SCHEDULE 14A INFORMATION

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

FILED BY THE REGISTRANT /X/ 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)

Charles H. Tenney, III
(Name of Person(s) Filing Proxy Statement)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ No fee required.
/ / 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:

- --------------------------------------------------------------------------------
2

BAY STATE GAS COMPANY

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

NOTICE OF ANNUAL MEETING OF COMMON SHAREHOLDERS

Westborough, Massachusetts
December 9, 1996

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 January 23, 1997 at
10:30 A.M., for the following purposes:

1. To elect four 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 29, 1996 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,

ROGER A. YOUNG
Chairman of the Board of Directors

CHARLES H. TENNEY III
Clerk
3

BAY STATE GAS COMPANY
300 FRIBERG PARKWAY
WESTBOROUGH, MASSACHUSETTS 01581

December 9, 1996

PROXY STATEMENT

ANNUAL MEETING OF COMMON SHAREHOLDERS, JANUARY 23, 1997

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 1997
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,
1996 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 five wholly-owned subsidiaries which are currently
active: Bay State Energy Development, Inc., Bay State Energy Enterprises, Inc.,
EnergyUSA, Inc., LNG Development Corp., and Natural Gas Development, Inc.

The voting securities of the Company issued and outstanding on November 29,
1996 consisted of 13,440,594 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. The Board is currently comprised of eleven Directors divided into three
classes, two classes of four Directors each and one class of three Directors,
with their respective tenures so arranged that the term of office of one class
expires in each year at which time a corresponding number of Directors is
elected for a term of three years. At the annual meeting, four Directors are to
be elected to hold office for the ensuing three years.

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 nominees for Director.

INFORMATION ABOUT NOMINEES FOR DIRECTOR

Each nominee has been a member of the Board of Directors since the year
indicated and 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.

THREE-YEAR TERM EXPIRING IN 2000

John H. Larson, Age 66
Director since 1991
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 and the Executive Committee.

George W. Sarney, Age 57
Director since 1992
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 Compensation Committee and the Executive Committee.

Thomas W. Sherman, Age 56
Director since 1975
Executive Vice President, Chief Financial Officer and since 1994 Treasurer
of the Company.

Charles H. Tenney II, Age 78(a)(b)
Director since 1974
Retired in 1996 as Chairman of the Board of Directors; 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, Hampton, NH. Mr. Tenney
remains a Director of UNITIL Corporation. Mr. Tenney serves on the
Executive Committee.

2
5

INFORMATION ABOUT DIRECTORS WHOSE TERMS OF OFFICE CONTINUE

Lawrence J. Finnegan, Age 65
Director since 1982
Terms expires 1999
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 and serves on the Executive Committee.

Douglas W. Hawes, Age 64
Director since 1992
Terms expires 1999
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.

Walter C. Ivancevic, Age 76
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.

Jack E. McGregor, Age 62
Director since 1995
Term expires 1998
Since 1995, of Counsel to Cohen and Wolf, P.C., and partner of Bridgeport
Waterfront Investors, LLC. Mr. McGregor retired in 1996 as 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 remains a
Director of Aquarion Company and is also a Director of People's Bank,
Bridgeport, CT. Mr. McGregor serves on the Audit Committee.

Daniel J. Murphy III, Age 54
Director since 1986
Terms expires 1999
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 and serves on the
Audit Committee.

Joel L. Singer, Age 40(c)
Director since 1995
Terms expires 1998
President of the Company since 1996 and Chief Operating Officer since 1995.
Mr. Singer was Executive Vice President of the Company in 1995. Formerly he
was Director of Arthur D. Little Inc.'s North American Natural Gas
Practice, Cambridge, MA from 1993 to 1995. Mr. Singer held management
positions at American Petrofina and Exxon prior thereto.

Roger A. Young, Age 50(a)(b)
Director since 1975
Terms expires 1999
Chairman of the Board since 1996 and Chief Executive Officer of the
Company. Mr. Young was President of the Company prior thereto. Mr. Young
serves on the Executive Committee.

3
6

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

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. Tenney is the stepfather of Mr. Young.

(b) Mr. Young was elected Chairman of the Board of Directors by the Board of
Directors on May 2, 1996.

The Board of Directors of the Company met seven times in fiscal 1996. Each
Director during fiscal 1996 attended more than 81% of the aggregate of (i) the
total meetings of the Board and (ii) the total number of meetings of the
Committees of the Board on which he served, if any.

SECURITY OWNERSHIP OF MANAGEMENT

The following table shows, as of November 29, 1996, 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
- ---------------- ------------------ ----------

James A. Burke............................................. 22,250(b) 0.17%
Dwight G. Curley........................................... 11,000(b) 0.08%
Lawrence J. Finnegan....................................... 5,564 0.04%
Douglas W. Hawes........................................... 1,000 0.01%
Walter C. Ivancevic........................................ 22,954 0.17%
John H. Larson............................................. 1,309(c) 0.01%
Jack E. McGregor........................................... 1,408 0.01%
Daniel J. Murphy III....................................... 2,215 0.02%
George W. Sarney........................................... 1,000 0.01%
Thomas W. Sherman.......................................... 59,426(b)(d)(e) 0.44%
Joel L. Singer............................................. 2,230(d)(f) 0.02%
Charles H. Tenney II....................................... 557,676(b)(d)(g) 4.12%
Roger A. Young............................................. 125,523(b)(d) 0.93%
Directors and executive officers of the Company as a group
(19 persons)............................................. 888,476 6.45%

BENEFICIAL OWNER PREFERRED STOCK(H)
- ---------------- ------------------

Charles H. Tenney II....................................... 19 0.32%
Directors and executive officers of the Company as a group
(19 persons)............................................. 19 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, Curley, Burke, 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 340,900
shares (2.47%) 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.

4
7

(b) Included are 108,000, 53,000, 11,000, 22,500 and 90,000 shares which Messrs.
Young, Sherman, Curley, Burke 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.

(d) Included are 12,508, 680, 3,969, and 20,458, shares which are held in trust
for Messrs. Young, Singer, Sherman, and Tenney, respectively, under the
terms of the Employee Savings Plan; they have voting power only with respect
to the shares credited to their accounts.

(e) Included are 600 shares held by Mr. Sherman as trustee for his parents.

(f) Included are 350 shares held by Mr. Singer as custodian for minor children.

(g) Included are 294,369 shares (2.18%) 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. Also included are 60 shares which are owned by Mr. Tenney's
wife. He has no voting or investment power with respect to, and no
beneficial interest in, these shares.

(h) Preferred Stock is Cumulative Preferred Stock, $3.80 Series, $50 par value,
of the Company. The percentage shown herein is based on 5,939 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), Daniel J. Murphy III and Jack E. McGregor, met twice in
fiscal 1996. Mr. Murphy replaced George W. Sarney on the Audit Committee
effective May 2, 1996. 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 four times in
fiscal 1996. 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. (See "Report of the Compensation Committee"
below.)

The Executive Committee was formed by unanimous vote of the Board of
Directors on May 2, 1996 and consists of Charles H. Tenney II (Chairman),
Lawrence J. Finnegan, John H. Larson, George W. Sarney and Roger A. Young. The
Executive Committee did not meet in fiscal 1996. The duties of this Committee
include reviewing and overseeing corporate policies related to the Company's
long-range strategic business, financial and operating plans. The Executive
Committee also acts as a nominating committee of the Board, and in such regard
coordinates suggestions or searches for potential nominees for Board membership,
reviews and

5
8

evaluates qualifications of potential Board members and recommends to the entire
Board nominees for vacancies occurring from time to time on the Board.

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 Senior Advisory Agreement between Mr.
Tenney and the Company was extended on January 22, 1996 and has a two-year term,
subject to extension as provided therein. The current Senior Advisory Agreement
as amended on May 2, 1996 provides that Mr. Tenney receive an annual fee of
$72,500, plus reasonable and normal business related expenses. Mr. Tenney
receives $2,000 per month during which he serves as Chairman of the Executive
Committee. In fiscal 1996, Mr. Tenney received $88,667 for services rendered
under the Senior Advisory Agreement and as Chairman of the Executive Committee.
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 25, 1996, Endicott Smith and Richard L. Brickley were
reappointed 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.

6
9

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 1996 regarding the Chief Executive
Officer (the "CEO") and the other executive officers named in the Summary
Compensation Table below (the "Named Officers").

Framework for Compensation Decisions

The Board of Directors (the "Board") has overall responsibility for the
Company's compensation and benefit programs. The Board has appointed the
Compensation Committee (the "Committee"), consisting entirely of non-employee
Directors, to facilitate its fulfillment of this responsibility. The 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 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 Committee. Decisions relating to all other
officers' compensation are based on recommendations of the CEO, as reviewed and
approved by the Committee.

Philosophy of Management Compensation

As the Company's vision statement ("Strategic Vision 2000") declares, its
ambition is to significantly improve shareholder value creation by growing to
become the leading energy services company in New England, capturing
opportunities under deregulation. To help accomplish Strategic Vision 2000, the
Company has designed compensation programs that are competitive with those
offered by other peer group companies. This enables the Company to attract,
retain, and motivate employees who contribute to the attainment of Strategic
Vision 2000. When performance exceeds or falls below that of the peer group
companies, it is the intent of the Company's compensation programs that
executives' overall compensation levels will exceed or fall below competitive
levels respectively.

Due to the changing business environment and deregulation facing utilities,
the Committee is reviewing the Company's overall compensation philosophy. The
Committee is considering changes in the 1997 compensation program that will
bring management's compensation in line with that of the Company's new business
culture and competitive environment and will strengthen the linkage between pay
and performance.

Criteria Used for Making Compensation Decisions in Fiscal 1996

This section describes the criteria used by the Board and the Committee
regarding Compensation decisions in fiscal 1996 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,
reviews various salary surveys to confirm that compensation levels for executive
officers are consistent with competitive practice. Salary increases are
determined by formula, based on the individual's performance during the year and
the location of the individual's salary in the position's salary grade. The
formula is adjusted each year and approved by the Committee, based on the rate
of increase of competitive salaries in the gas utility industry and the
Company's geographical area.

In January 1996, the Committee recommended and the Board approved merit
increases in base salary for each of the Named Officers based on successful
achievement of specific quantifiable goals set at the beginning of the fiscal
year. 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.

7
10

In evaluating the performance of the CEO, the Committee noted that
short-term 1995 quantifiable objectives were met or exceeded in the following
areas: sales, O&M spending, capital spending, gas costs and customer
expectations. The Committee further noted accomplishment in the areas of
repositioning the Company for the deregulated environment of the future;
progress toward insuring uninterrupted gas service to Northern with the pending
termination of the Portland Pipe Line leased line; and the hiring of a highly
qualified Chief Operating Officer. Effective January 1, 1996, the Committee
recommended and the Board approved a $25,000 increase in Mr. Young's base
salary.

On May 2, 1996, Mr. Young was elected by the Board as Chairman of the Board
of Directors and designated to continue as CEO. Based on an outside consulting
firm's survey of the compensation of various gas utility executives of
comparable authority, responsibility and title, the Committee recommended and
the Board approved a 7.27% increase in Mr. Young's base salary to $325,000
effective April 1, 1996.

Key Employee Incentive Compensation Plan

KEICP bonuses are recommended by the Committee and approved by the Board
based on a specified formula. The procedure for determining KEICP awards earned
for fiscal 1995 and paid in 1996 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 Committee has established corporate performance targets in four
different areas for the CEO and the other Named Officers. The Ratepayer Measure
compares the Company's average revenues per MMBtu of natural gas over the last
three years to seven other Massachusetts gas utilities. Two Shareholder Measures
compare (1) the Company's dividend growth rate and (2) return on equity over the
last three years to a national list of Edward Jones gas distribution companies.
The Customer Satisfaction Measure 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 individual
performance. Utilizing the formula and approach described above, in 1996 the
Board of Directors approved a KEICP award earned for fiscal 1995 to the CEO of
$88,416, which was 93% of the target award. The amounts of the KEICP awards to
the CEO and the other Named Officers earned for fiscal 1996 are not calculable
at this time. Such awards will be calculated and paid in the Spring of 1997.

Key Employee Long-Term Incentive Plan

Effective October 1, 1995 the 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 1996 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

8
11

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 EdwardJones Gas Distribution
Index, a published industry index consisting of natural gas distribution
companies weighted by market capitalization which includes the Company.

[C/R/CHART]

- -------------------------------------------------------------------------------------
9/91 9/92 9/93 9/94 9/95 9/96
- -------------------------------------------------------------------------------------

BAY STATE GAS COMPANY $100 $122 $145 $134 $138 $161
S&P 500 INDEX $100 $111 $125 $130 $168 $202
EDWARDJONES GAS DISTRIBUTION INDEX $100 $108 $139 $121 $138 $168
- -------------------------------------------------------------------------------------

EdwardJones Gas Distribution Index includes the following companies: AGL
Resources, 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, Mobile Gas Service, New Jersey Resources, NICOR, North Carolina
Natural Gas, Northwest Natural Gas, NUI, Pacific Enterprises, Peoples Energy,
Piedmont Natural Gas, Providence Energy, Public Service of NC, Southern Union,
United Cities Gas, Washington Energy, Washington Gas Light, and Yankee Energy
System.

9
12

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, 1994, 1995 and 1996.

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) ($)(b) ($) ($)(c)
- --------------------------------------------------------------------------------------------------

Roger A. Young 1996 307,733 (d) 2,259 -- 17,854(e)
Chairman of the Board & 1995 273,099 88,416 770 -- 9,989
Chief Executive Officer 1994 255,750 69,623 1,470 -- 16,266

Joel L. Singer 1996 217,500 20,000(f)(d) 19 -- 1,237(g)
President & Chief 1995 -- -- -- -- --
Operating Officer 1994 -- -- -- -- --

Thomas W. Sherman 1996 167,875 (d) 1,004 -- 10,716(h)
Executive Vice 1995 161,425 31,663 480 -- 7,047
President, Treasurer & 1994 155,200 30,647 964 -- 9,022
Chief Financial Officer

Dwight G. Curley 1996 151,325 (d) 866 -- 6,180(i)
Senior Vice President 1995 144,225 29,684 319 -- 4,798
1994 137,100 28,731 606 -- 4,077

James A. Burke 1996 127,500 (d) 522 -- 6,162(j)
Vice President 1995 122,175 14,441 273 -- 4,546
1994 116,425 26,355 713 -- 4,782
<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) "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 Compensation Plan ("KEDCP").

(c) "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.

(d) The amount of the 1996 KEICP award, payable in 1997, is not calculable at
this time.

(e) Included for Mr. Young is an employer contribution of $4,620 under the ESP
and above-market interest earned of $13,234.

(f) Indicated amount was paid as a signing bonus upon hire.

(g) Indicated amount for Mr. Singer is a term life insurance premium.

(h) Included for Mr. Sherman is an employer contribution of $3,995 under the
ESP, above-market interest earned of $5,759 and a term life insurance
premium of $962.

10
13

(i) Included for Mr. Curley is an employer contribution of $3,582 under the
ESP, above-market interest earned of $1,696 and a term life insurance
premium of $902.

(j) Included for Mr. Burke is an employer contribution of $3,018 under the ESP,
above-market interest earned of $2,425 and a term life insurance premium of
$719.

OTHER COMPENSATION ARRANGEMENTS

STOCK OPTIONS

Key Employee Stock Option Plan

In 1989 the Company adopted the Key Employee Stock Option Plan ("KESOP") 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. All options granted under the KESOP are presently
exercisable.

The following table provides information with respect to options to
purchase shares of the Company's Common Stock exercised in fiscal 1996 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, 1996. 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 6,000 $ 45,350 108,000 0 $709,500 $0
Joel L. Singer 0 0 0 0 0 0
Thomas W. Sherman 0 0 53,000 0 332,625 0
Dwight G. Curley 21,000 170,188 11,000 0 52,250 0
James A. Burke 1,750 16,406 22,250 0 128,531 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 $26.75 for the Company's Common Stock as quoted by the New
York Stock Exchange on September 30, 1996 times the number of options held.

LONG-TERM COMPENSATION

Key Employee Long-Term Incentive Plan

In 1994 the Company adopted the Key Employee Long-Term Incentive Plan (the
"KELTIP") as an alternative compensation program to replace the KESOP. 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

11
14

in the Company by those employees who are directly responsible for the
management, growth and success of the Company's business.

Performance shares are awarded under the KELTIP upon the recommendation of
the Compensation 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 EdwardJones 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 1999 under the KELTIP for awards of
performance shares granted in fiscal 1996 to the named executive officers in the
Summary Compensation Table.

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

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

Roger A. Young 10,080 10/1/95-9/30/98 5,040 5,040 10,080
Joel L. Singer 7,120 10/1/95-9/30/98 3,560 3,560 7,120
Thomas W. Sherman 3,680 10/1/95-9/30/98 1,840 1,840 3,680
Dwight G. Curley 3,120 10/1/95-9/30/98 1,560 1,560 3,120
James A. Burke 1,680 10/1/95-9/30/98 840 840 1,680

<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.

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

12
15

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 ending with the last day of the calendar year in
which the employee attains or will attain Social Security retirement age) 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 KEICP 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 1996. Messrs. Young, Singer, Sherman, Curley
and Burke have 28, 1, 30, 7 and 25 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

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

13
16

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 1996 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.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers to file reports with the Securities and
Exchange Commission (the "SEC") reflecting their ownership and changes in
ownership of the Company's Common Stock.

During fiscal 1996 the Company notes that Jack E. McGregor, a Director of
the Company, failed to file on a timely basis with the SEC one report on Form 4
reflecting a purchase of Common Stock in an Individual Retirement Account (IRA).
Stephen J. Curran, Controller, failed to file on a timely basis with the SEC one
report on Form 4 reflecting a sale of Common Stock by a minor child. All of the
foregoing transactions in Common Stock, although not reported timely, have since
been duly reported on Form 5.

14
17

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 1997. This will be the fourteenth 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 1998 annual meeting must be received by the Company at
its corporate office in Westborough, Massachusetts, not later than 120 days
prior to December 8, 1997.

By Order of the Board of Directors,

ROGER A. YOUNG
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 23, 1997 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 1996 UPON WRITTEN REQUEST TO ELIZABETH A. FOLEY, DIRECTOR OF
INVESTOR RELATIONS, BAY STATE GAS COMPANY, 300 FRIBERG PARKWAY, WESTBOROUGH,
MASSACHUSETTS 01581.

15
18

DETACH HERE

BAY STATE GAS COMPANY

P THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
R
O
X The undersigned, revoking all previous proxies, hereby appoints ROGER
Y A. YOUNG, JOEL L. SINGER and THOMAS W. SHERMAN, and each of 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 23, 1997, 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
-----------

19
---------------------------------------------------

THIS IS YOUR PROXY.
YOUR VOTE IS IMPORTANT.

Regardless of whether you plan to attend the
Annual Meeting of Common Shareholders, you can be
sure your shares are represented at the Meeting by
promptly returning your proxy (attached below) in
the enclosed envelope. Thank you for your
attention to this important matter.

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

DETACH HERE

[X] Please mark
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, THIS PROXY WILL BE
VOTED FOR ITEM 1.

1. To elect four Directors:

NOMINEES: John H. Larson, George W. Sarney,
Thomas W. Sherman, Charles H. Tenney II

FOR WITHHELD

[ ] [ ]

[ ]
-----------------------------------------
For all nominees except as noted above

MARK HERE MARK HERE
FOR ADDRESS [ ] FOR COMMENDS [ ]
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 or corporations, title or capacity should be
indicated. PLEASE RETURN THIS PROXY PROMPTLY.

Signature: Date: Signature: Date: