Ugi Utilities 10-Q 2007 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2006

OR

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

For the transition period from __________ to __________

Commission file number 1-1398

UGI UTILITIES, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania
(State or other jurisdiction of
incorporation or organization) 23-1174060
(I.R.S. Employer
Identification No.)

UGI UTILITIES, INC.
100 Kachel Boulevard, Suite 400
Green Hills Corporate Center, Reading, PA
(Address of principal executive offices)
19607
(Zip Code)
(610) 796-3400
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filero   Accelerated filero   Non-accelerated filerþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   
Yeso   Noþ

At January 31, 2007, there were 26,781,785 shares of UGI Utilities, Inc. Common Stock, par value $2.25 per share, outstanding, all of which were held, beneficially and of record, by UGI Corporation.

UGI UTILITIES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

			PAGES
Part I  Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of December 31, 2006, September 30, 2006 and December 31, 2005		1
		Condensed Consolidated Statements of Income for the three months ended December 31, 2006 and 2005		2
		Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2006 and 2005		3
		Notes to Condensed Consolidated Financial Statements		4 - 13
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14 - 19
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		19 - 20
	Item 4.	Controls and Procedures		20 - 21
Part II  Other Information
	Item 1A.	Risk Factors		22
	Item 6.	Exhibits		22
	Signatures			23
Exhibit 12.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32

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UGI UTILITIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)

	December 31,			September 30,			December 31,
	2006			2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	8,083		$	2,942		$	2,514
Restricted cash		6,981			2,697			—
Accounts receivable (less allowances for doubtful accounts of $12,027, $12,389 and $5,560, respectively)		109,177			61,917			89,253
Accounts receivable — related parties		7,590			1,888			1,268
Accrued utility revenues		58,103			16,649			59,190
Inventories		162,087			162,610			81,023
Deferred fuel costs		—			—			9,435
Other current assets		21,784			26,658			5,641
Total current assets		373,805			275,361			248,324
Property, plant and equipment, at cost (less accumulated depreciation and amortization of $513,410, $503,046 and $335,802, respectively)		1,053,283			1,050,824			659,092
Goodwill		182,851			182,851			—
Regulatory assets		73,764			72,919			61,794
Other assets		26,000			27,788			31,763
Total assets	$	1,709,703		$	1,609,743		$	1,000,973
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Current maturities of long-term debt	$	20,000		$	20,000		$	—
Bank loans		250,000			216,000			145,500
Accounts payable		78,144			46,916			95,304
Accounts payable — related parties		10,121			14,768			3,520
Deferred fuel refunds		11,914			12,171			—
Accrued income taxes		6,099			—			2,355
Other current liabilities		75,091			59,243			42,908
Total current liabilities		451,369			369,098			289,587
Long-term debt		492,000			492,000			237,000
Deferred income taxes		166,316			162,871			162,198
Deferred investment tax credits		6,707			6,803			7,096
Other noncurrent liabilities		32,844			31,872			14,255
Total liabilities		1,149,236			1,062,644			710,136
Commitments and contingencies (note 7)
Common stockholder’s equity:
Common Stock, $2.25 par value (authorized - 40,000,000 shares; issued and outstanding - 26,781,785 shares)		60,259			60,259			60,259
Additional paid-in capital		345,801			345,801			80,622
Retained earnings		158,593			144,833			148,599
Accumulated other comprehensive (loss) income		(4,186	)		(3,794	)		1,357
Total common stockholder’s equity		560,467			547,099			290,837
Total liabilities and stockholder’s equity	$	1,709,703		$	1,609,743		$	1,000,973

See accompanying notes to condensed consolidated financial statements.

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UGI UTILITIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Thousands of dollars)

	Three Months Ended
	December 31,
	2006			2005
Revenues	$	299,324		$	243,673
Costs and expenses:
Cost of sales — gas, fuel and purchased power		205,976			171,246
Operating and administrative expenses		33,210			21,986
Operating and administrative expenses — related parties		2,461			726
Taxes other than income taxes		4,563			3,262
Depreciation and amortization		10,234			6,188
Other income, net		(1,561	)		(1,961	)
		254,883			201,447
Operating income		44,441			42,226
Interest expense		11,422			5,636
Income before income taxes		33,019			36,590
Income taxes		13,260			14,665
Net income	$	19,759		$	21,925

See accompanying notes to condensed consolidated financial statements.

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UGI UTILITIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)

	Three Months Ended
	December 31,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	19,759		$	21,925
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization		10,234			6,188
Deferred income taxes, net		2,295			10,397
Provision for uncollectible accounts		3,702			2,771
Other, net		5,025			(1,827	)
Net change in:
Accounts receivable and accrued utility revenues		(98,119	)		(92,462	)
Inventories		523			(9,439	)
Deferred fuel costs		(257	)		(26,805	)
Accounts payable		26,769			46,023
Other current assets and liabilities		24,452			(4,170	)
Net cash used by operating activities		(5,617	)		(47,399	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment		(12,867	)		(9,713	)
Net costs of property, plant and equipment disposals		(88	)		(227	)
Increase in restricted cash		(4,289	)		—
Net cash used by investing activities		(17,244	)		(9,940	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends		(5,998	)		(7,133	)
Increase in bank loans with maturities of three months or less		34,000			64,300
Repayment of debt		—			(50,000	)
Issuance of debt		—			50,000
Net cash provided by financing activities		28,002			57,167
Cash and cash equivalents increase (decrease)	$	5,141		$	(172	)
CASH AND CASH EQUIVALENTS:
End of period	$	8,083		$	2,514
Beginning of period		2,942			2,686
Increase (decrease)	$	5,141		$	(172	)

See accompanying notes to condensed consolidated financial statements.

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UGI UTILITIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars)

1. Basis of Presentation

UGI Utilities, Inc., a wholly owned subsidiary of UGI Corporation (“UGI”), and its wholly owned subsidiary UGI Penn Natural Gas, Inc. (“UGIPNG”) own and operate (1) a natural gas distribution utility in parts of eastern Pennsylvania (“UGI Gas”), (2) a natural gas distribution utility in northeastern Pennsylvania (“PNG Gas”) and (3) an electricity distribution utility in northeastern Pennsylvania (“Electric Utility”). On August 24, 2006, UGIPNG acquired certain assets and assumed certain liabilities of Southern Union Company’s (“SU’s”) PG Energy Division and all the issued and outstanding stock of SU’s wholly owned subsidiary PG Energy Services, Inc. (collectively, the “PG Energy Acquisition”).

We refer to UGI Gas and PNG Gas collectively as “Gas Utility.” The term “UGI Utilities” is used sometimes as an abbreviated reference to UGI Utilities, Inc. or UGI Utilities, Inc. and UGIPNG. We refer to Gas Utility and Electric Utility collectively as “the Company” or “we.” Our Gas Utility and Electric Utility are subject to regulation by the Pennsylvania Public Utility Commission (“PUC”).

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). They include all adjustments which we consider necessary for a fair statement of the results for the interim periods presented. Such adjustments consisted only of normal recurring items unless otherwise disclosed. The September 30, 2006 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the financial statements and the related notes included in our Annual Report on Form 10-K for the year ended September 30, 2006 (“Company’s 2006 Annual Report”). Due to the seasonal nature of our businesses, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.

Comprehensive Income.The following table presents the components of comprehensive income for the three months ended December 31, 2006 and 2005:

	Three Months Ended
	December 31,
	2006			2005
Net income	$	19,759		$	21,925
Other comprehensive (loss) income		(392	)		1,114
Comprehensive income	$	19,367		$	23,039

Other comprehensive (loss) income comprises changes in the fair value of interest rate protection and electricity price swap agreements qualifying as hedges, net of reclassifications to net income.

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UGI UTILITIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars)

Reclassifications.We have reclassified certain prior-year balances to conform to the current period presentation.

Use of Estimates.We make estimates and assumptions when preparing financial statements in conformity with accounting principles generally accepted in the United States of America. These estimates and assumptions affect the reported amounts of assets and liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Actual results could differ from these estimates.

2. PG Energy Acquisition

On August 24, 2006, UGI Utilities acquired certain assets and assumed certain liabilities of Southern Union Company’s (“SU’s”) PG Energy Division, a natural gas distribution business located in northeastern Pennsylvania, and all of the issued and outstanding stock of SU’s wholly-owned subsidiary, PG Energy Services, Inc., pursuant to a Purchase and Sale Agreement, as amended, between SU and UGI (who later assigned the rights under the agreement to UGI Utilities) dated as of January 26, 2006 (the “Agreement”). On August 24, 2006 and in accordance with the terms of the Agreement, UGI Utilities paid SU $580,000 in cash. The preliminary purchase price allocation is subject to adjustment because we are still in the process of reviewing and determining the fair value of certain of PNG Gas’ assets acquired and liabilities assumed, principally working capital adjustments and amounts associated with environmental liabilities. Pursuant to the terms of the Agreement, the purchase price is subject to a working capital adjustment equal to the difference between $68,100 and the actual working capital as of the closing date agreed to by both UGI Utilities and SU.

3. Segment Information

We have two reportable segments: (1) Gas Utility and (2) Electric Utility. The accounting policies of our two reportable segments are the same as those described in the Significant Accounting Policies note contained in the Company’s 2006 Annual Report. We evaluate each segment’s profitability principally based upon its income before income taxes. No single customer represents more than 10% of the total revenues of either Gas Utility or Electric Utility. There are no significant intersegment transactions. In addition, all of our reportable segments’ revenues are derived from sources within the United States.

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UGI UTILITIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars)

Financial information by business segment follows:

Three Months Ended December 31, 2006:

			Gas		Electric
	Total		Utility		Utility
Revenues	$	299,324	$	274,429	$	24,895
Cost of sales — gas, fuel and purchased power		205,976		193,800		12,176
Depreciation and amortization		10,234		9,294		940
Operating income		44,441		38,231		6,210
Interest expense		11,422		10,771		651
Income before income taxes		33,019		27,460		5,559
Total assets at period end	$	1,709,703	$	1,603,225	$	106,478
Goodwill at period end	$	182,851	$	182,851	$	—

Three Months Ended December 31, 2005:

			Gas		Electric
	Total		Utility		Utility
Revenues	$	243,673	$	219,799	$	23,874
Cost of sales — gas, fuel and purchased power		171,246		159,920		11,326
Depreciation and amortization		6,188		5,375		813
Operating income		42,226		35,690		6,536
Interest expense		5,636		5,109		527
Income before income taxes		36,590		30,581		6,009
Total assets at period end	$	1,000,973	$	896,809	$	104,164
Goodwill at period end	$	—	$	—	$	—

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UGI UTILITIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars)

4. Regulatory Matters

In an order entered on November 30, 2006, the PUC approved a settlement of the base rate proceeding of PG Energy (PNG Gas). The settlement provides for an increase in natural gas distribution base rates of $12,500 annually or approximately 4%, effective December 2, 2006.

In accordance with Provider of Last Resort (“POLR”) settlements approved by the PUC, Electric Utility may increase its POLR rates up to certain limits through December 31, 2009. In accordance with these settlements, Electric Utility increased its POLR rates by 4.5% on January 1, 2005 and 3% on January 1, 2006 (a total of 7.5% above the total rates in effect on December 31, 2004). Electric Utility also increased its POLR rates for all metered customers effective January 1, 2007 which is expected to increase the average cost to residential customers by approximately 35% over such costs in effect during calendar year 2006.

5. Revolving Credit Agreement

During the three months ended December 31, 2006, the termination date of UGI Utilities’ $350,000 Revolving Credit Agreement was automatically extended by UGI Utilities to August 2011.

6. Defined Benefit Pension and Other Postretirement Plans

We sponsor two defined benefit pension plans (“Pension Plan”) for employees of UGI Utilities, UGIPNG, UGI, and certain of UGI’s other wholly owned subsidiaries. In addition, we provide postretirement health care benefits to certain retirees and postretirement life insurance benefits to nearly all active and retired employees.

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UGI UTILITIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars)

Net periodic pension expense and other postretirement benefit costs relating to UGI Utilities’ employees include the following components:

	Pension Benefits						Other Postretirement Benefits
	Three Months Ended						Three Months Ended
	December 31,						December 31,
	2006			2005			2006			2005
Service cost	$	1,380		$	1,310		$	65		$	32
Interest cost		4,277			3,222			243			204
Expected return on assets		(5,456	)		(4,448	)		(151	)		(152	)
Amortization of:
Prior service cost (benefit)		60			196			(55	)		(55	)
Actuarial loss		216			427			37			48
Net benefit cost		477			707			139			77
Change in regulatory and other assets and liabilities		(57	)		—			715			698
Net expense	$	420		$	707		$	854		$	775

Pension Plan assets are held in trust and consist principally of equity and fixed income mutual funds. The Company does not believe it will be required to make any contributions to the Pension Plan during the year ending September 30, 2007. Pursuant to orders previously issued by the PUC, UGI Utilities has established a Voluntary Employees’ Beneficiary Association (“VEBA”) trust to fund and pay UGI Utilities’ postretirement health care and life insurance benefits referred to above by depositing into the VEBA the annual amount of postretirement benefit costs determined under SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The difference between the annual amount calculated and the amount included in UGI Gas’ and Electric Utility’s rates is deferred for future recovery from, or refund to, ratepayers. Amounts contributed to the VEBA by UGI Utilities were not material during the three months ended December 31, 2006, nor are they expected to be material for the year ending September 30, 2007.

We also sponsor an unfunded and non-qualified supplemental executive retirement income plan. We recorded pre-tax expense for this plan of $125 and $96 for the three months ended December 31, 2006 and 2005, respectively.

7. Commitments and Contingencies

From the late 1800s through the mid-1900s, UGI Utilities and its former subsidiaries owned and operated a number of manufactured gas plants (“MGPs”) prior to the general availability of natural gas. Some constituents of coal tars and other residues of the manufactured gas process are today considered hazardous substances under the Superfund Law and may be present on the sites of former MGPs. Between 1882 and 1953, UGI Utilities owned the stock of subsidiary gas companies in Pennsylvania and elsewhere and also operated the businesses of some gas companies under agreement. Pursuant to the requirements of the Public Utility Holding Company Act of 1935, UGI Utilities divested all of its utility operations other than those which now constitute UGI Gas and Electric Utility.

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UGI UTILITIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars)

UGI Utilities does not expect its costs for investigation and remediation of hazardous substances at Pennsylvania MGP sites to be material to its results of operations because UGI Gas is currently permitted to include in rates, through future base rate proceedings, prudently incurred remediation costs associated with such sites. In accordance with existing regulatory practices of the PUC, PNG Gas amortizes as removal costs over a five-year period site-specific environmental investigation and remediation costs.

As a result of the PG Energy Acquisition by our wholly-owned subsidiary, UGIPNG, UGIPNG became a party to a Multi-Site Remediation Consent Order and Agreement between PG Energy and the Pennsylvania Department of Environmental Protection dated March 31, 2004 (“Multi-Site Agreement”). The Multi-Site Agreement requires UGIPNG to perform a specified level of activities associated with environmental investigation and remediation work at eleven currently owned properties on which MGP-related facilities were operated (“Properties”). UGIPNG is not required to spend more than $1,100 in any calendar year for such expenditures, including costs to perform work on the Properties. Costs related to investigation and remediation of one property formerly owned by UGIPNG are also included in this cap. The Multi-Site Agreement terminates at the end of fifteen years but may be terminated by either party at the end of any two-year period beginning with the effective date.

UGI Utilities has been notified of several sites outside Pennsylvania on which private parties allege MGPs were formerly owned or operated by it or owned or operated by its former subsidiaries. Such parties are investigating the extent of environmental contamination or performing environmental remediation. UGI Utilities is currently litigating four claims against it relating to out-of-state sites. We accrue environmental investigation and cleanup costs when it is probable that a liability exists and the amount or range of amounts can be reasonably estimated.

Management believes that under applicable law UGI Utilities should not be liable in those instances in which a former subsidiary owned or operated an MGP. There could be, however, significant future costs of an uncertain amount associated with environmental damage caused by MGPs outside Pennsylvania that UGI Utilities directly operated, or that were owned or operated by former subsidiaries of UGI Utilities, if a court were to conclude that (1) the subsidiary’s separate corporate form should be disregarded or (2) UGI Utilities should be considered to have been an operator because of its conduct with respect to its subsidiary’s MGP.

On September 22, 2006, South Carolina Electric & Gas Company (“SCE&G”), a subsidiary of SCANA Corporation, filed a lawsuit against UGI Utilities in the District Court of South Carolina seeking contribution from UGI Utilities for past and future remediation costs related to the operations of a former MGP located in Charleston, South Carolina. SCE&G asserts that the plant operated from 1855 to 1954 and alleges that UGI Utilities controlled operations of the plant from 1910 to 1926 and is liable for 47% of the costs associated with the site. SCE&G asserts that it has spent approximately $22,000 in remediation costs and $26,000 in third-party claims relating to the site and estimates that future remediation costs could be as high as $2,500. SCE&G further asserts that it has received a demand from the United States Justice Department for natural resource damages. UGI Utilities believes that it has good defenses to this claim and is defending the suit.

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UGI UTILITIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars)

In April 2003, Citizens Communications Company (“Citizens”) served a complaint naming UGI Utilities as a third-party defendant in a civil action pending in the United States District for the District of Maine. In that action, the plaintiff, City of Bangor, Maine (“City”) sued Citizens to recover environmental response costs associated with MGP wastes generated at a plant allegedly operated by Citizens’ predecessors at a site on the Penobscot River. Citizens subsequently joined UGI Utilities and ten other third-party defendants alleging that the third-party defendants are responsible for an equitable share of costs Citizens may be required to pay to the City for cleaning up tar deposits in the Penobscot River. Citizens alleges that UGI Utilities and its predecessors owned and operated the plant from 1901 to 1928. Studies conducted by the City and Citizens suggest that it could cost up to $18,000 to clean up the river. Citizens’ third-party claims have been stayed pending a resolution of the City’s suit against Citizens, which was tried in September 2005. Maine’s Department of Environmental Protection (“DEP”) informed UGI Utilities in March 2005 that it considers UGI Utilities to be a potentially responsible party for costs incurred by the State of Maine related to gas plant contaminants at this site. On June 27, 2006, the court issued an order finding Citizens responsible for 60% of the cleanup costs. The amount of Citizens’ liability has not been finally determined. The court has stayed further proceedings while the City and Citizens discuss settlement. UGI Utilities believes that it has good defenses to Citizens’ claim and to any claim that the DEP may bring to recover its costs, and is defending the Citizens’ suit.

By letter dated March 30, 1992, Atlanta Gas Light Company (“AGL”) informed UGI Utilities that it was investigating contamination that appeared to be related to MGP operations at a site owned by AGL in Savannah, Georgia. A former subsidiary of UGI Utilities operated the MGP in the early 1900s. AGL has informed UGI Utilities that it has begun remediation of MGP wastes at the site and believes that the total cost of remediation could be as high as $55,000. AGL has not filed suit against UGI Utilities for a share of these costs. UGI Utilities believes that it will have good defenses to any action that may arise out of this site.

On September 20, 2001, Consolidated Edison Company of New York (“ConEd”) filed suit against UGI Utilities in the United States District Court for the Southern District of New York, seeking contribution from UGI Utilities for an allocated share of response costs associated with investigating and assessing gas plant related contamination at former MGP sites in Westchester County, New York. The complaint alleges that UGI Utilities “owned and operated” the MGPs prior to 1904. The complaint also seeks a declaration that UGI Utilities is responsible for an allocated percentage of future investigative and remedial costs at the sites. ConEd believes that the cost of remediation for all of the sites could exceed $70,000.

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UGI UTILITIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars)

The trial court granted UGI Utilities’ motion for summary judgment and dismissed ConEd’s complaint. The grant of summary judgment was entered April 1, 2004. ConEd appealed and on September 9, 2005 a panel of the Second Circuit Court of Appeals affirmed in part and reversed in part the decision of the trial court. The appellate panel affirmed the trial court’s decision dismissing claims that UGI Utilities was liable under CERCLA as an operator of MGPs owned and operated by its former subsidiaries. The appellate panel reversed the trial court’s decision that UGI Utilities was released from liability at three sites where UGI Utilities operated MGPs under lease. On October 7, 2005, UGI Utilities filed for reconsideration of the panel’s order which was denied by the Second Circuit Court of Appeals on January 17, 2006. On April 14, 2006, UGI Utilities filed a petition requesting that the United States Supreme Court review the decision of the Second Circuit Court of Appeals. On October 2, 2006, the Supreme Court entered an order inviting the Solicitor General to file a brief expressing the views of the United States in this case.

By letter dated June 24, 2004, KeySpan Energy (“KeySpan”) informed UGI Utilities that KeySpan has spent $2,300 and expects to spend another $11,000 to clean up an MGP site it owns in Sag Harbor, New York. KeySpan believes that UGI Utilities is responsible for approximately 50% of these costs as a result of UGI Utilities’ alleged direct ownership and operation of the plant from 1885 to 1902. By letter dated June 6, 2006, KeySpan reported that the New York Department of Environmental Conservation has approved a remedy for the site that is estimated to cost approximately $10,000. KeySpan believes that the cost could be as high as $20,000. UGI Utilities is in the process of reviewing the information provided by KeySpan and is investigating this claim.

On September 11, 2006, UGI Utilities’ received a complaint filed by Yankee Gas Services Company and Connecticut Light and Power Company, subsidiaries of Northeast Utilities, (together the “Northeast Companies”) in the United States District Court for the District of Connecticut seeking contribution from UGI Utilities for past and future remediation costs related to MGP operations on thirteen sites owned by the Northeast Companies in nine cities in the State of Connecticut. The Northeast Companies allege that UGI Utilities controlled operations of the plants from 1883 to 1941. The Northeast Companies estimated that remediation costs for all of the sites would total approximately $215,000 and asserted that UGI Utilities is responsible for approximately $103,000 of this amount. Based on information supplied by the Northeast Companies and UGI Utilities’ own investigation, UGI Utilities believes that it may have operated one of the sites, Waterbury North, under lease for a portion of its operating history. UGI Utilities is reviewing the Northeast Companies’ estimate that remediation costs at Waterbury North could total $23,000. UGI Utilities believes that it has good defenses to this claim and is defending the suit.

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UGI UTILITIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars)

In addition to these environmental matters, there are other pending claims and legal actions arising in the normal course of our businesses. We cannot predict with certainty the final results of environmental and other matters. However, it is reasonably possible that some of them could be resolved unfavorably to us and result in losses in excess of recorded amounts. We are unable to estimate any such possible excess losses. Although we currently believe, after consultation with counsel, that damages or settlements, if any, recovered by the plaintiffs in such claims or actions will not have a material adverse effect on our financial position, damages or settlements could be material to our operating results or cash flows in future periods depending on the nature and timing of future developments with respect to these matters and the amounts of future operating results and cash flows.

8. Related Party Transactions

UGI provides certain financial and administrative services to UGI Utilities. UGI bills UGI Utilities monthly for all direct and for an allocated share of indirect corporate expenses incurred or paid on behalf of UGI Utilities. These billed expenses are classified as operating and administrative expenses — related parties in the Condensed Consolidated Statements of Income. In addition, UGI Utilities provides limited administrative services to UGI and certain of UGI’s subsidiaries, principally payroll related services. Amounts billed to these entities by UGI Utilities for all periods presented were not material.

Effective December 1, 2004, following a competitive bidding process, UGI Utilities entered into a Storage Contract Administrative Agreement (“Storage Agreement”) with UGI Energy Services, Inc., a second-tier wholly owned subsidiary of UGI (“Energy Services”). The Storage Agreement was initially scheduled to expire on October 31, 2005, but effective November 1, 2005, UGI Utilities and Energy Services agreed to extend the Storage Agreement through October 31, 2008. Under the Storage Agreement, Energy Services provides a firm natural gas delivery service to UGI Utilities. UGI Utilities has released certain gas transportation and storage contracts through October 31, 2008 and transferred associated gas storage inventories to Energy Services. UGI Utilities may recall such released transportation and storage contracts without penalty if recalled to meet operational requirements, and if not recalled, the releases will terminate at the end of the term of the Storage Agreement. In the event that released contracts are recalled or at the expiration of the Storage Agreement, Energy Services is required to transfer associated gas storage inventories to UGI Utilities. In exchange for the ability to utilize these assets, Energy Services pays a monthly fee to UGI Utilities and provides a firm natural gas delivery service to UGI Utilities. During the three months ended December 31, 2006 and 2005, UGI Utilities incurred costs associated with purchases of natural gas storage inventories from Energy Services and incurred associated pipeline transportation and storage capacity charges pursuant to the Storage Agreement totaling $15,134 and $15,732, respectively.

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UGI UTILITIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Thousands of dollars)

UGI Utilities reflects the historical cost of the gas storage inventories and any exchange receivable from Energy Services (representing amounts of natural gas inventories used but not yet replenished by Energy Services) on its balance sheet under the caption “Inventories.” The carrying value of these gas storage inventories at December 31, 2006, comprising approximately 8.9 billion cubic feet of natural gas, was $76,154. The carrying value of these gas storage inventories at December 31, 2005, comprising approximately 8.7 billion cubic feet of natural gas, was $72,358.

UGI Utilities has a Gas Supply and Delivery Service Agreement with Energy Services pursuant to which Energy Services provides certain gas supply and related delivery service to Gas Utility during the peak heating-season months of November to March. In addition, from time to time, Gas Utility purchases natural gas or pipeline capacity from Energy Services. The aggregate amount of these transactions (exclusive of Storage Agreement transactions) during the three months ended December 31, 2006 and 2005 totaled $9,927 and $3,271, respectively.

From time to time, the Company sells natural gas or pipeline capacity to Energy Services. During the three months periods ended December 31, 2006 and 2005, revenues associated with sales to Energy Services totaled $7,719 and $1,499, respectively. These transactions did not have a material effect on the Company’s financial position, results of operations or cash flows.

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UGI UTILITIES, INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements use forward-looking words such as “believe,” “plan,” “anticipate,” “continue,” “estimate,” “expect,” “may,” “will,” or other similar words. These statements discuss plans, strategies, events or developments that we expect or anticipate will or may occur in the future.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, we caution you that actual results almost always vary from assumed facts or bases, and the differences between actual results and assumed facts or bases can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind the following important factors which could affect our future results and could cause those results to differ materially from those expressed in our forward-looking statements: (1) adverse weather conditions resulting in reduced demand; (2) price volatility and availability of oil, electricity and natural gas and the capacity to transport them to market areas; (3) changes in laws and regulations, including safety, tax and accounting matters; (4) competitive pressures from the same and alternative energy sources; (5) liability for environmental claims; (6) customer conservation measures due to high energy prices and improvements in energy efficiency and technology resulting in reduced demand; (7) adverse labor relations; (8) large customer, counterparty or supplier defaults; (9) increased uncollectible accounts expense; (10) liability for personal injury and property damage arising from explosions and other catastrophic events, including acts of terrorism, resulting from operating hazards and risks incidental to generating and distributing electricity and transporting, storing and distributing natural gas, including liability in excess of insurance coverage; (11) political, regulatory and economic conditions in the United States; and (12) reduced access to capital markets and interest rate fluctuations.

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. We undertake no obligation to update publicly any forward-looking statement whether as a result of new information or future events except as required by the federal securities laws.

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UGI UTILITIES, INC. AND SUBSIDIARIES

ANALYSIS OF RESULTS OF OPERATIONS

The following analysis compares our results of operations for the three months ended December 31, 2006 (“2006 three-month period”) with the three months ended December 31, 2005 (“2005 three-month period”). Our analysis of results of operations should be read in conjunction with the segment information included in Note 3 to the Condensed Consolidated Financial Statements. Our Gas Utility’s results of operations for the 2006 three-month period include the operations of PNG Gas, the natural gas utility business that we acquired in late August 2006 (the “PG Energy Acquisition”).

2006 three-month period compared with 2005 three-month period

							Increase
Three Months Ended December 31,	2006			2005			(Decrease)
(Millions of dollars)
Gas Utility:
Revenues	$	274.4		$	219.8		$	54.6		24.8	%
Total margin (a)	$	80.6		$	59.9		$	20.7		34.6	%
Operating income	$	38.2		$	35.7		$	2.5		7.0	%
Income before income taxes	$	27.5		$	30.6		$	(3.1	)	(10.1	)%
System throughput — bcf		33.4			22.9			10.5		45.9	%
Heating degree days — % warmer than normal (b)		15.0	%		1.3	%		—		—
Electric Utility:
Revenues	$	24.9		$	23.9		$	1.0		4.2	%
Total margin (a)	$	11.4		$	11.2		$	0.2		1.8	%
Operating income	$	6.2		$	6.5		$	(0.3	)	(4.6	)%
Income before income taxes	$	5.6		$	6.0		$	(0.4	)	(6.7	)%
Distribution sales — gwh		249.0			258.0			(9.0	)	(3.5	)%

bcf — billions of cubic feet.       gwh — millions of kilowatt-hours.

(a)

Gas Utility’s total margin represents total revenues less cost of sales. Electric Utility’s total margin represents total revenues less total cost of sales and revenue-related taxes, i.e. Electric Utility gross receipts taxes, of $1.3 million in each of the three-month periods ended December 31, 2006 and 2005. For financial statement purposes, revenue-related taxes are included in “Taxes other than income taxes” on the Condensed Consolidated Statements of Income.

(b)

Deviation from average heating degree days based upon weather statistics provided by the National Oceanic and Atmospheric Administration (“NOAA”) for five airports (four airports prior to the PG Energy Acquisition) located within our service territory.

Gas Utility.Weather in Gas Utility’s service territory based upon heating degree days was 15.0% warmer than normal during the 2006 three-month period compared to 1.3% warmer than normal in the prior-year three-month period. Total distribution system throughput increased 10.5 bcf reflecting 12.2 bcf from PNG Gas partially offset by an approximate 1.7 bcf decrease in UGI Gas total distribution system throughput. Notwithstanding year-over-year growth in the number of UGI Gas’ customers, total distribution system throughput decreased in the 2006 three-month period largely reflecting a 1.8 bcf decrease in sales to firm- residential, commercial and industrial (“retail core-market”) customers. The decrease in retail core-market throughput largely reflects the effects of significantly warmer weather.

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UGI UTILITIES, INC. AND SUBSIDIARIES

Gas Utility revenues increased $54.6 million during the 2006 three-month period principally reflecting revenues attributable to PNG Gas and a $9.7 million increase in revenues from low-margin off-system sales partially offset by lower revenues from UGI Gas retail core-market customers. Increases or decreases in retail core-market customer revenues and cost of sales principally result from changes in retail core-market volumes and the level of gas costs collected through the PGC recovery mechanism. Under this recovery mechanism, Gas Utility records the cost of gas associated with sales to retail core-market customers at amounts included in PGC rates. The difference between actual gas costs and the amount included in rates is deferred on the balance sheet as a regulatory asset or liability and represents amounts to be collected from or refunded to customers in a future period. As a result of this PGC recovery mechanism, increases or decreases in the cost of gas associated with retail core-market customers have no direct effect on retail core-market margin. Gas Utility’s cost of gas was $193.8 million in the 2006 three-month period compared to $159.9 million in the 2005 three-month period largely reflecting the effects of the PG Energy Acquisition and greater costs associated with the higher off-system sales partially offset by the impact of lower UGI Gas retail core-market volumes sold.

Gas Utility total margin in the 2006 three-month period increased $20.7 million primarily reflecting the effects of the PG Energy Acquisition offset by a $4.1 million decrease in UGI Gas margin.

Gas Utility operating income increased to $38.2 million in the 2006 three-month period from $35.7 million in the 2005 three-month period principally reflecting the $20.7 million increase in total margin, $13.9 million higher operating and administrative expenses, and $3.9 million higher depreciation and amortization expense. The increase in total operating and administrative expenses reflects $10.1 million of operating and administrative expenses attributable to PNG Gas and higher long-term equity-based incentive compensation, distribution system and self-insured property and casualty expenses.

The decrease in Gas Utility income before income taxes reflects, notwithstanding the higher operating income, an increase in interest expense. The increase in interest expense is principally due to higher long- and short-term debt outstanding, primarily as a result of the PG Energy Acquisition, and higher short-term interest rates.

Electric Utility.Electric Utility’s 2006 three-month period kilowatt-hour sales declined 3.5% compared to the 2005 three-month period, primarily due to warmer weather. Electric Utility revenues increased $1.0 million in the 2006 three-month period largely reflecting higher transmission revenues from wholesale transmission services and the effects of a 3% increase in its Provider of Last Resort (“POLR”) rates effective January 1, 2006 partially offset by the lower kilowatt-hour sales. Notwithstanding the effects of the warmer weather, Electric Utility’s cost of sales increased to $12.2 million in the 2006 three-month period from $11.3 million in the 2005 three-month period reflecting higher per unit purchased power costs.

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UGI UTILITIES, INC. AND SUBSIDIARIES

Electric Utility total margin in the 2006 three-month period was comparable to the prior-year three-month period as the effect of the higher POLR rates was partially offset by the higher per unit purchased power costs.

Electric Utility operating income declined in the 2006 three-month period principally reflecting $0.4 million higher operating and administrative expenses. The decrease in income before income taxes principally reflects the lower operating income and higher interest expense on short-term debt.

FINANCIAL CONDITION AND LIQUIDITY

Financial Condition

The Company’s total debt outstanding at December 31, 2006 was $762.0 million (including $250.0 million in bank loans) compared with $728.0 million (including $216.0 million in bank loans) at September 30, 2006.

UGI Utilities has a $350 million Revolving Credit Agreement which expires in August 2011. At December 31, 2006, UGI Utilities had $250 million in borrowings outstanding under its Revolving Credit Agreement. From time to time, UGI Utilities has entered into short-term borrowings under uncommitted arrangements with major banks in order to meet liquidity needs. Short-term borrowings, including borrowings under its Revolving Credit Agreement, are classified as bank loans on the Condensed Consolidated Balance Sheets. During the three months ended December 31, 2006 and 2005, average daily bank loan borrowings were $225.2 million and $101.6 million, respectively, and peak bank loan borrowings totaled $259.0 million and $155.1 million, respectively. Peak borrowings typically occur during the peak heating season months of December and January. The increase in average and peak bank loan borrowings during the 2006 three-month period reflects borrowings to fund increased working capital principally related to the working capital of PNG Gas. UGI Utilities also has an effective shelf registration statement with the SEC under which it may issue up to an additional $75 million of Medium-Term Notes or other debt securities. Medium-Term Notes of $20 million maturing in June 2007 are expected to be refinanced through the issuance of debt under this shelf registration.

Cash Flows

Operating activities.Due to the seasonal nature of UGI Utilities’ businesses, cash flows from operating activities are generally strongest during the second and third fiscal quarters when customers pay for gas and electricity consumed during the peak heating season months. Conversely, operating cash flows are generally at their lowest levels during the first and fourth fiscal quarters when the Company’s investment in working capital, principally accounts receivable and inventories, is generally greatest. UGI Utilities uses short-term borrowings, primarily borrowings under its Revolving Credit Agreement and have used borrowings under uncommitted arrangements, to manage these seasonal cash flow needs.

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UGI UTILITIES, INC. AND SUBSIDIARIES

Cash flow used by operating activities was $5.6 million for the three months ended December 31, 2006 compared with $47.4 million in the prior-year three-month period. Cash flow from operating activities before changes in operating working capital was $41.0 million in the 2006 three-month period compared to $39.5 million in the prior-year three-month period. Changes in operating working capital used $46.6 million of operating cash flow during the 2006 three-month period compared with $86.9 million used during the prior-year three-month period reflecting, in large part, lower cash flow used as a result of changes in deferred fuel costs and, to a lesser extent, the effects of the PG Energy acquisition on our working capital needs.

Investing activities.Cash used by investing activities was $17.2 million in the 2006 three-month period compared to $9.9 million in the 2005 three-month period. The increase in cash used by investing activities primarily reflects an increase in restricted cash reflecting cash deposited in our natural gas futures accounts to satisfy margin requirements and greater Gas Utility capital expenditures. The increase in Gas Utility capital expenditures principally reflects capital expenditures of PNG Gas.

Financing activities.Cash provided by financing activities was $28.0 million in the 2006 three-month period compared with $57.2 million in the 2005 three-month period. Financing activity cash flows are primarily the result of issuances and repayments of long-term debt, net short-term borrowings including borrowings under our Revolving Credit Agreement and from time to time uncommitted arrangements, cash dividends to UGI, and capital contributions from UGI. During the 2006 and 2005 three-month periods, we paid dividends to UGI totaling $6.0 million and $7.1 million, respectively. During the 2006 three-month period, net bank loan borrowings totaled $34.0 million compared with net bank loan borrowings of $64.3 million in the prior-year three-month period.

PG Energy Acquisition

On August 24, 2006, UGI Utilities acquired certain assets and assumed certain liabilities of Southern Union Company’s (“SU’s”) PG Energy Division, a natural gas distribution business located in northeastern Pennsylvania, and all of the issued and outstanding stock of SU’s wholly-owned subsidiary, PG Energy Services, Inc., pursuant to a Purchase and Sale Agreement, as amended, between SU and UGI (who later assigned the rights under the agreement to UGI Utilities) dated January 26, 2006 (the “Agreement”). On August 24, 2006 and in accordance with the terms of the Agreement, UGI Utilities paid SU $580 million in cash. Pursuant to the terms of the Agreement, the purchase price is subject to a working capital adjustment equal to the difference between $68.1 million and the actual working capital as of the closing date agreed to by both UGI Utilities and SU.

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UGI UTILITIES, INC. AND SUBSIDIARIES

Regulatory Matters

In an order entered on November 30, 2006, the PUC approved a settlement of the base rate proceeding of PG Energy (PNG Gas). The settlement provides for an increase in natural gas distribution base rates of $12.5 million annually or approximately 4%, effective December 2, 2006.

In accordance with POLR settlements approved by the PUC, Electric Utility may increase its POLR rates up to certain limits through December 31, 2009. In accordance with these settlements, Electric Utility increased its POLR rates by 4.5% on January 1, 2005 and 3% on January 1, 2006 (a total of 7.5% above the total rates in effect on December 31, 2004). Electric Utility also increased its POLR rates for all metered customers effective January 1, 2007 which is expected to increase the average cost to residential customers by approximately 35% over such costs in effect during calendar year 2006.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Gas Utility’s tariffs contain clauses that permit recovery of substantially all of the prudently incurred costs of natural gas it sells to its customers. The recovery clauses provide for a periodic adjustment for the difference between the total amounts actually collected from customers through PGC rates and the recoverable costs incurred. Because of this ratemaking mechanism, there is limited commodity price risk associated with our Gas Utility operations. Gas Utility uses exchange-traded natural gas call option and futures contracts to reduce volatility in the cost of gas it purchases for its retail core-market customers. The cost of these call option and futures contracts, net of any associated gains or losses, is included in Gas Utility’s PGC recovery mechanism.

Electric Utility purchases power from wholesale electricity suppliers under fixed-price energy and capacity contracts and, to a much lesser extent, on the spot market. Prices for electricity can be volatile especially during periods of high demand or tight supply. Currently, Electric Utility’s fixed-price contracts with electricity suppliers mitigate most risks associated with the POLR service rate limits in effect through December 31, 2009. With respect to its existing fixed-price power and capacity contracts, should any of the counterparties fail to provide electric power or capacity under the terms of such contracts, any increases in the cost of replacement power or capacity could negatively impact Electric Utility results. In order to reduce this nonperformance risk, Electric Utility has diversified its purchases across several suppliers and entered into bilateral collateral arrangements with certain of them. From time to time, Electric Utility enters into electric price swap agreements to reduce the volatility in the cost of a portion of its anticipated electricity requirements.

Our variable-rate debt includes short-term borrowings, including borrowings under our Revolving Credit Agreement. This agreement provides for interest rates on borrowings that are indexed to short-term market interest rates. Our long-term debt is typically issued at fixed rates of interest based upon market rates for debt having similar terms and credit ratings. As these long-term debt issues mature, we expect to refinance such debt with new debt having an interest rate that is more or less than the refinanced debt. In order to reduce interest rate risk associated with near to medium term issuances of fixed-rate debt, we may enter into interest rate protection agreements.

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UGI UTILITIES, INC. AND SUBSIDIARIES

The fair values of our unsettled market risk sensitive derivative instruments reflect the estimated amount that we would expect to receive or pay to terminate the contract based upon quoted market prices of comparable contracts at December 31, 2006. At December 31, 2006, the fair value of our electricity price swap was a gain of $4.1 million. An adverse change in electricity prices of ten percent would result in a $1.2 million decrease in the fair value of the swap. At December 31, 2006, the fair value of our unsettled interest rate protection agreement, which has been designated and qualifies as a cash flow hedge, was a gain of $0.4 million. An adverse change in interest rates on ten-year U.S. treasury notes of ten percent would result in a $0.4 million decrease in the fair value of this interest rate protection agreement.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

(b)	Change in Internal Control over Financial Reporting
	Except as discussed below, during the quarter ended December 31, 2006, there has been no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
	During October 2006, the Company implemented certain financial components of a new information system (the “UGI System”) that supports our human resource, accounting, purchasing and payroll transaction processing functions. The implementation of the UGI System affected processes that include certain internal controls affecting financial reporting, and accordingly, we have updated our internal controls.

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UGI UTILITIES, INC. AND SUBSIDIARIES

In addition, as previously disclosed in Item 9A, Controls and Procedures, of our 2006 Annual Report on Form 10-K, for an interim period Southern Union Company is providing certain information technology services to UGI Penn Natural Gas, Inc. (“UGIPNG”), a wholly owned subsidiary of the Company, and is assisting us in migrating certain transaction-based processes and historical UGIPNG data to the Company’s systems. The migration plan is expected to be completed during fiscal year 2007. Pursuant to the migration plan, UGIPNG began using certain financial components of the UGI System as of January 1, 2007. We have extended internal control procedures over quarterly financial reporting to include UGIPNG.

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UGI UTILITIES, INC. AND SUBSIDIARIES

PART II OTHER INFORMATION

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Other unknown or unpredictable factors could also have material adverse effects on future results.

ITEM 6. EXHIBITS

The exhibits filed as part of this report are as follows (exhibits incorporated by reference are set forth with the name of the registrant, the type of report and registration number or last date of the period for which it was filed, and the exhibit number in such filing):

Exhibit No.	Exhibit
12.1	Computation of ratio of earnings to fixed charges.
31.1	Certification by the Chief Executive Officer relating to the Registrant’s Report on Form 10-Q for the quarter ended December 31, 2006, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by the Chief Financial Officer relating to the Registrant’s Report on Form 10-Q for the quarter ended December 31, 2006, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification by the Chief Executive Officer and the Chief Financial Officer relating to the Registrant’s Report on Form 10-Q for the quarter ended December 31, 2006, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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UGI UTILITIES, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	UGI Utilities, Inc. (Registrant)
Date:February 8, 2007	By:	/s/ John C. Barney
		John C. Barney
		Senior Vice President - Finance (Principal Financial Officer)

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UGI UTILITIES, INC.

EXHIBIT INDEX

12.1	Computation of ratio of earnings to fixed charges.
31.1	Certification by the Chief Executive Officer relating to the Registrant’s Report on Form 10-Q for the quarter ended December 31, 2006, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by the Chief Financial Officer relating to the Registrant’s Report on Form 10-Q for the quarter ended December 31, 2006, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification by the Chief Executive Officer and the Chief Financial Officer relating to the Registrant’s Report on Form 10-Q for the quarter ended December 31, 2006, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.