference to Exhibit 3(i)-D to Form 8-K
                  Current Report dated January 31, 1997)

  3(b)            By-laws, adopted January 27, 1995 (incorporated by reference 
                  to Exhibit 3(b) to Form 8-K Current Report dated January 27, 
                  1995)

  3(b)-1          By-laws, adopted January 26, 1996, as amended December 5, 
                  1997(1)

  4(a)-1          Indenture of Mortgage and Deed of Trust of the Company dated 
                  as of December 1, 1941 (incorporated by reference to Exhibit 
                  B-a to Registration Statement No. 2-4887)

<TABLE>
<CAPTION>
                   Sup. Ind.
                  Dated as of            File Reference                             Exhibit
                  -----------            --------------                             -------

<S>                 <C>                <C>                                           <C>
 4(a)-2             10/1/44            Reg. No. 2-5493                                7-6

 4(a)-3              7/1/52            Form 10-K for fiscal year ended                4(a)-3
                                       September 30, 1985
 4(a)-4              6/1/54                     "                                     4(a)-4
 4(a)-5              4/1/57                     "                                     4(a)-5
 4(a)-6              7/1/61                     "                                     4(a)-6
 4(a)-7              6/1/63                     "                                     4(a)-7
 4(a)-8             10/1/64                     "                                     4(a)-8
 4(a)-9              7/1/72                     "                                     4(a)-9
 4(a)-10             8/1/75                     "                                     4(a)-10
 4(a)-11             7/1/79                     "                                     4(a)-11
 4(a)-12             7/1/82                     "                                     4(a)-12
 4(a)-13             7/1/86            Form 10-K for fiscal year ended                4(a)-13
                                       September 30, 1986

 4(a)-14            10/1/88            Form 10-K for fiscal year ended                4(a)-14
                                       September 30, 1989

 4(a)-15             7/1/92            Form 10-K for fiscal year                      4(a)-15
                                       ended September 30, 1992

 4(a)-16             7/1/93            Form 10-K for fiscal year                      4(a)-16
                                       ended September 30, 1993

 4(a)-17            12/3/93            Form 10-K for fiscal year                      4(a)-17
                                       ended September 30, 1993

 4(a)-18            11/1/96            Form 10-K for fiscal year                      4(a)-18
                                       ended September 30, 1997(1)
</TABLE>



                                      E-1
<PAGE>   45

  4(b)            Southern Gas Transmission Company Indenture (incorporated by
                  reference to Exhibit 4(b) to Form 10-K for fiscal year ended
                  September 30, 1992)

  4(c)-1          Bay Gas Indenture dated as of October 1, 1992 (incorporated by
                  reference to Exhibit 4(c) to Form 10-K for fiscal year ended
                  September 30, 1992)

  4(c)-2          First Supplemental Indenture dated as of October 1, 1994
                  supplemental to Bay Gas Indenture (incorporated by reference
                  to Exhibit 4(c)-2 to Form 10-K for fiscal year ended September
                  30, 1995)

  4(d)            Promissory Note to the Utilities Board of the Town of
                  Citronelle dated May 13, 1993 (incorporated by reference to
                  Exhibit 4(d) to Form 10-K for fiscal year ended September 30,
                  1993)

  10(d)-2         Settlement Agreement with Koch Gateway Pipeline Company dated
                  September 21, 1993 (incorporated by reference to Exhibit
                  10(d)-2 to Form 10-K for fiscal year ended September 30, 1993)

  10(d)-3         No Notice Service Agreements between Koch Gateway Pipeline
                  Company and Mobile Gas Service Corporation dated November 1,
                  1993 (incorporated by reference to Form S-1, Registration
                  Statement No. 33-82498)

  10(d)-4         Gas Supply Agreement between Mobile Gas Service Corporation
                  and Koch Gas Services Company made as of the 1st day of April,
                  1994 (incorporated by reference to Form S-1, Registration
                  Statement No. 33-82498)

  10(e)-3         Gas Sale and Purchase Contract between Coral Energy Resources,
                  L.P. as Seller and Mobile Gas Service Corporation as Buyer
                  dated as of January 1, 1997(1)(3)

  10(e)-4         Gas Supply Agreement between Midcon Gas Services Corp. and
                  Mobile Gas Service Corporation dated as of April 1, 1997(1)(3)

  10(f)-1         Agreement for Sale and Purchase of Gas - Mobile Plant dated
                  August 10, 1995 between Mobil Natural Gas Inc. and Mobile 
                  Gas(3) Service (incorporated by reference to Exhibit 10(f) to
                  Form 10-K for fiscal year ended September 30, 1995)(3)

  10(f)-2         Letter dated June 26, 1996 with consent dated July 31, 1996 to
                  assignment of Agreement for Sale and Purchase of Gas - Mobile
                  Plant to PanEnergy Trading and Market Services, L.L.C.
                  (incorporated by reference to Exhibit 10(f)-2 to Form 10-K for
                  fiscal year ended September 30, 1996)

  10(g)           Deferred Compensation Agreement with John S. Davis dated
                  January 26, 1996 (incorporated by reference to Exhibit 10(g)
                  to Form 8-K Current Report dated February 7, 1996)


                                      E-2
<PAGE>   46

  10(i)           Mobile Gas Service Corporation/Bay Gas Storage Company, Ltd.
                  Gas Storage Agreement dated February 26, 1992 (incorporated by
                  reference to Exhibit 10(i) to Form 10-K for fiscal year ended
                  September 30, 1992)

  10(j)           Directors/Officers Indemnification Agreement (incorporated by
                  reference to Exhibit 10(j) to Form 10-K for fiscal year ended
                  September 30, 1992)

  10(k)-1         Amended and Restated Supplemental Deferred Compensation
                  Agreement with Walter L. Hovell, dated December 11, 1992
                  (incorporated by reference to Exhibit 10(k) to Form 10-K for
                  fiscal year ended September 30, 1992)(2)

  10(k)-2         Amendment to Amended and Restated Supplemental Deferred
                  Compensation Agreement dated January 27, 1995 between the
                  Company and Walter L. Hovell (incorporated by reference to
                  Exhibit 10(k)-2 to Form 8-K Current Report dated January 27,
                  1995)(2)

  10(l)-1         Bay Gas Agreement by and among Mobile Gas Service Corporation,
                  MGS Storage Services, Inc., MGS Energy Services, Inc. and Olin
                  Corporation, dated December 5, 1991 (incorporated by reference
                  to Exhibit 10(l) to Form 10-K for fiscal year ended September
                  30, 1992)

  10(m)-1         Limited Partnership Agreement between MGS Storage Services,
                  Inc., as General Partner, and MGS Energy Services, Inc., as
                  Limited Partner (forming Bay Gas Storage Company, Ltd.), dated
                  December 5, 1991 (incorporated by reference to Exhibit 10(m)
                  to Form 10-K for fiscal year ended September 30, 1992)

  10(m)-2         First Amendment to Limited Partnership Agreement dated as of
                  April 6, 1992 and Second Amendment to Limited Partnership
                  Agreement dated as of September 12, 1994 (incorporated by
                  reference to Exhibit 10(m)-2 to Form 10-K for fiscal year
                  ended September 30, 1994)

  10(n)           Cavity Development and Storage Agreement between Olin
                  Corporation and Bay Gas Storage Company, Ltd., dated January
                  14, 1992 (incorporated by reference to Exhibit 10(n) to Form
                  10-K for fiscal year ended September 30, 1992)

  10(o)-1         Transportation Agreement between Mobile Gas Service
                  Corporation and Tuscaloosa Steel Corporation dated as of May
                  15, 1995 (incorporated by reference to Exhibit 10(o) to Form
                  10-K for fiscal year ended September 30, 1995)(3)

  10(o)-2         Amendment dated August 23, 1996 to Transportation Agreement
                  between Mobile Gas Service Corporation and Tuscaloosa Steel
                  Corporation(3)


                                      E-3
<PAGE>   47

  10(p)           Note Guaranty Agreement between Mobile Gas Service Corporation
                  and AmSouth Bank of Alabama, Trustee, dated as of January 1,
                  1992, relating to Indenture of Southern Gas Transmission
                  Company (incorporated by reference to Exhibit 10(p) to Form
                  10-K for fiscal year ended September 30, 1992)

  10(q)           Guaranty Agreement by Mobile Gas Service Corporation, dated as
                  of October 1, 1992, relating to Indenture of Bay Gas Storage
                  Company, Ltd. (incorporated by reference to Exhibit 10(q) to
                  Form 10-K for fiscal year ended September 30, 1992)

  10(r)           Mobile Gas Service Corporation 1992 Stock Option Plan
                  (incorporated by reference to Exhibit A to definitive proxy
                  statement dated December 21, 1992)(2)

  10(s)           Mobile Gas Service Corporation Incentive Compensation Plan
                  (incorporated by reference to Exhibit B to definitive proxy
                  statement dated December 21, 1992)(2)

  10(t)           Agreement for Purchase and Sale of Assets by and between The
                  Utilities Board of the Town of Citronelle and Mobile Gas
                  Service Corporation dated January 28, 1993 (incorporated by
                  reference to Exhibit 10(t) to Form 10-K for fiscal year ended
                  September 30, 1993)

  10(u)-1         Revolving Credit Agreement dated July 17, 1995 by and among
                  Mobile Gas Service Corporation as Borrower, AmSouth Bank of
                  Alabama as Agent, and AmSouth Bank of Alabama, First Alabama
                  Bank, Whitney Bank of Alabama, Bank of Mobile, SouthTrust Bank
                  of Alabama, N.A., and Commonwealth National Bank as Lenders
                  (incorporated by reference to Exhibit 10(u) to Form 10-K for
                  fiscal year ended September 30, 1995)

  10(u)-2         Amendment dated July 15, 1996 to Revolving Credit Agreement by
                  and among Mobile Gas Service Corporation as Borrower, AmSouth
                  Bank of Alabama as Agent, and AmSouth Bank of Alabama, First
                  Alabama Bank, Whitney Bank of Alabama, Bank of Mobile,
                  SouthTrust Bank of Alabama, N.A., and Commonwealth National
                  Bank as Lenders (incorporated by reference to Exhibit 10(u)-2
                  to Form 10-K for fiscal year ended September 30, 1996)

  10(u)-3         Amendment dated July 15, 1997 to Revolving Credit Agreement by
                  and among Mobile Gas Service Corporation as Borrower, AmSouth
                  Bank of Alabama as Agent, and AmSouth Bank of Alabama, First
                  Alabama Bank, Whitney Bank of Alabama, Bank of Mobile,
                  SouthTrust Bank of Alabama, N.A., and Commonwealth National
                  Bank as Lenders(1)

  10(x)           Letter dated October 7, 1994 from Mobile Gas Service
                  Corporation to John S. Davis confirming terms of employment
                  (incorporated by reference to Exhibit A to Form 8-K current
                  report filed November 2, 1994)(2)

                                      E-4
<PAGE>   48

  10(y)           Consulting Agreement dated January 27, 1995 between the
                  Company and Walter L. Hovell (incorporated by reference to
                  Exhibit 10(y) to Form 8-K Current Report dated January 27,
                  1995)(2)

  10(z)           Mobile Gas Service Corporation Non-Employee Directors Deferred
                  Fee Plan (incorporated by reference to Exhibit 10(z) to Form
                  8-K Current Report dated January 27, 1995)(2)

  10(aa)          Mobile Gas Service Corporation Transportation Agreement
                  between the Company and Methanol One of Alabama, L.L.C. dated
                  September 26, 1997(1)(3)

  11              Statement Re Computation of Per Share Earnings(1)

  21              Subsidiaries of Registrant and Partnerships in which
                  Registrant Owns an Interest(1)

  23              Consent of Deloitte & Touche LLP(1)

  27              Financial Data Schedule(1)

(1)   Filed herewith

(2)   Management contract or compensatory plan or arrangement

(3)   Confidential portions of this exhibit have been omitted and filed
      separately with the Securities and Exchange Commission pursuant to a
      request for confidential treatment made in accordance with Rule 24b-2
      promulgated under the Securities Exchange Act of 1934, as amended.



                                      E-5