PG ENERGY INC.

                (FORMERLY PENNSYLVANIA GAS AND WATER COMPANY)
                          OFFER TO PURCHASE FOR CASH
                   ANY AND ALL OF ITS OUTSTANDING SHARES OF
                       4.10% CUMULATIVE PREFERRED STOCK
                           AT $50.00 NET PER SHARE

       THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY
          TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE OFFER IS EXTENDED.
                                  ------------
   PG Energy Inc., a Pennsylvania corporation formerly known as Pennsylvania Gas
and Water  Company (the  "Company"),  is offering to purchase any and all of its
outstanding shares of 4.10% Cumulative Preferred Stock (the "Shares"), at $50.00
per  Share,  net to the  seller  in cash,  upon the  terms  and  subject  to the
conditions  set forth  herein and in the related  Letter of  Transmittal  (which
together constitute the "Offer").
                                  ------------
   Shares  tendered and purchased by the Company will be entitled to the regular
quarterly  cash  dividend of $1.025 per Share to be paid by the Company on March
15, 1996, to holders of record on March 1, 1996,  regardless of when such tender
is made.  Shares  tendered and  purchased by the Company will not be entitled to
any dividends in respect of any later dividend periods.
                                  ------------
 THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.
   The Offer is, however, subject to certain other conditions. See Section 9.
                                  ------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
  EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
    MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
       INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
                          THE CONTRARY IS UNLAWFUL.
                                  ------------
NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE OFFICERS MAKES ANY
  RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER ALL OR ANY
    SHARES. EACH STOCKHOLDER MUST MAKE HIS OR HER OWN DECISION AS TO
       WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER.
         NO DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF
           ITS AFFILIATES INTENDS TO TENDER SHARES PURSUANT TO THE
             OFFER AS NO SUCH PERSON OWNS ANY SHARES.
                                  ------------
   As of the close of business on March 8, 1996,  the last  trading day prior to
the  commencement  of the Offer,  the bid price of the Shares as reported on the
National  Association  of Securities  Dealers OTC Bulletin  Board was $50.25 per
Share.  Stockholders  are  urged to obtain  current  market  quotations  for the
Shares.  There is  currently  no  established  trading  market  for the  Shares,
excluding  limited and sporadic  quotations.  Stockholders  should note that the
average  weekly  trading  volume of the Shares since  January 1, 1995,  has been
approximately 79 Shares.

   Questions or requests for assistance or for  additional  copies of this Offer
to Purchase,  the Letter of Transmittal  or other tender offer  materials may be
directed to the Information  Agent at the address and telephone number set forth
on the back cover of this Offer to Purchase.
                                
                      THE DEALER MANAGER FOR THE OFFER IS:
                             LEGG MASON WOOD WALKER
                                  INCORPORATED

March 11, 1996


                                  IMPORTANT

   Any  stockholder  desiring  to tender all or any portion of his or her Shares
should  either (1)  complete and sign the Letter of  Transmittal  or a photocopy
thereof in accordance with the  instructions in the Letter of Transmittal,  mail
or deliver it and any other  required  documents to the  Depositary,  and either
deliver the  certificates  for Shares to the Depositary along with the Letter of
Transmittal  or deliver such Shares  pursuant to the  procedure  for  book-entry
transfer  set  forth  under  "Book-Entry  Transfer"  in  Section 6 hereof or (2)
request his or her broker, dealer,  commercial bank, trust company or nominee to
effect the transaction for him or her. A stockholder whose Shares are registered
in the name of a broker, dealer,  commercial bank, trust company or nominee must
contact such broker, dealer,  commercial bank, trust company or nominee if he or
she desires to tender such Shares.  Any stockholder who desires to tender Shares
and whose  certificates  for such Shares are not immediately  available,  or who
cannot comply in a timely manner with the  procedure  for  book-entry  transfer,
should tender such Shares by following the procedures  for  guaranteed  delivery
set forth under "Guaranteed Delivery" in Section 6 hereof.
              
                                  ------------

   NO PERSON HAS BEEN  AUTHORIZED  TO MAKE ANY  RECOMMENDATION  ON BEHALF OF THE
COMPANY AS TO WHETHER  STOCKHOLDERS  SHOULD TENDER SHARES PURSUANT TO THE OFFER.
NO  PERSON  HAS  BEEN  AUTHORIZED  TO  GIVE  ANY  INFORMATION  OR  TO  MAKE  ANY
REPRESENTATIONS  IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED  HEREIN
OR IN THE LETTER OF TRANSMITTAL.  IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION  AND  REPRESENTATIONS  MUST  NOT  BE  RELIED  UPON  AS  HAVING  BEEN
AUTHORIZED BY THE COMPANY. 



                              TABLE OF CONTENTS



SECTION                                                                                   PAGE
- - - - - -------                                                                                   -----
                                                                                         
SUMMARY...................................................................................  i

INTRODUCTION..............................................................................  1

SPECIAL FACTORS...........................................................................  1

  1. Purpose of the Offer; Certain Effects of the Offer; Plans of the Company After the
     Offer................................................................................  1
 
  2. Certain Federal Income Tax Consequences..............................................  3

  3. Fairness of the Offer; Reports and Opinions..........................................  7
 
  4. Certain Legal Matters; Regulatory and Foreign Approvals; No Appraisal Rights.........  8

THE OFFER.................................................................................  8
 
  5. Number of Shares; Expiration Date; Extension of the Offer............................  8

  6. Procedure for Tendering Shares.......................................................  9

  7. Withdrawal Rights....................................................................  10

  8. Acceptance for Payment of Shares and Payment of Purchase Price.......................  11

  9. Certain Conditions of the Offer......................................................  11

 10. Price Range of Shares; Dividends; Trading Volume.....................................  13

 11. Certain Information Concerning the Company...........................................  14

 12. Source and Amount of Funds...........................................................  21

 13. Transactions and Agreements Concerning the Shares and Other Securities of the
     Company..............................................................................  21
 
 14. Extension of Tender Period; Termination; Amendments..................................  22
 
 15. Fees and Expenses....................................................................  23
 
 16. Miscellaneous........................................................................  24
 
     Directors and Executive Officers of the Company......................................  Schedule A
  
     Interest in Preferred Stock of the Company...........................................  Schedule B
  
     Purchases of Preferred Stock of the Company by the Company or its Affiliates Since
     January 1, 1994......................................................................  Schedule C




                                   SUMMARY


   This general  summary is provided  solely for the  convenience  of holders of
Shares and is qualified in its entirety by reference to the full text of and the
more specific details contained in this Offer to Purchase and the related Letter
of Transmittal and any amendments hereto and thereto.  Capitalized terms used in
this summary without definition shall have the meaning ascribed to such terms in
the Offer to Purchase. 



                            
The Company .................  PG Energy Inc.(formerly known as Pennsylvania Gas
                               and Water Company)

The Shares ..................  Shares of the Company's 4.10% Cumulative Preferred
                               Stock, par value $100.00 per share, voluntary 
                               liquidation preference $105.50 per share,
                               involuntary liquidation preference $100.00 per share.

Number of Shares Sought  ....  100,000 (all of the Shares outstanding).

Purchase Price ..............  $50.00 per Share, net to the seller in cash.

How to Tender Shares ........  Monday, April 8, 1996, at 5:00 p.m., New York 
                               City time, unless extended by the Company.
                              
How to Tender Shares ........  See Section 6. For further information, call the
                               Information Agent or consult your broker for assistance.
                             
Withdrawal Rights ...........  Tendered Shares may be withdrawn at any time until
                               the Expiration Date of the Offer and, unless 
                               previously purchased, after May 3, 1996. See
                               Section 7.
                             
Market Price of Shares  .....  On March 8, 1996,  the bid price of the Shares on 
                               the National Association  of Securities  Dealers 
                               OTC Bulletin Board was $50.25 per Share. See Section 10.
                              
Dividends ...................  Shares tendered and purchased by the Company will
                               be  entitled  to  the  regular   quarterly   cash
                               dividend  of  $1.025  per Share to be paid by the
                               Company on March 15,  1996,  to holders of record
                               on March 1, 1996,  regardless of when such tender
                               is made.  Shares  tendered  and  purchased by the
                               Company will not be entitled to any  dividends in
                               respect of any later dividend periods. See Section 10.
                               
Purpose of Offer ............  The  Company  is  making  the Offer as one of the
                               recapitalizations  being undertaken in connection
                               with  the  sale  on  February  16,  1996,  by the
                               Company and Pennsylvania  Enterprises,  Inc., the
                               owner of all of the Company's  common  stock,  of
                               the  Company's  regulated  water  operations  and
                               certain  related  assets  (the "Sale of the Water
                               Business").  The Company  believes that the Offer
                               and  the  other  recapitalizations  will  have  a
                               positive  effect on the  Company's  financial and
                               capital  ratios and credit  rating.  In addition,
                               the  repurchase  of Shares  pursuant to the Offer
                               will adjust the Company's  capital structure to a
                               level more  appropriate to the size and nature of
                               its operations after the Sale of the Water 
                               Business. See Section 1.


                                        i


Certain Effects of Offer  ...  The Company's  purchase of Shares pursuant to the
                               Offer will reduce the number of holders of Shares
                               and the  number of Shares  that  might  otherwise
                               trade publicly,  and depending upon the number of
                               Shares so purchased,  could adversely  affect the
                               liquidity  and  market  value  of  the  remaining
                               Shares  held  by the  public  although  there  is
                               currently no  established  trading market for the
                               Shares, excluding limited and sporadic quotations.

Brokerage Commissions .......  Not payable by stockholders.

Stock Transfer Tax ..........  None, except as provided in Instruction 6 of the 
                               Letter of Transmittal.

Payment Date ................  As promptly as practicable after the Expiration 
                               Date of the Offer.
                               
Further Information .........  Any questions, requests for  assistance  or
                               requests for  additional  copies of this Offer to
                               Purchase,  the  Letter  of  Transmittal  or other
                               tender  offer  materials  may be directed to D.F.
                               King & Co., Inc., 77 Water Street,  New York, New
                               York 10005, Tel: (800) 714-3313 (toll free).


                                        ii


To the Holders of 4.10% Cumulative Preferred Stock of
 PG Energy Inc.:


                                 INTRODUCTION

   PG Energy Inc., a Pennsylvania corporation formerly known as Pennsylvania Gas
and Water  Company (the  "Company"),  is offering to purchase any and all of its
outstanding  shares of 4.10%  Cumulative  Preferred Stock, par value $100.00 per
share,   voluntary  liquidation   preference  $105.50  per  share,   involuntary
liquidation  preference  $100.00 per share (the  "Shares"),  at $50.00 per Share
(the "Purchase Price"), net to the seller in cash, upon the terms and subject to
the conditions set forth herein and in the related Letter of Transmittal  (which
together constitute the "Offer"). 

   THE  OFFER IS NOT  CONDITIONED  UPON  ANY  MINIMUM  NUMBER  OF  SHARES  BEING
TENDERED.  THE OFFER IS,  HOWEVER,  SUBJECT TO  CERTAIN  OTHER  CONDITIONS.  SEE
SECTION 9.

   Tendering  stockholders  will not be obligated to pay brokerage  commissions,
solicitation  fees or,  subject to  Instruction 6 of the Letter of  Transmittal,
stock transfer taxes on the purchase of Shares by the Company.  The Company will
pay all  charges  and  expenses  of Legg Mason Wood  Walker,  Incorporated  (the
"Dealer   Manager"),   Chemical  Mellon   Shareholder   Services,   L.L.C.  (the
"Depositary")  and D.F. King & Co., Inc. (the  "Information  Agent") incurred in
connection with the Offer. See Section 15. However, any tendering stockholder or
other  payee  who fails to  complete  and sign the  Substitute  Form W-9 that is
included  in the Letter of  Transmittal  may be  subject  to a required  federal
income  tax  backup  withholding  of 31% of the gross  payments  payable to such
stockholder or other payee pursuant to the Offer. See Sections 2 and 6.

   NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE  OFFICERS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TOTENDER ALL OR ANY SHARES. EACH
STOCKHOLDER  MUST MAKE HIS OR HER OWN  DECISION  AS TO WHETHER TO TENDER  SHARES
AND, IF SO, HOW MANY SHARES TO TENDER.  THE  COMPANY  HAS BEEN  ADVISED  THAT NO
DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF ITS AFFILIATES INTENDS TO
TENDER SHARES PURSUANT TO THE OFFER AS NO SUCH PERSON OWNS ANY SHARES.

   As of March 11, 1996, the Company had issued and outstanding  100,000 Shares.
As of March 7, 1996, there were approximately 700 holders of record of Shares.

   The bid price of the  Shares  is  reported  on the  National  Association  of
Securities  Dealers OTC Bulletin Board (the "NASD OTC Bulletin Board") under the
symbol "PGWCP".  See Section 10. Stockholders are urged to obtain current market
quotations for the Shares. There is currently  noestablished  trading market for
the Shares, excluding limited and sporadic quotations.  Stockholders should note
that the average  weekly trading volume of the Shares since January 1, 1995, has
been approximately 79 Shares.

                               SPECIAL FACTORS

   1. PURPOSE OF THE OFFER;  CERTAIN EFFECTS OF THE OFFER;  PLANS OF THE COMPANY
AFTER THE OFFER.

   The Offer is one of the recapitalizations being undertaken in connection with
the sale on February 16, 1996, by the Company and Pennsylvania Enterprises, Inc.
("PEI"),  the  owner of all of the  Company's  common  stock,  of the  Company's
regulated  water  operations and certain  related assets (the "Sale of the Water
Business") to Pennsylvania-American  Water Company, a wholly-owned subsidiary of
American Water Works Company, Inc. See "The Offer-Certain Information Concerning
the Company-Summary Unaudited Pro Forma Financial Information" in Section 11 for
a  description  of the other  recapitalizations.  The Company  believes that the
Offer  and the  other  recapitalizations  will  have a  positive  effect  on the
Company's financial and capital ratios and credit rating. In addition, the 


repurchase  of Shares  pursuant to the Offer will adjust the  Company's  capital
structure to a level more  appropriate  to the size and nature of its operations
after  the  Sale of the  Water  Business.  See  "The  Offer-Certain  Information
Concerning the  Company-Summary  Unaudited Pro Forma  Financial  Information" in
Section 11 for a pro forma  presentation  of the financial  effect of the Offer.
Finally,  the Offer will enable the Company to reduce its dividend  requirements
and annual administrative  expenses in connection with servicing the accounts of
holders of the Shares. If the Company  repurchases 90% of the outstanding Shares
pursuant to the Offer,  it will  reduce its  dividend  requirements  by $369,000
annually.  The Board of Directors of the Company has  authorized  the Offer by a
unanimous vote. Nine of the eleven directors are not employees of the Company.

   Following the  consummation of the Offer,  the business and operations of the
Company  will be continued by the Company  substantially  as they are  currently
being  conducted.  Except  as  disclosed  in the Offer  (see "The  Offer-Certain
Information  Concerning  the  Company-Summary   Unaudited  Pro  Forma  Financial
Information"  in Section 11 for a description  of the other  recapitalizations),
the Company has no plans or  proposals  which  relate to or would result in: (a)
the  acquisition  by any person of  additional  securities of the Company or the
disposition  of  securities  of  the  Company;  (b) an  extraordinary  corporate
transaction,  such as a merger,  reorganization  or  liquidation,  involving the
Company or any of its subsidiaries;  (c) a sale or transfer of a material amount
of assets  of the  Company  or any of its  subsidiaries;  (d) any  change in the
present Board of Directors or management of the Company; (e) any material change
in the present dividend rate or policy, or indebtedness or capitalization of the
Company;  (f) any other material change in the Company's  corporate structure or
business;  or (g) any change in the Company's Restated Articles of Incorporation
or Bylaws or any  actions  which may  impede the  acquisition  of control of the
Company by any person.

   The Company's purchase of Shares pursuant to the Offer will reduce the number
of  holders  of Shares  and the  number of Shares  that  might  otherwise  trade
publicly, and depending upon the number of Shares so purchased,  could adversely
affect the liquidity and market value of the remaining Shares held by the public
although  there is  currently  no  established  trading  market for the  Shares,
excluding limited and sporadic  quotations.  The extent of the public market for
the Shares and the availability of such quotations would,  however,  depend upon
such factors as the number of stockholders  remaining at such time, the interest
in  maintaining  a market in the  Shares on the part of  securities  firms,  the
possible  termination of registration under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as described below, and other factors.

   The Shares are currently  registered under the Exchange Act.  Registration of
the Shares under the  Exchange Act may be  terminated  upon  application  of the
Company to the  Securities and Exchange  Commission  (the  "Commission")  if the
Shares are held by fewer than 300 holders of record. Termination of registration
of the Shares under the Exchange Act would substantially  reduce the information
required to be furnished by the Company to holders of the Shares  (although  the
Company  would,  among other  things,  remain for the time being  subject to the
reporting  obligations  under  the  Exchange  Act as a  result  of  other of its
outstanding  securities) and would make certain  provisions of the Exchange Act,
such as the  requirements  of Rule  13e-3  thereunder  with  respect  to  "going
private" transactions, no longer applicable in respect of the Shares.

   If the aggregate purchase price of Shares purchased pursuant to the Offer and
related  costs  (together  with the net  reduction  in  consolidated  net  worth
associated with the other  recapitalizations being undertaken in connection with
the Sale of the Water  Business)  exceeds  approximately  $53.0  million,  PEI's
consolidated  net worth,  based on its consolidated net worth as of December 31,
1995,  would fall below the $110.0  million  that PEI is required to maintain by
the Indenture,  dated as of June 15, 1992, as  supplemented  (the  "Indenture"),
relating to its 10.125%  Senior  Notes due June 15, 1999 (the  "Senior  Notes").
Failure  to  maintain  this  minimum  net  worth  at the end of two  consecutive
quarters will  constitute an "Event of Default"  under the Indenture if PEI does
not cure such  failure  within 60 days after  receipt of notice from the trustee
under the  Indenture or from holders of at least 25% in principal  amount of the
outstanding  Senior Notes. If an Event of Default  occurs,  the trustee may, and
the trustee  shall upon the request of the holders of at least 25% in  principal
amount of the outstanding Senior Notes, declare the principal of and accrued and
unpaid interest to the date of 

                                        2

acceleration on the Senior Notes due and payable. Before the failure to maintain
the minimum net worth becomes an "Event of Default",  PEI intends to elect to be
released  from certain  provisions  of the  Indenture  ("covenant  defeasance"),
including the covenant to maintain such minimum net worth,  so that any omission
to comply with such covenant will not constitute an Event of Default.  To effect
covenant  defeasance,  PEI must make an irrevocable deposit with the trustee, in
trust for such purpose, of money and/or U.S. Government  Obligations (as defined
in the  Indenture)  which  through  the  payment of  principal  and  interest in
accordance  with their terms will provide  money in an amount  sufficient to pay
the principal of and interest on the Senior Notes to the date for  redemption of
the Senior Notes (June 15, 1997) plus 91 days (or, under certain  circumstances,
such  longer  period  as  may be  determined)  during  which  no  bankruptcy  or
insolvency  petition  shall  have  been  filed by or  against  PEI.  Part of the
proceeds from the Sale of the Water Business were used by the Company to pay PEI
a one-time  special  dividend on February 16, 1996, in the form of a $30 million
unsecured  promissory  note. The full $30 million  principal amount of this note
was paid on March 8, 1996,  and the funds  therefrom,  along  with  other  funds
provided  by PEI,  will be used by PEI to make  the  required  deposit  with the
trustee.  See "The  Offer-Certain  Information  Concerning  the  Company-Summary
Unaudited Pro Forma Financial Information" in Section 11. 

   The Shares are  redeemable by the Company at any time or from time to time at
a price per Share of $105.50,  plus all accrued and unpaid dividends to the date
of  redemption.  The Offer does not  constitute  a notice of  redemption  of the
Shares pursuant to the Company's Restated Articles of Incorporation, as amended,
and  owners of Shares  are not under any  obligation  to accept  the Offer or to
remit their Shares to the Company  pursuant to the Offer.  The Company  reserves
the right to redeem Shares not purchased  pursuant to the Offer at any time. The
Shares  have no  preemptive  or  conversion  rights and are not  entitled to any
sinking  fund or  similar  fund.  In the event of (i) a  voluntary  liquidation,
dissolution or winding up of the Company,  holders of the Shares are entitled to
a  liquidation  preference  of  $105.50  per  Share,  and  (ii)  an  involuntary
liquidation, dissolution or winding up of the Company, holders of the Shares are
entitled to a liquidation  preference of $100.00 per Share,  in each case,  plus
all accrued and unpaid  dividends  thereon to the date of payment,  prior to the
payment of any amounts to any holder of the Company's common stock.

   Following  the  expiration  of the  Offer,  the  Company  may,  in  its  sole
discretion,  determine  to  purchase  any  remaining  Shares  through  privately
negotiated  transactions,  open market purchases or otherwise, on such terms and
at such  prices as the  Company may  determine  from time to time,  the terms of
which purchases or offers could differ from those of the Offer,  except that the
Company will not make any such  purchases of Shares until the  expiration of ten
business days after the termination of the Offer.  Any possible future purchases
of Shares by the Company will depend on many factors, including the market price
of the Shares,  the  Company's  business  and  financial  position,  alternative
investment  opportunities available to the Company, the results of the Offer and
general economic and market conditions.

   All  Shares   purchased  by  the  Company  pursuant  to  the  Offer  will  be
reclassified  to the status of authorized  but unissued  shares of the Company's
preferred stock.

   NEITHER THE COMPANY NOR ANY OF ITS DIRECTORS OR EXECUTIVE  OFFICERS MAKES ANY
RECOMMENDATION  TO ANY  STOCKHOLDER  AS TO WHETHER TO TENDER ALL OR ANY  SHARES.
EACH  STOCKHOLDER  MUST MAKE HIS OR HER OWN  DECISION  AS TO  WHETHER  TO TENDER
SHARES AND, IF SO, HOW MANY SHARES TO TENDER.  THE COMPANY HAS BEEN ADVISED THAT
NO DIRECTOR OR EXECUTIVE OFFICER OF THE COMPANY OR ANY OF ITS AFFILIATES INTENDS
TO TENDER SHARES PURSUANT TO THE OFFER AS NO SUCH PERSON OWNS ANY SHARES.


2. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.

   In General.  The following summary is a general  discussion of certain United
States federal income tax consequences  relating to the Offer. This summary does
not discuss any aspects of state, local,  foreign or other tax laws. The summary
is based on the Internal  Revenue Code of 1986,  as amended  (the  "Code"),  and
existing final, temporary and proposed Treasury Regulations, Revenue Rulings and


                                        3

judicial  decisions,  all of which are subject to  prospective  and  retroactive
changes.  The summary  deals only with Shares held as capital  assets within the
meaning of Section 1221 of the Code and does not address tax  consequences  that
may be  relevant  to  investors  in  special  tax  situations,  such as  certain
financial institutions,  tax-exempt organizations,  insurance companies, dealers
in securities or  currencies,  or  stockholders  holding the Shares as part of a
hedge or hedging  transaction  or as a position in a straddle for tax  purposes.
The Company will not seek a ruling from the Internal Revenue Service (the "IRS")
with regard to the tax matters  discussed below.  Accordingly,  each stockholder
should consult its own tax advisor with regard to the Offer and the  application
of United  States  federal  income  tax laws,  as well as the laws of any state,
local or foreign taxing jurisdiction, to its particular situation.

   Characterization  of the  Sale.  A sale of  Shares  by a  stockholder  of the
Company  pursuant to the Offer will be a taxable  transaction  for United States
federal  income  tax  purposes  and may  also  be a  taxable  transaction  under
applicable  state,  local and foreign tax laws. The United States federal income
tax  consequences  to a stockholder  may vary depending  upon the  stockholder's
particular  facts and  circumstances.  Under  Section 302 of the Code, a sale of
Shares by a stockholder to the Company  pursuant to the Offer will be treated as
a "sale or  exchange"  of such  Shares  for  United  States  federal  income tax
purposes  (rather  than as a  distribution  by the Company  with  respect to the
Shares held by the tendering  stockholder) if the receipt of cash upon such sale
(i) results in a "complete  termination"  of the  stockholder's  interest in the
Company, (ii) is "not essentially  equivalent to a dividend" with respect to the
stockholder, or (iii) in the case of a noncorporate stockholder,  qualifies as a
distribution in "partial liquidation" of the Company.  These tests (the "Section
302  tests") are  explained  more fully  below.  A sale of Shares by a tendering
stockholder to the Company  pursuant to the Offer should be treated as a sale or
exchange of such Shares for United States  federal  income tax purposes,  absent
other integrated purchase transactions. See "Section 302 Tests," below.

   If any of the Section 302 tests is  satisfied,  and the sale of the Shares is
therefore  treated as a "sale or  exchange"  of such  Shares  for United  States
federal income tax purposes,  the tendering  stockholder will recognize  capital
gain or loss equal to the difference  between the amount of cash received by the
stockholder  pursuant to the Offer and the stockholder's tax basis in the Shares
sold pursuant to the Offer. Any such gain or loss will be long-term capital gain
or loss if the Shares have been held for more than one year.

   If none of the Section 302 tests is satisfied and the Company has  sufficient
current and accumulated earnings and profits, the tendering  stockholder will be
treated as having  received a dividend  includible  in gross income in an amount
equal to the entire amount of cash received by the  stockholder  pursuant to the
Offer  (without  reduction  for the tax basis of the Shares sold pursuant to the
Offer), no loss will be recognized, and (subject to reduction as described below
for corporate  stockholders eligible for the  dividends-received  deduction) the
tendering  stockholder's  basis in the Shares sold pursuant to the Offer will be
added to such stockholder's  basis in its remaining Shares, if any. No assurance
can be given  that any of the  Section  302 tests  will be  satisfied  as to any
particular  stockholder,  and thus no assurance can be given that any particular
stockholder  will not be  treated  as having  received  a  dividend  taxable  as
ordinary income.  If the sale of Shares is not treated as a sale or exchange for
federal income tax purposes,  any cash received for Shares pursuant to the Offer
in excess of the  Company's  earnings and profits will be treated,  first,  as a
nontaxable return of capital to the extent of the  stockholder's  basis for such
stockholder's Shares, and, thereafter, as capital gain, to the extent it exceeds
such basis. 

   Constructive  Ownership of Stock.  In determining  whether any of the Section
302 tests is satisfied,  stockholders must take into account not only the Shares
which  are  actually  owned  by the  stockholder,  but  also  Shares  which  are
constructively owned by the stockholder within the meaning of Section 318 of the
Code. Under Section 318 of the Code, a stockholder may constructively own Shares
actually  owned,  and in some cases  constructively  owned,  by certain  related
individuals  or entities in which the  stockholder  has an interest,  or, in the
case of stockholders that are entities,  by certain individuals or entities that
have an interest in the  stockholder,  and Shares which the  stockholder has the
right to  acquire by  exercise  of an option or by  conversion.  Contemporaneous
dispositions or acquisitions of

                                4


Shares by a stockholder  or related  individuals or entities may be deemed to be
part of a single  integrated  transaction  which will be taken  into  account in
determining whether any of the Section 302 tests has been satisfied.

   Section 302 Tests.  One of the following tests must be satisfied in order for
the sale of Shares pursuant to the Offer to be treated as a sale or exchange for
federal income tax purposes.

      a. Complete Termination Test. The receipt of cash by a stockholder will be
   a "complete  termination" of the stockholder's  interest if either (i) all of
   the Shares  actually and  constructively  owned by the  stockholder  are sold
   pursuant  to the  Offer,  or (ii)  all of the  Shares  actually  owned by the
   stockholder  are sold  pursuant to the Offer and,  with respect to the Shares
   constructively  owned by the  stockholder  which are not sold pursuant to the
   Offer,  the  stockholder  is  eligible  to  waive  (and  effectively  waives)
   constructive  ownership  of all such Shares  under  procedures  described  in
   Section  302(c) of the Code.  Stockholders  considering  making such a waiver
   should do so in consultation with their tax advisors.

      b. Not  Essentially  Equivalent to a Dividend Test. Even if the receipt of
   cash by a stockholder fails to satisfy the "complete termination" test or the
   "partial  liquidation" test, a stockholder may nevertheless  satisfy the "not
   essentially  equivalent  to a  dividend"  test if the  stockholder's  sale of
   Shares  pursuant  to the Offer  results in a  "meaningful  reduction"  in the
   stockholder's  proportionate  interest in the Company.  The sale of Shares to
   the Company by a tendering  stockholder  should  qualify as "not  essentially
   equivalent to a dividend,"  absent other  integrated  purchase  transactions.
   Stockholders  expecting  to  rely on the  "not  essentially  equivalent  to a
   dividend" test should consult their own tax advisors as to its application in
   their particular situation.

      c. Partial  Liquidation  Test. A sale of Shares pursuant to the Offer will
   be treated as a sale or exchange for federal income tax purposes if such sale
   is (i) a redemption of Shares from a stockholder  that is not a  corporation,
   and (ii) in  partial  liquidation  of the  Company.  To  determine  whether a
   stockholder  is  a  corporation  for  these   purposes,   shares  held  by  a
   partnership,  trust or estate are treated as if owned  proportionately by the
   partners  or   beneficiaries.   A  distribution  is  treated  as  in  partial
   liquidation  of  a  corporation  if  the   distribution  is  not  essentially
   equivalent  to a dividend (as  determined  at the  corporate  rather than the
   stockholder  level) and the  distribution  is  pursuant  to a plan and occurs
   within the taxable year in which the plan is adopted or within the succeeding
   taxable year. A distribution is not  essentially  equivalent to a dividend at
   the  corporate   level  for  these  purposes  if  (A)  the   distribution  is
   attributable  to the  corporation's  ceasing to  conduct a trade or  business
   which was actively  conducted  for the previous  five years and which was not
   acquired by the distributing corporation in a taxable transaction during such
   five year period (a "qualified trade or business"),  and (B) the distributing
   corporation  is actively  involved  in the  conduct of a  qualified  trade or
   business  immediately after the distribution.  The Company actively conducted
   the water business for more than five years,  and,  subsequent to the Sale of
   the Water Business,  the Company has continued to be actively  engaged in the
   conduct  of a  qualified  trade or  business.  Thus,  the  Sale of the  Water
   Business and the Offer will likely  constitute a partial  liquidation  of the
   Company.

   Corporate  Stockholder  Dividend  Treatment.  Under current law, if a sale of
Shares by a  corporate  stockholder  is treated  as a  dividend,  the  corporate
stockholder  may be  entitled  to claim a  deduction  equal to a portion  of the
dividend,  subject to applicable  limitations.  Since the Shares are  "preferred
stock" within the meaning of Section  247(b)(2) of the Code,  the amount of such
deduction  under  Section 244 of the Code will  generally be equal to 42% of the
dividend,  based  on the  current  maximum  corporate  income  tax  rate of 35%.
Corporate stockholders should consider the effect of Section 246(c) of the Code,
which disallows the  dividends-received  deduction with respect to stock that is
held for 45 days or less (90 days or less, in the case of preferred stock if the
stockholder receives dividends attributable to a period aggregating in excess of
366 days).  For this  purpose,  the length of time a taxpayer  is deemed to have
held stock may be reduced by periods  during which the  taxpayer's  risk of loss
with respect to the stock is  diminished  by reason of the  existence of certain
options or other  transactions.  Moreover,  under Section 246A of the Code, if a
corporate  stockholder  has incurred  indebtedness  directly  attributable to an
investment in Shares, the dividends-received deduction may be 

                                5

reduced  by a  percentage  generally  computed  based  on  the  amount  of  such
indebtedness and the total adjusted tax basis in the Shares.

   In addition, because it is expected that the redemption of Shares will not be
pro rata with respect to all  stockholders,  any amount  received by a corporate
stockholder  pursuant  to the Offer that is treated  as a dividend  will  likely
constitute an "extraordinary dividend" under Section 1059 of the Code (except as
may otherwise be provided in  regulations  yet to be promulgated by the Treasury
Department).  A  redemption  which  is  part  of a  partial  liquidation  of the
redeeming company will also constitute an "extraordinary dividend" under Section
1059 (in the absence of such regulations).  A corporate stockholder receiving an
"extraordinary  dividend" would be required under Section 1059(a) of the Code to
reduce its basis (but not below zero) in its Shares by the non-taxed  portion of
the  extraordinary  dividend  (i.e.,  the  portion of the  dividend  for which a
deduction is allowed),  and, if such portion exceeds the stockholder's tax basis
for its Shares,  to treat the excess as gain from the sale of such Shares in the
year in which a sale or disposition of such Shares occurs.  The basis  reduction
rules of Section 1059 also generally apply to dividends which exceed a threshold
percentage of a  stockholder's  basis in its stock,  unless the  stockholder has
held its  stock for more than two years  before  the  announcement  date of such
dividend.  For purposes of applying  Section 1059,  all dividends  received by a
stockholder and having their ex-dividend dates within an 85-day period (expanded
to a 365-day  period,  in the case of dividends  received in such period that in
the aggregate exceed 20% of the stockholder's  adjusted tax basis in the Shares)
are aggregated.  Corporate stockholders should consult their own tax advisors as
to the  application  of  Section  1059  of the  Code  to the  Offer,  and to any
dividends which may be paid with respect to the Shares, as well as the effect of
pending legislation discussed below. 

   Foreign Stockholders.  The Company will withhold United States federal income
tax at a rate of 30% from the gross  proceeds  paid  pursuant  to the Offer to a
foreign  stockholder or his agent,  unless the Company determines that a reduced
rate of withholding is applicable  pursuant to a tax treaty or that an exemption
from  withholding  is  applicable  because such gross  proceeds are  effectively
connected  with the conduct of a trade or  business  by the foreign  stockholder
within  the  United  States.  For this  purpose,  a foreign  stockholder  is any
stockholder  that is not (i) a citizen or resident of the United States,  (ii) a
corporation,  partnership  or other entity  created or organized in or under the
laws of the United States or any  political  subdivision  thereof,  or (iii) any
estate or trust the income of which is subject to United States  federal  income
taxation regardless of its source.

   Generally,  the  determination  of whether a reduced rate of  withholding  is
applicable  is made by  reference  to a foreign  stockholder's  address  or to a
properly completed Form 1001 furnished by the stockholder, and the determination
of whether an exemption from  withholding is available on the grounds that gross
proceeds paid to a foreign  stockholder are effectively  connected with a United
States trade or business is made on the basis of a properly  completed Form 4224
furnished by the stockholder. The Company will determine a foreign stockholder's
eligibility for a reduced rate of, or exemption  from,  withholding by reference
to the stockholder's address and any Forms 1001 or 4224 submitted to the Company
by a foreign  stockholder  unless  facts and  circumstances  indicate  that such
reliance is not  warranted or unless  applicable  law requires some other method
for determining whether a reduced rate of withholding is applicable. These forms
can be obtained from the Company. 

   A foreign  stockholder  with  respect  to whom tax has been  withheld  may be
eligible  to  obtain a refund  of all or a portion  of the  withheld  tax if the
stockholder satisfied one of the Section 302 tests for capital gain treatment or
is otherwise  able to establish  that no tax or a reduced amount of tax was due.
Foreign  stockholders are urged to consult their own tax advisors  regarding the
application  of  United  States  federal  income  tax   withholding,   including
eligibility  for a  withholding  tax  reduction  or  exemption  and  the  refund
procedure.

   Backup Withholding. See Section 6 with respect to the application of
United States federal income tax backup withholding.

   Legislative Proposals.

   (a) Capital  Gains:  The  Revenue  Reconciliation  Act of 1995,  as passed by
Congress  and vetoed by the  President,  includes a reduction  in the tax on net
long-term capital gains for both individuals and  corporations.  Under the bill,
individual taxpayers would be permitted a deduction for 50% of net


                                6


capital  gains  (i.e.,  the  excess  of net  long-term  capital  gains  over net
short-term capital losses). In addition, the deduction for net long-term capital
losses could not exceed 50% of the excess of net long-term  capital  losses over
net  short-term  capital gains.  Corporations  would be subject to a maximum tax
rate of 28% on their  net  capital  gains.  These  reductions  in the  effective
capital gains tax rates  generally  would have been  effective for  transactions
occurring after 1994. It is uncertain  whether  capital gains relief  ultimately
will be adopted  and,  if  adopted,  what form such relief will take or what the
effective date will be.

   (b) Corporate Dividends-Received Deduction: The Revenue Reconciliation Act of
1995,  as passed by Congress and vetoed by the  President,  and the  President's
budget  proposal  would  amend  Section  1059 of the Code to  require  corporate
stockholders to recognize gain immediately  whenever the non-taxed portion of an
extraordinary  dividend  exceeds  the basis of stock  with  respect to which the
dividend is received. Such legislation would also cause any amount characterized
as a dividend due to the Section 318 option  attribution  rules to be treated as
an  extraordinary  dividend  under  Section  1059 (with the  legislation's  gain
recognition  rule  applied by taking  into  account  only the basis of the stock
redeemed). The legislation generally is proposed to be effective for redemptions
after May 3, 1995. It is uncertain  whether such  proposals will be adopted and,
if adopted, what form such legislation will take.

   In  addition,   the   President's   budget  proposal  (but  not  the  Revenue
Reconciliation   Act  of  1995  as  passed  by   Congress)   would   reduce  the
dividends-received  deduction  under  Section  244 of the  Code  from 42% to 30%
(assuming that the maximum  corporate  income tax rate remains at 35%) and would
require the 46-day  holding period of Section 246(c) of the Code to be satisfied
over a period  immediately  before and/or after the taxpayer becomes entitled to
receive the dividend.  Both of these  provisions  would apply to dividends  paid
after January 31, 1996. 

   The impact of pending  and future  budget and tax  legislation  on the United
States federal tax system,  including possible effects on taxation of the Offer,
is uncertain.  Stockholders  are advised to consult their own tax advisors as to
these matters.

   THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL  INFORMATION ONLY.
THE TAX  CONSEQUENCES  OF A SALE PURSUANT TO THE OFFER MAY VARY DEPENDING  UPON,
AMONG OTHER THINGS, THE PARTICULAR  CIRCUMSTANCES OF THE TENDERING  STOCKHOLDER.
NO  INFORMATION  IS  PROVIDED  HEREIN  AS TO THE  STATE,  LOCAL OR  FOREIGN  TAX
CONSEQUENCES OF THE  TRANSACTION  CONTEMPLATED  BY THE OFFER.  STOCKHOLDERS  ARE
URGED TO CONSULT  THEIR OWN TAX ADVISORS TO DETERMINE  THE  PARTICULAR  FEDERAL,
STATE,  LOCAL AND FOREIGN TAX CONSEQUENCES OF SALES MADE BY THEM PURSUANT TO THE
OFFER, THE EFFECT OF THE STOCK OWNERSHIP  ATTRIBUTION  RULES MENTIONED ABOVE AND
THE EFFECT OF TAX LEGISLATIVE PROPOSALS.


3. FAIRNESS OF THE OFFER; REPORTS AND OPINIONS.

   The  Company  believes  the  Offer is fair to  holders  of  Shares.  There is
currently no established  trading market for the Shares,  excluding  limited and
sporadic  quotations.  The Offer gives holders of Shares the opportunity to sell
substantial amounts of Shares without driving down the bid price. The Offer will
also provide  stockholders with the opportunity to dispose of Shares without the
usual  transaction  costs associated with a market sale including the payment of
brokerage commissions.  Correspondingly,  the costs to the Company for servicing
the accounts of odd lot holders will be reduced.

   Neither the Company nor its Board of Directors  received any report,  opinion
(other than any opinion of counsel it may have  received) or appraisal  which is
materially related to the Offer, including, but not limited to, any such report,
opinion or  appraisal  relating  to the  consideration  or the  fairness  of the
consideration to be offered to the holders of the Shares or the fairness of such
transaction to the Company. A majority of the directors who are not employees of
the Company have not retained an  unaffiliated  representative  to act solely on
behalf of unaffiliated stockholders for the purposes of negotiating the terms of
the transaction. 

                                7


4. CERTAIN LEGAL MATTERS; REGULATORY AND FOREIGN APPROVALS; NO APPRAISAL RIGHTS.

   The Company is not aware of any license or regulatory  permit that appears to
be material to its business that might be adversely  affected by its acquisition
of Shares as contemplated in the Offer or of any approval or other action by any
government or governmental,  administrative  or regulatory  authority or agency,
domestic or foreign,  that would be required for the  Company's  acquisition  or
ownership  of Shares  pursuant to the Offer.  Should any such  approval or other
action be required,  the Company  currently  contemplates that it will seek such
approval or other action.  The Company cannot  predict  whether it may determine
that it is required  to delay the  acceptance  for  payment of, or payment  for,
Shares  tendered  pursuant to the Offer  pending the outcome of any such matter.
There can be no assurance  that any such  approval or other  action,  if needed,
would be obtained or would be obtained  without  substantial  conditions or that
the  failure to obtain any such  approval  or other  action  might not result in
adverse consequences to the Company's business.  The Company intends to make all
required  filings  under the Exchange Act. The  Company's  obligation  under the
Offer to accept for payment,  or make payment for,  Shares is subject to certain
conditions. See Section 9. 

   There is no stockholder vote required in connection with the Offer.

   There are no appraisal  rights  available to holders of Shares in  connection
with the Offer.


                                  THE OFFER

5. NUMBER OF SHARES; EXPIRATION DATE; EXTENSION OF THE OFFER.

   Upon the terms and  subject  to the  conditions  described  herein and in the
Letter of  Transmittal,  the Company  will  purchase any and all Shares that are
validly tendered on or prior to the Expiration Date (and not properly  withdrawn
in accordance with Section 7) at the Purchase Price. The later of 5:00 p.m., New
York City time,  on Monday,  April 8, 1996, or the latest time and date to which
the Offer is extended, is referred to herein as the "Expiration Date". The Offer
is not conditioned on any minimum number of Shares being tendered.

   Shares  tendered and purchased by the Company will be entitled to the regular
quarterly  cash  dividend of $1.025 per Share to be paid by the Company on March
15, 1996, to holders of record on March 1, 1996,  regardless of when such tender
is made.  Shares  tendered and  purchased by the Company will not be entitled to
any dividends in respect of any later dividend periods.

   If (i) the Company  increases or decreases the price to be paid for Shares or
decreases  the number of Shares  being sought and (ii) the Offer is scheduled to
expire at any time earlier than the  expiration  of a period ending on the tenth
business  day from,  and  including,  the date that  notice of such  increase or
decrease is first  published,  sent or given in the manner  described in Section
14, the Offer will be extended  until the  expiration  of ten business days from
the date of publication of such notice.

   The Company also expressly reserves the right, in its sole discretion, at any
time or from time to time,  to extend the period of time during  which the Offer
is open by giving oral or written notice of such extension to the Depositary and
making a public announcement thereof. See Section 14. There can be no assurance,
however, that the Company will exercise its right to extend the Offer.

   For  purposes  of the  Offer,  a  "business  day"  means any day other than a
Saturday,  Sunday or federal  holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.

   Copies of this  Offer to  Purchase  and the Letter of  Transmittal  are being
mailed to record  holders of Shares and will be furnished to brokers,  banks and
similar  persons  whose  names,  or the names of whose  nominees,  appear on the
Company's stockholder list or, if applicable,  who are listed as participants in
a clearing  agency's  security  position  listing for subsequent  transmittal to
beneficial owners of Shares. 

                                        8


6. PROCEDURE FOR TENDERING SHARES.

   Proper  Tender of Shares.  To tender  Shares  validly  pursuant to the Offer,
either (a) a properly  completed  and duly  executed  Letter of  Transmittal  or
photocopy thereof, together with any required signature guarantees and any other
documents  required  by the  Letter  of  Transmittal,  must be  received  by the
Depositary  at one of its addresses set forth on the back cover of this Offer to
Purchase  and either (i)  certificates  for the  Shares to be  tendered  must be
received by the  Depositary at one of such addresses or (ii) such Shares must be
delivered  pursuant to the procedures for book-entry  transfer  described  below
(and a confirmation of such delivery  received by the Depositary),  in each case
on or prior to the Expiration  Date, or (b) the tendering  holder of Shares must
comply with the guaranteed delivery procedure described below.

   Book-Entry Transfer. The Depositary will establish an account with respect to
the Shares at The Depository Trust Company and the Philadelphia Depository Trust
Company  (collectively  referred to as the "Book-Entry Transfer Facilities") for
purposes of the Offer within two  business  days after the date of this Offer to
Purchase,  and any financial  institution that is a participant in the system of
any  Book-Entry  Transfer  Facility may make  delivery of Shares by causing such
Book-Entry  Transfer  Facility  to transfer  such  Shares into the  Depositary's
account in accordance with the procedures of such Book-Entry  Transfer Facility.
Although  delivery  of Shares may be effected  through  book-entry  transfer,  a
properly completed and duly executed Letter of Transmittal or photocopy thereof,
together  with  any  required  signature   guarantees  and  any  other  required
documents,  must,  in any case,  be  received  by the  Depositary  at one of its
addresses  set forth on the back cover of this Offer to  Purchase on or prior to
the  Expiration  Date,  or the  tendering  holder of Shares must comply with the
guaranteed  delivery  procedure  described  below.  Delivery  of the  Letter  of
Transmittal and any other required  documents to a Book-Entry  Transfer Facility
does not constitute delivery to the Depositary.

   Signature Guarantees. Except as otherwise provided below, all signatures on a
Letter  of  Transmittal  must be  guaranteed  by a firm  that is a  member  of a
registered  national   securities  exchange  or  the  National   Association  of
Securities  Dealers,  Inc., or by a commercial  bank or trust company  having an
office or  correspondent  in the  United  States  which is a  participant  in an
approved  Signature  Guarantee  Medallion  Program (each of the foregoing  being
referred to as an "Eligible Institution"). Signatures on a Letter of Transmittal
need not be  guaranteed  if (a) the  Letter  of  Transmittal  is  signed  by the
registered  holder of the  Shares  tendered  therewith  and such  holder has not
completed the box entitled  "Special  Payment  Instructions" or the box entitled
"Special Delivery  Instructions" in the Letter of Transmittal or (b) such Shares
are tendered for the account of an Eligible Institution.  See Instructions 1 and
5 of the Letter of Transmittal.

   Guaranteed  Delivery.  If a stockholder  desires to tender Shares pursuant to
the Offer and cannot deliver certificates for such Shares and all other required
documents to the Depositary on or prior to the Expiration  Date or the procedure
for book-entry  transfer cannot be complied within a timely manner,  such Shares
may nevertheless be tendered if all of the following conditions are met: 

      (i) such tender is made by or through an Eligible Institution;

      (ii) a properly completed and duly executed Notice of Guaranteed  Delivery
   substantially  in  the  form  provided  by the  Company  (with  any  required
   signature  guarantees)  is received by the Depositary as provided below on or
   prior to the Expiration Date; and

      (iii) the  certificates for such Shares (or a confirmation of a book-entry
   transfer  of  such  Shares  into  the  Depositary's  account  at  one  of the
   Book-Entry Transfer  Facilities),  together with a properlycompleted and duly
   executed Letter of Transmittal (or photocopy thereof) and any other documents
   required by the Letter of  Transmittal,  are  received by the  Depositary  no
   later than 5:00 p.m., New York City time, on the third business day after the
   date of execution of the Notice of Guaranteed Delivery.

   The Notice of Guaranteed  Delivery may be delivered by hand or transmitted by
facsimile transmission or mail to the Depositary and must include a guarantee by
an Eligible Institution in the form set forth in such Notice.


                                9

   The method of delivery of Shares and all other  required  documents is at the
option and risk of the tendering stockholder. If delivery is by mail, registered
mail with return receipt  requested,  properly insured,  is recommended.  In all
cases sufficient time should be allowed to assure timely delivery.

   Federal Backup  Withholding.  To avoid federal income tax backup  withholding
equal to 31% of the gross payments made pursuant to the Offer,  each stockholder
must notify the Depositary of such stockholder's correct taxpayer identification
number  and  provide  certain  other  information  by  properly  completing  the
Substitute Form W-9 included in the Letter of Transmittal.  Foreign stockholders
(as defined in Section 2) may be required  to submit a properly  completed  Form
W-8, certifying  non-United States status, in order to avoid backup withholding.
In addition,  foreign  stockholders may be subject to 30% (or lower treaty rate)
withholding  on gross payments  received  pursuant to the Offer (as discussed in
Section 2). For a  discussion  of certain  federal  income tax  consequences  to
tendering stockholders, see Section 2. Each stockholder is urged to consult with
his or her own tax advisor.

   Determinations of Validity.  All questions as to the Purchase Price, the form
of  documents  and the  validity,  eligibility  (including  time of receipt) and
acceptance  for  payment  of any  tender of  Shares  will be  determined  by the
Company,  in its sole  discretion,  and its  determination  shall  be final  and
binding. The Company reserves the absolute right to reject any or all tenders of
Shares that it determines  are not in proper form or the  acceptance for payment
of or payment for Shares that may, in the opinion of the Company's  counsel,  be
unlawful.  The Company also  reserves the absolute  right to waive any defect or
irregularity in any tender of Shares.  None of the Company,  the Dealer Manager,
the Depositary, the Information Agent or any other person will be under any duty
to give notice of any defect or irregularity  in tenders,  nor shall any of them
incur any liability for failure to give any such notice.

   Rule 14e-4.  It is a violation of Rule 14e-4  promulgated  under the Exchange
Act for a person to tender  Shares for his or her own account  unless the person
so tendering (i) has a net long position  equal to or greater than the amount of
(x)  Shares  tendered  or (y) other  securities  immediately  convertible  into,
exercisable,  or exchangeable for the amount of Shares tendered and will acquire
such  Shares  for  tender by  conversion,  exercise  or  exchange  of such other
securities  and (ii) will cause such Shares to be delivered in  accordance  with
the terms of the Offer. Rule 14e-4 provides a similar restriction  applicable to
the tender or guarantee of a tender on behalf of another  person.  The tender of
Shares pursuant to any one of the procedures described above will constitute the
tendering  stockholder's  representation  and warranty that (i) such stockholder
has a net long position in the Shares being tendered  within the meaning of Rule
14e-4  promulgated  under the  Exchange  Act, and (ii) the tender of such Shares
complies  with Rule  14e-4.  The  Company's  acceptance  for  payment  of Shares
tendered  pursuant to the Offer will constitute a binding  agreement between the
tendering  stockholder  and the  Company  upon  the  terms  and  subject  to the
conditions of the Offer.


7. WITHDRAWAL RIGHTS.

   Tenders of Shares  made  pursuant to the Offer may be  withdrawn  at any time
prior to the Expiration Date. Thereafter,  such tenders are irrevocable,  except
that they may be withdrawn after May 3, 1996,  unless  theretofore  accepted for
payment as provided in this Offer to Purchase. If the Company extends the period
of time during which the Offer is open,  is delayed in accepting  for payment or
paying for Shares or is unable to accept for payment or pay for Shares  pursuant
to the Offer for any reason,  then,  without  prejudice to the Company's  rights
under the Offer, the Depositary may, on behalf of the Company, retain all Shares
tendered,  and such Shares may not be withdrawn except as otherwise  provided in
this  Section 7,  subject to Rule  13e-4(f)(5)  under the  Exchange  Act,  which
provides  that  the  issuer  making  the  tender  offer  shall  either  pay  the
consideration  offered,  or return the tendered  securities  promptly  after the
termination or withdrawal of the tender offer. 

   To be  effective,  a written or facsimile  transmission  notice of withdrawal
must be timely  received by the  Depositary at one of its addresses set forth on
the back cover of this Offer to Purchase and must specify the name of the person
who  tendered  the  Shares  to be  withdrawn  and the  number  of  Shares  to be
withdrawn.  If the Shares to be withdrawn have been delivered to the Depositary,
a  signed  notice  of  withdrawal  with  signatures  guaranteed  by an  Eligible
Institution  (except in the case of Shares tendered by an Eligible  Institution)
must be submitted prior to the release of such Shares. In addition, such

                                       10


notice must specify, in the case of Shares tendered by delivery of certificates,
the name of the  registered  holder  (if  different  from that of the  tendering
stockholder)  and  the  serial  numbers  shown  on the  particular  certificates
evidencing  the Shares to be  withdrawn  or, in the case of Shares  tendered  by
book-entry transfer, the name and number of the account at one of the Book-Entry
Transfer  Facilities to be credited with the withdrawn  Shares.  Withdrawals may
not be rescinded,  and Shares  withdrawn  will  thereafter be deemed not validly
tendered for purposes of the Offer. However,  withdrawn Shares may be retendered
by again  following  one of the  procedures  described  in Section 6 at any time
prior to the Expiration Date.

   All questions as to the form and validity  (including time of receipt) of any
notice of withdrawal will be determined by the Company,  in its sole discretion,
which determination shall be final and binding.  None of the Company, the Dealer
Manager, the Depositary, the Information Agent or any other person will be under
any duty to give  notification  of any defect or  irregularity  in any notice of
withdrawal or incur any liability for failure to give any such notification.


8. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE.

   Upon the terms and subject to the  conditions of the Offer and as promptly as
practicable  after the Expiration  Date, the Company will accept for payment and
pay the  Purchase  Price for any and all Shares  validly  tendered.  Thereafter,
payment for all Shares  accepted for payment  pursuant to the Offer will be made
by the Depositary by check as promptly as practicable. In all cases, payment for
Shares accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of certificates  for Shares (or of a confirmation of a
book-entry  transfer of such Shares into the Depositary's  account at one of the
Book-Entry Transfer  Facilities),  a properly completed and duly executed Letter
of Transmittal or photocopy thereof, and any other required documents.

   For purposes of the Offer,  the Company  will be deemed to have  accepted for
payment (and thereby  purchased)  Shares that are validly  tendered prior to the
applicable  Expiration  Date and not  withdrawn as, if and when it gives oral or
written  notice to the  Depositary of its acceptance for payment of such Shares.
The Company will pay for Shares that it has  purchased  pursuant to the Offer by
depositing the Purchase Price therefor with the Depositary.  The Depositary will
act as agent for  tendering  stockholders  for the purpose of receiving  payment
from the Company and transmitting  payment to tendering  stockholders.  Under no
circumstances  will  interest  be  paid  on  amounts  to be  paid  to  tendering
stockholders, regardless of any delay in making such payment.

   If certain events occur,  the Company may not be obligated to purchase Shares
pursuant to the Offer. See Section 9.  Certificates for all Shares not purchased
will be returned  (or, in the case of Shares  tendered by  book-entry  transfer,
such Shares will be credited to an account maintained with a Book-Entry Transfer
Facility)  as  promptly  as  practicable   without   expense  to  the  tendering
stockholder.

   The  Company  will  pay or cause to be paid any  stock  transfer  taxes  with
respect to the sale and  transfer  of any Shares to it or its order  pursuant to
the  Offer.  If,  however,  payment of the  Purchase  Price is to be made to, or
Shares not tendered or not  purchased  are to be  registered in the name of, any
person other than the registered holder, or if tendered Shares are registered in
the name of any person other than the person signing the Letter of  Transmittal,
the  amount of any stock  transfer  taxes  (whether  imposed  on the  registered
holder,  such other person or  otherwise)  payable on account of the transfer to
such  person  will be  deducted  from the  Purchase  Price  unless  satisfactory
evidence of the payment of such taxes, or exemption therefrom, is submitted. See
Instruction 6 of the Letter of Transmittal.


9. CERTAIN CONDITIONS OF THE OFFER.

   Notwithstanding  any other  provisions of the Offer,  the Company will not be
required to accept for payment or pay for any Shares tendered, and may terminate
or amend the Offer or may postpone  (subject to the requirements of the Exchange
Act for prompt payment for or return of Shares) the acceptance for payment of or
payment for Shares tendered, if at any time on or after March 11, 1996, 

                                11


and before acceptance for payment of or payment for any such Shares,  any of the
following  events  shall have  occurred  (or shall have been  determined  by the
Company in its sole judgment to have occurred)  regardless of the  circumstances
giving rise thereto (including any action or omission to act by the Company):

      (a) there shall have been threatened,  instituted or pending any action or
   proceeding by any government or  governmental,  regulatory or  administrative
   agency or authority or tribunal or any other person,  domestic or foreign, or
   before any court,  authority,  agency or  tribunal  that (i)  challenges  the
   acquisition  of Shares  pursuant  to the  Offer or  otherwise  in any  manner
   relates to or affects  the Offer,  (ii)  challenges  the  acquisition  by the
   Company  of  its  Depositary  Preferred  Shares  (the  "Depositary  Preferred
   Shares"),  each  representing  a  one-fourth  interest  in a share  of its 9%
   Cumulative  Preferred  Stock,  pursuant to the  Company's  Offer to Purchase,
   dated  March 11,  1996,  concerning  such  Depositary  Preferred  Shares (the
   "Depositary  Preferred  Offer")  or  otherwise  in any  manner  relates to or
   affects the Depositary  Preferred Offer,  (iii) challenges the acquisition by
   PEI of shares of its common stock pursuant to PEI's Offer to Purchase,  dated
   March 11, 1996,  concerning  such common stock (the "PEI Offer") or otherwise
   in any  manner  reltates  to or  affects  the PEI  Offer  or (iv) in the sole
   judgment of the Company,  could materially and adversely affect the business,
   condition  (financial  or other),  income,  operations  or  prospects  of the
   Company  or  PEI  and  its  subsidiaries,  taken  as a  whole,  or  otherwise
   materially impair in any way the contemplated  future conduct of the business
   of PEI or any of its  subsidiaries  (including  the  Company)  or  materially
   impair the contemplated benefits of the Offer to the Company;

      (b) there  shall have been any  action  threatened,  pending or taken,  or
   approval withheld,  withdrawn or abrogated or any statute,  rule, regulation,
   judgment,  order or injunction  threatened,  proposed,  sought,  promulgated,
   enacted,  entered, amended, enforced or deemed to be applicable to the Offer,
   the  Depositary  Preferred  Offer  or the PEI  Offer  or to PEI or any of its
   subsidiaries  (including  the  Company),  by  any  legislative  body,  court,
   authority, agency or tribunal which, in the Company's sole judgment, would or
   might  directly  or  indirectly  (i) make the  acceptance  for payment of, or
   payment for, some or all of the Shares,  the Depositary  Preferred  Shares or
   shares of the common stock of PEI illegal or  otherwise  restrict or prohibit
   consummation of the Offer,  the Depositary  Preferred Offer or the PEI Offer,
   (ii)  delay or  restrict  the  ability of the  Company or PEI,  or render the
   Company or PEI  unable,  to accept for  payment or pay for some or all of the
   Shares, the Depositary Preferred Shares or shares of the common stock of PEI,
   as the case may be, (iii) materially impair the contemplated  benefits or the
   Depositary Preferred Offer of the Offer to the Company or of the PEI Offer to
   PEI or (iv) materially affect the business,  condition  (financial or other),
   income,  operations or prospects of the Company or PEI and its  subsidiaries,
   taken as a whole, or otherwise  materially impair in any way the contemplated
   future conduct of the business of PEI or any of its  subsidiaries  (including
   the Company);

      (c) it shall  have been  publicly  disclosed  or the  Company  shall  have
   learned  that (i) any  person or  "group"  (within  the  meaning  of  Section
   13(d)(3) of the Exchange Act) has acquired or proposes to acquire  beneficial
   ownership  of more than 5% of the  outstanding  shares of the common stock of
   PEI,  whether through the acquisition of stock, the formation of a group, the
   grant of any option or right,  or  otherwise  (other than as  disclosed  in a
   Schedule 13D or 13G (or an amendment  thereto) on file with the Commission on
   March 8,  1996),  (ii) any such  person or group that on or prior to March 8,
   1996,  had filed such a Schedule with the  Commission  thereafter  shall have
   acquired  or shall  propose to acquire  whether  through the  acquisition  of
   stock,  the  formation  of a group,  the grant of any  option  or  right,  or
   otherwise,  beneficial  ownership of additional shares of the common stock of
   PEI  representing 2% or more of the outstanding  shares of such common stock,
   (iii) any new group shall have been formed which  beneficially owns more than
   5% of the outstanding  shares of the common stock of PEI, or (iv) any person,
   entity or group  shall have filed a  Notification  and Report  Form under the
   Hart-Scott-Rodino  Antitrust  Improvements  Act of  1976  or  made  a  public
   announcement  reflecting an intent to acquire PEI or any of its  subsidiaries
   or any of their respective assets or securities;

      (d) there shall have occurred (i) any general suspension of trading in, or
   limitation on prices for,  securities on any national  securities exchange or
   in the  over-the-counter  market,  (ii) any significant decline in the market
   price of the  Shares  or in the  general  level of  market  prices  of equity
   securities

                                12




   in  the  United  States or abroad, (iii) any change in the general political,
   market,  economic or financial  condition in the United States or abroad that
   could  have a material  adverse  effect on PEI's or the  Company's  business,
   condition (financial or other), income,  operations,  prospects or ability to
   obtain financing generally or the trading in the Shares, (iv) the declaration
   of a banking  moratorium or any suspension of payments in respect of banks in
   the United States or any limitation on, or any event which,  in the Company's
   sole judgment,  might affect, the extension of credit by lending institutions
   in the United States,  (v) the  commencement  of a war, armed  hostilities or
   other  international or national crisis directly or indirectly  involving the
   United  States or (vi) in the case of any of the  foregoing  existing  at the
   time of the  commencement  of the Offer,  in the Company's sole  judgment,  a
   material acceleration or worsening thereof;

      (e) a tender or exchange  offer with  respect to some or all of the Shares
   (other than the Offer) or other shares of  preferred  stock of the Company or
   some or all of the common  stock of PEI,  or a merger,  acquisition  or other
   business  combination  proposal  for  PEI or any  subsidiary  (including  the
   Company), shall have been proposed,  announced or made by a person other than
   the Company or PEI;

      (f) there shall have occurred any event or events that have  resulted,  or
   may in the sole  judgment of the Company  result,  in an actual or threatened
   change in the business,  condition (financial or other), income,  operations,
   stock  ownership  or  prospects  of the Company or PEI and its  subsidiaries,
   taken as a whole; or materially impair the contemplated benefits of the Offer
   to the Company; or

      (g) (i) Moody's Investors  Service,  Inc. or Standard & Poor's Corporation
   shall have  downgraded or withdrawn the rating accorded any securities of the
   Company or PEI, or (ii) Moody's Investors Service,  Inc. or Standard & Poor's
   Corporation shall have publicly  announced that it has under  surveillance or
   review, with possible negative implications,  its rating of any securities of
   the Company or PEI;

and,  in the  sole  judgment  of the  Company,  such  event  or  events  make it
undesirable or inadvisable to proceed with the Offer or with such acceptance for
payment or payments.

   Any of the foregoing  conditions may be waived by the Company, in whole or in
part, at any time and from time to time in its sole  discretion.  The failure by
the Company at any time to exercise  any of the  foregoing  rights  shall not be
deemed a waiver of any such right and each such right shall be deemed an ongoing
right which may be asserted at any time and from time to time. Any determination
by the Company  concerning the events  described above will be final and binding
on all parties.


10. PRICE RANGE OF SHARES; DIVIDENDS; TRADING VOLUME.

   The Shares are listed on the NASD OTC Bulletin  Board.  The  following  table
sets forth the high and low bid  prices of the  Shares on the NASD OTC  Bulletin
Board and the cash dividends per Share for the quarters indicated.




                                13




                                     BID PRICE   BID PRICE   CASH DIVIDENDS
FISCAL YEAR                            HIGH         LOW        PER SHARE
- - - - - -----------                          ---------- ------------ ---------------
                                                   
1994:
  1st Quarter.....................  $47.500    $46.250      $1.025
  2nd Quarter.....................  $47.500    $43.000      $1.025
  3rd Quarter.....................  $47.000    $46.000      $1.025
  4th Quarter.....................  $47.000    $43.500      $1.025

1995:
  1st Quarter.....................  $45.500    $43.500      $1.025
  2nd Quarter.....................  $46.000    $45.000      $1.025
  3rd Quarter.....................  $47.000    $45.000      $1.025
  4th Quarter.....................  $47.875    $45.000      $1.025

1996:
  1st Quarter (through March 8,
   1996)..........................  $50.250    $45.000      $1.025(1)

<FN>
- - - - - ------------
(1)  On January 15, 1996,  the Company  declared a dividend of $1.025 per common
     share for the first  quarter of 1996.  The  dividend is to be paid on March
     15, 1996, to holders of record on March 1, 1996.
</FN>


   On March 8,  1996,  the last  trading  day prior to the  commencement  of the
Offer,  the bid price of the Shares as reported on the NASD OTC  Bulletin  Board
was $50.25 per Share.  Stockholders areurged to obtain current market quotations
for the Shares. There is currently no established trading market for the Shares,
excluding  limited and  sporadic  quotation.  Stockholders  should note that the
average  weekly  trading  volume of the Shares since  January 1, 1995,  has been
approximately 79 Shares. 

   Shares  tendered and purchased by the Company will be entitled to the regular
quarterly  cash  dividend of $1.025 per Share to be paid by the Company on March
15, 1996, to holders of record on March 1, 1996,  regardless of when such tender
is made.  Shares  tendered and  purchased by the Company will not be entitled to
any dividends in respect of any later dividend periods.

   Pennsylvania law imposes certain legal  restrictions on the Company's ability
to  pay  dividends.  As a  general  matter,  Pennsylvania  law  provides  that a
distribution  may not be made if after giving effect thereto (1) the corporation
would be unable to pay its debts as they  become due in the usual  course of its
business,  or (2) the total assets of the corporation would be less than the sum
of  its  total  liabilities  plus  the  amount  that  would  be  needed,  if the
corporation  were to be  dissolved  at the  time as of  which  the  dividend  is
measured,  to satisfy the  preferential  rights upon dissolution of shareholders
whose preferential rights are superior to those receiving the distribution.  The
Company's Restated Articles of Incorporation,  as amended,  do not authorize the
issuance of any class of capital stock which has preferential rights superior to
those of the Shares. 


11. CERTAIN INFORMATION CONCERNING THE COMPANY.

   The Company is a public utility company regulated by the Pennsylvania  Public
Utility Commission which provides natural gas to approximately 141,800 customers
in ten counties in northeastern Pennsylvania.

   The Company's principal executive offices are located at Wilkes-Barre
Center, 39 Public Square, Wilkes-Barre, PA 18711, and its telephone number is
(717) 829-8843.


RECENT DEVELOPMENTS

   On February  16,  1996,  the Company  and PEI sold  substantially  all of the
Company's   water   operations  to   Pennsylvania-American   Water  Company,   a
wholly-owned subsidiary of American Water Works Company, Inc., for approximately
$413.5  million  (including  debt  assumed),  subject  to  certain  post-closing
adjustments.  These  operations  had  provided  water  service to  approximately
133,400  customers.  See "-Summary  Unaudited Pro Forma  Financial  Information"
below. 

                                       14


   Effective  as of December 4, 1995,  Pennsylvania  Energy  Resources,  Inc., a
wholly-owned  subsidiary  of  PEI,  acquired  all of the  outstanding  stock  of
Keystone Pipeline Services,  Inc. (formerly known as Ford Bacon & Davis Sealants
Inc.),  from Ford, Bacon & Davis Companies,  Inc., a wholly-owned  subsidiary of
Deutsche Babcock Technologies,  Inc. Keystone Pipeline Services, Inc. is engaged
in distribution pipeline construction, maintenance and rehabilitation.


DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

   Schedule A hereto sets forth the name, business address and present principal
occupation or employment and any other material occupations,  positions, offices
or employments during the last five years of each director and executive officer
of the Company. Schedule A also sets forth the citizenship of each such director
and executive officer.


SUMMARY HISTORICAL FINANCIAL INFORMATION

   The  following  selected  financial  information  for each of the years ended
December 31, 1995,  and December 31, 1994,  has been derived from the  Company's
audited  financial  statements  contained in the Company's Annual Report on Form
10-K for the year ended  December 31, 1995 (the "1995 10-K"),  which reflect the
Company's water utility operations as "discontinued  operations" effective March
31, 1995. The following selected historical financial information should be read
in  conjunction  with,  and is qualified  in its entirety by reference  to, such
audited financial statements and the related notes which are incorporated herein
by reference.  The 1995 10-K may be obtained from or inspected at the offices of
the Commission in the manner set forth in Section 16. 













                                       15



 SUMMARY HISTORICAL FINANCIAL INFORMATION
        (IN THOUSANDS OF DOLLARS, EXCEPT RATIOS AND PER SHARE AMOUNTS)



                                                       YEARS ENDED DECEMBER 31,
                                                       ------------------------
                                                           1995        1994
                                                       ----------- ------------
                                                             
Income Statement Data:
Operating revenues ..................................  $  152,756  $  167,992
 Cost of gas.........................................      84,372      98,653
                                                       ----------- ------------
Operating margin.....................................      68,384      69,339
Other operating expenses.............................      49,462      50,211
                                                       ----------- ------------
Operating income.....................................      18,922      19,128
Other income, net....................................         301          72
                                                       ----------- ------------
Income before interest charges.......................      19,223      19,200
Interest charges.....................................      10,753       9,898
                                                       ----------- ------------
Income from continuing operations....................       8,470       9,302
Income (loss) with respect to discontinued
operations...........................................      (3,834)     10,504
                                                       ----------- ------------
Net income...........................................       4,636      19,806
Dividends on preferred stock.........................       2,763       4,639
                                                       ----------- ------------
Net income applicable to common stock ...............  $    1,873  $   15,167
                                                       =========== ============
Common stock:
 Earnings per share of common stock .................  $     0.34  $     2.73
                                                       =========== ============
 Weighted average number of shares outstanding.......   5,569,765   5,189,108
                                                       =========== ============
Ratio of earnings to fixed charges (1)...............        2.27        2.53
                                                       =========== ============
<FN>
_________
(1)  For purposes of computing the ratio of earnings to fixed charges,  earnings
     are defined as the sum of pre-tax income plus fixed charges.  Fixed charges
     consist of all interest  expense (before  allowance for borrowed funds used
     during  construction),  one-third of rent expense (which  approximates  the
     interest component of such expense), and amortization of debt expense.
</FN>




                                                                  YEARS ENDED DECEMBER 31,
                                                                      1995        1994
                                                                  ----------- -----------
                                                                        
Balance Sheet Data:
ASSETS
 Utility plant .................................................  $295,895    $284,080
  Less accumulated depreciation ................................   (76,882)    (74,408)
                                                                  ----------- -----------
 Net utility plant .............................................   219,013     209,672
 Other property and investments ................................     5,089       2,872
 Current assets ................................................    54,512      58,250
 Deferred charges ..............................................    34,368      44,345
 Net assets of discontinued operations .........................   204,250     203,196
                                                                  ----------- -----------
 Total assets ..................................................  $517,232    $518,335
                                                                  =========== ===========
CAPITALIZATION AND LIABILITIES
 Capitalization:
  Common shareholder's investment ..............................  $208,356    $216,032
  Preferred stock -
   Not subject to mandatory redemption, net ....................    33,615      33,615
   Subject to mandatory redemption .............................     1,680       1,760
  Long-term debt ...............................................    55,000     170,825
                                                                  ----------- -----------
                                                                   298,651     422,232
                                                                  ----------- -----------
 Current liabilities:
  Current portion of long-term debt and preferred stock subject
   to
   mandatory redemption ........................................   115,881       3,290
  Note payable to bank .........................................    10,000        --
  Other ........................................................    28,601      31,580
                                                                  ----------- -----------
                                                                   154,482      34,870
                                                                  ----------- -----------
 Deferred credits ..............................................    64,099      61,233
                                                                  ----------- -----------
 Total capitalization and liabilities ..........................  $517,232    $518,335
                                                                  =========== ===========
 Shareholder's equity per common share outstanding .............  $  37.19    $  39.59
                                                                  =========== ===========

                                       16


SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION

   The following Summary Unaudited Pro Forma Balance Sheet and Summary Unaudited
Pro Forma Statement of Income have been prepared based on the Company's  balance
sheet as of December 31, 1995, and the related  statement of income for the year
then  ended,  each as  adjusted  to reflect  the Sale of the Water  Business  on
February 16, 1996, and the use of the cash proceeds  therefrom of $210.0 million
(after the payment of an  estimated  $56.7  million of federal and state  income
taxes on the sale) for the  purchase  of  Shares  pursuant  to the Offer and the
other purposes  described in Note 3 to the Notes to Summary  Unaudited Pro Forma
Balance Sheet.  Pursuant to the Asset Purchase Agreement relating to the Sale of
the Water Business, the purchase price is subject to post-closing  adjustment in
certain cases. The summary unaudited pro forma financial statements also reflect
certain other assumptions and related  transactions as described in the notes to
such statements.

   The Summary  Unaudited Pro Forma  Statement of Income reflects the results of
the Company's continuing operations as if the Sale of the Water Business and the
use of the proceeds therefrom,  including the purchase of Shares pursuant to the
Offer, had taken place at the beginning of the period. The Summary Unaudited Pro
Forma Balance Sheet as of December 31, 1995,  reflects the financial position of
the  Company as if such  transactions  had  occurred  on that date.  Each of the
Company's  Summary Unaudited Pro Forma Statement of Income and Summary Unaudited
Pro Forma  Balance  Sheet  include  estimates  which may differ from the results
ultimately incurred.

   The summary  unaudited  pro forma  financial  statements  have been  included
herein  as  required  by the  rules of the  Commission  and are for  comparative
purposes only.  They should be read in conjunction  with the summary  historical
financial  information  and do not purport to be  indicative of the results that
would  actually  have  been  obtained  had the Sale of the Water  Business,  the
purchase  of Shares  pursuant  to the Offer and the other  related  transactions
described in the notes to such  statements  been effected on the dates indicated
or the results that may be obtained in the future.

   Certain statements made below relating to plans,  conditions,  objectives and
economic  performance  go  beyond  historical  information  and may  provide  an
indication  of  future  results.   To  that  extent,  they  are  forward-looking
statements  within the meaning of Section 21E of the  Exchange  Act, and each is
subject to factors that could cause  actual  results to differ from those in the
forward-looking statement. 

                                       17


                   SUMMARY UNAUDITED PRO FORMA STATEMENT OF
             INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
 (IN THOUSANDS OF DOLLARS, EXCEPT RATIOS, PER SHARE AMOUNTS AND 
SHARES OUTSTANDING)



                                                    ASSUMING A $50 PER SHARE PURCHASE PRICE
                                                                   PRO FORMA
                                                   HISTORICAL   ADJUSTMENTS (1)   PRO FORMA
                                                  ------------ ---------------- ------------
                                                                       
Operating revenues..............................  $  152,756   $         --       $  152,756
 Cost of gas....................................      84,372             --           84,372
                                                  ------------ ---------------- ------------
Operating margin................................      68,384              --          68,384
Other operating expenses........................      49,462               789 (2)    50,251
                                                  ------------ ---------------- ------------
Operating income................................      18,922             (789)        18,133
Other income, net...............................         301              --             301
                                                  ------------ ---------------- ------------
Income before interest charges..................      19,223             (789)        18,434
                                                  ------------ ---------------- ------------
Interest charges:
 Interest on long-term debt.....................       9,304        (1,891)(2)         7,413
 Other interest.................................       1,449           (10)(2)         1,439
                                                               ---------------- ------------
  Total interest charges........................      10,753           (1,901)         8,852
                                                  ------------ ---------------- ------------
Income from continuing operations...............       8,470             1,112         9,582
Dividends on preferred stock....................       2,763        (2,353)(3)           410
                                                  ------------ ---------------- ------------
Income from continuing operations applicable to
 common stock...................................  $    5,707   $         3,465    $    9,172
                                                  ============ ================ ============

Common stock:
 Earnings per share of common stock from
  continuing operations ........................  $     1.02                      $     2.80
                                                  ============                  ============
 Weighted average number of shares
  outstanding...................................   5,569,765    (2,297,297)(4)     3,272,468
                                                  ============ ================ ============
Ratio of earnings from continuing operations to
 fixed charges (5)..............................        2.27                            2.73
Shareholder's equity per common share
 outstanding....................................  $    37.19                      $    28.43
                                                  ============                  ============



   SEE ACCOMPANYING NOTES TO SUMMARY UNAUDITED PRO FORMA STATEMENT OF INCOME.


                                       18


           NOTES TO SUMMARY UNAUDITED PRO FORMA STATEMENT OF INCOME
                FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995


(1)  Adjustments  assume that the Sale of the Water Business and the application
     of the proceeds therefrom, including the purchase of Shares pursuant to the
     Offer, each took place at the beginning of the period.

     (2)  Represents   the   adjustments  to  interest  on  long-term  debt  and
amortization  of debt expense,  and the related income tax effect,  necessary to
reflect the  interest on  indebtedness  outstanding  during the period after (a)
application of proceeds from the Sale of the Water Business to (i) repay a $50.0
million loan (the "Bridge Loan"),  the proceeds of which were used to redeem the
$50.0  million  principal  amount of the Company's  9.57% Series First  Mortgage
Bonds and (ii) repay $10.9 million of the Company's bank  borrowings and (b) the
redemption  in  connection  with the Sale of the Water  Business and pursuant to
annual sinking fund  requirements  of the $3.5 million  principal  amount of the
Company's 8% Series First Mortgage Bonds  outstanding as of January 1, 1995. The
adjustments to interest on long-term debt may be summarized as follows:




                                                                  ASSUMING A $50 PER
                                                                        SHARE
                                                                    PURCHASE PRICE
                                                                ---------------------
                                                                   (IN THOUSANDS OF
                                                                       DOLLARS)
                                                                    
Interest on long-term debt for the twelve months ended
December 31, 1995:
  Allocated to continuing operations, as per accompanying
   summary unaudited pro forma statement of income ...........            $  9,304
  Allocated to discontinued operations .......................              12,848
                                                                          -----------
                                                                            22,152
Deduct:
 Interest on debt assumed by Pennsylvania-American Water
  Company.....................................................  $9,529
 Interest on debt redeemed or repaid in connection with Sale
  of the Water Business
   9.57% Series First Mortgage Bonds .........................   3,748
   Bank borrowings ...........................................     719
   Bridge Loan................................................     716
   8% Series First Mortgage Bonds ............................     147     (14,859)
                                                                ---------
Add:
 Interest on bank borrowings to reflect the redemption of the
  Company's 8% Series First Mortgage Bonds as if it
   occurred at the beginning of the period ...................                 120
                                                                          -----------
  Pro forma interest on long-term debt, as per accompanying
   summary unaudited pro forma statement of income ...........            $  7,413
                                                                          ===========



(3)  Represents  elimination  of preferred  stock  dividends of  $2,025,000  and
     $328,000 to reflect the repurchase of  225,000  shares of the  Company's 9%
     Cumulative  Preferred  Stock  and  80,000  Shares  pursuant  to the  Offer,
     respectively, with proceeds from the Sale of the Water Business.

(4)  Represents the reduction in the  number of shares of the Company's  common
     stock  outstanding  resulting from the  application of $85.0 million of the
     proceeds from the Sale of the Water Business to repurchase 2,297,297 shares
     of the Company's common stock at an average price of $37.00 per share.

(5)  For purposes of computing the ratio of earnings from continuing  operations
     to fixed  charges,  earnings are defined as the sum of pre-tax  income plus
     fixed  charges.  Fixed  charges  consist of all  interest  expense  (before
     allowance for borrowed funds used during  construction),  one-third of rent
     expense  (which  approximates  the interest  component of such expense) and
     amortization of debt expense.

                                       19

      SUMMARY UNAUDITED PRO FORMA BALANCE SHEET AS OF DECEMBER 31, 1995
             (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)



                                                  ASSUMING A $50 PER SHARE PURCHASE PRICE
                                                 -----------------------------------------
                                                                 PRO FORMA
                                                  HISTORICAL   ADJUSTMENTS(1)   PRO FORMA
                                                 ------------ --------------- ------------
                                                                     
ASSETS
 Utility plant.................................  $295,895     $       --        $295,895
  Accumulated depreciation.....................   (76,882)            --         (76,882)
                                                 ------------ --------------- ------------
 Net utility plant.............................   219,013             --         219,013
 Other property and investments................     5,089             --           5,089
 Current assets................................    54,512       266,670 (2a)
                                                                (56,710)(2c)
                                                               (209,960)(3)
                                                                     13 (3j)      54,525
 Deferred charges..............................    34,368              --         34,368
 Net assets of discontinued operations.........   204,250      (204,250)(2e)         --
                                                 ------------ --------------- ------------
 Total assets..................................  $517,232     $(204,237)        $312,995
                                                 ============ =============== ============

CAPITALIZATION AND LIABILITIES
 Capitalization:
  Common  shareholder's  investment..............$208,356     $    (790)(2b)
                                                                (85,000)(3a)
                                                                 (1,800)(3b)
                                                                  4,000 (3c)
                                                                (30,000)(3d)
                                                                 (1,000)(3e)
                                                                   (722)(4)     $ 93,044
  Preferred stock--
   Not subject to mandatory redemption, net....    33,615       (22,500)(3b)
                                                                 (8,000)(3c)
                                                                  1,247 (4)        4,362
   Subject to mandatory redemption.............     1,680              --          1,680
  Long-term debt...............................    55,000              --         55,000
                                                 ------------ --------------- ------------
                                                  298,651      (144,565)         154,086
                                                              --------------- ------------
 Current liabilities:
  Current portion of long-term debt and
   preferred
   stock subject to mandatory redemption ......   115,881       (50,000)(3f)
                                                                (10,861)(3g)      55,020
  Notes payable to bank........................    10,000                    --   10,000
  Other........................................    28,601         6,500 (2d)
                                                                 (5,947)(3h)
                                                                   (525)(4)       28,629
                                                 ------------ --------------- ------------
                                                  154,482        (60,833)         93,649
                                                 ------------ --------------- ------------
 Deferred credits..............................    64,099         1,161 (3i)      65,260
                                                 ------------ --------------- ------------
 Total capitalization and liabilities..........  $517,232     $ (204,237)       $312,995
                                                 ============ =============== ============


                                       20


                     NOTES TO SUMMARY UNAUDITED PRO FORMA
                    BALANCE SHEET AS OF DECEMBER 31, 1995

(1)  Adjustments  assume that the Sale of the Water Business and the application
     of the proceeds therefrom, including the purchase of Shares pursuant to the
     Offer, each took place as of the date of the balance sheet.


(2)  Represents  (a) receipt of cash proceeds of $266.7 million from the Sale of
     the Water Business, (b) elimination from common shareholder's investment of
     the  $790,000  of  estimated  income from the water  operations  during the
     period from January 1, 1996, to February 16, 1996,  the date of the Sale of
     the  Water  Business  to  Pennsylvania-American  Water  Company,  that  was
     reflected as of December 31, 1995,  as an element of income with respect to
     discontinued  operations,  (c) payment of the  estimated  federal and state
     income tax  liability of $56.7  million on the Sale of the Water  Business,
     (d)  recording of the $6.5 million  premium of the purchase  price over the
     book value of the assets acquired by Pennsylvania-American Water Company as
     a credit to other current liabilities,  the account to which it was charged
     as of  December  31,  1995,  as an offset  against  the  liability  for the
     estimated expenses on the Sale of the Water Business and (e) elimination of
     the $204.3 million of net assets of the Water Business.

(3)  Reflects  the  application  of the  proceeds  from  the  Sale of the  Water
     Business of $210.0 million,  after the payment of the estimated federal and
     state  income  tax  liability  of $56.7  million  on the Sale of the  Water
     Business,  in the following  manner:  (a) the repurchase  (for an aggregate
     consideration of $85.0 million) of 2,297,297 shares of the Company's common
     stock at an average price of $37.00 per share,  (b) the repurchase  (for an
     aggregate  consideration  of  $24.3  million)  of  225,000  shares  of  the
     Company's 9% Cumulative  Preferred Stock (having an aggregate book value of
     $22.5  million),  which includes a premium of $8.00 per share ($1.8 million
     in the aggregate),  (c) the repurchase (for an aggregate  consideration  of
     $4.0  million) of 80,000  Shares  (having an  aggregate  book value of $8.0
     million)  at a price of $50.00 per  share,  which  reflects a $4.0  million
     aggregate  ($50.00 per share)  discount  from book value,  (d) payment of a
     $30.0 million  common stock  dividend by the Company to PEI, (e) payment of
     an estimated  $1.0 million of costs in  connection  with the  repurchase of
     shares of the Company's preferred stock, including there purchase of Shares
     pursuant to the Offer,  (f) the repayment of the Bridge Loan,  the proceeds
     of which  were used to redeem  the $50.0  million  principal  amount of the
     Company's 9.57% Series First Mortgage Bonds, (g) repayment of $10.9 million
     of the Company's bank borrowings,  (h) payment of transaction costs of $5.9
     million  relative to the Sale of the Water  Business,  (i) recording of the
     $1.2  million  net tax benefit  resulting  from  transaction  costs and the
     premium  over  book  value on the Sale of the  Water  Business  and (j) the
     addition  of the  remaining  proceeds  of  $13,000  to the  Company's  cash
     accounts.  The  repurchases and costs referred to in items (b), (c) and (e)
     involve  voluntary  sales to the Company by holders of the Shares and other
     series of preferred stock of the Company.  Therefore,  the number and price
     of the securities  purchased and the related expenses may vary depending on
     market conditions at the time of the repurchases.


(4)  Reflects the write-off of $1.2 million  ($722,000  after related income tax
     benefits of $525,000) of issuance  costs  relative to the 225,000 shares of
     the Company's 9% Cumulative  Preferred  Stock which the Company  intends to
     repurchase with proceeds from the Sale of the Water Business.


12. SOURCE AND AMOUNT OF FUNDS.

   Assuming that the Company  purchases all  outstanding  Shares pursuant to the
Offer at the  Purchase  Price,  the total  amount  required  by the  Company  to
purchase such Shares will be $5.0 million, exclusive of fees and other expenses.
The  Company  expects  to fund the  purchase  of such  Shares  from  part of the
proceeds from the Sale of the Water Business. See Sections 1 and 11.


13.  TRANSACTIONS  AND AGREEMENTS  CONCERNING THE SHARES AND OTHER SECURITIES OF
THE COMPANY.

Based upon the Company's records and upon information provided to the Company by
its directors and executive officers,  neither the Company nor, to the Company's
knowledge, any of its associates, subsidiaries, directors, executive officers or
any associate of any such director or executive


                                       21


officer,  or any director or executive officer of its subsidiaries,  has engaged
in any  transactions  involving  the  Shares or  shares  of any other  series of
preferred stock of the Company since January 11, 1996.  Neither the Company nor,
to the  Company's  knowledge,  any of its  directors or executive  officers is a
party to any  contract,  arrangement,  understanding  or  relationship  relating
directly or  indirectly  to the Offer with any other  person with respect to any
securities of the Company.

   Schedule  B  hereto  sets  forth  the name and  title  of each  director  and
executive  officer of the  Company,  and the name and address of each  associate
thereof,  beneficially  owning Shares or shares of any other series of preferred
stock of the Company as of March 7, 1996,  the number of shares so owned and the
percentage of outstanding shares of the particular series such shares represent.

   Schedule C hereto sets forth the amount of any  purchases of Shares or shares
of any other  series of  preferred  stock of the Company made by the Company and
its  affiliates  (including  the directors of the Company) since January 1, 1994
and the range of prices paid for such shares.



14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS.

   The Company  expressly  reserves the right, in its sole discretion and at any
time or from time to time,  to extend the period of time during  which the Offer
is open by giving oral or written  notice of such  extension to the  Depositary.
There can be no assurance,  however, that the Company will exercise its right to
extend the Offer. During any such extension, all Shares previously tendered will
remain  subject  to the  Offer,  except to the  extent  that such  Shares may be
withdrawn as set forth in  Section7.  The Company  also  expressly  reserves the
right,  in its sole  discretion,  (i) to terminate  the Offer and not accept for
payment any Shares not  theretofore  accepted  for  payment or,  subject to Rule
13e-4(f)(5) under the Exchange Act, which requires the Company either to pay the
consideration  offered  or to return  the  Shares  tendered  promptly  after the
termination or withdrawal of the Offer, to postpone  payment for Shares upon the
occurrence of any of the conditions specified in Section 9 hereof by giving oral
or written  notice of such  termination  to the  Depositary  and making a public
announcement  thereof  and (ii) at any time or from  time to time,  to amend the
Offer  in any  respect.  Amendments  to the  Offer  may be  effected  by  public
announcement.  Without  limiting  the manner in which the  Company may choose to
make public announcement of any termination or amendment, the Company shall have
no  obligation  (except as  otherwise  required by  applicable  law) to publish,
advertise or otherwise  communicate any such public announcement,  other than by
making  a  release  to the Dow  Jones  News  Service,  except  in the case of an
announcement  of an extension of the Offer, in which case the Company shall have
no obligation to publish,  advertise or otherwise  communicate such announcement
other  than by  issuing a notice of such  extension  by press  release  or other
public  announcement,  which notice shall be issued no later than 9:00 a.m., New
York  City  time,  on the next  business  day  after  the  previously  scheduled
Expiration Date. Material changes to information  previously provided to holders
of the Shares in this Offer or in documents furnished subsequent thereto will be
disseminated  to  holders  of  Shares  in  compliance   with  Rule   13e-4(e)(2)
promulgated under the Exchange Act.

If the  Company  materially  changes  the terms of the Offer or the  information
concerning  the Offer,  or if it waives a material  condition of the Offer,  the
Company will extend the Offer to the extent  required by Rules  13e-4(d)(2)  and
13e-4(e)(2)  under the Exchange Act. Those rules require that the minimum period
during which an offer must remain open following  material  changes in the terms
of the offer or information  concerning the offer (other than a change in price,
change in dealer's  soliciting fee or change in percentage of securities sought)
will depend on the facts and circumstances,  including the relative  materiality
of such terms or information.  In a published release, the Commission has stated
that in its view,  an offer  should  remain open for a minimum of five  business
days from the date that  notice of such a  material  change is first  published,
sent or given.  The Offer will continue or be extended for at least ten business
days from the time the Company publishes,  sends or gives to holders of Shares a
notice that it will (a) increase or decrease the price it will pay for Shares or
the amount of the dealer's  soliciting  fee or (b) decrease the number of Shares
it seeks.


                                       22


15. FEES AND EXPENSES.

   Legg Mason  Wood  Walker,  Incorporated  will act as Dealer  Manager  for the
Company in connection  with the Offer.  The Company has agreed to pay the Dealer
Manager,  upon  acceptance for payment of Shares pursuant to the Offer, a fee of
$0.15 per Share  purchased  by the  Company  pursuant  to the Offer.  The Dealer
Manager will also be reimbursed by the Company for its reasonable  out-of-pocket
expenses and will be  indemnified  against  certain  liabilities  and  expenses,
including  liabilities under the federal securities laws, in connection with the
Offer. 

   The Dealer  Manager has rendered,  is currently  rendering and is expected to
continue to render various investment banking and other advisory services to the
Company. It has received,  and will continue to receive,  customary compensation
from the Company for such services.

The  Company  will pay a  solicitation  fee of $0.50 per  Share  for any  Shares
tendered and accepted for payment and paid for pursuant to the Offer, covered by
a Letter of Transmittal which  designates,  as having solicited and obtained the
tender, the name of (i) any broker or dealer in securities, including the Dealer
Manager in its  capacity as a broker or dealer,  who is a member of any national
securities exchange or of the National  Association of Securities Dealers,  Inc.
(the "NASD"),  (ii) any foreign  broker or dealer not eligible for membership in
the NASD  which  agrees to  conform  to the  NASD's  Rules of Fair  Practice  in
soliciting  tenders  outside  the United  States to the same extent as though it
were an NASD  member,  or  (iii)  any bank or  trust  company  (each of which is
referred to herein as a "Soliciting  Dealer"). No such fee shall be payable to a
Soliciting  Dealer if such  Soliciting  Dealer  is  required  for any  reason to
transfer the amount of such fee to a depositing  holder (other than itself).  No
such fee shall be payable to a Soliciting Dealer with respect to shares tendered
for such Soliciting Dealer's own account. No broker, dealer, bank, trust company
or fiduciary shall be deemed to be the agent of the Company, the Depositary, the
Information Agent or the Dealer Manager for purposes of the Offer.

   The Company has retained  Chemical  Mellon  Shareholder  Services,  L.L.C. as
Depositary and D.F. King & Co., Inc. as Information Agent in connection with the
Offer.  The  Information  Agent may  contact  stockholders  by mail,  telephone,
facsimile transmission and personal interviews, and may request brokers, dealers
and other nominee  stockholders  to forward  materials  relating to the Offer to
beneficial  owners.  The  Depositary  and the  Information  Agent  will  receive
reasonable  and  customary  compensation  of their  services  and  will  also be
reimbursed  for  certain  out-of-pocket  expenses.  The  Company  has  agreed to
indemnify the Depositary and the Information Agent against certain  liabilities,
including certain  liabilities under the federal  securities laws, in connection
with the  Offer.  Neither  the  Information  Agent nor the  Depositary  has been
retained to make solicitations or recommendations in connection with the Offer.

   Certain  directors  or executive  officers of the Company  may,  from time to
time, contact stockholders to provide them with information regarding the Offer.
Such directors and executive  officers will not make any  recommendation  to any
stockholder  as to whether to tender all or any Shares and will not  solicit the
tender of any Shares.  The Company will not compensate any director or executive
officer for this service.

   Other than as described above, the Company will not pay any solicitation fees
to any  broker,  dealer,  bank,  trust  company  or other  person for any Shares
purchased in connection with the Offer.  The Company will reimburse such persons
for customary  handling and mailing  expenses  incurred in  connection  with the
Offer.

   The Company will pay all stock transfer taxes, if any,  payable on account of
the  acquisition of the Shares by the Company  pursuant to the Offer,  except in
certain  circumstances where special payment or delivery procedures are utilized
pursuant to Instruction 6 of the Letter of Transmittal.


                                       23


   The  expenses  incurred,  or  estimated  to be  incurred,  by the  Company in
connection  with the Offer are set forth below.  The Company will be responsible
for paying all such expenses.


Dealer Manager Fees................  $ 12,000
Solicitation Fees..................    40,000
Printing and Mailing Fees..........    20,000
Filing Fees........................     1,000
Legal, Accounting and
Miscellaneous .....................   127,000
Total..............................  $200,000
                                     ==========


16. MISCELLANEOUS.

The Company is subject to the informational requirements of the Exchange Act and
in accordance  therewith files reports and other information with the Commission
relating  to its  business,  financial  condition  and  other  matters.  Certain
information  as of  particular  dates  concerning  the  Company's  directors and
officers,  their remuneration,  the principal holders of the Company's and PEI's
securities and any material  interest of such persons in  transactions  with the
Company is filed with the  Commission.  The Company has also filed a Transaction
Statement on Schedule  13E-3 and an Issuer  Tender  Offer  Statement on Schedule
13E-4 with the Commission, which include certain additional information relating
to the Offer. Such reports, as well as such other material, may be inspected and
copies may be obtained at the Commission's  public  reference  facilities at 450
Fifth Street,  N.W.,  Washington,  D.C. 20549,  and should also be available for
inspection and copying at the regional  offices of the  Commission  located at 7
World Trade  Center,  13th  Floor,  New York,  New York  10048,  and Suite 1400,
Northwestern  Atrium Center, 500 West Madison Street,  Chicago,  Illinois 60661.
Copies  of  such  material  may  be  obtained  by  mail,  upon  payment  of  the
Commission's  customary fees, from the Commission's  Public Reference Section at
450 Fifth Street,  N.W.,  Washington,  D.C. 20549. The Company's Schedules 13E-3
and 13E-4 may not be available at the Commission's regional offices.

   The Offer is being made to all holders of Shares. The Company is not aware of
any state  where the  making of the Offer is  prohibited  by  administrative  or
judicial action pursuant to a valid state statute.  If the Company becomes aware
of any valid state statute prohibiting the making of the Offer, the Company will
make a good faith effort to comply with such statute.  If, after such good faith
effort, the Company cannot comply with such statute,  the Offer will not be made
to, nor will tenders be accepted from or on behalf of, holders of Shares in such
state. In those jurisdictions  whose securities,  blue sky or other laws require
the Offer to be made by a licensed  broker or dealer,  the Offer shall be deemed
to be made  on  behalf  of the  Company  by the  Dealer  Manager  or one or more
registered brokers or dealers licensed under the laws of such jurisdictions.


                                   PG ENERGY INC.


March 11, 1996



                                       24

               DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth the name,  business  address,  present  principal
occupation or employment and any other material occupations,  positions, offices
or  employments  during  the last  five  years of the  directors  and  executive
officers of the Company. Unless otherwise indicated, all occupations, positions,
offices or employments  listed opposite any individual's  name were held by such
individual  during the course of the last five  years.  Each  individual  listed
below is a citizen of the United States.





                                                 Present Principal Occupation or Employment
                                            and Other Material Occupations, Positions, Offices or
Name and Business Address                            Employments During the Last Five Years
- - - - - -------------------------                   ------------------------------------------------------

                                 
Kenneth L. Pollock                  Chairman of the Board of Directors of the Company and PEI since 
 PG Energy Inc.                     June,  1987;  Director of the Company  since 1972 and of PEI since 1974; 
 Wilkes-Barre Center                President and Chief Executive Officer of the Compan and PEI 
 39 Public Square                   from March, 1991, to August, 1991; Director and sole stockholder, 
 Wilkes-Barre, PA 18711-0601        Susquehanna Coal Company and Ken L. Pollock, Inc., Nanticoke, PA, 
                                    since prior to 1990.

Dean T. Casaday                     President,  Chief Executive  Officer,  and Director of the Company and 
 PG Energy Inc.                     PEI since  September  1, 1991;  Vice  President of National Fuel Gas
 Wilkes-Barre Center                Supply Corporation from 1989 to August, 1991.
 39 Public  Square 
 Wilkes-Barre, PA 18711-0601


William D. Davis                    Vice  Chairman of the Board of  Directors of the  Company  and  PEI
 Commonwealth Plaza                 since  March,  1991; Director  of the Company and PEI since 1981;
 33 W. Third Street                 Chairman  of the  Board of the  Commonwealth Bank Division of Meridian Bank,
 Williamsport, PA 17703             Williamsport,  PA, from  September,  1993 to December 31, 1995;
                                    Director, Meridian Bancorp, Inc., and Meridian Bank, Reading, PA,
                                    since September, 1993; Chairman of the Board and Chief Executive
                                    Officer of Commonwealth Bancshares Corporation, Williamsport, PA,
                                    from April, 1987, to June, 1993.

Paul R. Freeman                     Director of the Company and PEI since November, 1995; Controller of
 200 East Front Street              HUD, Inc., trading as Emerald Anthracite II, since 1988.
 P.O. Box 27                         
 Nanticoke, PA 18634  

Robert J. Keating                   Director of the Company and PEI since 1974; Former Chairman of the
 Avanti Cigar Co.                   Board of Parodi Industries, Inc., Scranton, PA, fromJanuary, 1985,               
 1015 N. Main Avenue                to February, 1994.
 Scranton, PA 18508  

John D. McCarthy                    Director of the Company and PEI since 1991; President of McCarthy
 McCarthy Tire Service Company      Tire Service Company, Wilkes-Barre, PA, since 1968; President of
 340 Kidder Street                  McCarthy Realty, Inc., since 1988.
 P.O. Box 1125                     
 Wilkes-Barre, PA 18703-1125 


                                       A-1


John D. McCarthy, Jr.               Director of the Company and PEI since November, 1995; Vice
 McCarthy Tire Service Company      President of McCarthy Tire Service Company, Wilkes-Barre, PA, since
 340 Kidder Street                  1989; President of McCarthy Tire Service Company of Allentown, 
 P.O. Box 1125                      Reading and Lancaster, since 1992; Vice President of McCarthy
 Wilkes-Barre, PA 18703-1125        Realty, Inc., since 1988.

Kenneth M. Pollock                  Director of the Company and PEI since October, 1993; Vice President
 200 East Front Street              of HUD, Inc., trading as Emerald Anthracite II; Vice President of
 P.O. Box 27                        Susquehanna Coal Company and Susquehanna Mt. Carmel, Inc., since
 Nanticoke, PA 18634                prior to 1987.

Richard A. Rose, Jr.                Director of the Company and PEI since November, 1995; President of
 454 South Main Street              Petroleum Sales Company, Inc., since 1992; Vice President of
 P.O. Box 454                       Petroleum Service Company, Inc., Wilkes-Barre, PA, since 1987.
 Wilkes-Barre, PA 18703-0454  

James A. Ross                       Director of the Company and PEI since May, 1978; Independent
 Old Windmill Road                  financial consultant since prior to 1988; Chairman, Priestgate,
 Clarks Summit, PA 18411            Limited, since 1991.

Ronald W. Simms                     Director of the Company and PEI since March, 1991; President and
  454 South Main Street             Chief Executive Officer of Petroleum Service Company, Inc.,
  Mountain P.O. Box 454             Wilkes-Barre, PA, since 1980; Chairman of the Board of Directors
  Wilkes-Barre, PA 18703-0454       since 1994,  and Chief  Executive  Officer  since 1984, of Mountain
                                    Productions,  Inc.;  Chairman of the Board of Directors of First 
                                    Heritage Bank since March, 1994.

Thomas F. Karam                     Executive Vice President of the Company and PEI since October,
 PG Energy Inc.                     1995; Vice President, Legg Mason Wood Walker, Incorporated from
 Wilkes-Barre Center                1986 to September, 1995. 
 39 Public Square                    
 Wilkes-Barre, PA 18711-0601        



Vincent A. Bonaddio                 Vice President, Operations and Engineering Services of the Company
 PG Energy Inc.                     and PEI since March, 1996; Vice President, Operations and
 Wilkes-Barre Center                Engineering of the Company and PEI since May, 1995; Director of
 39 Public Square                   Field Operations of the Company from May, 1991 to April, 1995;
 Wilkes-Barre, PA 18711-0601        General Superintendent, North Division, of the Company from 1988 to
                                    May, 1991.

Harry E. Dowling                    Vice President, Customer Services, of the Company and PEI since
 PG Energy Inc.                     March, 1996; Vice President of Human Resources and Customer 
 Wilkes-Barre Center                Services of the Company and PEI from October, 1992 to February,
 39 Public Square                   1996; Vice President of Customer Affairs of the Company and PEI
 Wilkes-Barre, PA 18711-0601        from 1987 to October, 1992.

                                       A-2



John F. Kell, Jr.
 PG Energy Inc.                     Vice President,  Financial Services, of the Company and PEI since
 Wilkes-Barre Center                March, 1996; Vice President, Finance, of the Company and PEI from 
 39 Public  Square                  October,  1992 to February,  1996;  Vice President and Controller of
 Wilkes-Barre, PA 18711-0601        the Company and PEI from 1978 to October, 1992.

Joseph F. Perugino                  Vice President, Energy Services, of the Company and PEI since
 PG Energy Inc.                     March, 1996; Vice President, Marketing and Gas Supply of the
 Wilkes-Barre Center                Company and PEI from October, 1992 to February, 1996; Vice
 39 Public Square                   President, Administration and Marketing of the Company and PEI from
 Wilkes-Barre, PA 18711-0601        November, 1989 to October, 1992.

Thomas J. Ward                      Vice President, Administrative Services, and Secretary, of the
 PG Energy Inc.                     Company and PEI since March, 1996; Vice President, Administration,
 Wilkes-Barre Center                and Secretary, of the Company and PEI from October, 1992 to
 39 Public Square                   February, 1996; Secretary of the Company and PEI from September,
 Wilkes-Barre, PA 18711-0601        1988 to October, 1992.

Thomas J. Koval                     Controller and Assistant Treasurer of the Company and PEI since
 PG Energy Inc.                     November, 1992; Accounting Manager of the Company from February,
 Wilkes-Barre Center                1987 to November, 1992.
 39 Public Square                    
 Wilkes-Barre, PA 18711-0601 

Richard N. Marshall                 Treasurer and Assistant Secretary of the Company and PEI since
 PG Energy Inc.                     February, 1996; Treasurer of the Company and PEI from May, 1994 to
 Wilkes-Barre Center                January, 1996; Assistant Treasurer of the Company and PEI from
 39 Public Square                   June, 1993 to May, 1994; Manager, Rates and Finance, of the Company
 Wilkes-Barre, PA 18711-0601        from March, 1988 to June, 1993.



                                       A-3



                                                                    SCHEDULE B

                  INTEREST IN PREFERRED STOCK OF THE COMPANY


   The  following  table  sets  forth  the name and title of each  director  and
executive  officer of the  Company,  and the name and address of each  associate
thereof,  beneficially  owning Shares or shares of any other series of preferred
stock of the Company (including the Depositary Preferred Shares (the "Depositary
Preferred Shares"), each representing a one-fourth interest in a share of the 9%
Cumulative  Preferred Stock of the Company,  and the 1966  Cumulative  Preferred
Stock (the "1966  Preferred  Shares")) as of March 7, 1996, the number of shares
so owned and the percentage of outstanding  shares of the particular series such
shares represent. 

The Shares:



  NAME AND TITLE OF        NUMBER OF SHARES         PERCENTAGE OF
  BENEFICIAL OWNER        BENEFICIALLY OWNED      OUTSTANDING SHARES
- - - - - ---------------------  ----------------------- -----------------------
                                         
 None ...............            None                    N/A



The Depositary Preferred Shares:



                                           NUMBER OF
                                          DEPOSITARY           PERCENTAGE OF
         NAME AND TITLE OF             PREFERRED SHARES    OUTSTANDING DEPOSITARY
          BENEFICIAL OWNER            BENEFICIALLY OWNED      PREFERRED SHARES
- - - - - -----------------------------------  -------------------- -----------------------
                                                    
William D. Davis, Director ........  2,000                *
Robert J. Keating, Director  ......    500 (1)            *
Thomas J. Koval, Controller and
Assistant Treasurer ...............     60                *
Joseph F. Perugino, Vice President     400                *




The 1966 Preferred Shares:




                               NUMBER OF                PERCENTAGE OF
  NAME AND TITLE OF      1966 PREFERRED SHARES           OUTSTANDING
  BENEFICIAL OWNER         BENEFICIALLY OWNED       1966 PREFERRED SHARES
- - - - - ---------------------  ------------------------- --------------------------
                                           
None ................             None                       N/A




_________
<FN>
* Less than 1%.

(1) Includes 100 Depositary Preferred Shares owned by Mr. Keating's wife.
N/A Not applicable.




                                       B-1


                                                                    SCHEDULE C
                
                 PURCHASES OF PREFERRED STOCK OF THE COMPANY
            BY THE COMPANY OR ITS AFFILIATES SINCE JANUARY 1, 1994


   The  following  table  sets forth the  amount of any  purchases  of Shares or
shares of any other  series of  preferred  stock of the Company  (including  the
Shares,  the Depositary  Preferred Shares,  the 1966 Preferred Shares, the 9.50%
1988 Series Cumulative  Preferred Shares (the "9.50% Preferred  Shares") and the
8.90% Cumulative  Preferred  Shares (the "8.90% Preferred  Shares")) made by the
Company and its affiliates (including,  without limitation, the Directors of the
Company)  since  January 1, 1994 and the range of prices  paid for such  shares.


The Shares:



   PURCHASER       DATE OF PURCHASE      NUMBER OF SHARES PURCHASED      PRICE PAID PER SHARE
                --------------------- ------------------------------- -------------------------
                                                                        
None .........           N/A                        N/A                          N/A



The Depositary Preferred Shares:




   PURCHASER       DATE OF PURCHASE      NUMBER OF SHARES PURCHASED      PRICE PAID PER SHARE
                --------------------- ------------------------------- -------------------------
                                                                        
     None                N/A                        N/A                          N/A




The 1966 Preferred Shares:




   PURCHASER     DATE OF PURCHASE  NUMBER OF SHARES PURCHASED  PRICE PAID PER SHARE
                ----------------- --------------------------- ---------------------
                                                     
 The Company    June 15, 1994     800                         $100.00
 The Company    June 15, 1995     800                         $100.00




The 9.50% Preferred Shares:




   PURCHASER     DATE OF PURCHASE  NUMBER OF SHARES PURCHASED  PRICE PAID PER SHARE
                ----------------- --------------------------- ---------------------
                                                     
 The Company    May 31, 1994      150,000                     $103.5625




The 8.90% Preferred Shares:




   PURCHASER     DATE OF PURCHASE   NUMBER OF SHARES PURCHASED  PRICE PAID PER SHARE
                ------------------ --------------------------- ---------------------
                                                      
 The Company    December 16, 1994  150,000                     $102.97

___________

N/A Not applicable.



                               C-1



   Facsimile  copies of the Letter of Transmittal will be accepted from Eligible
Institutions.  The Letter of Transmittal and  certificates  for Shares should be
sent or  delivered  by each  stockholder  of the  Company or his or her  broker,
dealer,  bank or trust  company to the  Depositary  at one of its  addresses set
forth below. 

                               THE DEPOSITARY:


                 CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.

         TO: CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C., DEPOSITARY




                                                             
By Mail:                        By Facsimile Transmission:          By Hand or Overnight Courier:
Reorganization Department      (For Eligible Institutions Only)    Reorganization Department
P.O. Box 837                   (201) 296-4293                      120 Broadway
Midtown Station                To Confirm Receipt of Facsimile:    13th Floor
New York, NY 10018             (201) 296-4100                      New York, NY 10271



Any  questions or requests  for  assistance  may be directed to the  Information
Agent at the telephone number and address listed below.  Requests for additional
copies of this Offer to Purchase,the Letter of Transmittal or other tender offer
materials  may be  directed  to the  Information  Agent and such  copies will be
furnished  promptly at the  Company's  expense.  Stockholders  may also  contact
theirlocal  broker,  dealer,  commercial  bank or trust  company for  assistance
concerning the Offer.


                            The Information Agent:

                            D.F. KING & CO., INC.
                              
                                 77 Water Street
                               New York, NY 10005
                                 (800) 714-3313


                             The Dealer Manager:

                            LEGG MASON WOOD WALKER
                                INCORPORATED

                       7 East Redwood Street, 6th Floor
                             Baltimore, MD 21202
                                (410) 528-2231