[PG ENERGY INC. LETTERHEAD]

                                                                March 11, 1996

Dear Stockholder:


   PG Energy Inc.,  formerly known as  Pennsylvania  Gas and Water  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 a price of $50.00 per Share.

   All of the Shares that are properly  tendered (and are not  withdrawn)  will,
subject to the terms and conditions set forth in the enclosed Offer to Purchase,
be purchased at that purchase price, net to the selling stockholder in cash. All
other Shares that have been tendered and not  purchased  will be returned to the
stockholder. 

   If you do not wish to participate  in the offer,  you do not need to take any
action.


   The offer is explained in detail in the enclosed Offer to Purchase and Letter
of Transmittal. If you want to tender your Shares, the instructions on how to do
so are also  explained in detail in the enclosed  materials.  I encourage you to
read these  materials  carefully  before making any decision with respect to the
offer.

   Neither the Company nor its Board of Directors  makes any  recommendation  to
any  stockholder  whether to tender all or any  Shares.  Neither I nor any other
director or executive  officer intends to tender Shares pursuant to the offer as
no such person owns any Shares. 

                                   
                                        Sincerely,

                                        

                                        /s/ Dean T. Casaday
                                        ----------------------------------
                                        Dean T. Casaday
                                        President and Chief Executive Officer