SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

FILED BY THE REGISTRANT / / FILED BY A PARTY OTHER THAN THE REGISTRANT / /

- --------------------------------------------------------------------------------

Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

Bay State Gas Company
(Name of Registrant as Specified In Its Charter)

Bay State Gas Company
(Name of Person(s) Filing Proxy Statement)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:

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2

BAY STATE GAS COMPANY

------------------------

NOTICE OF ANNUAL MEETING OF COMMON SHAREHOLDERS

Westborough, Massachusetts
December 7, 1995

To the Common Shareholders:

You are hereby notified that the annual meeting of common shareholders of
Bay State Gas Company will be held at the office of the Company, 300 Friberg
Parkway, Westborough, Massachusetts on the First Floor, on Thursday, January 25,
1996, at 10:30 A.M., for the following purposes:

1. To elect five Directors.

2. To act on such other matters as may properly come before the meeting
and any adjournment thereof.

The enclosed form of proxy has been prepared at the direction of the Board
of Directors of the Company and is sent to you at its request. The persons named
in said proxy have been designated by the Board of Directors.

IF YOU DO NOT EXPECT TO BE PRESENT PERSONALLY AND YOU WISH YOUR STOCK VOTED
AT THE MEETING, PLEASE SIGN, DATE AND RETURN THE PROXY BY MAIL IN THE
POSTAGE-PAID ENVELOPE SENT YOU HEREWITH FOR THAT PURPOSE. IF YOU LATER FIND THAT
YOU CAN BE PRESENT OR FOR ANY OTHER REASON DESIRE TO REVOKE OR CHANGE YOUR
PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS VOTED.

The Board of Directors fixed November 30, 1995 as the record date for the
determination of those shareholders entitled to notice of and to vote at this
meeting and all persons who were holders of record of Common Stock on such date
and no others are entitled to notice of and to vote at this meeting and any
adjournment thereof.

By Order of the Board of Directors,

CHARLES H. TENNEY II
Chairman of the Board of Directors

CHARLES H. TENNEY III
Clerk
3

BAY STATE GAS COMPANY
300 FRIBERG PARKWAY
WESTBOROUGH, MASSACHUSETTS 01581

December 7, 1995

PROXY STATEMENT

ANNUAL MEETING OF COMMON SHAREHOLDERS, JANUARY 25, 1996

This proxy statement is furnished in connection with the solicitation by
the Board of Directors of proxies in the accompanying form for use at the 1996
annual meeting of common shareholders of Bay State Gas Company (the "Company").

The annual report of the Company for the fiscal year ending September 30,
1995 is enclosed herewith and includes financial statements which are not part
of the proxy statement.

The Company presently has two wholly-owned subsidiaries, Northern
Utilities, Inc. ("Northern") and Granite State Gas Transmission, Inc.
("Granite"). Granite has four wholly-owned subsidiaries, Bay State Energy
Development, Inc., Natural Gas Development Corp., Bay State Energy Enterprises,
Inc., and Energy Asset Funding, Inc.

The voting securities of the Company issued and outstanding on November 30,
1995 consisted of 13,366,394 shares of Common Stock, $3.33 1/3 par value,
entitling the holders thereof to one vote per share. Holders of Common Stock of
record on such date are entitled to notice of and to vote at the annual meeting
and any adjournment thereof.

No person holds of record and, to the knowledge of management, no person
owns beneficially more than five (5) percent of the Common Stock of the Company
which may be voted at the annual meeting and any adjournment thereof.
4

1. AS TO THE ELECTION OF DIRECTORS

The By-Laws of the Company provide for a Board of Directors of not less
than eight nor more than thirteen Directors, as the Board shall fix from time to
time, with the number of Directors comprising the Board divided into three
classes, with each class as nearly equal in number as possible.

On September 27, 1995 the Board of Directors voted to increase the number
of Directors comprising the Board from ten to eleven, divided into three classes
comprised of one class of four Directors whose terms will expire at the annual
meeting of shareholders in 1996, one class of four Directors whose terms will
expire at the annual meeting of shareholders in 1997, and one class of three
Directors whose terms will expire at the annual meeting of shareholders in 1998.
As discussed below, at that meeting the Board elected Joel L. Singer to the
Board to fill the vacancy created by the increase in the size of the Board.

At the annual meeting, one Director will be elected to hold office for a
two-year term expiring at the annual meeting of shareholders in 1998, since that
will cause the 1998 class of Directors to be comprised of three Directors, and
four Directors will be elected to hold office for a three-year term expiring at
the annual meeting of shareholders in 1999.

Assuming a quorum is present, the favorable vote of a majority of the
shares of Common Stock represented and voting will be required for the election
of Directors and on any other matters which may come before the meeting. A
majority of the shares of Common Stock outstanding represented, in person or by
proxy, at the meeting constitutes a quorum. Election of Directors is conducted
by ballot. Shareholders of record may vote their shares either personally, by
execution of a ballot at the meeting, or through a duly authorized proxy. Each
proxy can be revoked at any time before it is voted by written notification to
the Clerk of the Company at the Company's address prior to the meeting or in
person at the meeting. Every properly signed proxy will be voted unless
previously revoked. All shares represented by valid proxies will be voted (or
withheld from voting) in accordance with the instructions contained therein. A
proxy will be voted in favor of the nominees for Director named therein unless a
direction is given to withhold from voting with respect to one or more of the
nominees. Withholding from voting will have the same effect as voting against
the nominee(s) for Director.

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INFORMATION ABOUT NOMINEES FOR DIRECTOR

Each nominee has been a member of the Board of Directors since the year
indicated and, unless otherwise indicated, has previously been elected by the
common shareholders. Management intends to vote the proxies for the persons
whose names are set forth below unless instructed otherwise. If any nominee
shall be unable to serve, the proxies will be voted for such person who will be
designated by management to replace such nominee. Management has no reason to
believe that any of the nominees is not available or will not serve if elected.

TWO-YEAR TERM EXPIRING IN 1998

Joel L. Singer, Age 39

Director Since 1995 (a)
Since 1995 Executive Vice President and Chief Operating Officer of the
Company. Mr. Singer was a Director in Arthur D. Little Inc.'s Worldwide
Energy Management Consulting Business and was the leader of the firm's
North American Natural Gas Practice, Cambridge, MA from 1993 to 1995. Mr.
Singer held management positions at American Petrofina and Exxon prior
thereto.

THREE-YEAR TERM EXPIRING IN 1999

Lawrence J. Finnegan, Age 64
Director since 1982
Chairman of the Board of Directors, President and Chief Executive Officer
of Boston Mutual Life Insurance Company, Canton, MA. Mr. Finnegan is the
Chairman of the Audit Committee.

Douglas W. Hawes, Age 63
Director since 1992
Lawyer; senior partner in the law firm of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., New York, NY. Mr. Hawes is also a Director of United Water
Resources Inc., Harrington Park, NJ.

Daniel J. Murphy III, Age 53
Director since 1986
Chairman of the Board of Directors of Northmark Bank, North Andover, MA.
Mr. Murphy is also a Director of Watts Industries, Inc., North Andover, MA.
Mr. Murphy is the Chairman of the Compensation Committee.

Roger A. Young, Age 49 (b)
Director since 1975
President and since 1990 Chief Executive Officer of the Company.

INFORMATION ABOUT DIRECTORS WHOSE TERMS OF OFFICE CONTINUE

Walter C. Ivancevic, Age 75
Director since 1979
Term expires 1998
Retired since 1989. Mr. Ivancevic was a Vice President of the Company and
Director and President of Northern prior thereto.

John H. Larson, Age 65
Director since 1991
Term expires 1997
Retired since 1989. Mr. Larson was President and Chief Executive Officer of
Connecticut Energy Corp., Bridgeport, CT, prior thereto. Mr. Larson is also
a Director of Bolt Technology Corp., Norwalk, CT. Mr. Larson serves on the
Compensation Committee.

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Jack E. McGregor, Age 61
Director since 1995
Term expires 1998
Since 1995 Chairman of the Board of Directors of Aquarion Company,
Bridgeport, CT, a water and water-related services company. Mr. McGregor
was President and Chief Executive Officer of Aquarion Company prior
thereto. Mr. McGregor is also a Director of People's Bank, Bridgeport, CT.
Mr. McGregor serves on the Audit Committee.

George W. Sarney, Age 56
Director since 1992
Term expires 1997
Since 1993 President of The Foxboro Company, Foxboro, MA, a manufacturer of
instruments and systems for industrial process automation. Dr. Sarney is
also President and Chief Operating Officer of Siebe Control Systems, a
Division of Siebe PLC, Windsor, U.K., of which The Foxboro Company is a
part. Dr. Sarney is also a Director of Siebe PLC. Dr. Sarney was a Senior
Vice President of Raytheon Company, Lexington, MA prior thereto. Dr. Sarney
serves on the Audit Committee and the Compensation Committee.

Thomas W. Sherman, Age 55
Director since 1975
Term expires 1997
Executive Vice President, Chief Financial Officer and since 1994 Treasurer
of the Company.

Charles H. Tenney II, Age 77 (b)
Director since 1974
Term expires 1997
Chairman of the Board of Directors of the Company; Chief Executive Officer
of the Company 1974-1990; Retired Chairman of the Board of Directors and
Chief Executive Officer of Fitchburg Gas and Electric Light Company,
Fitchburg, MA and UNITIL Corporation, Exeter, NH. Mr. Tenney remains a
Director of UNITIL Corporation, Exeter, NH.
- ---------------

NOTES:

Unless otherwise noted herein, each of the nominees and continuing
Directors has held the position(s) indicated for the last five years.

(a) Mr. Singer was elected a Director of the Company by the Board of Directors
on September 27, 1995 to fill the vacancy created when the size of the
Board was increased from ten to eleven members.

(b) Mr. Tenney is the stepfather of Mr. Young.

The Board of Directors of the Company met seven times in fiscal 1995. Each
Director during fiscal 1995 attended all of the aggregate of (i) the meetings of
the Board and (ii) the meetings of the Committees of the Board on which he
served, if any, except for Dr. Sarney, who attended fewer than 75% of the
aggregate of such meetings.

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SECURITY OWNERSHIP OF MANAGEMENT

The following table shows, as of November 30, 1995, the number of equity securities beneficially owned by each Director, by
each of the named executive officers in the Summary Compensation Table and by all directors and executive officers of the Company as
a group, together with the percentage of the outstanding shares of the applicable class of equity securities.

AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP
------------------ PERCENT OF
BENEFICIAL OWNER COMMON STOCK(A) CLASS
---------------- ------------------ ----------

Dwight G. Curley........................................... 35,136(b)(c) 0.26%
Lawrence J. Finnegan....................................... 5,273 0.04%
Paul G. Ford............................................... 60,606(b)(c) 0.45%
Douglas W. Hawes........................................... 1,000 0.01%
Walter C. Ivancevic........................................ 22,846(c) 0.17%
John H. Larson............................................. 1,241 0.01%
Jack E. McGregor........................................... 1,000 0.01%
Daniel J. Murphy III....................................... 2,099 0.02%
Paul E. Reinhardt.......................................... 33,724(b)(c) 0.25%
George W. Sarney........................................... 1,000 0.01%
Thomas W. Sherman.......................................... 60,078(b)(c)(d) 0.45%
Joel L. Singer............................................. 1,200 0.01%
Charles H. Tenney II....................................... 556,775(b)(c)(e) 4.14%
Roger A. Young............................................. 124,980(b)(c) 0.93%
Directors and executive officers of the Company as a group
(21 persons)............................................. 1,059,661 7.64%

BENEFICIAL OWNER PREFERRED STOCK(F)
---------------- ------------------

Charles H. Tenney II....................................... 20 0.32%
Directors and executive officers of the Company as a group
(21 persons)............................................. 20 0.32%
<FN>
- ---------------

NOTES:

(a) Based on information furnished to the Company by the nominees and continuing Directors. The calculation of percentages shown
herein is based on the total outstanding shares of the applicable class of equity securities, except for Messrs. Young,
Sherman, Ford, Curley, Reinhardt and Tenney, and all Directors and executive officers of the Company as a group, where the
percentage is based on the total outstanding shares of such Stock plus shares which such individuals have the right to acquire
pursuant to the Company's Key Employee Stock Option Plan ("KESOP"). There are a total of 498,700 shares (3.60%) reflected in
beneficial ownership which various officers have the right to acquire pursuant to the KESOP. Except as noted, each of said
Directors and executive officers has voting and investment power with respect to shares beneficially owned.

(b) Included are 108,000; 53,000; 55,200; 32,000; 31,000 and 90,000 shares of Common Stock which Messrs.Young, Sherman, Ford,
Curley, Reinhardt and Tenney, respectively, have the right to purchase pursuant to the exercise of options under the KESOP
(see "Stock Options -- Key Employee Stock Option Plan"); they have no voting power with respect to these shares until the
shares are purchased.

(c) Included are 11,965; 3,796; 5,406; 3,136; 2,724; 20,576 and 2,272 shares of Common Stock which are held in trust for
Messrs.Young, Sherman, Ford, Curley, Reinhardt, Tenney and Ivancevic, respectively, under the terms of the Employee Savings
Plan; they have voting power only with respect to the shares credited to their accounts.

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(d) Included are 825 shares of Common Stock held by Mr. Sherman as custodian
for one of his children and 600 shares of Common Stock held by Mr.
Sherman as trustee for his parents; he has voting and investment power
with respect to these shares.

(e) Included are 294,369 shares (2.19%) of Common Stock owned by two trusts in
which Mr. Tenney has a 1/6 beneficial interest and of which he is
Co-Trustee with shared voting and investment power, which shares are voted
pro rata in accordance with the wishes of each of the beneficiaries
thereof. Mr. Tenney disclaims beneficial ownership of such shares other
than such 1/6 beneficial interests in both trusts. A member of his family
owns 60 shares of Common Stock which are included in the table; he has no
voting or investment power with respect to, and no beneficial interest in,
these shares.

(f) Preferred Stock is Cumulative Preferred Stock, $3.80 Series, $50 par value,
of the Company. The percentage shown herein is based on 6,338 outstanding
shares of such Stock. No Director or officer has direct or indirect
beneficial ownership of any shares of any of the other series of the
Company's Cumulative Preferred Stock, $100 and $50 par value.

COMMITTEES OF THE BOARD OF DIRECTORS

The Audit Committee of the Board of Directors, consisting of Lawrence J.
Finnegan (Chairman), Jack E. McGregor and George W. Sarney, met twice in fiscal
1995. Mr. McGregor replaced John H. Larson on the Audit Committee effective
January 26, 1995. The Audit Committee Statement of Policy identifies, among
other things, that the Audit Committee shall have the following overall
responsibilities:

- As to financial reporting, to provide assurance that financial
disclosures made by management fairly and reasonably portray the
Company's financial condition and results of operations.

- As to corporate governance, to provide assurance that the Company has and
is maintaining controls against employee conflicts of interest and fraud.

The duties of the Audit Committee identified in the aforementioned Audit
Committee Statement of Policy include, among other things, oversight with
respect to the independent accountants, review of the Company's significant
accounting policies and policy decisions, review of interim and annual financial
statements, review of other financial reports requiring Board approval, receipt
of reports from management, the independent accountants and the internal
auditor, review and approval of management's appointment and termination of the
Company's internal auditor and reporting to the Board of Directors from time to
time.

The Compensation Committee of the Board of Directors, consisting of Daniel
J. Murphy III (Chairman), John H. Larson, and George W. Sarney, met six times in
fiscal 1995. Mr. Larson replaced Endicott Smith on the Compensation Committee
effective January 26, 1995. The duties of this Committee include studying and
making recommendations to the Board with respect to salaries and other benefits
to be paid to the officers of the Company.

The Company does not have a nominating committee of the Board of Directors.

COMPENSATION OF DIRECTORS

Members of the Board of Directors who are not employees of the Company
currently receive an annual retainer fee of $11,000 and a fee of $800 for
attendance at each meeting of the Board. Members of the various Board Committees
currently receive an annual Committee fee of $1,000 and a fee of $800 for
attendance at each meeting of said Committees.

Directors who are employees of the Company receive no fees as members of
the Board or any Committee thereof. All Directors are entitled to reimbursement
of expenses incurred in connection with attendance at meetings of the Board and
any Committee on which they serve.

Mr. Tenney is a former executive officer of the Company and served as such
until his resignation as an employee of the Company in 1992, at which time he
became a consultant to the Company pursuant to a Senior Advisory Agreement
between himself and the Company. The current Senior Advisory Agreement between
Mr. Tenney and the Company commenced on January 22, 1994, and has a two-year
term, subject to

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extension as provided therein. The current Senior Advisory Agreement provides
that Mr. Tenney receive a fee of $93,750 for the first year of the Agreement's
term, and a fee of $62,500 for each year thereafter, plus reasonable and normal
business related expenses. In addition, for any portion of the Agreement's term
during which he serves as Chairman of the Board of Directors, Mr. Tenney
receives $3,000 per month plus all nonemployee Director remuneration described
above. In fiscal 1995, Mr. Tenney received $108,917 for services rendered under
the Senior Advisory Agreement. The Company believes that the terms and
conditions of the Senior Advisory Agreement are as favorable to the Company as
those that would be available from an independent third party.

The Company has a directors' advisory council composed of retired members
of the Company's Board of Directors. Each member, known as a Director Emeritus,
is appointed yearly by the Board of Directors to render advisory services to the
Board. Directors Emeriti have no right to vote on any action that may come
before the Board, nor is their presence counted for purposes of determining a
quorum. On January 26, 1995, upon the expiration of their current terms as
Directors, Endicott Smith and Richard L. Brickley were appointed Directors
Emeriti. Directors Emeriti receive as compensation for such advisory services an
annual retainer of $11,000 and a fee of $800 for each Board meeting attended, as
well as reimbursement for any expenses incurred in connection with attendance at
any meeting.

In 1994, the Company adopted the Bay State Gas Company Directors'
Retirement Plan for the purpose of providing retirement income to Directors of
the Company who are not officers of the Company. The plan provides for (a) a
minimum of five years of service as a Director to qualify, (b) a benefit
equaling ten percent of final year's retainer times the number of years of
service up to a maximum benefit equaling one hundred percent of final year's
retainer, (c) the benefit to be paid for the remainder of the life of said
Director but in no event for a period of time longer than the number of years of
service as a Director and (d) payments to begin at the later of retirement as a
Director, end of service as Director Emeritus, or age 65.

EXECUTIVE COMPENSATION

REPORT OF THE COMPENSATION COMMITTEE

This report outlines the framework used for making compensation decisions,
the Company's management compensation philosophy, and the criteria used for
making compensation decisions in fiscal 1995 regarding the Chief Executive
Officer ("CEO") and the other executive officers named in the Summary
Compensation Table below ("Named Officers").

Framework for Compensation Decisions

The Board of Directors ("Board") has overall responsibility for the
Company's compensation and benefit programs. The Board has appointed the
Compensation Committee, consisting entirely of non-employee Directors, to
facilitate its fulfillment of this responsibility. The Compensation Committee
administers and recommends changes to the Company's salary program, Key Employee
Incentive Compensation Plan ("KEICP"), and Key Employee Long-Term Incentive Plan
("KELTIP").

The Compensation Committee reviews and recommends for Board approval all
decisions relating to the compensation of officers. Decisions relating to the
CEO are based on recommendations of the Compensation Committee. Decisions
relating to all other officers' compensation are based on recommendations of the
CEO, as reviewed and approved by the Compensation Committee.

Philosophy of Management Compensation

As the Company's vision statement ("Vision 2000") declares, its objective
is to be New England's leading company in the natural gas industry in terms of
customer service, sales growth, regulatory relationships, safety, innovation and
shareholder returns. To help accomplish Vision 2000, the Company has designed
compensation programs that are competitive with those offered by other utility
companies. This enables the Company to attract, retain, and motivate employees
who contribute to the attainment of Vision 2000.

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10

Performance is the key determinant of individual pay levels. To this end,
executive officers' salaries and basic benefits are positioned to be consistent
with competitive practices in the gas utility industry. Incentive programs such
as the KEICP and KELTIP are designed so that executives' total compensation
levels reflect the Company's performance relative to others in the gas utility
industry. When performance exceeds that of the peer group companies, it is the
intent of the Company's compensation programs that executives' overall
compensation levels will exceed the peer group. When performance falls below
that of the peer group companies, it is the intent of the Company's compensation
programs that executives' overall pay levels will fall below the peer group.

Criteria Used for Making Compensation Decisions in Fiscal 1995

This section describes the criteria used by the Board and the Compensation
Committee regarding Compensation decisions in fiscal 1995 affecting the CEO and
other executive officers (including the Named Officers).

Base Salary

Each year the Company, with the assistance of an outside consulting firm,
conducts a survey to confirm that compensation levels for selected positions are
consistent with competitive practice. Salary increases are determined by
formula, based on the individual's performance during the year (as formally
evaluated by his or her supervisor) and the location of the individual's salary
in the position's salary grade. The formula is adjusted each year and approved
by the Compensation Committee, based on the rate of increase of competitive
salaries in the gas utility industry and the Company's geographical area.

In January 1995, the Compensation Committee recommended and the Board
approved merit increases in base salary for each of the Named Officers based on
successful achievement of four common Senior Officer Group goals set at the
beginning of the fiscal year and many of the eighteen supporting objectives.
Consistent with the change to a more competitive environment, these goals set
targets in the areas of earnings per share and dividends, profitable growth of
the customer base, evolving the management process toward a customer focus, and
strengthening the Company's role with regulators and other officials.

Based on a competitive analysis of CEO pay conducted by an outside
consulting firm, last updated in January, 1995, and the Compensation Committee's
assessment of the CEO's fiscal 1994 performance, the Compensation Committee
recommended and the Board approved a 7.5% increase in the CEO's base salary from
$258,500 to $277,965. In reaching this assessment, it was the sense of the
committee that Mr. Young had provided superior leadership and direction in a
period of continuing substantial change -- management reorganization, the
implementation of FERC Order 636 and its effects on the customer base, a long
and severe regional recession, and the need to motivate and focus the Company's
reduced staff.

Key Employee Incentive Compensation Plan

KEICP payouts are recommended by the Compensation Committee and approved by
the Board based on a specified formula. The procedure for determining KEICP
awards earned for fiscal 1994 and paid in 1995 was unchanged from the prior
year. Target awards, ranging from 10% to 30% of base salary midpoint, are
established for each salary grade. Actual awards can range from 0% to 150% of
target, based on corporate, divisional, and individual performance.

The Compensation Committee has established corporate performance targets in
four different areas for the CEO and the other Named Officers. The Ratepayer
Measure, worth 50% of the CEO's award (37.5% for the other Named Officers),
compares the Company's average revenues per MCF (thousand cubic feet) of natural
gas over the last three years to seven other Massachusetts gas utilities. Two
Shareholder Measures, worth 30% of the CEO's award (22.5% for the other Named
Officers), compare (1) the Company's dividend growth rate and (2) return on
equity over the last three years to a national list of thirty Edward D. Jones &
Co. gas distribution companies. The Customer Satisfaction Measure, worth 20% of
the CEO's award (15% for the other Named Officers), compares the Company's
performance to internal customer service benchmarks based on the results of
customer surveys. In addition, 25% of the other Named Officers' awards are based
on

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individual performance. Utilizing the formula and approach described above, in
1995 the Board of Directors approved a KEICP award earned for fiscal 1994 to the
CEO of $69,623, which was 94.7% of the target award. The amounts of the KEICP
awards to the CEO and the other Named Officers earned for fiscal 1995 are not
calculable at this time. Such awards will be calculated and paid in the Spring
of 1996.

Key Employee Long-Term Incentive Plan

On January 26, 1995, the common shareholders of the Company ratified the
KELTIP as an alternative long-term incentive compensation program to replace the
KESOP. Effective October 1, 1994, the Compensation Committee recommended and the
Board approved awards of performance shares granted to all executive officers
and certain key employees. All or a portion of the performance shares subject to
each award shall become vested and earned at the end of the three-year period
beginning on the date the award was granted depending on the Company's total
return to shareholders for such period. The shares granted to the CEO and the
other Named Officers were awarded as part of the officers' total compensation
based on recommendations made by an outside consulting firm. The KELTIP award
granted in fiscal 1995 to the CEO was 10,080 shares. (See "Long-Term
Compensation -- Key Employee Long-Term Incentive Plan" for a description of the
Plan).

Compensation Committee
- ----------------------

Daniel J. Murphy III, Chairman
John H. Larson
George W. Sarney

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PERFORMANCE GRAPH

The following table shows a line graph comparing the yearly percentage
change in the cumulative total return assuming price appreciation and
reinvestment of dividends for the Company's Common Stock, the S&P 500 Index,
which is a broad equity market index, and the Edward D. Jones & Co. Gas
Distribution Index, a published industry index consisting of natural gas
distribution companies weighted by market capitalization which includes the
Company.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
BAY STATE GAS COMPANY, S&P 500 INDEX AND EDWARD D. JONES & CO. GAS DISTRIBUTION
INDEX

- ------------------------------------------------------------------------------------------------
9/90 9/91 9/92 9/93 9/94 9/95
- ------------------------------------------------------------------------------------------------

BAY STATE GAS COMPANY $100 $113 $138 $164 $152 $156
S&P 500 INDEX $100 $131 $145 $164 $170 $221
E.D. JONES & CO. GAS DISTRIBUTION INDEX $100 $119 $147 $184 $164 $183
- ------------------------------------------------------------------------------------------------

Edward D. Jones & Co. Gas Distribution Index includes the following companies:
Atlanta Gas Light, Atmos Energy, Bay State Gas, Berkshire Gas, Brooklyn Union
Gas, Cascade Natural Gas, Colonial Gas, Connecticut Energy, Connecticut Natural
Gas, Delta Natural Gas, Energy West, Energynorth, Essex County Gas, Indiana
Energy, Laclede Gas, MCN, Mobile Gas Service, New Jersey Resources, NICOR, North
Carolina Natural Gas, Northwest Natural Gas, NUI Corp., Peoples Energy, Piedmont
Natural Gas, Providence Energy, Public Service of NC, Southeastern Michigan Gas
Enterprises, United Cities Gas, Washington Gas Light, and Yankee Energy System.

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COMPENSATION OF OFFICERS

The following table shows all compensation awarded to, earned by or paid to the Chief Executive Officer of the Company and
each of the other four most highly compensated executive officers of the Company for services rendered in all capacities to the
Company and its subsidiaries for each of the past three fiscal years ended September 30, 1993, 1994 and 1995.

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------------- PAYOUTS
OTHER ------------
ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(A) ($)(C) ($) ($)(D)
- ------------------------------------------------------------------------------------------------------

Roger A. Young 1995 $273,099 (b) $ 770 -- $ 9,989(e)
President & Chief 1994 255,750 69,623 1,470 -- 16,266
Executive Officer 1993 245,625 82,528 807 -- 9,713
Thomas W. Sherman 1995 161,425 (b) 480 -- 7,047(f)
Executive Vice 1994 155,200 30,647 964 -- 9,022
President, Treasurer & 1993 148,650 34,442 408 -- 6,293
Chief Financial
Officer
Paul G. Ford 1995 159,550 (b) 128 -- 5,050(g)
Senior Vice President 1994 151,425 30,647 123 -- 4,696
1993 139,425 35,378 81 -- 4,015
Dwight G. Curley 1995 144,225 (b) 319 -- 4,798(h)
Senior Vice President 1994 137,100 28,731 606 -- 4,077
1993 129,525 32,289 2 -- 3,848
Paul E. Reinhardt 1995 134,325 (b) 957 -- 4,874(i)
Senior Vice President 1994 127,250 25,342 484 -- 5,099
1993 119,575 24,315 222 -- 3,798
<FN>
- ---------------

NOTES:

(a) Awards pursuant to the KEICP were paid in May subsequent to the year upon which performance was measured and, as such, are
shown in the fiscal year in which earned. (See "Report of the Compensation Committee -- Key Employee Incentive Compensation
Plan".)

(b) The amount of the 1995 KEICP award, payable in 1996, is not calculable at this time.

(c) "Other Annual Compensation" includes interest in excess of 120% of the applicable federal long-term rate ("above-market
interest") on compensation paid or payable during the fiscal year but deferred at the officer's election pursuant to the
Key Employee Deferred Compansation Plan ("KEDCP").

(d) "All Other Compensation" includes the following: (i) employer matching contributions under the Company's Employee Savings
Plan ("ESP"), (ii) above-market interest earned during the fiscal year on compensation deferred prior to the fiscal year
pursuant to the KEDCP and (iii) term life insurance premiums paid by the employer for the benefit of the Named Officers.

(e) Included for Mr. Young is an employer contribution of $4,620 under the ESP and above-market interest earned of $5,369.

(f) Included for Mr. Sherman is an employer contribution of $3,987 under the ESP, above-market interest earned of $2,211 and a
term life insurance premium of $849.

(g) Included for Mr. Ford is an employer contribution of $3,989 under the ESP, above-market interest earned of $212 and a term
life insurance premium of $849.

11
14

(h) Included for Mr. Curley is an employer contribution of $3,602 under the
ESP, above-market interest earned of $400 and a term life insurance
premium of $796.

(i) Included for Mr. Reinhardt is an employer contribution of $3,358 under the
ESP, above-market interest earned $784 and a term life insurance premium of
$732.

OTHER COMPENSATION ARRANGEMENTS

STOCK OPTIONS

Key Employee Stock Option Plan

At the 1990 annual meeting the Company's shareholders ratified the Key
Employee Stock Option Plan ("KESOP") previously adopted by the Directors to
provide for grants of options to key employees to purchase Common Stock of the
Company. The maximum exercise period for any option is ten years. In 1994, the
Board resolved that the Company shall no longer grant stock options to any key
employee pursuant to the KESOP.

Options granted under the KESOP have been entirely non-qualified stock
options. The option price per share for options granted under the KESOP was
determined at 100% of the fair market value of the closing price for the Common
Stock on the New York Stock Exchange as of the date preceding the date the
option was granted.

The award agreements provide that the participants' right to exercise the
options provided for therein will be accelerated, to the extent that all or any
portion of such options are not then exercisable, upon the occurrence of a
"Change in Control" of the Company. The term "Change in Control" is defined in
substantially the same manner as in the severance agreements (see "Severage
Agreements" below).

The following table provides information with respect to options to
purchase shares of the Company's Common Stock exercised in fiscal 1995 and the
value of unexercised options granted in prior years under the KESOP to the named
executive officers in the Summary Compensation Table and held by them as of
September 30, 1995. The Company has no compensation plan under which SARs are
granted.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE (#) ($)(B)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($)(A) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------

Roger A. Young 0 $ 0 114,000 0 $ 478,500 $ 0
Thomas W. Sherman 0 0 53,000 0 200,125 0
Paul G. Ford 10,800 74,675 55,200 0 214,425 0
Dwight G. Curley 0 0 32,000 0 100,938 0
Paul E. Reinhardt 3,000 16,875 31,000 0 96,313 0
<FN>
- ---------------

NOTES:

(a) Fair market value of the shares acquired on the date of exercise minus the exercise price of the options.

(b) Represents the difference between the exercise prices of the options and the closing price of $24.25 for the Company's
Common Stock as quoted by the New York Stock Exchange on September 30, 1995 times the number of options held.

12
15

LONG-TERM COMPENSATION

Key Employee Long-Term Incentive Plan

At the 1995 Annual Meeting the Company's shareholders ratified the Bay
State Gas Company Key Employee Long-Term Incentive Plan (the "KELTIP")
previously adopted by the Board of Directors. The KELTIP provides for the award
of performance shares, exchangeable for shares of the Company's Common Stock in
accordance with the terms of the KELTIP, to eligible employees. The KELTIP is
intended to promote the interests of the Company by providing long-term
performance incentives to key employees and by increasing the opportunity for
ownership in the Company by those employees who are directly responsible for the
management, growth and success of the Company's business.

The KELTIP is administered by the Compensation Committee (the "Committee")
of the Board of Directors. Performance shares are awarded under the KELTIP upon
the recommendation of the Committee and approval by the Board of Directors.
Awards may be granted as of October 1 of each year from 1994 through 2003. Each
performance share will, upon vesting, be exchangeable for one share of the
Company's Common Stock and a cash payment equal to the dividends that would have
been paid on such Stock during the period the award was outstanding.

An employee to whom an award has been made becomes vested and entitled to
payment of all or a portion of the performance shares subject to the award at
the end of the three-year period beginning on the date the award is granted (the
"Performance Period"), depending on the Company's total return to shareholders
for the Performance Period. The percentage of the award to which the employee
becomes entitled is determined by the Company's performance in relation to
companies listed in the Edward D. Jones & Co. Gas Distribution Index. Payment of
performance shares will be made by the issuance by the Company of an equal
number of shares of the Company's Common Stock and payment in cash of an amount
equal to the dividends paid during the Performance Period on an equal number of
shares of Common Stock.

If a "Change of Control" of the Company occurs during a Performance Period,
an employee to whom an award has been made for that Performance Period becomes
vested and entitled to immediate payment of 50% of the performance shares
subject to the award. The term "Change of Control" is defined in substantially
the same manner as in the severance agreements, (see "Severance Agreements"
below).

The following table provides information with respect to the estimated
range of share payouts in fiscal year 1998 under the KELTIP for awards of
performance shares granted in fiscal 1995 to the named executive officers in the
Summary Compensation Table.

LONG-TERM INCENTIVE PLANS -- AWARDS
IN LAST FISCAL YEAR

ESTIMATED FUTURE PAYOUTS UNDER
PERFORMANCE NON-STOCK PRICE-BASED PLANS
NUMBER OF PERIOD UNTIL ---------------------------------
SHARES MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT (#)(A) (#)(B) (#)(C)
---- --------- ----------- --------- ------ -------

Roger A. Young 10,080 10/1/94-9/30/97 5,040 5,040 10,080
Thomas W. Sherman 3,680 10/1/94-9/30/97 1,840 1,840 3,680
Paul G. Ford 3,680 10/1/94-9/30/97 1,840 1,840 3,680
Dwight G. Curley 3,120 10/1/94-9/30/97 1,560 1,560 3,120
Paul E. Reinhardt 2,560 10/1/94-9/30/97 1,280 1,280 2,560
<FN>
- ---------------

NOTES

(a) Threshold refers to the minimum amount payable for a certain level of performance (50th percentile) under the Plan. If
performance is below this minimal level, no award will be paid.

(b) Target refers to the amount payable if the specified performance target is reached. Pursuant to the Plan, the specified
performance target is the same as the minimal level of performance required for the Threshold described above, i.e., the 50th
percentile.

13
16

For percentiles between those mentioned above, the percentage of an award
to which a participant becomes entitled shall be determined on the basis of
straight-line interpolation between such values.

RETIREMENT PLANS

The Company has in effect a funded, qualified Pension Plan and related
Trust Agreement, which Plan provides retirement benefits for all non-union
employees, including all officers. No amounts were set aside or allocated for
the benefit of any of the named executive officers in the Summary Compensation
Table under any pension or retirement plan except for unidentified amounts paid
into the Trust pursuant to the Plan. Directors who are not, or have not been,
officers of the Company or Northern do not participate in the Plan.

The formula for determining annual benefits under the life annuity option
of the Plan is (a) 1.4% of average annual earnings (average annual earnings
during the three consecutive years of employment that are the highest average
earnings) up to the Covered Compensation (thirty-five year average of the Social
Security taxable wage bases) amount for each of the first twenty-five years of
benefit service, plus (b) 1.875% of average annual earnings in excess of the
Covered Compensation amount for each of the first twenty-five years of benefit
service, plus (c) .5% of average annual earnings for benefit service greater
than twenty-five years, minus (d) any affiliated plan benefit. Average annual
earnings includes incentive compensation and overtime pay up to certain limits
and 100% of sales commissions. All salary and bonuses listed in the Summary
Compensation Table are included in the calculation of average annual earnings
for the named executive officers. The average annual earnings used for computing
qualified pensions are subject to a $150,000 limitation on earnings in 1995.
Messrs. Young, Sherman, Ford, Curley and Reinhardt have 27, 29, 15, 6 and 6
credited years of service, respectively, under the Plan.

In 1986 the Company adopted a Supplemental Executive Retirement Plan
("SERP"), a non-qualified defined benefit plan which provides for supplemental
retirement benefits to certain officers. The Chairman of the Board of Directors,
the President and all Vice Presidents of the Company are designated as eligible
for benefits under the SERP. The formula for determining annual benefits under
the life annuity option of the SERP is 4% of average annual earnings (average
annual earnings during the three consecutive years of employment that are the
highest average earnings) for each of the first fifteen years of benefit service
minus the benefit payable under any qualified Pension Plan covering such
persons.

The following table sets forth, for various years of service and average
compensation levels, estimated combined annual amounts payable upon retirement
to those executive officers who are participants in both the applicable Pension
Plan and the SERP, assuming continued active service until retirement at age 65
and that the present Pension Plan and the SERP are in effect at such time.

PENSION PLAN TABLE
- ----------------------------------------------------------------------------
15 YEARS OF 20 YEARS OF 25 YEARS OF 30 YEARS OF 35 YEARS OF
REMUNERATION SERVICE SERVICE SERVICE SERVICE SERVICE
- ------------ ----------- ----------- ----------- ----------- -----------

$125,000 $ 75,000 $ 75,000 $ 75,000 $ 75,000 $ 75,000
150,000 90,000 90,000 90,000 90,000 90,000
175,000 105,000 105,000 105,000 105,000 105,000
200,000 120,000 120,000 120,000 120,000 120,000
225,000 135,000 135,000 135,000 135,000 135,000
250,000 150,000 150,000 150,000 150,000 150,000
300,000 180,000 180,000 180,000 180,000 180,000
400,000 240,000 240,000 240,000 240,000 240,000
450,000 270,000 270,000 270,000 270,000 270,000

14
17

SEVERANCE AGREEMENTS

The Company has entered into severance agreements with various key
employees, including each of the executive officers of the Company named in the
Summary Compensation Table. The intent of the severance agreements is to assure
continuity in the Company's administration and operations in the event of a
Change in Control (as hereinafter described).

Each severance agreement provides that the employee's stipulated
compensation, benefits, position, responsibilities and other conditions of
employment will not be reduced during the term of the agreement. The term of
each agreement is for either 24 or 36 months, effective upon the date on which a
Change in Control of the Company occurs. Each of the executive officers named in
the Summary Compensation Table is party to a severance agreement having a term
of 36 months. A Change in Control is defined as occurring when (i) the Company
receives a report on Schedule 13D filed with the Securities and Exchange
Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934, as
amended, disclosing that any person, group, corporation, or other entity (except
the Company or a wholly-owned subsidiary) is the beneficial owner, directly or
indirectly, of 25% or more of the Common Stock; (ii) any person, group,
corporation, or other entity (except the Company or a wholly-owned subsidiary),
after purchasing Common Stock in a tender offer or exchange offer, becomes the
beneficial owner, directly or indirectly, of 25% or more of the Common Stock;
(iii) the shareholders of the Company approve any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation or
pursuant to which the shares of Common Stock would be converted into cash,
securities or other property or any sale, lease, exchange or other transfer of
all or substantially all of the Company's assets; or (iv) there is a change in a
majority of the members of the Company's Board of Directors within a 25-month
period unless approved by two-thirds of the Directors then still in office who
were in office at the beginning of the 25-month period. Each agreement further
provides that in the event (i) the employee's employment is terminated by the
Company, except for the employee's acceptance of a position with another company
or for cause; or (ii) the employee terminated employment due to (a) a material
change in the employee's responsibilities, (b) reduction in total compensation,
(c) assignment to a location more than 50 miles from the current place of
employment, (d) liquidation, merger, or sale of all or substantially all of the
assets of the Company, unless the successor corporation has a net worth at least
equal to that of the Company, or (e) any other material breach of the agreement
by the Company, the employee is entitled to a severance benefit. The amount
payable to the employee upon the occurrence of any of the foregoing events is a
lump sum cash amount equal to (i) the present value of either two or three
years' base salary and bonus; (ii) the present value of the additional amount
the employee would have received under the Pension Plan, and the SERP if
applicable, if the employee had continued to be employed for such 24 or 36 month
period; (iii) the present value of contributions that would have been made by
the Company under the ESP if the employee had been employed for such 24 or 36
month period; and (iv) the economic benefit of any outstanding Company stock
options, assuming such options remained unexercised until the day preceding the
expiration of the grant. Each agreement also provides for the continuation of
all employee benefits for a period of 24 or 36 months. In addition, the Company
is required to make an additional payment to the employee sufficient on an
after-tax basis to satisfy any tax liability incurred under the "parachute" tax
rules of the Internal Revenue Code.

TRANSACTIONS WITH MANAGEMENT AND OTHERS

In fiscal 1995 the Company, Northern and Granite retained the legal
services of the firm of LeBoeuf, Lamb, Greene & MacRae, L.L.P., of which Douglas
W. Hawes, a Director of the Company, is a senior partner. The firm of LeBoeuf,
Lamb, Greene & MacRae, L.L.P., has acted as legal counsel for the Company on
various matters for many years and is expected to be retained by the Company in
this capacity in the future.

The Company believes that the transactions described herein have been on
terms representing competitive market prices which are as favorable to the
Company and its subsidiaries as those available from third party entities.

15
18

2. AS TO OTHER MATTERS TO COME BEFORE THE MEETING

The favorable vote of a majority of the shares of Common Stock represented
and voting will be required on any other matters which may come before the
meeting. Management does not intend to bring before the meeting any matters
other than those referred to above and knows of no other matters which may come
before the meeting. If any other matters or motions come before the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
such proxy in accordance with the conduct of the meeting.

INDEPENDENT AUDITORS

Upon recommendation of the Audit Committee, the Board of Directors has
selected and employed the firm of KPMG Peat Marwick L.L.P. as the Company's
independent certified public accountants to audit its financial statements for
the fiscal year 1996. This will be the thirteenth year in which such firm has
acted in this capacity.

It is anticipated that a representative of KPMG Peat Marwick L.L.P. will be
present at the annual meeting and will be available to respond to appropriate
questions. It is not anticipated that such representative will make a prepared
statement at the meeting; however, he or she will be free to do so if he or she
so chooses.

MISCELLANEOUS

This solicitation is by the Board of Directors of the Company and the
expense of the solicitation will be borne by the Company. Such expense will also
include reimbursement for postage and clerical expenses to brokerage houses and
other custodians, nominees or fiduciaries for forwarding documents to beneficial
owners of stock held in their names. Directors, officers or employees of the
Company may solicit proxies by telephone or in person, the cost of which will be
nominal.

Any proposal submitted by a shareholder of the Company for inclusion in the
proxy material for the 1997 annual meeting must be received by the Company at
its corporate office in Westborough, Massachusetts, not later than 120 days
prior to December 12, 1996.

By Order of the Board of Directors,

CHARLES H. TENNEY II
Chairman of the Board of Directors

THE COMPANY WILL FURNISH WITHOUT CHARGE TO ANY SHAREHOLDER ENTITLED TO VOTE
AT THE ANNUAL MEETING OF COMMON SHAREHOLDERS TO BE HELD JANUARY 25, 1996 A COPY
OF ITS ANNUAL REPORT ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES
THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR
THE FISCAL YEAR 1995 UPON WRITTEN REQUEST TO ROBERT B. HEVERT, ASSISTANT
TREASURER, BAY STATE GAS COMPANY, 300 FRIBERG PARKWAY, WESTBOROUGH,
MASSACHUSETTS 01581.

16
19

BAY STATE GAS COMPANY

THIS PROXY IS SOLCITED ON BEHALF OF THE BOARD OF DIRECTORS
P
R
O The undersigned, revoking all previous proxies, hereby appoints
X CHARLES H. TENNEY II, ROGER A. YOUNG and THOMAS W. SHERMAN, and each of
Y them, proxies, with power of substitution to each, to vote and act at the
annual meeting of common shareholders of BAY STATE GAS COMPANY to be held
at the office of the Company, 300 Friberg Parkway, Westborough,
Massachusetts, on Thursday, January 25, 1996, at 10:30 A.M., and at any
adjournment thereof, on and with respect to the Common Stock of the
undersigned, or on and with respect to which the undersigned is entitled
to vote or act.

IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, AND AT ANY ADJOURNMENT
THEREOF.

-----------
SEE REVERSE
IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE SIDE
-----------

Please mark
/X/ votes as in
this example

THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE HEREON, IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED
FOR ITEM 1.

1. To elect five Directors:
Nominees: Lawence J. Finnegan, Douglas W. Hawes,
Daniel J. Murphy III, Joel L. Singer, Roger A. Young

FOR WITHHELD
/ / / /

/ /______________________________________
For all nominees except as noted above
MARK HERE MARK HERE
FOR ADDRESS / / FOR COMMENTS / /
CHANGE AND AND NOTE
NOTE AT LEFT ABOVE

Please sign your name(s) exactly as it appears
hereon. If signing as attorney or for estates
trusts of corporations, title or capability
should be indicated. PLEASE RETURN THIS PROXY
PROMPTLY.

Signature____________________Date_____________