WASHINGTON GAS LIGHT CO - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K

(Mark One)

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 1997
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OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
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Commission file number 1-1483
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WASHINGTON GAS LIGHT COMPANY
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(Exact name of registrant as specified in its charter)

District of Columbia and Virginia 53-0162882
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1100 H Street, N. W., Washington, D. C. 20080
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (703) 750-4440
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Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
- ------------------------------------ --------------------------------
Common Stock $1.00 par value New York Stock Exchange
Philadelphia Stock Exchange
Preferred Stock, cumulative,
without par value:
$4.25 Series Philadelphia Stock Exchange
$4.36 Convertible Series Philadelphia Stock Exchange
$4.60 Convertible Series Philadelphia Stock Exchange
$4.80 Series Philadelphia Stock Exchange
$5.00 Series Philadelphia Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days, (Yes/No) X No
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.

$ 1,135,428,410 October 31, 1997
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Market Value Date

Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.

Common Stock $1.00 par value 43,600,969 November 28, 1997
- ---------------------------- ----------------- ---------------------
Class Number of Shares Date

DOCUMENTS INCORPORATED BY REFERENCES

List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K:

PART I - Annual Report to Shareholders for the fiscal year ended September
30, 1997.

PART II - Annual Report to Shareholders for the fiscal year ended September
30, 1997 (Pages 20 through 47).

PART III - Proxy Statement dated January 21, 1998.

PART IV - Form S-7 Registration Statement number 2-53658, filed May 12, 1975,
and Amendment No. 2 thereof, filed June 24, 1975.
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TABLE OF CONTENTS

PART I PAGE
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Item 1. Business
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Rate Regulation, Retail Gas Rates and Rate Increases . . . . . . . . . 4
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Gas Supply and Capacity . . . . . . . . . . . . . . . . . . . . . . . 14
Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . 16
Year 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . 20

Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 21

PART II
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 23

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 23

Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . 23

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . 23

PART III
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Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . 23

Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . 23

PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Report of Independent Public Accountants on Schedule . . . . . . . . . . . . . . . . . . 29

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

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FORWARD-LOOKING STATEMENTS

Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Certain words, such as, but not limited to,
"estimates," "expects," "anticipates," "intends," "believes," and variations of
these words, identify forward-looking statements that involve uncertainties and
risks. Although Washington Gas Light Company (the Company) believes such
forward-looking statements are based on reasonable assumptions, it cannot give
assurance that every objective will be reached. The Company makes such
statements in reliance on the safe harbor protections provided under the
Private Securities Litigation Reform Act of 1995.

As required by such Act, the Company hereby identifies the following important
factors that could cause actual results to differ materially from any results
projected, forecasted, estimated or budgeted by the Company in forward-looking
statements: (1) risks and uncertainties impacting the Company as a whole
primarily related to changes in general economic conditions in the United
States; (2) changes in laws and regulations to which the Company is subject,
including tax, environmental and employment laws and regulations; (3) the cost
and effects of legal and administrative claims and proceedings against the
Company or which may be brought against the Company; (4) conditions of the
capital markets utilized by the Company to access capital to finance
operations; (5) the effect of fluctuations in weather from normal levels; (6)
variations in prices of natural gas and competing energy sources; (7)
improvements in products or services offered by competitors; and (8) the
Company's ability to develop expanded markets and product offerings as well as
to maintain existing markets and the expenditures required to develop and
provide such products and services.

PART I

ITEM 1. BUSINESS

The Company is a public utility that delivers and sells natural gas to
metropolitan Washington, D.C. and adjoining areas in Maryland and Virginia. A
distribution subsidiary serves portions of Virginia and West Virginia. The
Company has been engaged in the gas distribution business for 149 years, having
been originally incorporated by an Act of Congress in 1848. It became a
domestic corporation of the Commonwealth of Virginia in 1953 and a corporation
of the District of Columbia in 1957.

The population of the area served by the Company is estimated to be 4.6
million. As of September 30, 1997, the Company and its distribution subsidiary
served 798,739 customer meters. A listing of meters served and therms
delivered as of and for the twelve months ended September 30, 1997,
respectively, by jurisdiction is shown in the table below. A therm of gas
contains 100,000 British Thermal Units of heat, the heat content of
approximately 100 cubic feet of natural gas.

Therms Delivered
Jurisdiction Meters Served (millions)
------------ ------------- ----------------

District of Columbia 143,875 335
Maryland 332,494 691
Virginia 319,379 496
West Virginia 2,991 25
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Total 798,739 1,547
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Of the 1,547 million therms delivered in fiscal year 1997, 80% was sold by the
Company and its distribution subsidiary and 20% was delivered to various
customers that acquired their gas from other suppliers. Of the therms sold and
delivered by the Company, 54% was sold to firm residential customers, 34% was
sold to firm commercial and industrial customers and 12% was sold to
interruptible commercial, industrial and electric generation customers.
Interruptible customers must be capable of using an alternate fuel as a
substitute for natural gas when the Company determines their service must be
interrupted to accommodate firm customers' needs during periods of peak demand.
Therms delivered by the parent company amounted to 96% of the total
consolidated deliveries.

SUBSIDIARIES

The Company has four wholly-owned active subsidiaries that are described below.

Shenandoah Gas Company (Shenandoah) is engaged in the delivery and sale of
natural gas at retail in the Shenandoah Valley, including Winchester,
Middletown, Strasburg, Stephens City and New Market, Virginia, and Martinsburg,
West Virginia. Deliveries of natural gas for the twelve months ended September
30, 1997 totaled 64 million therms, of which 12% was sold to firm residential
customers, 30% was sold to firm commercial and industrial customers, 47% was
sold to interruptible commercial and industrial customers, and 11% was
delivered to various customers that acquired their gas from other suppliers.

Hampshire Gas Company (Hampshire) operates an underground gas storage field in
the vicinity of Augusta, West Virginia on behalf of the Company under a cost of
service tariff regulated by the Federal Energy Regulatory Commission (FERC).

Crab Run Gas Company (Crab Run) is an exploration and production subsidiary
whose assets are being managed by an Oklahoma-based limited partnership. At
September 30, 1997, Crab Run's investment in this partnership was not material.
The Company expects that any additional investments in the partnership will be
minimal.

Washington Gas Resources Corp. (WGR) is a wholly-owned subsidiary under which
the Company's non-utility subsidiaries, except Crab Run, are organized. WGR's
subsidiaries, which are described below, are Washington Gas Consumer Services,
Inc. and Washington Gas Energy Services, Inc. (WGES). WGES also has
subsidiaries, as described further below.

Washington Gas Consumer Services, Inc. was formed to provide consumers with
appliance inspection services, for both gas and electric appliances, under its
Certified Performance Program. In addition, this subsidiary plans to offer
programs under which it locates energy-related opportunities, typically gas
conversion projects, and acts as an intermediary between the consumer and the
finance company.

Washington Gas Energy Services, Inc.(WGES) is primarily engaged in the sale of
natural gas in competition with third-party suppliers such as gas marketers and
non-regulated subsidiaries of other utility companies. During its first full
year of operation in fiscal year 1997, WGES sold over 112 million therms of
gas, including 12 million therms sold outside of the Company's traditional
service territory. WGES, having received a power certificate from the FERC,
plans to

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sell electricity as soon as electricity markets open. WGES' subsidiaries are
described below.

Washington Gas Energy Systems, Inc. provides commercial energy services,
including the design and renovation of mechanical heating, air conditioning and
ventilation systems.

Brandywood Estates, Inc. (Brandywood) is a general partner, along with a major
developer, in a venture designed to develop 1,600 acres in Prince George's
County, Maryland for sale or lease. This acreage was contributed to the
Brandywood Development Limited Partnership by Brandywood in 1992. In March
1996, the partnership submitted to Prince George's County a rezoning
application for 790 acres of its property. The mixed-use development plan
proposes approximately 1,600 homes, 100,000 square feet of retail space and
105,000 square feet of office space. Final review of the development proposal
is presently not expected until 1999. Brandywood continues to have sole
ownership of approximately 1,000 additional acres adjacent to this property
that are not being currently developed or otherwise utilized.

Advanced Marketing Concepts, Inc. previously provided services primarily in the
area of energy-related home improvements. This subsidiary is currently
inactive.

RATE REGULATION, RETAIL GAS RATES AND RATE INCREASES

Rate Regulation

The Company is regulated by the Public Service Commission of the District of
Columbia (PSC of DC), the Public Service Commission of Maryland (PSC of MD) and
the State Corporation Commission of Virginia (SCC of VA). Shenandoah is
regulated by the SCC of VA and the Public Service Commission of West Virginia
(PSC of WVA). The FERC regulates Hampshire.

The PSC of DC consists of three full-time members who are appointed by the
Mayor and confirmed by the District of Columbia City Council. The term of each
commissioner is four years. There are no limitations on the number of terms
that can be served. There is no statutory suspension period related to rate
requests.

The PSC of MD consists of five full-time members who are appointed by the
Governor and confirmed by the Senate of Maryland. The term of each
commissioner is five years. There are no limitations on the number of terms
that can be served. The Company is required to give 30 days' notice when
filing for a rate increase. The PSC of MD may initially suspend the proposed
increase for 150 days beyond the 30-day notice period and then has the option
to extend the suspension for an additional 30 days. If action has not been
taken after 210 days, rates may be placed into effect subject to refund.

The SCC of VA consists of three full-time members who are elected by the
General Assembly of Virginia. A commissioner's term is for six years with no
limitation on the number of terms that can be served. An Expedited Rate Case
(ERC) procedure is available which provides that rate increases may take effect
30 days after the filing date. Under the ERC mechanism, the Company may not
propose any changes in accounting policies and the rate of return on common
equity cannot be modified from the rate established in the last fully
adjudicated case. General rate applications may take effect 150 days after the
filing. Before new rates become final, both types of rate increases are
subject to refund.

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RETAIL GAS RATES

Unbundling Initiatives

Currently, for the majority of its business, the price the Company charges its
customers is based on the combination of the cost it incurs for the natural gas
commodity delivered to the entry point of the Company's distribution system and
the cost it incurs to deliver natural gas from this entry point to the
customers' premises. Although the Company continues to generate the majority of
its revenues from the sale and delivery of natural gas on this combined or
bundled basis, state regulatory and Company initiatives are seeking to separate
or "unbundle" the sale of the natural gas commodity ("city gate supply
service") from the delivery of gas on the Company's distribution system
("delivery service").

Nearly all of the Company's interruptible customers have the option of
purchasing their gas from third-party suppliers including the Company's
gas-marketing subsidiary, WGES. The Company continues to charge these customers
for delivering gas through its distribution system. Firm city gate supply
service is offered only on a limited basis to firm customers in the Company's
Maryland jurisdiction. Current and future unbundling initiatives for firm and
interruptible customers in Maryland, Virginia and the District of Columbia are
discussed further in the Competition section below, under the subsection
entitled Unbundling in the Company's Major Jurisdictions.

WGES provides third-party supplier gas to interruptible customers in all of the
Company's major jurisdictions and to various firm customers in Maryland. WGES
retains the full amount of margins generated on sales of the natural gas
commodity.

Regulated Service to Firm Customers

In the District of Columbia jurisdiction, the firm residential and
non-residential rate schedules are based upon a flat commodity charge for each
therm of gas consumed and a customer charge designed to recover certain fixed
costs. In addition to this two-part rate design, a peak-usage charge is in
place for non-residential firm customers. This charge was established to send
accurate price signals as to the cost of gas to customers during both peak and
non-peak periods. In the Maryland and Virginia jurisdictions, the rate
schedules for firm service are comprised of a fixed customer charge and
declining-block commodity rates. The Company and Shenandoah do not have any
weather normalization mechanisms designed into their rate structures.

The current firm tariff provisions in all jurisdictions of the Company and
Shenandoah contain gas cost recovery mechanisms that provide for the recovery
of actual invoice cost of gas applicable to firm customers. Under these
mechanisms, the Company periodically adjusts its rates to firm customers to
reflect increases and decreases in the cost of gas purchased. Moreover, each
jurisdiction in which the Company and Shenandoah operate provides for an annual
reconciliation of total gas costs recovered from firm customers to the actual
invoice cost of gas applicable to firm customers.

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Regulated Service to Interruptible Customers

For services provided to interruptible customers, the Company requires that
these customers be capable of using an alternate fuel as a substitute for
natural gas when the Company determines their service must be interrupted to
accommodate firm customers' needs during periods of peak demand. The effect on
net income of changes in delivered volumes and prices to the interruptible
class is minimized by margin-sharing arrangements that are part of the design
of the Company's rates. Under these arrangements, the Company returns a
majority of the margins earned on interruptible gas sales and deliveries to
firm customers after a gross margin threshold is reached or in exchange for the
shift of a portion of the fixed costs of providing service from the
interruptible to the firm class. In Maryland, the Company retains 100% of the
gross margins associated with sales and deliveries to interruptible customers
until the Company has recovered its investment in capital costs associated
therewith. This arrangement has been in effect in Maryland for interruptible
customers added since August 1989.

RATE INCREASES

District of Columbia

On October 8, 1993, the PSC of DC issued a final order based on a rate increase
requested in December 1992 that approved a $4.7 million increase, or 2.5%, in
annual revenues, effective October 19, 1993. The order, which included an
overall rate of return of 9.86% and a return on common equity of 11.50%,
provided for a phase-in, rather than immediate recognition, of the additional
costs associated with the implementation of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" (SFAS No. 106). The incremental costs related to SFAS No. 106
are being phased-in over a five year period. In each year of the phase-in, the
Company files for an increase in rates, through streamlined procedures, to
reflect an additional increment of SFAS No. 106 costs in excess of a stipulated
pay-as-you-go level. The difference between the incremental annual amount
reflected in rates during the phase-in period and the full SFAS No. 106 cost is
being deferred as a regulatory asset and will be collected over a 15-year
period beginning in approximately October 1998.

On August 1, 1994, the PSC of DC issued an order approving a Stipulation and
Agreement signed by a majority of the parties to a rate case filed in January
1994, providing for a $6.4 million annual increase in revenues, or 3.4%,
effective August 1, 1994. The agreement did not specify a rate of return. The
agreement provided for an increase in the curtailment charge to interruptible
customers during periods of interruption and established the
previously-discussed peak usage charge for non-residential firm customers.

Maryland

On July 29, 1993, the PSC of MD authorized an increase in base rates designed
to collect an additional $10.6 million, or 3.7%, in annual revenues, effective
August 1, 1993. The order resulted from a settlement agreement entered into by
most of the parties to a rate case filed in March 1993. Recovery of SFAS No.
106 costs, which had been included in the Company's request, was not
specifically addressed in the order; however, the amount authorized was
sufficient to cover the costs associated with implementing this standard in the
Company's Maryland jurisdiction. The order also included a revision to the
Company's purchased gas cost recovery mechanism

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to provide for recovery of carrying costs on actual storage gas balances and
provided for an annual increase in revenues of $1.0 million resulting from the
modification to, or the addition of, certain service-related charges. The
return on equity indicated in the order of 11.50% was not utilized to establish
rates.

On October 18, 1994, the PSC of MD issued an order approving an unopposed
Stipulation and Agreement signed by a majority of the parties to a rate case
filed in June 1994 and base rates, designed to collect an additional $7.4
million, or 2.4%, annually were placed into effect on December 1, 1994.

Virginia

On September 27, 1994, the Company implemented rates designed to recover an
additional $15.7 million annually, based on a rate case filed in April 1994.
These rates were collected subject to refund. On September 28, 1995, the SCC of
VA issued an order approving an increase in annual revenues of $6.8 million, or
2.7%, effective September 27, 1994. The order included an overall rate of
return of 9.72% and a return on equity of 11.50%. The order allowed the Company
to collect SFAS No. 106 costs in accordance with a generic order of the SCC of
VA. The Company refunded amounts associated with the difference between the
interim rates that were collected subject to refund and the amount approved by
the SCC of VA, with interest, by January 1, 1996.

Page 45 of the Company's 1997 Annual Report to Shareholders, which is
incorporated by reference into this report, includes discussion of an on-going
proceeding in the Company's Virginia jurisdiction related to the Virginia
jurisdictional portion of regulatory assets.

Page 31 of the Company's 1997 Annual Report to Shareholders, which is
incorporated by reference into this report, includes a summary of the rate
applications of the parent company described above.

Shenandoah

The PSC of WVA issued an order, effective on September 18, 1995, that approved
a joint Stipulation and Agreement between the Staff of the PSC of WVA and
Shenandoah, based on a rate increase request filed by Shenandoah in January
1995. The agreement provided for an annual increase in rates of $522,000 and
did not specify a return on equity or an overall rate of return. Shenandoah
placed the new rates into effect on December 4, 1995.

On August 6, 1995, Shenandoah placed into effect new rates in Virginia designed
to collect an additional $1.2 million in annual revenues, subject to refund,
based on a rate case filed in July 1995. On May 30, 1996, the SCC of VA issued
an order approving an increase in annual revenues of $883,000, effective August
6, 1995. The increase reflected an overall rate of return of 9.51% and a
return on equity of 11.00%. Shenandoah returned, with interest, amounts
collected under interim rates in excess of the amount ultimately granted to
customers by September 1, 1996.

On February 2, 1996, Shenandoah filed a request with the PSC of WVA for a rate
increase of $604,000. The request included an overall rate of return of 10.33%
and a return on common equity of 12.25%. In addition to requesting the
recovery of increased operating expenses and a return on additional capital
investment,

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Shenandoah requested full recovery of costs associated with SFAS No. 106. On
August 8, 1996, Shenandoah, the Staff of the PSC of WVA, and the Consumer
Advocate Division of the PSC of WVA reached a settlement which resulted in an
increase in annual revenues of $216,000. On November 27, 1996, the PSC of WVA
issued an order approving the terms of the agreement and the increased rates
became effective on December 2, 1996.

On August 1, 1997, Shenandoah filed a request with the SCC of VA for new rates
designed to collect additional annual operating revenues of $2,306,000, or
10.54%. This request included an overall rate of return of 10.03%, a return on
common equity of 12.25%, and a 55.24% common equity ratio. The requested
increase in rates is primarily necessary to compensate Shenandoah for its
increased capital investment. New rates will be placed into effect, subject to
refund, on January 5, 1998. Shenandoah expects a final order from the SCC of
VA in the third quarter of fiscal year 1998.

COMPETITION

Sources of Competition

The Company faces competition based on its customers' preference for its
product compared to other energy products and also in relation to the price of
those products. Currently, the most significant product-side competition is
between natural gas and electricity in the residential market. This portion of
the Company's business currently contributes a substantial amount of the
Company's net income. The Company continues to derive the majority share of the
new residential construction market in its service territory and believes
customer preference for natural gas allows it to maintain its strong presence.

Currently, for the majority of its business, the price the Company charges its
customers is based on the combination of the cost it incurs for the natural gas
commodity delivered to the entry point of the Company's distribution system and
the cost it incurs to deliver natural gas from the entry point to the
customers' premises. Although the Company continues to generate the majority of
its revenues from the sale and delivery of natural gas on this combined or
bundled basis, state regulatory and Company initiatives are seeking to separate
or unbundle the sale of the natural gas commodity from the delivery of gas on
the Company's distribution system. As the Company's product becomes unbundled,
price competition among the Company and gas marketers for the sale of the
natural gas commodity will become more prevalent.

Unbundling city gate supply service from delivery service allows gas marketers
and non-regulated subsidiaries of other utility companies the opportunity to
gain access to the Company's customers, resulting in increased competition for
city gate supply service. As discussed more fully below, local and national
non-regulated marketers have already participated in the Company's initial
unbundling and customer choice programs for city gate supply service.
Competition for this market appears to be focused primarily on the price of the
natural gas commodity and is expected to continue to be driven by price. The
Company believes this competition supports greater choice in energy suppliers
and, therefore, increased customer satisfaction with natural gas.

Currently, the Company generally maintains a price advantage over electricity
in the jurisdictions it serves. However, electricity suppliers are beginning
initial stages of restructuring their services. Their initiatives are generally
focused

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on separating the generation portion of electric service from the transmission
and distribution portion. The generation service is expected to move toward a
market-based price and allow for third-party providers of electricity to
participate in retail markets. Like the unbundling that is occurring in the
natural gas commodity market, the unbundling of electricity is likely to result
in lower comparative costs for electric service and increased competition for
the Company.

In the interruptible market, where customers must be capable of using a fuel
other than natural gas when demand by firm customers peaks, fuel oil is the
most significant competing energy alternative. The Company's success in this
market is largely dependent on changes in gas versus oil prices. The price of
natural gas, which is primarily developed from domestic sources, is greatly
influenced by the relationship between supply and demand. However, the price of
oil, much of which comes from foreign sources, is impacted greatly by political
events.

Natural Gas Industry Restructuring

The natural gas industry, which has traditionally included producers,
interstate pipelines and local distribution companies (LDCs) such as the
Company, has undergone many structural changes over its long history. These
changes have generally been in response to customers' and regulators' desires
to promote competition in situations where it is economically beneficial to
consumers. For the pipeline and distribution parts of the industry, significant
changes have occurred over the past 10 years.

The restructuring of the natural gas industry generally began at the producer
level with the passage of the Natural Gas Policy Act in 1978, which brought
about a gradual decontrol of the wellhead price of natural gas and allowed for
market-based prices. In the pipeline segment of the industry, FERC Order No.
636 separated the merchant function of selling natural gas from the interstate
transportation and storage services of the pipeline companies in order to
increase competition. As a result of FERC Order No. 636, pipeline companies are
responsible for providing gas storage and transportation services, and LDCs
have taken on the responsibility and risk of separately obtaining storage and
transportation capacity from pipelines and procuring competitive natural gas
supplies from producers and marketers. The rates charged by pipelines for
transmission and storage are still regulated by FERC, but negotiated,
market-based rates are beginning to appear.

Driven by changes in other segments of the industry, LDCs are changing too.
Although the Company continues to generate the majority of its revenues from
the combined sale and delivery of natural gas, state regulatory and Company
initiatives have allowed a limited opportunity to separate or unbundle the sale
of the natural gas commodity from the delivery of gas. The complete transition
in all jurisdictions to unbundled sale and delivery service to all customer
classes could take several years.

Unbundling the city gate supply service component from the delivery service
component allows gas marketers and non-regulated subsidiaries of other utility
companies the opportunity to gain access to the Company's customers. This will
result in increased competition for city gate supply service. The Company has
sought and gained regulatory approval to open certain of its commercial,
industrial and residential markets to competition for the sale of the natural
gas commodity. Although opportunities are limited due to the small number of
open

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markets at this time, the Company, through its gas-marketing subsidiary, WGES,
actively competes against other marketers in these programs.

Under the traditional regulatory model, where city gate supply service and
delivery service are bundled in one rate, the Company's profits are derived
solely from the delivery component, not from the sale of gas. Because only
actual gas costs are passed through to customers, there is not a profit element
from the sale of the natural gas commodity by the utility. Accordingly,
unbundling the city gate supply service is not expected to have an adverse
effect on the Company's ability to earn a regulated return on its distribution
system investment. In contrast, a competitive city gate supply service provides
non-regulated sellers of gas, including WGES, the opportunity to profit and to
incur the risk of loss on the sale of gas to customers. As unbundling continues
in the service territories of other gas utilities, WGES is hopeful that it can
gain an increased share of the gas commodity market and increased profit
opportunities. The Company supports movement of city gate supply service toward
a fully deregulated, competitive service for all customers.

The Company does not expect most delivery service components of its operations
to be subject to competition because of the economic disincentives to others to
construct duplicate facilities. The Company also believes that it will continue
to earn a regulated return on its delivery service. Because of the nature of
the Company's customer base and the location of its customers in relation to
the interstate pipelines, the Company believes that bypass of its facilities by
other potential providers of delivery service is unlikely to be a significant
threat. Although most delivery service components are likely to remain
regulated and earn a regulated return, the Company believes certain aspects of
its current delivery service could also be unbundled in the future and the
nature of the regulation with respect to these elements could change.
Activities, including but not limited to billing, reading meters, and other
services on customers premises, could be separated from the cost of providing
delivery service. The cost of these services could undergo greater scrutiny by
customers as this unbundling occurs, because customer bills could separately
display costs for city gate supply service, delivery service and other service
components. In fact, the cost of gas to the city gate and certain appliance
service functions are separated on the Company's bills now. To the extent
markets develop for these other service components, it will be important for
the Company to ensure its costs are at market-clearing levels. Segregation of
costs of individual services combined with development of new products will
also allow the Company to package its services in new bundles on which its
customers place more value. It could also allow the Company to access markets
outside of its traditional service area to perform these services.

Unbundled service maximizes choices for customers, creates new opportunities
for service providers and generates potential benefits to shareholders. In
recognition of customer demand for choice in natural gas suppliers, the Company
seeks to provide these customers with desired products, services and
convenience. The Company believes that success in future energy markets will
not be driven by profits from one product or service, but instead will hinge on
a company's ability to provide, at competitive prices, multiple products and
newly bundled service packages consumers value. Non-regulated energy products
and services that the Company already offers include the design and
installation of energy equipment, heating and air-conditioning inspections on
both gas and electric equipment, and energy-related consumer financing.

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Currently, some states have instituted initiatives to further extend the
benefits of competition to the consumer. These include performance-based
regulation for gas cost recovery by LDCs and a greater focus on incentive
regulation or basing cost recovery on external measures of efficiency.
Depending on the circumstances in the jurisdictions in which the Company
operates, some of these types of alternatives could be initiated on an interim
basis before competitive city gate supply service is fully implemented.

The significant level of change in energy markets provides both opportunities
and challenges to the Company over the next several years. Factors that will
likely be important to the Company's and its marketing subsidiary's successes
include: (1) their ability to ensure access to a supply of natural gas and
pipeline capacity at competitive prices; (2) their ability to react quickly to
changing market conditions and modify or rebundle their products, services and
conveniences that their customers value; and (3) the timing and extent of
access to their markets by other competitors.

Unbundling in the Company's Major Jurisdictions

The Company has actively promoted competition for the sale of natural gas. The
Company's goal is to provide customers with the products, services and
conveniences they want and in addition gain new opportunities to profit from
the sale of natural gas through its gas-marketing subsidiary, WGES. Programs
allowing such competition are taking place, at different rates, in the
Company's major jurisdictions.

Unbundling initiatives have progressed furthest in Maryland. Currently,
competitive natural gas supply options are available in Maryland for all
interruptible customers, and certain firm commercial and residential customers.
For large commercial customers, a tariff change effective September 1, 1997
lowered the eligibility threshold from 40,000 to 20,000 therms of annual usage.
As a result of this change, customers with 55% of the annual throughput of this
class in Maryland have a choice of gas commodity suppliers.

The Company's pilot program for small commercial customers in Maryland is in
its second year. The 4,400 participating customers have chosen from among four
gas commodity suppliers to satisfy their requirements. These customers
represent 53% of the Company's small commercial customers' annual throughput in
Maryland.

The Company's Customer Choice pilot program for Maryland residential customers,
one of the first in the nation, is in its second year. Under this program,
customers may choose their suppliers of natural gas and the suppliers,
including WGES, may make profits on such sales. Effective November 1, 1997, the
number of customers eligible to choose their gas commodity supplier under this
program increased to 25,000 customers (8.3% of the Company's Maryland
residential customers). Of this total, approximately 18,300 customers have
signed up with one of four participating gas commodity suppliers, including the
Company's gas-marketing subsidiary, WGES. Approximately 35% of the enrollees
or, 6,400 customers, signed up with WGES compared with 15% who chose WGES in
last year's pilot program. The Company hopes to expand its customer choice
pilot programs over the next few years until all of the Company's Maryland
customers have the option of choosing their gas commodity supplier by 2001.

The pilot programs are designed to help the Company and customers manage the
transition to deregulation, identifying potential issues in the early stages
and

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developing effective solutions. For example, the PSC of MD included an interim
method of recovering transitional costs related to contracts that reserve
transportation capacity with interstate pipelines in its order approving the
recent pilot program. As customers choose other gas commodity suppliers, the
needed amount of pipeline capacity the Company has under contract diminishes.
To the extent the Company is unable to reduce its contractual obligations,
these costs could become "stranded" by the Company's inability to pass these
costs on as current practices allow. The PSC of MD's order allows the Company
to charge the cost of this capacity to other marketers and/or customers.

In Virginia, only interruptible customers have an opportunity to choose their
supplier of the natural gas commodity. In fiscal year 1997, the SCC of VA
approved the Company's request to revise its interruptible delivery service
tariff to expand the eligible base of interruptible customers who can purchase
gas from third-party suppliers, including WGES. The revised tariffs, effective
January 1, 1997, reduced the minimum annual requirement for delivery service
from 250,000 to 60,000 therms. Approximately 85% of the Company's interruptible
customers in Virginia can now choose their natural gas commodity supplier. The
Company plans to file a request with the SCC of VA in the next few months to
offer a gas commodity supplier choice program for certain commercial and
residential customers.

In the District of Columbia, the Company has filed tariff proposals with the
PSC of DC to expand the number of interruptible and large commercial customers
eligible to purchase gas from third-party suppliers. Currently, approximately
62% of the Company's interruptible customers in the District of Columbia can
choose their natural gas commodity supplier. The Company has also proposed a
program to allow third-party sales to large firm commercial customers and a
two-year pilot program that would allow third-party gas sales to a limited
group of residential customers. The PSC of DC has held hearings to address each
of the Company's proposals and a decision is expected in the near future.

Electric Industry Restructuring

Although the natural gas industry has progressed further toward unbundling and
deregulation than the electric industry, recent electric deregulation movements
at both the local and national levels have implications for the gas industry.
The Company expects that, similar to the gas industry, the local distribution
function of transporting electricity will remain regulated.

Early movements toward deregulation in the electric industry have included: (1)
the Energy Policy Act of 1992, which allowed non-regulated independent power
producers to sell power to wholesale customers in competition with regulated
electric utilities; and (2) FERC Order No. 888, issued in 1996, which intended
to further increase wholesale competition within the electric industry
beginning in 1998.

FERC Order No. 888 addresses open access and stranded cost issues. Open access
provisions stimulate wholesale electric power sales competition by requiring
public utilities that own, control or operate electric transmission lines to
file non-discriminatory tariffs that offer others the same transmission
services they provide themselves, under comparable terms and conditions. These
utilities must also use these tariffs for their own wholesale energy sales and
purchases. The order also provides that stranded costs, the unrecovered costs
incurred by electric utilities in anticipation of continued service to their
customers, are eligible for recovery, under certain terms and conditions, from
customers who use open access to move to another electricity supplier.

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Direct customer access to electricity providers at the retail level is being
implemented in several states in early 1998 and being studied in many more.
Regulatory changes at the state level should increase competition between
electricity providers and in relation to competing fuels, such as natural gas.
Over time, this competition should tend to reduce prices to consumers.

All of the Company's major jurisdictions are investigating the advisability of
mandating retail electric unbundling. The Company supports moving to an
unbundled electric market and has actively participated in proceedings in its
jurisdictions. In Maryland, the PSC of MD staff issued a report recommending
phased-in unbundling beginning in the spring of 1998, with no movement of
electricity until 2000. The Company submitted testimony to the PSC of MD that
largely supported the staff's conclusions. In December 1997, the PSC of MD
issued an order which proposed a phased implementation of retail electric
unbundling over a three-year period, commencing in 1999. The PSC of MD directed
the investor-owned electricity companies in Maryland to fully unbundle their
rates. These actions are consistent with testimony submitted by the Company to
the PSC of MD.

In addition, the Maryland General Assembly convened a Task Force to look at the
issues created by the introduction of competition for electricity. The Company
has also submitted testimony to the Task Force that is supportive of the PSC of
MD's order. The Task Force is expected to issue a report shortly.

In the District of Columbia, the PSC of DC is conducting a similar review of
electric industry restructuring, which covers many of the same issues faced by
the FERC, Maryland and other local commissions. The Company has actively
participated in the matter to date, sponsoring testimony that calls for the
unbundling of electric services and permits competition in providing
electricity to consumers.

In Virginia, the Company recently addressed the state's Joint Study Committee
on Restructuring the Electrical Utility Industry. The Company proposed a plan
to introduce competitive retail sales to the Virginia electricity market as
early as 1998. The plan includes provisions for service reliability, consumer
education and protection, taxation, investment recovery, and penalties for
anti-competitive practices. The staff of the SCC of VA has proposed a
Transition Model that would allow the introduction of competition in the
Virginia electric market beginning no sooner than the year 2000 with pilot
programs to be conducted on a limited basis over the next two years.

As local regulatory commissions move forward on electric deregulation, the
Company is planning to take advantage of resulting new opportunities. In
addition to its gas-marketing activities, WGES, having received a power
certificate from the FERC, hopes to sell electricity as soon as electricity
markets open.

Industry Consolidation

Many in the energy industry, including the Company, believe that the
increasingly deregulated and more competitive energy industry will continue to
lead to industry consolidation, combination, disaggregation and other strategic
alliances and restructuring as energy companies seek to offer a broader range
of energy services to compete more effectively in attracting and retaining
customers. For example, affiliations with other operating utilities could
potentially result in economies and synergies, and combinations could provide a
means to offer

13
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customers a more complete range of energy services. Others are discontinuing
operations in certain portions of the energy industry or divesting portions of
their business and facilities.

Consolidation will present combining entities with the challenges of remaining
focused on the customer and integrating different organizations. In the
immediate vicinity of the Company, if the proposed merger of Baltimore Gas and
Electric Company and Potomac Electric Power Company is accomplished, it is
expected to affect the competitive environment in the Company's service
territory.

Utility companies are also turning to business alliances to improve their
market position. Electric and gas utilities are joining with various
non-utility companies to offer customers packages of products and services
ranging from telephone service and home security to cable television, in
addition to standard heating and cooling. The Company continues to survey
business alliance opportunities for potential benefits to shareholders and
customers. In 1997, WGES formed an alliance with Columbia Energy Services, the
gas-marketing subsidiary of The Columbia Gas System, Inc., to provide natural
gas services in the state of Maryland, but outside of the Company's traditional
service territory. To date, the alliance has contracted to provide natural gas
to, among others, more than 200 state facilities, including hospitals and
schools, with the possibility for other Maryland state agencies and local
governments to sign up with the alliance for gas service in the future.

The Company, from time to time, performs studies and in some cases holds
discussions regarding utility and energy-related investments and transactions
with other companies. The ultimate impact on the Company of any such
investments and transactions that may occur cannot be determined at this time.

GAS SUPPLY AND CAPACITY

The Company and Shenandoah arrange to have natural gas delivered to the entry
points of their distribution systems using the delivery capacity of interstate
pipeline companies. The Company acquires natural gas delivery and storage
capacity for itself and Shenandoah on a system-wide basis because of the
integrated nature of the service agreements between the pipelines and the
Company's consolidated distribution operations. The Company's supply and
capacity plan is based on the requirements of the system and takes into account
estimated load growth by type of customer as well as customer attrition,
conservation, and movement of customers from bundled to unbundled service.

Pursuant to FERC Order No. 636, the pipeline companies are required to provide
transportation and storage services to gas shippers, such as the Company, that
are comparable to the services the Company received prior to the implementation
of the order. The Company utilizes the delivery capacity of eight pipelines,
four of which connect directly to the Company's distribution system.

The Company has the responsibility of acquiring both sufficient gas supplies to
meet customer requirements and appropriate pipeline capacity to ensure delivery
to the Company's distribution system.

While considering the continuing trend toward unbundling the sale of the gas
commodity from the delivery of the commodity to the customer, the Company must
ensure that it contracts for supply and capacity levels that will allow it to
remain competitive. The Company has adopted a diversified portfolio approach

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designed to satisfy the supply and deliverability requirements of its
customers. The Company maintains numerous sources of supply, dependable
transportation and storage arrangements and its own substantial storage and
peaking capabilities to meet the demands of its customers.

The Company has 13 long-term gas supply contracts with various producers or
marketers that expire between fiscal years 1998 and 2004. Under these
contracts, the Company can purchase up to 102 million dekatherms of natural gas
per year. The Company acquires any supplies not obtained under these long-term
contracts from seasonal contracts or from short-term purchases on the spot
market. In fiscal year 1997, the Company acquired supplies from a combination
of 69 producers or marketers, including volumes acquired under the 13 contracts
previously discussed.

As reflected in the first table below, there were five sources of delivery
through which the Company received natural gas to satisfy the sendout
requirements in pipeline year 1997 (November 1, 1996 through October 31, 1997)
and from which supplies can be received in pipeline year 1998 (November 1, 1997
through October 31, 1998). Firm transportation denotes gas purchased on the
spot market or under long-term contracts and transported directly to the city
gates in volumes agreed upon by the Company and the applicable pipeline.
Transportation storage denotes volumes purchased by the Company on the spot
market and/or under long-term contracts and stored by a pipeline for withdrawal
during the heating season. Peak load requirements are met by: (1) underground
natural gas storage at the Hampshire storage field in Hampshire County, West
Virginia; (2) the local production of propane air from plants located at
Company-owned facilities in Rockville, Maryland and Ravensworth, Virginia; and
(3) other storage and peak-shaving arrangements.

During pipeline year 1997, total sendout on the system was 1,289 million
therms, excluding deliveries to electric generation facilities and volumes
delivered to customers that acquire their gas from other suppliers. The
sendout for pipeline year 1998 is estimated to be 1,187 million therms (based
on normal weather) excluding deliveries for electric generation and volumes
delivered for others. The sources of delivery and related volumes that were
used to satisfy the requirements of pipeline year 1997 and those projected for
pipeline year 1998 are shown in the following table.

SOURCES OF DELIVERY FOR
ANNUAL SENDOUT
(millions of therms)

Actual Projected
Sources of Delivery Pipeline Year 1997 Pipeline Year 1998
- -------------------------------- ------------------ ------------------

Firm Transportation 934 872
Transportation Storage 335 277
Hampshire Storage 10 20
Company-Owned Propane-Air Plants 3 4
Other Peak-Shaving Sources 7 14
----- -----
1,289 1,187
===== =====

The effectiveness of the Company's gas supply program is largely dependent on
the sources from which the design day requirement is satisfied. A design day is
the maximum anticipated demand on the gas supply system during a 24-hour period

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assuming a 5 degree Fahrenheit average temperature. The Company assumes that
all interruptible customers will be curtailed on the design day. The Company's
design day estimate is currently 14.0 million therms. The Company is currently
capable of meeting 68% of its design day requirements with storage and peaking
capabilities. Emphasizing storage and peaking facilities on the Company's
design day reduces the necessity to purchase firm transportation, the most
expensive form of capacity from a design day perspective. The following table
reflects the sources of delivery that are projected to be used to satisfy the
design day sendout estimate for pipeline year 1998.

SOURCES OF DELIVERY FOR
DESIGN DAY SENDOUT
(millions of therms)

Pipeline Year 1998
--------------------
Sources of Delivery Therms Percent
- ----------------------------------- ------ -------

Firm Transportation 4.5 32%
Transportation Storage 4.9 35
Company-Owned Propane-Air Plants,
Hampshire Storage and Other Peaking 4.6 33
--- ----
14.0 100%
==== ====

The Company believes the combination of the gas supply it can purchase under
short-term and long-term contracts, its peaking supplies, and the capacity on
the pipelines required to deliver the purchased supplies, is sufficient to
satisfy the needs of existing customers and allow for growth in future years.
The Company continues to seek opportunities to restructure existing contracts
to maximize the competitiveness of its gas supply portfolio.

ENVIRONMENTAL MATTERS

The Company and its subsidiaries are subject to federal, state and local laws
and regulations related to environmental matters. These evolving laws and
regulations may require expenditures over a long period of time to control
environmental impacts.

Estimates of liabilities for environmental response costs are difficult to
determine with precision because of the factors that can affect their ultimate
level. These factors include, but are not limited to: (1) the complexity of the
site; (2) changes in environmental laws and regulations at the federal, state
and local levels; (3) the number of regulatory agencies or other parties
involved; (4) new technology that renders previous technology obsolete, or
experience with existing technology that proves ineffective; (5) the ultimate
selection of technology; (6) the level of remediation required; and (7)
variations between the estimated number of years that must be devoted to
respond to an environmentally contaminated site as compared to the actual
number of years required.

The Company has identified up to ten sites where the Company, its subsidiaries,
or their predecessors may have operated manufactured gas plants (MGPs). The
Company last used any such plant in 1984. In connection with these operations,
the Company is aware that certain by-products of the gas manufacturing process
are present at or near some former sites and may be present at others.

At one of the former MGP sites, studies show the presence of coal tar under the
site and an adjoining property. The Company's risk assessment study performed
on

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the site shows that there is no unacceptable risk to human health or the
environment. The Company has taken steps to control the movement of
contaminants into an adjacent river. A water treatment system removes and
treats contaminated groundwater at the site. The Company has determined that a
previously considered alternative to address contamination on the adjoining
property through bioremediation is not the preferable course of action, based
on the efficacy of the demonstration tests performed to date. The Company
continues to advance discussions of remediation options with the appropriate
governmental agency and the adjacent landowner. The Company expects to
complete a feasibility study of remedial alternatives in fiscal year 1998,
which would include a recommended remedial action plan. After the Company
submits the results of this study, it expects the governmental agency to issue
a decision document outlining the appropriate remediation methodology.

At a second former MGP site, tests identified tar products under the property,
and a risk assessment showed that there was no unacceptable risk to human
health or the environment. The Company designed and installed a state-approved
treatment and recovery system to recover free tar and continues to recover
minimal volumes of tar products from pumping. The Company will continue to pump
tar, monitor the site, and provide annual activity reports to the state's
Department of the Environment.

At a third former MGP site, initial studies show that tar products are present
under the property. The Company completed and submitted a remedial
investigation/feasibility study (RI/FS) to the appropriate state regulatory
agency. The Company has yet to receive any response from the state regarding
its submission, but continues to monitor the site. The Company expects to
install a recovery system to recover free tar after the state responds to the
Company's RI/FS.

At a fourth former MGP site and on an adjacent parcel of land, the Company
plans to perform an RI/FS in fiscal year 1998, which will include a risk
assessment to assist in determining the appropriate remedial action, and submit
the results to the applicable state regulatory agency.

At a fifth former MGP site, a treatment system for contaminated groundwater has
been operating for seven years. The Company believes, at this time, that no
additional action other than water treatment will be necessary.

Through September 30, 1997, the Company had paid $10.0 million for
environmental response costs. The Company has recorded a liability of $11.0
million on an undiscounted basis at September 30, 1997 related to future
environmental response costs. This estimate is primarily composed of the
minimum liabilities associated with a range of environmental response costs
expected to be incurred at the five sites described above. The Company
estimates the maximum liability associated with these sites to be approximately
$22.3 million at September 30, 1997. The estimates were determined by the
Company's environmental experts based on experience in remediating MGP sites
and advice from legal counsel and environmental consultants. Variations within
the range of estimated liability result primarily from differences in the
number of years that will be required to perform environmental response
processes at each site (5 to 25 years) and the extent of remediation that may
be required.

The Company believes, at this time, that no remediation of any of the remaining
five sites will be necessary.

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Based on existing knowledge, the Company does not expect that the ultimate
impact of these matters will have a significant effect on its competitive
position, results of operations or the level of future capital expenditures.

YEAR 2000

Like all companies having business-application software programs written over
many years and a computing infrastructure including computerized devices, the
Company is also affected by the so-called "Year 2000" issue. These programs,
which include the Company's customer service, operations and financial systems,
were written using two-year digits to define the applicable year, rather than
four. Any of the Company's programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in the computer shutting down or performing incorrect
computations. The computing infrastructure, including computerized devices,
could contain date-sensitive software that could cause the devices to fail to
operate or to operate inconsistently.

The Company is completing the process of identifying the programs and
infrastructure that could be affected by the Year 2000 issue and has developed
an implementation plan to resolve the issue. The plan includes the replacement
of certain equipment and modification of certain software to recognize the turn
of the century. The plan is currently expected to result in non-recurring
expenses over the next two years of approximately $8 million to $10 million.

The plan also includes replacing certain existing systems with new systems that
will be Year 2000 operational and will provide additional strategic
information. The costs to replace these systems, of $15 million to $20 million,
will be capitalized.

The Company believes, with appropriate replacement or modifications, it will be
able to operate its time-sensitive business-application software programs and
infrastructure through the turn of the century.

OTHER

Revenue from the sale or delivery of natural gas as a percentage of
consolidated operating revenue was 92% for 1997 and 97% for 1996 and 1995. The
Company is not dependent upon a single customer or a few customers such that
the loss of any one or more customers would have a significant adverse effect
on the Company. Large customers are generally on interruptible rate schedules,
and margin-sharing arrangements limit the effects of interruptible customer
usage on net income. As shown on page 2, the Company and Shenandoah had
798,739 customer meters at September 30, 1997.

The Company's utility business is highly seasonal and weather sensitive since
the majority of its business is derived from residential and small commercial
customers who use gas for space heating purposes. In fiscal year 1997, 74% of
the therms delivered by the Company, excluding deliveries for electric
generation, occurred in the Company's first and second fiscal quarters. All of
the Company's earnings are generated in these two quarters and the Company
historically incurs losses in the third and fourth fiscal quarters. Results of
operations can be affected by the timing and level of approved rate increases.
The seasonal nature of the Company's business creates large variations in
short-term cash requirements, primarily due to fluctuations in the level of
customer

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accounts receivable and storage gas inventory levels. The Company finances
these seasonal requirements primarily through the sale of commercial paper and
short-term bank loans.

Through the cost of services provided by the interstate pipelines, the Company
and Shenandoah contribute to the funding of the Gas Research Institute. The
Institute's primary focus is devoted to developing more efficient gas equipment
and to increase the long-term supply of gas. The Company also belongs to the
Natural Gas Vehicle Coalition and the Institute of Gas Technology. These
organizations are involved in developing new applications and technologies for
the use of natural gas. The cost of these memberships and the Company's own
research and development costs during fiscal years 1997, 1996 and 1995 were not
material.

At September 30, 1997, the Company and its wholly-owned subsidiaries had 2,070
employees. This represents a decline of 204 employees from the level at
September 30, 1996. For a further discussion of labor-related issues, refer to
the caption entitled Labor Matters on page 25 of the 1997 Annual Report to
Shareholders, which is incorporated into this report by reference.

ITEM 2. PROPERTIES

The Company and its subsidiaries hold such valid franchises, certificates of
convenience and necessity, licenses and permits as are necessary for the
maintenance and operation of their respective properties and businesses as now
conducted. The Company has no reason to believe that it will be unable to
renew any of such franchises as they expire.

As of September 30, 1997, the Company and its utility subsidiaries had 621
miles of transmission mains and 9,528 miles of distribution mains. The Company
has the capacity for storage of approximately 15 million gallons of propane for
peak shaving.

The Company owns the land and a 12-story office building (built in 1942) at
1100 H Street, Northwest in Washington, D.C., where its corporate offices are
located. The Company owns the land and a building (built in 1970) at 6801
Industrial Road in Springfield, Virginia, which houses the Company's operating
offices and certain administrative functions. The Company has title to land
and buildings used as substations for its utility operations.

The Company also has peaking facilities consisting of propane air plants in
Ravensworth, Virginia and Rockville, Maryland. Hampshire operates an
underground natural gas storage field in Hampshire County, West Virginia.
Hampshire accesses the storage field through 12 storage wells which are
connected to an 18-mile pipeline gathering system. Hampshire also operates a
compressor station for injection of gas into storage. The Augusta and Little
Capon fields, located in Hampshire County, have the capacity to provide the
Company's system with approximately 2.7 billion cubic feet of natural gas under
design conditions. For pipeline year 1998, it is projected that the Hampshire
storage facility will supply approximately 2.0 billion cubic feet of natural
gas to the Company's system for meeting seasonal demands.

The Company's Mortgage dated January 1, 1933 (Mortgage), as supplemented and
amended, securing the First Mortgage Bonds(FMBs)issued by the Company,

19
22
constitutes a direct lien on substantially all property and franchises owned by
the Company other than expressly excepted property.

The Company executed a supplemental indenture to its unsecured Medium-Term
Notes (MTNs) Indenture on September 1, 1993, providing that the Company will
not issue any FMBs under its Mortgage without making effective provision
whereby any outstanding MTNs shall be secured equally and ratably with any and
all other obligations and indebtedness secured by the Mortgage.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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EXECUTIVE OFFICERS OF THE REGISTRANT

Date Elected
Name, Age and Position with the Company or Appointed (1)
- --------------------------------------------------------- ------------------

Elizabeth M. Arnold, Age 45
Vice President (corporate strategy, investor relations
and internal audit) January 31, 1996
Treasurer May 1, 1993
Director of Marketing Services May 6, 1991

Richard J. Cook, Age 55
Vice President (corporate engineering and environmental
quality assurance) October 1, 1996
Executive Assistant October 1, 1995
Director - Environment and Safety September 1, 1989

James H. DeGraffenreidt, Jr., Age 44 (2)
President and Chief Operating Officer December 1, 1994
Senior Vice President - Jurisdictional Divisions
and Rates and Regulatory Affairs May 1, 1993
Vice President - Rates and Regulatory Affairs November 1, 1991

Richard L. Fisher, Age 50
Vice President (gas distribution) June 1, 1996
Executive Director May 3, 1993
Director - Federal Regulation and Gas Planning October 6, 1986

John K. Keane, Jr., Age 59
Senior Vice President and General Counsel May 1, 1993
Vice President and General Counsel September 1, 1990

Ronald C. King, Age 56
Vice President (customer services) February 21, 1996
Vice President - Customer Services November 1, 1991

Frederic M. Kline, Age 46
Vice President and Treasurer January 31, 1996
Controller November 27, 1985

Patrick J. Maher, Age 61 (2)
Chairman of the Board and Chief Executive Officer November 24, 1992
President and Chief Executive Officer March 1, 1992

Lisa M. Metcalfe, Age 33 (3)
Vice President and Chief Information Officer October 1, 1996

Wayne A. Mills, Age 54
Vice President (oversees Shenandoah, the Frederick division
of the Company and Washington Gas Energy Systems, Inc.) February 21, 1996
Vice President and General Manager - Maryland Division November 1, 1989

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EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

Date Elected
Name, Age and Position with the Company or Appointed (1)
- ------------------------------------------------------------ ------------------

Douglas V. Pope, Age 52
Secretary July 25, 1979

Joseph M. Schepis, Age 44 (2)
Senior Vice President (gas supply, regulatory activities
and customer services) January 31, 1996
Senior Vice President and Chief Financial Officer December 15, 1994
Vice President - Rates and Regulatory Affairs May 1, 1993
Treasurer October 1, 1986

Roberta W. Sims, Age 43
Vice President (corporate relations and communications) January 31, 1996
Vice President and General Manager -
District of Columbia Division October 1, 1992

Robert A. Sykes, Age 49
Vice President (human resources) February 21, 1996
Vice President - Human Resources October 1, 1987

Robert E. Tuoriniemi, Age 41 (4)
Controller October 1, 1996

James B. White, Age 47
Vice President (business development) February 21, 1996
Vice President and General Manager - Virginia Division May 1, 1993
Director of Sales July 6, 1992

There is no family relationship among the officers. The age of each officer
listed is as of the date of filing.

(1) Each of the officers has served continuously since the dates indicated.

(2) Effective January 1, 1998, James H. DeGraffenreidt, Jr., becomes President
and Chief Executive Officer. Joseph M. Schepis becomes Executive Vice President
and Chief Operating Officer. Patrick J. Maher continues to serve as Chairman of
the Board.

(3) Ms. Metcalfe was previously employed by the National Wildlife Federation
and served most recently as Vice President of Constituent Systems and Services.
In this capacity, she was responsible for the organization's information
systems, telecommunications systems, facilities, and administrative services.

(4) Mr. Tuoriniemi was previously employed by Central Maine Power Company
(CMP), an electric utility, and served most recently as Comptroller. CMP has a
customer base of 515,000 customer meters. In the Comptroller position, Mr.
Tuoriniemi's responsibilities included all accounting matters, testifying
before regulatory commissions in rate case proceedings, directing tax planning
and coordinating financial reporting activities.

22
25
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

The information captioned "Common Stock Price Range and Dividends Paid" and
presented on page 47 of the Company's 1997 Annual Report to Shareholders is
included in Exhibit 13 in this report and is incorporated by reference into
this Item. Only owners of record are counted as common shareholders.

ITEM 6. SELECTED FINANCIAL DATA

Page 20 of the Company's 1997 Annual Report to Shareholders is included in
Exhibit 13 in this report and is incorporated by reference into this Item.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Pages 21 through 31 of the Company's 1997 Annual Report to Shareholders is
included in Exhibit 13 in this report and is incorporated by reference into
this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Pages 32 through 47 of the Company's 1997 Annual Report to Shareholders is
included in Exhibit 13 in this report and is incorporated by reference into
this Item.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning Directors contained in the definitive proxy statement
dated January 21, 1998, is hereby incorporated herein by reference.
Information related to Executive Officers is reflected in Part I hereof.

ITEM 11. EXECUTIVE COMPENSATION

The information captioned "Executive Compensation" in the definitive proxy
statement dated January 21, 1998, is hereby incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information captioned "Security Ownership of Certain Beneficial Owners and
Management" in the definitive proxy statement dated January 21, 1998, is hereby
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Karen Hastie Williams, a Director of the Company, is a partner in the law firm
Crowell & Moring. This firm performed legal services for the Company during
fiscal year 1997.

23
26
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K

(a)1 All Financial Statements Pages in 1997
Annual Report to
Shareholders
Included in
Exhibit 13
------------------

Consolidated Statements of Income - for the years ended
September 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Balance Sheets - as of September 30, 1997 and 1996 . . . . . . . . . . 33
Consolidated Statements of Cash Flows - for the years ended
September 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Statements of Capitalization - as of September 30,
1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Statements of Common Shareholders' Equity -
1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of Income Taxes - for the years ended
September 30, 1997, 1996 and 1995 and as of September 30, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 38-45
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . 46

(a)2 Financial Statement Schedules

Separate financial statements for Washington Gas Light Company are omitted
since the Company's total assets, exclusive of investments in and advances to
its subsidiaries, constitute more than 75% of the total assets shown in the
Consolidated Balance Sheets, and the Company's total gross revenue, exclusive
of interest and dividends received or equity in income from the consolidated
subsidiaries, constitutes more than 75% of total gross revenues shown in the
Consolidated Statements of Income.

Schedule II, listed on page 25, should be read in conjunction with the
financial statements in the 1997 Annual Report to Shareholders. Schedules not
included herein have been omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

24
27
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K (CONTINUED)

Pages in
Schedule Description 10-K
- -------- ----------------------------------------------------------- --------

II Valuation and Qualifying Accounts and Reserves for the
years ended September 30, 1997, 1996 and 1995 . . . 30-31

(a)-3 Exhibits

Exhibits Filed Herewith:

Pages in
Description 10-K
----------- ---------

10. Material Contracts - See
10.1 Retirement Plan for Outside Directors, Separate
as amended on December 18, 1996 * Volume

10.2 Long-Term Incentive Compensation Plan,
as amended on December 18, 1996 *

10.3 Executive Incentive Compensation Plan,
as amended on December 18, 1996 *

10.4 Supplemental Executive Retirement Plan,
as amended on December 18, 1996 *

* Compensatory plan arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.

11. Statement re Computation of per Share Earnings -
Computation of Earnings per Average Share of
Common Stock Assuming Full Dilution from
Conversion of the $4.60 and $4.36 Convertible
Preferred Stock

12 Statement re Computation of Ratios -
12.0 Computation of Ratio of Earnings to Fixed Charges
12.1 Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends

13. Annual Report to Security Holders -
1997 Annual Report to Shareholders (except for
the information presented on the front and rear
covers and Pages 1 through 19, which are not
deemed to be filed with the Securities and
Exchange Commission for the purposes of the
Securities Exchange Act of 1934)

21. Subsidiaries of the Registrant

23. Consents of Experts and Counsel

27. Financial Data Schedule

25
28
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K (CONTINUED)

Exhibits Incorporated by Reference:

Description

3. Articles of Incorporation and Bylaws:

Bylaws of the Company, filed on Form 10-K for the
period ended September 30, 1996.

Company Charter, filed on Form S-3 dated July 21,
1995.

4. Instruments defining the Rights of Security Holders
including indentures:

Mortgage and Deed of Trust of the Company, dated January
1, 1933, and filed as Exhibit 2.2 of the Registration
Statement on Form S-7 filed with the Commission on May 12,
1975.

Supplemental Indenture, dated September 1, 1986, to the
Company's Mortgage and Deed of Trust, dated January 1,
1933, filed on Form 8-K dated March 13, 1987.

Supplemental Indenture, dated March 1, 1987, to the
Company's Mortgage and Deed of Trust, dated January 1,
1933, filed on Form 8-K dated March 13, 1987.

Supplemental Indenture, dated April 15, 1988, to the
Company's Mortgage and Deed of Trust, dated January 1,
1933, filed on Form 8-K dated April 22, 1988.

Supplemental Indenture, dated July 1, 1989, to the
Company's Mortgage and Deed of Trust, dated January 1,
1933, filed on Form 8-K dated July 12, 1989.

Indenture, dated September 1, 1991 between the Company
and The Bank of New York, as Trustee, regarding issuance
of unsecured notes, filed on Form 8-K on September 19,
1991.

Supplemental Indenture, dated September 1, 1993 between
the Company and The Bank of New York, as Trustee,
regarding the addition of a new section to the Indenture
dated September 1, 1991, filed on Form 8-K on September
10, 1993.

10. Material Contracts:

Service Agreement effective October 1, 1993 with
Transcontinental Gas Pipe Line Corporation related to the
upstream capacity on the CNG Transmission Corporation
system, filed on the Form 10-K for the fiscal year ended
September 30, 1993.

Service Agreement effective October 1, 1993 with
Transcontinental Gas Pipe Line Corporation related to
General Storage Service, filed on Form 10-K for the fiscal
year ended September 30, 1993.

26
29
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K (CONTINUED)

Service Agreement effective October 1, 1993 with Texas Eastern
Transmission Corporation related to transportation service, filed on
Form 10-K for the fiscal year ended September 30, 1993.

Service Agreement effective November 1, 1993 with Columbia Gas
Transmission Corporation related to Firm Storage Service, filed on Form
10-K for the fiscal year ended September 30, 1993.

Service Agreement effective November 1, 1993 with Columbia Gas
Transmission Corporation related to Firm Transportation Service, filed
on Form 10-K for the fiscal year ended September 30, 1993.

Service Agreement effective November 1, 1993 with Columbia Gulf
Transmission Company related to Firm Transportation Service, filed on
Form 10-K for the fiscal year ended September 30, 1993.

Service Agreement effective November 1, 1993 with Columbia Gulf
Transmission Company related to Interruptible Transportation Service,
filed on Form 10-K for the fiscal year ended September 30, 1993.

Service Agreement effective November 1, 1993 with Columbia Gas
Transmission Corporation related to Storage Service Transportation,
filed on Form 10-K for the fiscal year ended September 30, 1993.

Service Agreement effective November 1, 1993 with Columbia Gas
Transmission Corporation related to Storage In Transit Service, filed
on Form 10-K for the fiscal year ended September 30, 1993.

Service Agreement effective October 1, 1993 with CNG
Transmission Corporation related to Firm Transportation Service, filed
on Form 10-K for the fiscal year ended September 30, 1993.

Service Agreement effective October 1, 1993 with CNG
Transmission Corporation related to Firm Transportation Storage
Service, filed on Form 10-K for the fiscal year ended September 30,
1993.

Service Agreement effective October 1, 1993 with CNG
Transmission Corporation related to General Storage Service, filed on
Form 10-K for the fiscal year ended September 30, 1993.

Service Agreement effective February 1, 1992 between
Transcontinental Gas Pipe Line Corporation and Frederick Gas
Company, Inc. related to Firm Transportation Service, filed
on Form 10-K for the fiscal year ended September 30, 1993.

Service Agreement effective February 1, 1992 with
Transcontinental Gas Pipe Line Corporation related to Firm
Transportation Service, filed on Form 10-K for the fiscal year ended
September 30, 1993.

Service Agreement effective August 1, 1991 with Transcontinental
Gas Pipe Line Corporation related to Washington Storage Service, filed
on Form 10-K for the fiscal year ended September 30, 1993.

Employment Agreement between the Company and the Chief Executive
Officer, dated May 19, 1997, filed on Form 10-Q for the period ended
June 30, 1997.*

27
30
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K (CONTINUED)

Employment Agreement between the Company and certain executive
officers, as defined in Item 402(a)(3) of Regulation S-K, filed on
Form 10-Q for the period ended June 30, 1997.*

Directors' Stock Compensation Plan, as adopted on October 25,
1995 and filed on Form 10-K for the fiscal year ended September 30,
1995*

Deferred Compensation Plan for Outside Directors as amended filed on
Form 10-K for the fiscal year ended December 31, 1986 *

* Compensatory plan arrangement required to be filed
pursuant to Item 14(c) of Form 10-K.

(b) Reports on Form 8-K:

Although no Reports were filed on Form 8-K during the fourth fiscal
quarter of 1997, on December 9, 1997, the Company filed a Form
8-K under Item 5, reporting the election of James H. DeGraffenreidt,
Jr., President and Chief Executive Officer and Joseph M. Schepis
Executive Vice President and Chief Operating Officer, effective January
1, 1998. Patrick J. Maher continues to serve as Chairman of the Board.

28
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To the Shareholders and Board of Directors of Washington Gas Light Company:

We have audited in accordance with generally accepted
auditing standards, the financial statements included in Washington Gas Light
Company's annual report to shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated October 27, 1997. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The Schedule II-Valuation and Qualifying Accounts and Reserves for the
years ended September 30, 1997, 1996 and 1995-listed in the index on page 25 is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This Schedule II has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

ARTHUR ANDERSEN LLP

Washington, D.C.,
October 27, 1997.

29
32
WASHINGTON GAS LIGHT COMPANY AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 and 1995

Additions
Charged to
Balance at --------------------------- Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions (C) of Period
- ------------------------------------------------ ----------- ------------ ----------- ------------ -------------
(Thousands)

1997
- ----

Valuation and Qualifying Accounts
Deducted from Assets in the Balance Sheet -
Allowance for doubtful accounts $ 11,846 $ 11,237 $ 1,857 (A) $ 13,897 $ 11,043
Provision for impairment of investments
and other deferred charges 6,507 - - 537 5,970
Reserves -
Injuries and damages 9,292 2,146 826 (B) 2,119 10,145
Other 900 - - - 900

1996
- ----

Valuation and Qualifying Accounts
Deducted from Assets in the Balance Sheet -
Allowance for doubtful accounts $ 10,580 $ 7,752 $ 2,070 (A) $ 8,556 $ 11,846
Provision for impairment of investments
and other deferred charges 5,397 1,150 - 40 6,507
Reserves -
Injuries and damages 11,873 2,409 1,845 (B) 6,835 9,292
Other 900 - - - 900

NOTES: SEE PAGE 2 OF 2.

30
33
WASHINGTON GAS LIGHT COMPANY AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 and 1995

Additions
Charged to
Balance at ---------------------------- Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions (C) of Period
- ------------------------------------------------ ------------ ------------ ------------- ------------ ------------
(Thousands)
1995
- ----

Valuation and Qualifying Accounts
Deducted from Assets in the Balance Sheet -
Allowance for doubtful accounts $ 11,300 $ 8,228 $ 2,248 (A) $ 11,196 $ 10,580
Provision for impairment of investments
and other deferred charges 7,356 - - 1,959 5,397
Reserves -
Injuries and damages 10,854 3,248 303 (B) 2,532 11,873
Other 4,448 - - 3,548 900

NOTES: (A) Recoveries on receivables previously written off as
uncollectible and unclaimed customer deposits, overpayments,
etc., not refundable.

(B) Portion of injuries and damages charged to construction and
reclassification from other accounts.

(C) Includes deductions for purposes for which reserves were
provided or revisions of estimated exposure.

31
34

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

WASHINGTON GAS LIGHT COMPANY

PATRICK J. MAHER
----------------------------------

Patrick J. Maher
Chairman of the Board
Date: December 17, 1997 and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

PATRICK J. MAHER Chairman of the Board 12/17/97
----------------------- and Chief Executive ----------
(Patrick J. Maher) Officer and Director

JAMES H. DEGRAFFENREIDT, JR. President and Chief 12/17/97
-------------------------------- Operating Officer and ----------
(James H. DeGraffenreidt, Jr.) Director

FREDERIC M. KLINE Vice President and 12/17/97
--------------------------- Treasurer ----------
(Frederic M. Kline) (Principal Financial Officer)

ROBERT E. TUORINIEMI Controller 12/17/97
----------------------------- (Principal Accounting Officer) ----------
(Robert E. Tuoriniemi)

FRED J. BRINKMAN Director 12/17/97
--------------------------- -----------
(Fred J. Brinkman)

DANIEL J. CALLAHAN, III Director 12/17/97
------------------------------ -----------
(Daniel J. Callahan, III)

ORLANDO W. DARDEN Director 12/17/97
--------------------------- -----------
(Orlando W. Darden)

MELVYN J. ESTRIN Director 12/17/97
--------------------------- -----------
(Melvyn J. Estrin)

KAREN HASTIE WILLIAMS Director 12/17/97
---------------------------- -----------
(Karen Hastie Williams)

STEPHEN G. YEONAS Director 12/17/97
--------------------------- -----------
(Stephen G. Yeonas)

32
35
WASHINGTON GAS LIGHT COMPANY
1997 FORM 10-K EXHIBIT INDEX

Exhibit Description
------- -----------

10. Material Contracts -

10.1 Retirement Plan for Outside Directors, as
amended on December 18, 1996 *

10.2 Long-Term Incentive Compensation Plan,
as amended on December 18, 1996 *

10.3 Executive Incentive Compensation Plan,
as amended on December 18, 1996 *

10.4 Supplemental Executive Retirement Plan,
as amended on December 18, 1996 *

* Compensatory plan arrangement required to be
filed pursuant to Item 14(c)of Form 10-K.

11. Statement re Computation of per Share
Earnings - Computation of Earnings per Average
Share of Common Stock Assuming Full Dilution
from Conversion of the $4.60 and $4.36
Convertible Preferred Stock

12 Statement re Computation of Ratios-

12.0 Computation of Ratio of Earnings to
Fixed Charges

12.1 Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Dividends

13. Annual Report to Security Holders-
1997 Annual Report to Shareholders
(except for the information presented
on the front and rear covers and
pages 1 through 19, which are not
deemed to be filed with the Securities
and Exchange Commission for the purposes
of the Securities Exchange Act of 1934)

21. Subsidiaries of the Registrant

23. Consents of Experts and Counsel

27. Financial Data Schedule

33