YEAR TO DATE SEPTEMBER 30, 2008 OVERVIEW AND FUTURE OUTLOOK

For the three months ended September 30, 2008, consolidated net income per share of $0.08 increased $0.33 per share from the consolidated net loss per share of $0.25 for the three months ended September 30, 2007. The increase is due to a $740,000 decrease in the net loss for the regulated segment and a $344,000 increase in net income from our non-regulated segment.

Our 2009 results will be dependent on the winter weather and the extent to which our customers choose to conserve their natural gas usage or discontinue their natural gas service, a trend we have experienced for the last several fiscal years.

We expect our non-regulated segment to continue to contribute to our consolidated net income in fiscal 2009, as in recent years, based on contracts currently in place. Future profitability of the non-regulated segment, though, is dependent on the business plans of a few large customers and the market prices of natural gas, which are both out of our control. If natural gas prices continue to increase, we expect to experience a corresponding increase in our non-regulated margins related to our natural gas production activities. However, if natural gas prices decrease, we would expect a decrease in our non-regulated margins related to our natural gas production and marketing activities.

LIQUIDITY AND CAPITAL RESOURCES

Operating activities provide our primary source of cash. Cash provided by operating activities consists of net income (loss) adjusted for non-cash items, including depreciation, amortization, deferred income taxes and changes in working capital.

Our ability to maintain liquidity depends on our bank line of credit, shown as notes payable on the accompanying Consolidated Balance Sheets. Notes payable increased to $24,698,000 at September 30, 2008, compared with $6,829,000 at June 30, 2008 and $18,589,000 at September 30, 2007. This increase reflects the seasonal nature of our sales and cash needs. Our cash requirements during the quarters ended September 30, 2008 and 2007 exceeded cash provided by operations, primarily due to the purchase of natural gas which is injected into storage for use during the heating months. Additionally, our liquidity is impacted by the fact that we sometimes generate internally only a portion of the cash necessary for our capital expenditure requirements. We made capital expenditures of $2,108,000 during the three months ended September 30, 2008. We finance the balance of our capital expenditures on an interim basis through this bank line of credit.

Long-term debt decreased to $58,242,000 at September 30, 2008, compared with $58,318,000 at June 30, 2008 and $58,507,000 at September 30, 2007. These decreases resulted from provisions in the Debentures and Insured Quarterly Notes allowing limited redemptions to be made to certain holders or their beneficiaries.

Cash and cash equivalents increased to $886,000 at September 30, 2008, compared with $250,000 at June 30, 2008 and $284,000 at September 30, 2007. These increases in cash and cash equivalents for the three and twelve months ended September 30, 2008 are summarized in the following table:

                                          Three Months Ended      Twelve Months Ended
                                             September 30,           September 30,
($000)                                     2008         2007       2008         2007

Provided by (used in) operating
activities                                 (14,489 )   (11,163 )     3,252        8,072
Used in investing activities                (1,757 )    (2,122 )    (4,887 )     (8,199 )
Provided by financing activities            16,882      13,381       2,237          217
Increase in cash and cash equivalents          636          96         602           90

For the three months ended September 30, 2008, cash used in operating activities increased $3,326,000 (30%), as compared with the three months ended September 30, 2007. We paid an additional $7,215,000 for gas due to increased prices and the timing of payables. This increase was partially offset by $5,512,000 more cash received from customers due to higher sales prices (see related discussion in Results of Operations).

Changes in cash used in investing activities result primarily from changes in the level of capital expenditures between years.

For the three and twelve months ended September 30, 2008, cash provided by financing activities increased $3,501,000 and $2,020,000, respectively, due to increased net borrowings on our bank line of credit.

Cash Requirements

Our capital expenditures result in a continued need for capital. These capital expenditures are being made for system extensions and for the replacement and improvement of existing transmission, distribution, gathering, storage and general facilities. We expect our capital expenditures for fiscal 2009 to be $7.9 million.

Sufficiency of Future Cash Flows

We expect that cash provided by operations, coupled with short-term and long-term borrowings, will be sufficient to satisfy our operating and normal capital expenditure requirements and to pay dividends for the next twelve months and the foreseeable future.

To the extent that internally generated cash is not sufficient to satisfy seasonal operating and capital expenditure requirements and to pay dividends, we will rely on our bank line of credit. Our current available line of credit is $40,000,000, of which $24,698,000 was borrowed at September 30, 2008 and classified as notes payable on the accompanying Consolidated Balance Sheets. The current bank line of credit is with Branch Banking and Trust Company and extends through October 31, 2009.

Our ability to sustain acceptable earnings levels, finance capital expenditures and pay dividends is contingent on the adequate and timely adjustment of the regulated sales and transportation prices we charge our customers. The Kentucky Public Service Commission sets these prices, and we continuously monitor our need to file rate requests with the Kentucky Public Service Commission for a general rate increase for our regulated services.

On April 20, 2007, we filed a request for increased rates with the Kentucky Public Service commission. This general rate case, Case No. 2007-00089, requested an annual revenue increase of approximately $5,642,000, an increase of 9.3%. This rate case requested a return on common equity of 12.1%. During October, 2007, we negotiated a settlement with the Kentucky Attorney General regarding this rate case. The settlement agreement provided for $3,920,000 of additional annual revenues, and stipulated for settlement purposes a 10.5% return on common shareholders' equity. The increase in rates was allocated primarily to the monthly customer charge to partially decouple revenue from volumes of gas sold. An order from the Kentucky Public Service Commission was received on October 19, 2007 approving the terms of the settlement with rates effective on or after October 20, 2007.

RESULTS OF OPERATIONS

Gross Margins

Our regulated and non-regulated revenues, other than transportation, have offsetting gas expenses. Therefore, throughout the following Results of Operations, we refer to "gross margin". With respect to our regulated and non-regulated segments, gross margin refers to operating revenues less purchased gas expense, which can be derived directly from our Consolidated Statements of Income. Operating Income as presented on the Consolidated Statements of Income
(Loss) is the most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP). "Gross margin" is a "non-GAAP financial measure", as defined in accordance with SEC rules. We view gross margin as an important performance measure of the core profitability of our operations. The measure is a key component of our internal financial reporting and is used by our management in analyzing our business segments. We believe that investors benefit from having access to the same financial measures that our management uses.

In the following table we set forth variations in our gross margins for the three and twelve months ended September 30, 2008 compared with the same periods in the preceding year. The variation amounts and percentages presented in the following tables for regulated and non-regulated gross margins include intersegment transactions. These intersegment revenues and expenses are eliminated in the Consolidated Statements of Income.

                                                         2008 compared to 2007
                                                     Three Months    Twelve Months
                                                         Ended           Ended
($000)                                               September 30,   September 30,

Increase (decrease) in regulated gross margins
Gas sales                                                      563           1,975
On-system transportation                                        25             305
Off-system transportation                                      107             796
Other                                                          (39 )          (415 )
Total                                                          656           2,661

Increase in non-regulated gross margins
Gas sales                                                      605           2,243
Other                                                           29             109
Total                                                          634           2,352

Increase in consolidated gross margins                       1,290           5,013
Percentage increase (decrease) in regulated
volumes
Gas sales                                                       (7 )            (5 )
On-system transportation                                        (7 )            (3 )
Off-system transportation                                        9              24

Percentage increase in non-regulated gas sales
volumes                                                          6              11

Heating degree days were 95% of normal thirty year average temperatures for the twelve months ended September 30, 2008 as compared with 93% of normal temperatures in 2007. A "heating degree day" results from a day during which the average of the high and low temperature is at least one degree less than 65 degrees Fahrenheit.

For the three months ended September 30, 2008, consolidated gross margins increased $1,290,000 (29%) due to increases in our regulated and non-regulated gross margins of $656,000 (21%) and $634,000 (45%), respectively. Our regulated margin for gas sales increased $563,000 (27%) primarily due to increased base rates which became effective October 20, 2007. Our regulated off-system transportation gross margins increased $107,000 (13%) primarily due to a 9% increase in volumes transported. Our non-regulated gross margins increased $634,000 (45%) due to higher sales prices.

For the twelve months ended September 30, 2008, consolidated gross margins increased $5,013,000 (16%) due to increases in our regulated and non-regulated gross margins of $2,661,000 (12%) and $2,352,000 (25%), respectively. Our regulated margin for gas sales increased $1,975,000 (11%) primarily due to increased base rates which became effective October 20, 2007. Our regulated off-system transportation gross margins increased $796,000 (25%) primarily due to a 24% increase in volumes transported. Our non-regulated gross margins increased $2,352,000 (25%) due to higher sales prices.

For the three months ended September 30, 2008, operation and maintenance decreased $70,000 (2%) due to $156,000 of gains on the sales of two surplus buildings. These gains were partially offset by increases due to the timing of certain expenses as compared to the three months ended September 30, 2007.

For the twelve months ended September 30, 2008, operations and maintenance increased $1,267,000 (10%) due to increased uncollectible expense ($416,000), increased storage maintenance expense ($317,000), increased labor expense ($225,000), increased transportation expenses ($206,000) and increased maintenance of transmission and distribution mains ($139,000). These increases were partially offset by $156,000 of gains on the sales of two surplus buildings.

Depreciation and Amortization

For the three and twelve months ended September 30, 2008, depreciation and amortization decreased $309,000 (25%) and $959,000 (20%). The decreases were due to lower depreciation rates approved by the Kentucky Public Service Commission that became effective October 20, 2007. The decreases were partially offset by increases in depreciable plant resulting from capital expenditures which relate to the replacement and improvement of our transmission, distribution, gathering, storage and general facilities.

Income Tax Expense (Benefit)

For the three and twelve months ended September 30, 2008, income tax expense increased $630,000 (129%) and $1,765,000 (59%) as a result of changes in net income (loss) before income taxes.

Basic and Diluted Earnings Per Common Share

For the three and twelve months ended September 30, 2008 and 2007, our basic earnings (loss) per common share changed as a result of changes in net income
(loss) and an increase in the number of our common shares outstanding. We increased our number of common shares outstanding as a result of shares issued through our Dividend Reinvestment and Stock Purchase Plan.

We have no potentially dilutive securities. As a result, our basic earnings
(loss) per common share and our diluted earnings (loss) per common share are the same.