[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  Depositary Preferred Shares
(the  "Shares")  each  representing  a one-fourth  interest in a share of its 9%
Cumulative Preferred Stock, par value $100.00 per share,  liquidation preference
$100.00 per share, at a price of $27.00 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   All of the Shares that are properly  tendered (and are not  withdrawn)  will,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.  The  Company  has been
advised that two directors  and two  executive  officers of the Company (each of
whom also serves as a director or executive officer of Pennsylvania Enterprises,
Inc.,  the holder of all of the Company's  common stock) intend to tender Shares
pursuant  to the offer and that no other  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.


                                        Sincerely,


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