SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission file number 1-8369

CONNECTICUT ENERGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Connecticut 06-0869582
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

855 Main Street
Bridgeport, Connecticut 06604
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code
(800) 760-7776

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on Which Registered
- --------------------------- -----------------------------------------
Common Stock ($1 par value) New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate 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. [ ]

Aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of such stock as of November 20, 1998:
$289,281,972

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

Class Outstanding at November 20, 1998
----- --------------------------------
Common Stock, $1 par value 10,331,499

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Connecticut Energy Corporation's 1998 Annual Report to Shareholders
are incorporated into Part II and Part IV. Portions of Connecticut Energy
Corporation's Definitive Proxy Statement dated December 11, 1998 are
incorporated into Part III.

PART I
------

CONNECTICUT ENERGY CORPORATION

Connecticut Energy Corporation ("Connecticut Energy" or "Company") and its
subsidiaries and their representatives may, from time to time, make written
or oral statements, including statements contained in the Company's filings
with the Securities and Exchange Commission and in its annual report to
shareholders, including its Form 10-K, which constitute or contain "forward-
looking" information as that term is defined in the Private Securities
Litigation Reform Act of 1995.

All statements other than the financial statements and other statements of
historical facts included in this Form 10-K regarding the Company's financial
position and strategic initiatives and addressing industry developments are
forward-looking statements. Where, in any forward-looking statement, the
Company, or its management, expresses an expectation or belief as to future
results, such expectation or belief is expressed in good faith and believed
to have a reasonable basis, but there can be no assurance that the statement
of expectation or belief will result or be achieved or accomplished. Factors
which could cause actual results to differ materially from those stated in
the forward-looking statements may include, but are not limited to, general
and specific economic, financial and business conditions; federal and state
regulatory, legislative and judicial developments which affect the Company or
significant groups of its customers; the impact of competition on the Company's
revenues; fluctuations in weather from normal levels; changes in development
and operating costs; the availability and cost of natural gas; the
availability and terms of capital; exposure to environmental liabilities;
the costs and effects of unanticipated legal proceedings; the successful
implementation and achievement of internal performance goals; the impact of
unusual items resulting from ongoing evaluations of business strategies and
asset valuations; and changes in business strategy.

Item 1. Business
- -----------------
General
Connecticut Energy is a public utility holding company primarily engaged in
the retail distribution of natural gas for residential, commercial and
industrial uses through its principal subsidiary, The Southern Connecticut
Gas Company ("Southern"), a Connecticut public service company. Southern's
predecessor companies, New Haven Gas Company and The Bridgeport Gas Company,
were originally incorporated in Connecticut in 1847 and 1849, respectively.
The Company is exempt from registration under the Public Utility Holding
Company Act of 1935.

Southern serves approximately 158,000 customers in Connecticut, primarily in
22 towns along the southern Connecticut coast from Westport to Old
Saybrook, which include the urban communities of Bridgeport and New Haven.
Southern is also authorized to lay mains and sell gas in an additional 10
towns in its service area, but does not currently provide any service to
these towns.

The percentage of the Company's revenues contributed by each class of
customers for the last three fiscal years was as follows:

Years ended September 30, 1998 1997 1996
- ----------------------------------------------------------------------
Residential 58.9% 57.9% 58.0%
Commercial firm 17.7 19.5 21.4
Industrial firm 3.9 4.3 6.5
Firm transportation and firm contract 5.5 2.4 0.3
Interruptible and other 14.0 15.9 13.8
----- ----- -----
100.0% 100.0 100.0%
===== ===== =====

Southern is the sole distributor of natural gas, other than bottled gas, in
its service area. Oil and electricity compete with gas in most industrial
and commercial markets and for residential space and water heating. In
general, Southern's firm rates are currently lower than electric rates for
heating and, on average, are generally competitive with fuel oil. Southern's
gas sales are affected by seasonal factors, and it experiences higher
revenues during the winter months.
Through its nonutility subsidiary, CNE Energy Services Group, Inc. ("CNE
Energy"), the Company provides an array of energy products and services to
commercial and industrial customers throughout New England and New York.
The company also participates in a natural gas purchasing cooperative through
another nonutility subsidiary, CNE Development Corporation. A third
nonutility subsidiary, CNE Venture-Tech, Inc., invests in ventures that offer
technologically advanced energy-related products.

In September 1997, CNE Energy formed a joint venture with Delmarva Power &
Light Company's bulk energy group. The venture operates under the name
Conectiv/CNE Energy Services, LLC and sells natural gas, electricity, fuel
oil and other services and markets a full range of energy-related planning,
financial, operational and maintenance services to commercial, industrial and
municipal customers in New England and New York. In February 1998, the
venture formed an alliance with Berkshire Energy Marketing, a division of
the Massachusetts natural gas distribution utility, Berkshire Gas Company.
The alliance markets energy commodities and services to commercial and
industrial customers in western Massachusetts, eastern New York and southern
Vermont.

As the result of a merger of Delmarva Power & Light Company and Atlantic
Energy, Inc., a holding company under the name Conectiv was formed. In
September 1998, CNE Energy and Conectiv Energy Supply, Inc., a subsidiary of
Conectiv, formed two joint ventures, Total Peaking Services, LLC ("TPS")
and CNE Peaking, LLC ("CNEP").

TPS, headquartered in Bridgeport, Connecticut, operates a 1.2 billion cubic
foot liquefied natural gas ("LNG") open access storage facility in Milford,
Connecticut. The facility has access to three major natural gas pipelines in
New England: Algonquin Gas Transmission Company, Iroquois Gas Transmission
System, L.P. and Tennessee Gas Pipeline Company. TPS has received Federal
Energy Regulatory Commission ("FERC") approval of its market-based tariffs
and is prepared to store and redeliver customer-owned LNG at the Milford
facility beginning this winter.

CNEP provides a firm in-market supply source to assist energy marketers and
local gas distribution companies ("LDCs") in meeting the maximum demands of
their customers by offering firm supplies for peak-shaving and emergency
deliveries. CNEP operates out of Newark, Delaware.

As of September 30, 1998, the Company, through its subsidiaries, had 488
full-time employees, the majority of whom were employees of Southern.

Customers
General
From 1993 through 1998, the average number of on-system customers served by
Southern grew from approximately 152,200 to 157,800. Southern provides three
types of gas service to its on-system customers: firm sales, firm
transportation and interruptible. Firm service is provided to residential,
commercial and industrial customers who require a continuous gas supply
throughout the year. Southern serves approximately 181,000 firm residential
units. Interruptible service is available to those customers that have dual
fuel capabilities which allow them to alternate between natural gas and
another fuel source. Firm service for residential use includes service to
multi-family units. Firm transportation is available to commercial,
industrial and multi-family customers who have secured their own gas supply
and require that Southern transport this supply on its distribution system.
Southern also provides transportation service to certain commercial and
industrial customers on an interruptible basis, where the gas transported is
owned by those customers.

Additionally, Southern has the approval of the Connecticut Department of Public
Utility Control ("DPUC") to participate in the off-system sales market. If gas
supplies are available after meeting on-system loads, Southern can sell to
customers within Connecticut or in out-of-state markets. The customers to
whom these sales are made are not permanent customers of Southern.

Firm Sales, Firm Transportation and Firm Contract
In 1998, firm services represented approximately 86% of operating revenues and
approximately 61% of total gas throughput. Firm sales to industrial customers
are likely to constitute a smaller percentage of Southern's future total sales
due to the changing character of the local economy and continuing regulatory
developments affecting the natural gas industry (see section entitled "Rates
and Regulation" for further detail).

Southern provides firm contract sales service to Yale University in accordance
with rates specified in a DPUC-approved special contract for the sale of gas to
this facility. Southern and CNE Energy provide firm transportation contract
service to a 520 megawatt electric generating plant in Bridgeport in accordance
with a DPUC-approved contract.

Southern concentrates on customer additions that are the most cost-effective to
achieve. Over the past several years, Southern has focused on adding load along
its existing mains, which generally requires a lower capital outlay than adding
load requiring new main. Approximately 59% of the residences along Southern's
mains heat with natural gas. The conversion of these homes from an alternate
fuel to natural gas heat has been a major factor in increased load growth.

Interruptible Sales, Transportation and Special Contract Services
Interruptible sales, which include off-system sales, and transportation services
are priced flexibly and competitively compared to the price paid for alternate
fuels by larger commercial and industrial customers.

Southern's interruptible sales fluctuate primarily due to the relative price
differentials between alternate fuels and natural gas as well as the
availability of gas not needed to serve firm customers. In addition to
interruptible sales, Southern transports gas, on an interruptible basis, for
delivery to certain large commercial and industrial consumers. Because of
recent regulatory developments, end users can contract more easily than in
the past for transportation service on interstate pipelines to transport
natural gas supplies purchased from producers/suppliers, rather than purchase
gas solely from LDCs. In Southern's service area, gas is transported to
customers using interstate pipeline transportation and Southern's distribution
system.

Transportation revenues are considerably less than revenues from gas sales
because customers pay only a fee for the transportation service. Gas sales
revenues include the cost of gas sold.

Southern provides transportation service to The Connecticut Light and Power
Company's Devon electric generating station in accordance with rates specified
in a special contract for the transportation of gas.

In 1998, interruptible sales, transportation and special contract services
represented approximately 13% of operating revenues and approximately 37% of
total gas throughput.

Southern's average margins on interruptible transportation service are less than
its average margins on firm sales and are usually less than its average margins
on interruptible sales. To the extent Southern negotiates its monthly prices
for interruptible services below its monthly standard offering price, lower
margins may result.

The Company does not believe that the loss of any single customer or a few
customers would have a long-term, material, adverse effect upon Southern's
business.

Marketing
General
Southern's marketing focus has undergone change in the last year. While
Southern continues to aggressively pursue new residential and commercial
heating customers, markets which are increasingly being targeted include
power generating plants, marketers and aggregators. Marketing emphasis on
customer incentive programs has increased to also include building business
relationships with this new customer group in addition to architects, engineers
and municipalities. By recognizing these marketers as customers rather than
competitors, Southern expects the marketer to establish and finance incentive
programs with input from Southern. If Southern is allowed to exit the merchant
function and becomes solely a distribution company, the key element to its
future growth will be increasing system throughput.

Southern's sales force has established an automated database to track
consumer trends and reduce the amount of time necessary to enter a new
business authorization into its costing network.

Residential Market
In the residential heating market, despite record low oil prices, 1,943
customers were added in 1998 compared to 2,641 customers in 1997 and 1,866 in
1996. Residential conversions accounted for 63% of these additions in 1998,
compared to 60% in 1997 and 52% in 1996. Southern's residential marketing
programs include a conversion burner program and an employee generated leads
program for heating conversions. Southern has also established relationships
with manufacturers and distributors in an effort to utilize their resources
to attract new business.

Commercial and Industrial Markets
In the commercial and industrial markets, emphasis is placed on adding new firm
and interruptible sales. Marketing programs for commercial and industrial
customers include a program offering customers the option of financing new
equipment through Southern and a conversion burner leasing program which
provides customers with a low cost opportunity to switch to natural gas.
Additionally, Southern's commercial and industrial sales group has embarked
on a load retention program.

Effective April 1, 1996, firm transportation service became available to
commercial and industrial customers. As of September 30, 1998, there were
1,789 firm transportation customers representing 2,094 accounts purchasing
natural gas directly from marketers. The trend is for more of Southern's
commercial and industrial customers to exercise choice once they become aware
of its benefits. Southern encourages all eligible commercial and industrial
customers to proactively learn more about their options.

The commercial marketing programs are targeted toward increasing natural gas
consumption in the industrial sector by promoting the productivity, product
quality, efficiency and environmental benefits of modern natural gas
technologies to industrial plant managers and specifiers. For example,
natural gas fired desiccant dehumidification equipment has begun to receive
acceptance in supermarket and ice-rink applications.

With the continuing deregulation of energy markets and advancements in natural
gas turbine technologies, cogeneration is a viable economic solution for many
industrial customers. For example, in 1998, Yale University installed a 13.5
megawatt cogeneration system that will provide both electricity and steam for
many of its facilities. The new state-of-the-art cogeneration facility uses
three gas turbines and other modern equipment to generate electricity and
steam from natural gas to provide heating and cooling to the central campus.

The Bridgeport Energy combined cycle generating plant is representative of new
energy marketplace dynamics created by deregulation. The facility buys its gas
supplies through third party marketers. Southern then transports the supplies
to the plant via its new 11-mile natural gas distribution facility that links
the plant with the Iroquois Gas Transmission System. This plant has the
capability of consuming up to 30,000,000 Mcf of volume annually.

Natural Gas Vehicles
Natural gas vehicles ("NGVs") represent another opportunity to increase the base
load usage of natural gas. Southern has been active in this market, and it is
estimated that there will be more natural gas vehicles operating in its service
area by January 1, 1999. Existing customers include the U.S. Postal Service,
R.R. Donnelley and Sons Company, South Central Regional Water Authority, BHC
Company and the town of Westport.

More fleets expect to add natural gas vehicles during the next five years as
federal legislation requires fleets to "phase-in" the use of cleaner alternate
fuel vehicles. Natural gas is the leading alternate fuel for vehicle use.

The strategic location of Southern's franchise area, which lies along the
Interstate 95 and 91 corridor, is key to maximizing the profitability of the
existing distribution system, specifically for natural gas vehicular fueling
use.

Gas Supply
General
Southern's long-term supply sources include (1) Canadian supplies purchased from
Alberta Northeast Gas Limited ("Alberta Northeast") with transportation on
Iroquois Gas Transmission System, L.P. ("Iroquois"), (2) transportation and
storage services from Tennessee Gas Pipeline Company ("Tennessee") with direct
purchase of supply from producers and marketers, (3) transportation and
storage services from Texas Eastern Transmission Corporation ("Texas Eastern")
with direct purchase of supply from producers and marketers, (4) transportation
services from Algonquin Gas Transmission Company ("Algonquin"),
(5) transportation and storage services from CNG Transmission Corporation
("CNG Transmission"), (6) transportation service from Transcontinental Gas
Pipeline Corporation ("Transco"), (7) transportation service from National
Fuel Gas Supply Corporation ("National Fuel") and (8) liquid and vapor
supplies from Distrigas of Massachusetts Corporation ("Distrigas"). These
arrangements result in gas deliveries into Southern's service territory
through interconnections with three interstate pipelines: Algonquin,
Iroquois and Tennessee.

In addition to Southern's long-term firm supply arrangements, Southern purchases
spot supplies and utilizes interruptible transportation services from interstate
pipeline companies.

Southern's supply, transportation and storage agreements require Southern to pay
a fixed demand charge regardless of the amount of gas transported or stored.
The FERC regulates interstate pipeline companies in connection with the rates
charged to Southern for transportation and storage of natural gas.

Domestic Supply
Southern's domestic supply arrangements consist mainly of purchasing storage and
transportation services from interstate pipelines. Producers and marketers
provide the gas supply to support these services.

Southern has firm transportation and firm storage contracts with Tennessee.
Under the transportation contract, Southern has 13,336,000 Mcf of pipeline
capacity available on an annual basis. Southern's storage contract with
Tennessee provides 1,195,000 Mcf of storage capacity. These contracts expire
in the year 2000. Two other transportation contracts with Tennessee provide
516,000 Mcf of firm transportation service annually and expire in the year 2000.

A transportation contract with Texas Eastern provides 5,972,000 Mcf of capacity
on an annual basis. Additional contracts with Texas Eastern provide 1,383,000
Mcf of storage service and 12,108,000 Mcf of transportation service on an annual
basis. Contracts with Texas Eastern expire in the year 2012.

Southern has storage service contracts with CNG Transmission. One contract
provides 100 days of storage service with 648,000 Mcf of annual delivery.
The remaining term of this contract is 14 years. Under other contracts
which have remaining terms of five to nine years, CNG Transmission provides
773,000 Mcf of annual firm storage service and 1,028,000 Mcf of annual
transportation service. The gas is stored by CNG Transmission and delivered
to Southern under transportation contracts with Texas Eastern and Algonquin.

Algonquin furnishes only transportation services to Southern. The deliveries
that Algonquin makes to Southern are gas supplies transported by other
interstate pipelines interconnected to Algonquin.

Southern has multiple, diverse purchase agreements with producers and marketers
for firm supply, which is delivered to customers under its transportation
agreements or stored under its storage agreements for later delivery during
peak periods. These agreements vary in terms of delivery obligations and the
contract terms range from one month to three years. Southern pays a monthly
reservation charge, but has no monthly purchase obligation under these
agreements. Commodity prices are based on price indexes by supply area or
are negotiated.

Canadian Supply
Southern receives Canadian supply under its long-term contracts with Alberta
Northeast with firm transportation provided by Iroquois. These supply contracts
with Alberta Northeast provide Southern with 12,775,000 Mcf of firm Canadian
supply annually. Supply agreements with Alberta Northeast have remaining
terms of four to eight years, and the transportation agreement with Iroquois
has a remaining term of 13 years.

Supplemental Supply
Southern has an agreement with Distrigas to purchase 328,000 Mcf annually on a
firm basis. This contract continues for four years and includes a provision
for either vapor or liquid delivery, with an option to increase maximum daily
delivery over the term of the contract. Additionally, Southern has
interruptible purchase contracts with Distrigas. Supplemental gas supplies
from on-site LNG and liquefied propane air storage facilities are available to
meet peak and winter demand requirements (see section entitled "Connecticut
Regulation" for the Decision in Docket No. 96-04-30).

Recent FERC Initiatives
The FERC recently announced several initiatives that will affect regulation of
the natural gas industry. On July 29, 1998, the FERC issued a Notice of Inquiry
in Docket No. RM98-12. In this proceeding, the FERC is seeking comments about
the need to change its current regulatory policies relating to (1) the pricing
of existing capacity, (2) the pricing of new capacity, (3) the use of index
rates and benchmark adjustments to streamline rate filings, (4) means to
employ performance-based incentive regulation, (5) the use of market-based
rates for turn back capacity, (6) the use of market-based rates for unsubscribed
capacity and (7) methods to negotiate pre-construction risk among parties to an
expansion of pipeline capacity.

On the same date that it issued its Notice of Inquiry, the FERC also issued a
Notice of Proposed Rulemaking in Docket No. RM98-10. In this proceeding, the
FERC proposes the removal of price caps in the short-term market and proposes
revised regulations that would subject all released capacity to an auction
process. The FERC is also proposing to permit pipelines to negotiate the
terms and conditions of transportation service under limited conditions.

On September 30, 1998, the FERC initiated two additional proceedings. In Docket
No. RM98-9, the FERC proposes to modify its regulations governing applications
to construct new pipeline capacity. Among other things, the FERC proposes to
expand the scope of pipeline certificate authorizations to allow pipelines to
replace and abandon more facilities than are currently covered by the blanket
certificate, including replacements involving incrementally larger replacement
pipe. In addition, the FERC proposes to establish an environmental checklist
intended to add certainty to the environmental review aspect of certificate
applications.

Also on September 30, 1998, the FERC announced a Notice of Proposed Rulemaking
in Docket No. RM98-16 to expand the use of collaborative procedures for
applicants proposing to build new pipeline facilities as well as hydroelectric
projects. The proposed regulations are intended to bring applicants and
potentially affected parties together in a pre-filing collaborative process
to resolve significant issues, including issues likely to be raised in the
environmental review process.

The above-mentioned initiatives are subject to the outcome of notice and comment
procedures and have not yet taken the form of final, binding regulations.
Therefore, it is difficult to ascertain the precise impact they will have on
the business interest of LDCs like Southern.

Recent Pipeline Rate Case Decisions
On July 29, 1998, the FERC issued a Decision in the Iroquois Rate Case, Docket
No. RP97-126. As a result of the FERC's Decision, Southern will experience a
reduction in rates of approximately $2,300,000 per year, or 28%. The new
rates became effective August 31, 1998. Iroquois has filed a request for
rehearing and will have further opportunity to appeal the FERC's Decision.

The FERC issued final approval of a Joint Stipulation and Agreement Amending a
Global Settlement in Texas Eastern Docket No. RP98-198 on October 29, 1998. In
this settlement between Texas Eastern and its customers, Texas Eastern will
reduce its book depreciation rates as a funding mechanism to permit more rapid
collection of gas contract reformation costs, the roll-in of certain rates, and
a reduction in its rates. Texas Eastern agreed to accept all risks associated
with turnback of capacity until December 31, 2003 and a rate moratorium until
that date. Reductions in rates to Southern will be approximately $6,200,000.

On August 31, 1998, CNG Transmission filed with the FERC an uncontested
Stipulation Agreement of Settlement in Docket No. RP97-406. The FERC issued
final approval of the settlement on November 24, 1998. Southern will
experience a 23% reduction in rates and the roll-in of GSS-II storage over
the next five years.

Off-System Sales
Southern's off-system sales program maximizes the use of its gas supply
contracts, improves the usage of Southern's capacity on pipeline systems and
lowers gas costs to firm customers through established margin sharing
mechanisms. Pursuant to the DPUC Decision regarding FERC Order No. 636,
Southern is allowed to enter into off-system sales under flexible terms and
pricing for periods of less than one year without prior approval of the DPUC.
In fiscal 1998, Southern dispatched approximately 4,484,100 Mcf of volume as
part of its off-system sales program.

Off-system sales are performed by Southern through an effective trading
operation established over the last three years. Southern has established a
recognized sales function in various natural gas markets in the United States.
Southern's customers include other LDCs, marketers, electric generation and
wholesale customers. Southern has pooling agreements and a unique asset base
enabling it to deliver reliably and competitively along a significant portion
of the eastern pipeline grid under the full range of operating and marketing
conditions.

Capacity release programs are available on all interstate pipelines serving
Southern, and Southern actively participates in these programs. Demand charges
recovered from a replacement shipper flow back as a reduction on the pipeline's
monthly invoice. These demand reductions are used to lower gas costs to firm
customers through established margin sharing mechanisms approved by the DPUC.

CNE Development has joined six other major eastern U.S. natural gas distribution
companies or their affiliates to form the East Coast Natural Gas Cooperative,
LLC to access competitively priced gas supplies. Southern has experienced
reduced gas costs and increased operational flexibility as a result of the
activities of the Cooperative.

Rates and Regulation
Connecticut Regulation
General
Southern is subject to the jurisdiction of the DPUC as to accounting, rates,
charges, operating matters and the issuance of securities, both equity and
debt, other than borrowings maturing in 12 months or less. Southern's
firm sales rates change monthly pursuant to a DPUC-approved Purchased Gas
Adjustment clause, under which purchased gas costs above or below a specified
base cost are charged or credited to customers.

In setting authorized rates for Southern, the DPUC allows prospective
adjustments to a historical test year. Forward-looking adjustments to the
mid-point of the rate year (the first year that rates will be in effect) for
rate base, revenues, expenses and capital structure are allowed. The DPUC
has found that these refinements provide for better synchronization of the
ratemaking components. Costs used by the DPUC in determining Southern's
rates may not be the same as actual costs incurred by Southern during
the period rates are in effect. The sales used in establishing rates are
based on "normal" weather patterns. Actual rates of return realized may not
necessarily equal the authorized rates of return.

Rate Review Docket
In July 1998, the DPUC issued a Decision in Docket 97-12-21, DPUC Financial and
Operational Review of the Southern Connecticut Gas Company. In this portion of
the Docket, the DPUC initiated hearings which determined that the Company
overearned historically and was likely to do so for the projected 12-month
period ending June 30, 1999. The DPUC, therefore, ordered an interim
rate decrease of $528,000 per year for the Company's firm sales customers.
This reduction was implemented on July 8, 1998.

The second phase of Docket 97-12-21 involves a four-year financial and
operational review as required by Section 16-19a of the General Statutes of
Connecticut. This section states: "The Department of Public Control shall,
at intervals of not more than four years from the last previous general rate
hearing of each gas and electric company having more than 75,000 customers,
conduct a complete review and investigation of the financial and operating
records of each such company..." The company expects to receive a Decision
in this docket in December 1998.

Unbundling of Natural Gas Services
In August 1995, the DPUC issued a final Decision in Docket No. 94-11-12, DPUC
Review of Connecticut Local Distribution Companies' Cost of Service Study
Methodologies. In this docket, the DPUC investigated the issues surrounding
the development of firm transportation rates at the state level in response
to FERC Order No. 636. Effective April 1, 1996, commercial and industrial
gas customers in Connecticut can contract for their gas supplies from sources
other than the LDCs and pay the LDCs only for the transportation of that gas
through their distribution systems at DPUC-approved rates. The firm
transportation rates are designed to provide Southern with the same margins
provided by bundled services.

In August 1997, the DPUC initiated a generic docket, Docket 97-07-11, DPUC
Generic Investigation into Issues Associated with the Unbundling of Natural
Gas Services by Connecticut Local Distribution Companies, to investigate
issues associated with the unbundling of natural gas firm sales and
transportation services by LDCs in Connecticut, including Southern. The
DPUC has conducted this proceeding in two phases. The first phase addressed
issues relating to firm transportation service in its present form regarding
delivery of sales and transportation service by LDCs and marketers. The DPUC
reopened each LDC's latest rate case to consider proposed changes to its
respective tariffs and rates. An Interim Decision was approved on October 28,
1998 which affected the way LDCs administer firm transportation services by
providing for changes in the load balancing provisions in the LDCs' tariffs as
well as for enhanced billing options for customers. The Interim Decision is
scheduled to be finalized in January 1999. The second phase of this
proceeding will investigate such issues as residential unbundling, codes of
conduct for LDCs and marketers, and public policy issues. A schedule has not
yet been established for this phase.

Sublease of Liquefied Natural Gas Plant
In August 1996, the DPUC issued a final Decision in Docket No. 96-04-30,
Application of The Southern Connecticut Gas Company to Dispose of a Portion
of Its Plant and Equipment. The DPUC approved certain proposals made by
Southern regarding the operation of its LNG tank and related facilities, which
included the sublease of the LNG tank and related facilities from Southern to
CNE Energy, which would, in turn, sublease the LNG facility to TPS. TPS has
received FERC approval of its market-based tariffs and is prepared to store
and redeliver customer-owned LNG beginning this winter.

Interruptible Margin Sharing
In January 1996, Southern requested a reopening of its 1993 rate proceeding to
propose a plan to redirect excess on-system interruptible margins, which would
otherwise be returned to ratepayers, for calendar years 1996, 1997 and 1998 to
two programs to fund certain economic development initiatives in Bridgeport and
to provide grants to customers to reduce Southern's hardship assistance
balances. Southern estimated that margins to be collected over the proposed
three-year period would be approximately $14,000,000, which would be divided
equally between the programs. Southern's proposal related to the economic
development initiatives in Bridgeport included job training and services,
certain loan subsidies and health promotion outreach services. Redirection
of ratepayer margins for hardship assistance balances benefits Southern's
hardship customers by reducing their accounts receivable arrearages and
benefits Southern by reducing its provision for uncollectibles for such
accounts.

On April 26, 1996, the DPUC issued a final Decision regarding Southern's
proposal. The DPUC effectively approved Southern's proposal with certain
modifications in the direction of funding of the Bridgeport economic
development initiatives, the imposition of a cap of $6,000,000 per year of
ratepayer margins to be split equally between the programs and certain
implementation and status reporting requirements.

Federal Regulation
Southern is affected by various federal regulations, including regulations which
(1) provide for emergency authority and curtailment allocations under the
Natural Gas Policy Act of 1978 when pipeline supplies are limited and (2)
establish certain retail policies for natural gas utilities under the Public
Utility Regulatory Policies Act of 1978. Southern is also subject to the
Natural Gas Pipeline Safety Act of 1968 with respect to the construction,
operation and maintenance of its mains, services and LNG facilities as well
as other federal regulations pertaining to safety standards concerning such
facilities. Currently, these federal regulations have a minimal impact on
Southern's day-to-day operations. Southern must comply with various federal,
state and local regulations with respect to environmental matters (including
hazardous waste regulation), local zoning and other regulations. To date,
such regulations have not materially impacted Southern's capital expenditures,
earnings or operations.

Regulations promulgated under the Clean Air Act Amendments of 1990 and the
Energy Policy Act of 1992, which require reduced pollution levels and certain
energy efficiency standards, have begun to affect Southern. Among other
things, the Clean Air Act Amendments (1) impose stringent vehicle emissions
standards beginning in 1994, (2) mandate the gradual phase-in of alternate
fuel vehicles for fleets of more than 10 vehicles beginning in 1998 and (3)
require power plants to phase-in significant emission reductions of sulfur
dioxide and nitrogen oxide by the year 2000. Similarly, the Energy Policy
Act of 1992 (1) requires that federal agencies begin phasing-in the use of
alternate fuels in vehicles in 1993, (2) offers tax incentives to private
parties who use or facilitate the use of alternate fuel vehicles and (3)
requires a lessening reliance on foreign fuels. In 1996, the FERC also
issued Order No. 888, mandating that electric utilities provide open access
transmission at wholesale. This Order has expanded opportunities for the
sale of power from gas fired generating units. Over time, these regulations
will likely lead to an increasing demand for natural gas. Southern already
has begun to participate in the expanded markets for natural gas emerging due
to these regulatory mandates.

Since 1986, the FERC has effected major changes in the regulations governing the
natural gas industry, especially FERC Order No. 636 which mandated the
unbundling of interstate pipeline services. The actions by the FERC have
increased competition in the natural gas industry by requiring interstate
pipeline companies to provide gas transportation to others on a
nondiscriminatory basis.

The FERC has also been involved in oversight of the Gas Industry Standards
Board, a group comprised of interstate pipelines and shippers. The Board's
actions to standardize essential terms of interstate pipeline transportation
have an effect on the manner in which Southern interacts with suppliers and
pipeline companies. The FERC has also announced recent rulemaking
initiatives governing the prices and terms under which pipeline customers,
including Southern, can purchase capacity or resell the capacity they
currently hold, a point discussed in the section entitled "Gas Supply,
Recent FERC Initiatives." These initiatives, if adopted, will also affect
Southern's decisions regarding the acquisition and retention of interstate
pipeline capacity; however, the nature of such impacts cannot now be
predicted.

Environmental Matters
Southern has identified coal tar residue at three sites in Connecticut resulting
from coal gasification operations conducted at those sites by Southern's
predecessors from the late 1800s through the first part of this century.
Many gas distribution companies throughout the country carried on such gas
manufacturing operations during the same period. The coal tar residue is not
designated a hazardous material by any federal or Connecticut agency, but
some of its constituents are classified as hazardous.

On April 27, 1992, Southern notified the Connecticut Department of Environmental
Protection ("DEP") and the United States Environmental Protection Agency of the
presence of coal tar residue at the sites. On November 9, 1994, the DEP
informed Southern that it had performed a preliminary review of the
information provided to it by Southern and had determined that, based on
current priorities and limited staff resources, a comprehensive review of
site conditions and subsequent participation by the DEP "are not possible at
this time."

On September 8, 1997, Southern received a letter from the DEP informing it that
the three sites had been entered on the Connecticut Inventory of Hazardous Waste
Sites. The letter states that the site located on Pine Street in Bridgeport,
Connecticut, may be of particular interest to the state of Connecticut because
of its proximity to the Connecticut Department of Transportation expansion
project of the U.S. Highway Route Number 95 Corridor. Placement of the sites
on the Inventory of Hazardous Waste Sites means that the DEP may pursue
remedial action pursuant to the Connecticut General Statutes.

Each site is located in an area that permits Southern to voluntarily perform any
remedial action. Connecticut law also allows Southern to retain a Licensed
Environmental Professional to conduct further environmental assessments and,
if necessary, to develop remedial action plans in accordance with Connecticut
Remediation Standard Regulations.

Southern has conferred with officials of the DEP, including the DEP liaison for
the Department of Transportation's U.S. Highway Route Number 95 Corridor
expansion project, to establish priorities in connection with the
environmental assessments. As a result of those conferences, Southern and the
DEP have negotiated and executed a Consent Order with respect to the Pine Street
site located in Bridgeport. Pursuant to the Consent Order, Southern has agreed
to undertake an investigation of the Pine Street site and its immediate
surrounding area to determine potential sources of contamination and remediate
contamination which may be found to have emanated or be emanating from the Pine
Street site as a result of Southern's activities on the site. The schedule and
scope of the investigation have been agreed to by Southern and the DEP. As a
result of this Consent Order, Southern has recorded and deferred $150,000 for
costs related to this site investigation. When the investigation is complete,
Southern should be able to propose to the DEP what, if any, plan for remediation
is appropriate for the site. Until such investigation is complete, management
cannot predict the cost, if any, of any appropriate remediation for the Pine
Street site.

Neither can management, at this time, predict the costs for any future site
analysis and remediation for the remaining two sites, if any, nor can it
estimate when any such costs, if any, would be incurred. While such future
analytical and cleanup costs could possibly be significant, management believes,
based upon the provisions of the Partial Settlement in Southern's most recent
rate order and regulatory precedent with other local distribution companies in
Connecticut, that Southern will be able to recover these costs through its
customer rates. Although the method, timing and extent of any recovery
remain uncertain, management currently does not expect that the incurrence of
such costs will materially adversely impact the Company's financial condition,
results of operations or cash flows.

Year 2000 Readiness Disclosure
Like other companies which use business-application software programs and rely
on a computing infrastructure that includes embedded systems, the so-called Year
2000 issue also affects the Company and its subsidiaries. Certain of the
Company's software programs and computing infrastructure that use
two-digit years, rather than four-digit years, to define the applicable year
may recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in the computer or device shutting down, performing
incorrect computations or performing inconsistently.

In 1996, the Company began a project to address Year 2000 issues. It has been
implementing individual strategies targeted at the specific nature of the Year
2000 issues in each of the following areas: (1) business-application systems,
(2) embedded systems, (3) vendor and supplier relationships, (4) customers
and (5) contingency planning. The Company's Year 2000 project is proceeding
on schedule.

To coordinate its comprehensive Year 2000 program, the Company established a
Year 2000 Task Force, chaired by the Vice President, General Counsel and
Secretary who reports directly to the Chairman and Chief Executive Officer.
The Year 2000 Task Force includes executive management and employees with
expertise from various disciplines including, but not limited to, information
technology, operations, engineering, finance, facilities and communications,
internal audit, purchasing and law. In addition, the Company has utilized
the expertise of outside consultants to assist in the implementation of the
Year 2000 program in such areas as project initiation and planning, business-
application system inventory and analysis, business-application system
remediation, business-application system replacement, and embedded systems
inventory and analysis.

The Company's principal subsidiary, Southern, is subject to regulation from the
DPUC, among other governmental agencies. At the DPUC's request, Southern has
previously reported the progress of its Year 2000 program to the DPUC on three
separate occasions. On October 23, 1998, the DPUC announced that it was seeking
to engage the services of a consultant to perform an audit of the computer
systems at all of Connecticut's major utility companies, including Southern,
to assess their readiness to handle the changeover to the Year 2000.

See Management's Discussion and Analysis in the Company's 1998 Annual Report to
Shareholders for further detail regarding the Year 2000 issue as it relates to
the Company's operations.

The estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events. Risks to completing the
Year 2000 Program include the availability of resources, the Company's ability
to discover and correct the potential Year 2000 sensitive problems which could
have a serious impact on specific facilities, and the ability of suppliers to
bring their systems into Year 2000 compliance.

Item 2. Properties
- -------------------
The Company's physical plant and properties primarily consist of Southern's gas
distribution facilities. Southern had 2,157 miles of main and 123,631 service
units as of September 30, 1998. It leases office space in Bridgeport,
New Haven, Orange and Madison, owns properties in Bridgeport and New Haven
that were formerly manufacturing sites and owns a propane air facility in
Trumbull.

In 1995, the LNG plant lease agreement was renewed for two consecutive terms of
12 years. The lease contains an option to purchase the plant for a purchase
price based on the then fair market sales value of the unit as defined therein.

During 1998, Southern subleased the LNG facility to CNE Energy. CNE Energy, in
turn, subleased the LNG facility to TPS. Southern will continue to operate the
LNG facility under an agreement with TPS and will remain primarily responsible
for the lease payments in the event that the sublessees do not make the
required payments.

Substantially all of Southern's utility properties and plant are subject to the
lien of the indenture and supplemental indentures securing its first mortgage
bonds. It is management's opinion that the physical plant and properties as
described herein are suitable and adequate for the purpose of delivering gas
for customer use.

Item 3. Legal Proceedings
- --------------------------
In a class action styled Connecticut Heating & Cooling Contractors Association,
Inc. v. Connecticut Natural Gas Corp., et al., Connecticut Superior Court -
Middletown, two trade associations and two plumbing and heating contractors
in November 1995 sued Southern as well as the other Connecticut LDCs for
violations of the Connecticut Unfair Trade Practices Act ("CUTPA") and
tortious interference with business expectancies in connection with the LDCs'
provision of service and maintenance to heating, cooling and ventilating systems
and appliances. An Amended Complaint was filed in response to motions filed by
the defendants in which one of the two contractor plaintiffs was removed from
the case. In response to the court's granting a motion to strike the Complaint
on the grounds of misjoinder filed by Southern and another defendant, the
plaintiffs again amended their Complaint to add causes of action in conspiracy
to violate the CUTPA and conspiracy to violate the antitrust laws. All three
defendants filed motions to strike that complaint. The court struck all counts
except the claim of conspiracy to violate the antitrust laws. The plaintiff
contractor then sued each LDC separately, in their respective judicial
districts, and Southern was sued in Bridgeport Superior Court, alleging the
original class action claims of violation of the CUTPA, and tortious
interference with business expectancies. The association plaintiffs and the
contractor also sued all the LDCs, again in Middletown, alleging conspiracy
to violate the CUTPA. Southern filed a motion to dismiss. There are,
therefore, currently three pending cases against Southern. The plaintiffs moved
to consolidate all five lawsuits against the LDCs and to transfer them to the
new Complex Litigation Docket. Southern objected to consolidation, but agreed
to the transfer. The complex litigation judge in Waterbury accepted the cases
and denied the plaintiffs' motion to consolidate. She ordered the case against
Connecticut Natural Gas alone proceed to prepare for a trial in August of 1999,
stayed discovery on the remaining cases, and ordered the remaining cases to
proceed to the point of closing the pleadings. The judge will rule on
Southern's pending motion to dismiss in the conspiracy to violate the CUTPA
case. Southern has prepared a motion to strike part of the Bridgeport case.
Southern has answered the antitrust conspiracy case. The plaintiffs seek
declaratory and injunctive relief. The plaintiffs seek treble damages in
excess of $15,000, punitive damages and attorneys' fees. Southern intends to
defend itself vigorously in these lawsuits, which management believes are
without merit. In the opinion of management, resolution of these lawsuits is
not expected to have a material adverse impact on the Company's financial
condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.

PART II
-------

Item 5. Market for Common Stock Equity and Related Stockholder Matters
- -----------------------------------------------------------------------
Common Stock Data
The Company's common stock is listed for trading on the New York Stock Exchange.
The Company's common stock ticker symbol is CNE.

The following table shows the quarterly high and low price ranges of the
Company's common stock and quarterly dividends paid during the years ended
September 30, 1998 and 1997.

Market Price and Dividend Data

1998 Quarters ended High Low Dividend
- ------------------- ---- --- --------
December 31, 1997 $30 7/16 $22 3/4 $0.33
March 31, 1998 $30 3/4 $25 11/16 $0.33
June 30, 1998 $32 1/4 $25 5/8 $0.335
September 30, 1998 $29 11/16 $25 1/16 $0.335

1997 Quarters ended High Low Dividend
- ------------------- ---- --- --------
December 31, 1996 $22 1/4 $19 7/8 $0.33
March 31, 1997 $24 3/8 $21 $0.33
June 30, 1997 $24 1/4 $22 1/4 $0.33
September 30, 1997 $24 15/16 $22 3/8 $0.33

As of September 1998, the Company and its predecessors have paid 355 consecutive
quarterly cash dividends. Cash dividends have been paid since 1850, and the
Company currently expects that dividends will continue to be paid in the future.

The major source of funds for payment of the Company's dividends are the
dividends received on the shares of Southern's common stock owned by the
Company. Southern's indentures relating to long-term debt contain restrictions
as to the declaration or payment of cash dividends on, or the reacquisition of,
capital stock. Under the most restrictive of such provisions, $46,838,000 of
retained earnings at September 30, 1998 was available for such purposes.

The approximate number of shareholders of record of the Company's common stock
as of November 20, 1998 was 9,770.

Item 6. Selected Financial Data
- --------------------------------
The presentation under the "Eleven Year Financial Summary" for the five-year
period ended September 30, 1998 on pages 42 and 43 of the Company's 1998 Annual
Report to Shareholders is incorporated by reference herein.

Item 7. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
- ---------------------
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 15 to 25 of the Company's 1998 Annual Report to
Shareholders is incorporated by reference herein.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Not applicable.

Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The Consolidated Statements of Income, Consolidated Balance Sheets, Consolidated
Statements of Changes in Common Shareholders' Equity, Consolidated Statements
of Cash Flows and Notes to Consolidated Financial Statements on pages 26 to 40
and the Report of Independent Accountants on page 41 of the Company's 1998
Annual Report to Shareholders are incorporated by reference herein.

Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
None.

PART III
--------

Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information required in this item regarding directors is contained in the
Company's definitive Proxy Statement at pages 2 to 4, which will be mailed to
shareholders on or about December 11, 1998, and is incorporated by reference
herein. A list of executive officers of the registrant and Southern follows:

Executive Officers of Connecticut Energy Corporation
and
The Southern Connecticut Gas Company

Name and Age Position and Business Experience for the Past Five Years
- ------------------ --------------------------------------------------------
J. R. Crespo, 56 Chairman, President and Chief Executive Officer of the
Company and Southern (1990).

Thomas A. Trotta, 61 Senior Vice President of the Company and Executive Vice
President and Chief Operating Officer of Southern (1996),
Executive Vice President and Chief Operating Officer of
Southern (1995), Senior Vice President and Chief Operating
Officer of Southern (1992).

Vincent L. Ammann, Jr., 39 Vice President and Chief Accounting Officer of the Company
and Vice President, Technology Applications of Southern (1997),
Vice President and Chief Accounting Officer of the Company and
Vice President, Information Technology of Southern (1996),
Vice President and Chief Accounting Officer of the Company and
Group Vice President of Southern (1994), Vice President and
Chief Accounting Officer of the Company and Southern (1991).

Samuel W. Bowlby, 60 Vice President, General Counsel and Secretary of the Company and
Southern (1997), Partner, Tyler, Cooper & Alcorn, New Haven, CT
(1970-1997).

Carol A. Forest, 50 Vice President, Finance, Chief Financial Officer, Treasurer and
Assistant Secretary of the Company and Southern (1996), Vice
President, Finance, Chief Financial Officer and Treasurer of the
Company and Southern (1991).

Janet L. Janczewski, 54 Senior Corporate Counsel and Assistant Secretary of the Company
and Southern (1997), Corporate Counsel of Southern (1989).

Larry S. McGaughy, 51 Vice President of the Company, President of CNE Development
Corporation and President of CNE Energy (1998), President of CNE
Energy (1996), Vice President, Corporate Engineering and Special
Projects of Southern (1995), Vice President, Marketing and Corporate
Engineering of Southern (1994), Vice President, Marketing and Gas
Control of Southern (1991).

Michael H. Pinto, 71 Vice President, Government Affairs of the Company (1991).

Salvatore A. Ardigliano, 49 Group Vice President and Chief Information Officer of Southern (1998),
Group Vice President of Southern (1998), Vice President, Marketing and
Gas Supply Services of Southern (1995), Vice President, Gas Supply
Services of Southern (1995), Group Director, Gas Supply Services of
Southern (1993).

Peter D. Loomis, 50 Group Vice President, Operations of Southern (1998), Group Vice
President, Customer and Operating Services of Southern (1995),
Vice President, Distribution and Customer Service of Southern (1992).

Phyllis A. O'Brien, 53 Group Vice President of Southern (1996), Vice President, Accounting
and Regulatory Services of Southern (1994), Vice President, Corporate
and Regulatory Planning of Southern (1993).

David Silverstone, 52 Group Vice President and Chief Administrative Officer of Southern
(1998), Group Vice President of Southern (1998), Partner, Silverstone
and Koontz (1983-1998).

Ernest W. Karkut, 56 Vice President, Purchasing and Plant Services of Southern (1994), Vice
President, Customer Relations of Southern (1993).

Diane Nunn, 50 Vice President, Distribution and Gas Control Services (1998), Vice
President, Customer and Distribution Services of Southern (1998),
Group Director, Customer and Distribution Services of Southern (1996),
Director, Human Resources of Southern (1990).

Patricia A. Younger, 56* Vice President, Customer Relations of Southern (1995), Group Director,
Customer Relations of Southern (1994), Director, Customer Information
and Collections of Southern (1994), Director, Credit and Collections of
Southern (1993), Manager, Credit and Collections of Southern (1986).

*retired effective February 1, 1998.

Item 11. Executive Compensation
- --------------------------------
Information required in this Item is contained in the Company's definitive Proxy
Statement on pages 9 to 10, which will be mailed to shareholders on or about
December 11, 1998, and is incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information required in this Item is contained in the Company's definitive Proxy
Statement on pages 4 to 5, which will be mailed to shareholders on or about
December 11, 1998, and is incorporated by reference herein.

Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Information required in this Item is contained in the Company's definitive Proxy
Statement on pages 10 to 12, which will be mailed to shareholders on or about
December 11, 1998, and is incorporated by reference herein.

PART IV
-------

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) List of documents filed as part of this Report:

1. Financial Statements
--------------------
Among the responses to this Item 14(a) are the following financial statements
which are incorporated by reference herein in Item 8 above:

(i) Consolidated Statements of Income for the years ended September 30,
1998, 1997 and 1996.

(ii) Consolidated Balance Sheets for the years ended September 30, 1998
and 1997.

(iii) Consolidated Statements of Changes in Common Shareholders' Equity
for the years ended September 30, 1998, 1997 and 1996.

(iv) Consolidated Statements of Cash Flows for the years ended September
30, 1998, 1997 and 1996.

(v) Notes to Consolidated Financial Statements.

(vi) Report of Independent Accountants.

2. Financial Statements and Supplementary Data Required by Item 8
--------------------------------------------------------------
(A) Schedule Description Page
-------- ----------- ----

Report of Independent Accountants on
Financial Statement Schedule 21

II Valuation and Qualifying Accounts 22

All other schedules are omitted because they are not required, are inapplicable,
or the information is otherwise shown in the financial statements or notes
thereto.

3. Exhibits Required by Item 601 of Securities and Exchange Commission
-------------------------------------------------------------------
Regulation S-K
--------------
(A) The following such exhibits are filed as a separate section of this
report.

Exhibits
--------

(3) Certificate of Incorporation and By-Laws
----------------------------------------
The Amended and Restated Certificate of Incorporation of Connecticut Energy
Corporation is incorporated herein by reference to Item 6 of the Company's
Form 10-Q filed for the quarter ended March 31, 1991 at pages 14 through 22.
The Amended and Restated By-Laws of Connecticut Energy Corporation are
incorporated herein by reference to Item 6 of the Company's Form 10-Q filed
for the quarter ended March 31, 1995 at pages 20 through 31.

The Amended and Restated Certificate of Incorporation of The Southern
Connecticut Gas Company is incorporated herein by reference to Item 6 of
Form 10-Q filed for the quarter ended June 30, 1990 at pages 40 through 51.
The Amended and Restated By-Laws of The Southern Connecticut Gas Company
are incorporated herein by reference to Item 6 of the Company's Form 10-Q
filed for the quarter ended March 31, 1995 at pages 32 through 41.

(4) Instruments Defining Rights of Security Holders, Including Indentures
---------------------------------------------------------------------
(i) Shareholder Rights Plan, dated July 28, 1998, incorporated
by reference to Form 8-K dated July 28, 1998.

(ii) Indenture between The Bridgeport Gas Light Company and The
Bridgeport City Trust Company, as Trustee, dated as of March 1, 1948.
Incorporated herein by reference to Exhibit 4(b) (1) to Connecticut Energy
Corporation Registration Statement 2-10566.

(iii) In addition to the Indenture referred to in 4 (i) hereof,
there have been 27 indentures supplemental thereto, copies of all of which
the Company agrees to furnish to the Commission upon request.

(10) Material Contracts
------------------
(i) Gas Transportation Contract between Tennessee Gas Pipeline
Company and The Southern Connecticut Gas Company, Contract No. 10783, dated
June 1, 1995, incorporated by reference to Form 10-K for the fiscal year ended
September 30, 1996 at pages 24 to 32.

(ii) Interruptible Gas Transportation Contract and Amendment No. 1,
thereto, among Tenngasco Corporation, The Southern Connecticut Gas Company
and The United Illuminating Company, dated May 14, 1987 and August 1, 1989,
respectively, incorporated by reference to Form 10-K for the fiscal year
ended December 31, 1989 at pages 238 to 258.

(iii) Amendment No. 2 to Interruptible Gas Transportation Contract and
Amendment No. 1, thereto, among Tenngasco Corporation, The Southern Connecticut
Gas Company and The United Illuminating Company, dated November 1, 1990,
incorporated by reference to Form 10-K for the transition period from January
1, 1990 to September 30, 1990 at pages 90 to 91.

(iv) Gas Transportation Contract between Iroquois Gas Transmission
System, L.P. and The Southern Connecticut Gas Company, dated February 7, 1991,
incorporated by reference to Exhibit 10.32 to Connecticut Energy Corporation's
Registration Statement No. 33-40232.

(v) Gas Sales Agreement No. 1 by and between Alberta Northeast Gas
Limited and The Southern Connecticut Gas Company, dated February 7, 1991,
incorporated by reference to Exhibit 10.33 to Connecticut Energy Corporation's
Registration Statement No. 33-40232.

(vi) Gas Sales Agreement No. 2 by and between Alberta Northeast Gas
Limited and The Southern Connecticut Gas Company, dated February 7, 1991,
incorporated by reference to Exhibit 10.34 to Connecticut Energy Corporation's
Registration Statement No. 33-40232.

(vii) Gas Sales Agreement by and between Alberta Northeast Gas Limited
and The Southern Connecticut Gas Company, dated February 7, 1991, incorporated
by reference to Exhibit 10.35 to Connecticut Energy Corporation's Registration
Statement No. 33-40232.

(viii) Gas Sales Agreement by and between Alberta Northeast Gas Limited
and The Southern Connecticut Gas Company, dated February 7, 1991, incorporated
by reference to Exhibit 10.36 to Connecticut Energy Corporation's Registration
Statement No. 33-40232.

(ix) Gas Sales Agreement by and between Alberta Northeast Gas Limited
and The Southern Connecticut Gas Company, dated February 7, 1991, incorporated
by reference to Exhibit 10.37 to Connecticut Energy Corporation's Registration
Statement No. 33-40232.

(x) Storage Service Transportation Contract between Tennessee Gas
Pipeline Company and The Southern Connecticut Gas Company, Contract No. 542,
dated September 1, 1993, incorporated by reference to Form 10-K for the fiscal
year ended September 30, 1996 at pages 33 to 42.

(xi) Storage Service Agreement (GSS) between CNG Transmission
Corporation and The Southern Connecticut Gas Company, dated October 1, 1993,
incorporated by reference to Form 10-K for the fiscal year ended September 30,
1993 at pages 130 to 137.

(xii) Storage Service Agreement (GSS-TE) between CNG Transmission
Corporation and The Southern Connecticut Gas Company, dated October 1, 1993,
incorporated by reference to Form 10-K for the fiscal year ended September 30,
1996 at pages 43 to 50.

(xiii) Storage Service Agreement (GSS-II) between CNG Transmission
Corporation and The Southern Connecticut Gas Company, dated September 1, 1993,
incorporated by reference to Form 10-K for the fiscal year ended September 30,
1996 at pages 51 to 56.

(xiv) Gas Storage Contract and Amendment No. 1, thereto, between
Tennessee Gas Pipeline Company and The Southern Connecticut Gas Company,
dated December 1, 1994 and July 1, 1995, respectively, incorporated by reference
to Form 10-K for the fiscal year ended September 30, 1996 at pages 57 to 63.

(xv) Gas Transportation Agreement between Tennessee Gas Pipeline
Company and The Southern Connecticut Gas Company, dated August 19, 1993,
incorporated by reference to Form 10-K for the fiscal year ended September 30,
1993 at pages 143 to 151.

(xvi) Gas Transportation Agreement between Tennessee Gas Pipeline
Company and The Southern Connecticut Gas Company, dated August 19, 1993,
incorporated by reference to Form 10-K for the fiscal year ended September 30,
1993 at pages 152 to 159.

(xvii) Service Agreement between Texas Eastern Transmission
Corporation and The Southern Connecticut Gas Company, dated June 1, 1993,
incorporated by reference to Form 10-K for the fiscal year ended September 30,
1993 at pages 160 to 170.

(xviii) Service Agreement between Texas Eastern Transmission Corporation
and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 171
to 180.

(xix) Service Agreement between Texas Eastern Transmission Corporation
and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
181 to 192.

(xx) Service Agreement between Texas Eastern Transmission Corporation
and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
193 to 204.

(xxi) Service Agreement between Texas Eastern Transmission Corporation
and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
214 to 220.

(xxii) Service Agreement between Algonquin Gas Transmission Company and
The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
221 to 227.

(xxiii) Service Agreement between Algonquin Gas Transmission Company and
The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
228 to 235.

(xxiv) Service Agreement between Algonquin Gas Transmission Company and
The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
236 to 243.

(xxv) Service Agreement between Algonquin Gas Transmission Company and
The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
244 to 251.

(xxvi) Service Agreement between Algonquin Gas Transmission Company and
The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
252 to 257.

(xxvii) Service Agreement between Algonquin Gas Transmission Company and
The Southern Connecticut Gas Company, dated October 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 258
to 277.

Executive Compensation Plans and Arrangements
---------------------------------------------
(xxviii) Employment Agreement between The Southern Connecticut Gas
Company and J. R. Crespo, dated March 24, 1992, incorporated by reference to
Form 10-K for the fiscal year ended September 30, 1992 at pages 213 to 229.

(xxix) Amended and Restated Deferred Compensation Agreement between
The Southern Connecticut Gas Company and Connecticut Energy Corporation and
J. R. Crespo, dated November 8, 1996, incorporated by reference to Form 10-K
for the fiscal year ended September 30, 1996 at pages 64 to 73.

(xxx) The Southern Connecticut Gas Company Board of Directors
Retirement Plan, dated October 1, 1997, incorporated by reference to Form
10-Q for the quarter ended December 31, 1997 at pages 20 to 23.

(xxxi) The Southern Connecticut Gas Company, Management Compensation
Plan, dated October 1, 1992, incorporated by reference to Form 10-K for the
fiscal year ended September 30, 1992 at pages 251 to 253.

(xxxii) Agreement between The Southern Connecticut Gas Company and Henry
Chauncey, Jr. related to deferred compensation as a director, dated December 31,
1988, incorporated by reference to Form 10-K for the fiscal year ended December
31, 1988 at pages 63 to 67.

(xxxiii) Supplemental Retirement Benefits Plan dated October 1, 1993,
incorporated by reference to Form 10-Q for the quarter ended December 31,
1993 at pages 25 to 28.

(xxxiv) Agreement between The Southern Connecticut Gas Company and
Helen B. Wasserman related to deferred compensation as a director, dated
December 31, 1994, incorporated by reference to Form 10-K for the fiscal year
ended September 30, 1995 at pages 25 to 29.

(xxxv) Agreement between The Southern Connecticut Gas Company and
Connecticut Energy Corporation and Carol A. Forest related to change in
control, dated October 1, 1996, incorporated by reference to Form 10-K for
the fiscal year ended September 30, 1996 at pages 74 to 83.

(xxxvi) Agreement between The Southern Connecticut Gas Company and
Connecticut Energy Corporation and Thomas A. Trotta related to change in
control, dated October 1, 1996, incorporated by reference to Form 10-K for
the fiscal year ended September 30, 1996 at pages 94 to 104.

(xxxvii) Connecticut Energy Corporation 1997 Restricted Stock Award
Plan, dated January 28, 1997, incorporated by reference to Form 10-Q for the
quarter ended March 31, 1997 at pages 23 to 35.

(xxxviii) Connecticut Energy Corporation Non-Employee Director Stock
Plan, dated January 28, 1997, incorporated by reference to Form 10-Q for the
quarter ended March 31, 1997 at pages 36 to 40.

(xxxix) Agreement between The Southern Connecticut Gas Company and
Connecticut Energy Corporation and Samuel W. Bowlby related to change in
control, dated July 1, 1997, incorporated by reference to Form 10-Q for the
quarter ended March 31, 1998 at pages 21 to 31.

(xxxx) Agreement between The Southern Connecticut Gas Company and
Connecticut Energy Corporation and David Silverstone related to change in
control, dated April 1, 1998, incorporated by reference to Form 10-Q for the
quarter ended June 30, 1998 at pages 21 to 30.

(13) Annual Report to Security Holders
---------------------------------
The Company's 1998 Annual Report to Shareholders is filed herewith at
pages 25 to 53. Such exhibit includes only those portions thereof which are
expressly incorporated by reference in this Form 10-K.

(21) Subsidiaries of the Registrant
------------------------------
A list of the Company's subsidiaries is filed herewith at page 54.

(27) Financial Data Schedule
-----------------------
Financial Data Schedule UT is submitted only in electronic format to the
Securities and Exchange Commission.

(B) Reports on Form 8-K filed during the last quarter of 1998:

Form 8-K, dated July 28, 1998, concerning the Company's Shareholder Rights Plan
was filed with the Securities and Exchange Commission on August 4, 1998.

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
-----------------------------------------------------------------

To the Board of Directors and Shareholders
of Connecticut Energy Corporation:

Our audits of the consolidated financial statements referred to in our report
dated October 30, 1998 appearing on page 41 of the 1998 Annual Report to
Shareholders of Connecticut Energy Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report
on Form 10-K) also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, the financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.

/s/ PricewaterhouseCoopers LLP
- ------------------------------
New York, New York
October 30, 1998

CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------

We consent to the incorporation by reference in the Prospectus constituting part
of the Registration Statements on Form S-3 (No. 333-25691) and Form S-8
(No. 33-39245 and 33-51763) of Connecticut Energy Corporation of our report
dated October 30, 1998, on our audits of the consolidated financial statements
and financial statement schedule of Connecticut Energy Corporation as of
September 30, 1998 and 1997, and for the years ended September 30, 1998, 1997
and 1996, appearing on page 41 of the 1998 Annual Report to Shareholders of
Connecticut Energy Corporation which is incorporated by reference in this
Annual Report on Form 10-K.

/s/ PricewaterhouseCoopers LLP
- ------------------------------
New York, New York
December 4, 1998

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CONNECTICUT ENERGY CORPORATION

Years Ended September 30, 1998, 1997 and 1996
(in thousands)

Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
---------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End of
Description of Period Expenses Accounts Deductions Period
- ----------- ----------- ---------- ---------- ---------- ---------
Allowance for
Doubtful Accounts
1998 (1) $2,948 $7,735 $1,946 (2) $10,564 (3) $2,065
1997 (1) $2,742 $7,297 $2,851 (2) $9,942 (3) $2,948
1996 (1) $3,553 $6,549 $1,826 (2) $9,186 (3) $2,742

Notes:
- ------

(1) Reserve deducted in the Consolidated Balance Sheet from the asset to which it applies
(2) Recoveries on accounts previously charged off
(3) Accounts charged off as uncollectible

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.

CONNECTICUT ENERGY CORPORATION
(Registrant)

By: /s/ J. R. Crespo
--------------------------------------
J. R. Crespo, Chairman,
President and Chief Executive Officer
Dated: November 24, 1998

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.

By: /s/ Henry Chauncey, Jr. By: /s/ Newman M. Marsilius
----------------------------- ------------------------------
Henry Chauncey, Jr., Director Newman M. Marsilius, Director
Dated: November 24, 1998 Dated: November 24, 1998

By: /s/ James P. Comer By: /s/ Samuel M. Sugden
------------------------------ ------------------------------
James P. Comer, M.D., Director Samuel M. Sugden, Director
Dated: November 24, 1998 Dated: November 30, 1998

By: /s/ J. R. Crespo By: /s/ Christopher D. Turner
------------------------------ ------------------------------
J. R. Crespo, Chairman, Christopher D. Turner,
President and Chief Executive Officer Director
Dated: November 24, 1998 Dated: November 19, 1998

By: /s/ Richard F. Freeman By: /s/ Helen B. Wasserman
------------------------------ ------------------------------
Richard F. Freeman, Director Helen B. Wasserman, Director
Dated: November 24, 1998 Dated: November 24, 1998

By: /s/ Richard M. Hoyt By: /s/ Vincent L. Ammann, Jr.
------------------------------ ------------------------------
Richard M. Hoyt, Director Vincent L. Ammann, Jr.
Dated: November 24, 1998 Vice President and Chief
Accounting Officer (Principal
Accounting Officer)
Dated: November 24, 1998

By: /s/ Paul H. Johnson By: /s/ Carol A. Forest
------------------------------ ------------------------------
Paul H. Johnson, Director Carol A. Forest,
Dated: November 24, 1998 Vice President, Finance,
Chief Financial Officer,
Treasurer and Assistant
Secretary (Principal Financial
Officer)
Dated: November 24, 1998