10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009


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

For the transition period from to

Commission File number 0-14183

ENERGY WEST, INCORPORATED

(Exact name of registrant as specified in its charter)


Montana (State or other jurisdiction of incorporation or organization)		81-0141785 (I.R.S. Employer Identification No.)


1 First Avenue South, Great Falls, Montana (Address of principal executive offices)		59401 (Zip Code)

Registrant’s telephone number, including area code: (406) 791-7500

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the registrant’s common stock as of May 1, 2009 was 4,353,585 shares.

As used in this Form 10-Q, the terms “company”, “Energy West”, “Registrant”, “we”, “us”, and “our” mean Energy West, Incorporated and its consolidated subsidiaries as a whole, unless the context indicates otherwise. Except as otherwise stated, the information in this Form 10-Q is as of March 31,2009.

ENERGY WEST INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	March 31,					December 31,
	2009			2008		2008
	(unaudited)					(audited)
ASSETS
Current Assets:
Cash	$	1,419,502		$	2,264,078	$	1,065,529
Marketable securities		3,158,289			301,989		3,376,875
Accounts and notes receivable less $279,033, $195,384, and $207,942, respectively, allowance for bad debt		7,719,238			7,261,014		7,430,694
Unbilled gas		3,090,245			2,783,185		4,839,138
Derivative assets		—			92,258		—
Natural gas and propane inventories		308,719			442,069		9,891,802
Materials and supplies		1,178,781			972,792		1,175,596
Prepayments and other		592,877			565,366		422,514
Income tax receivable		—			1,005,762		1,014,806
Recoverable cost of gas purchases		920,872			2,158,343		2,041,280
Deferred tax asset		1,041,679			—		225,953

Total current assets		19,430,202			17,846,856		31,484,187

Property, Plant and Equipment, Net		35,922,043			30,119,485		34,904,442

Deferred Tax Assets — Long-Term		5,238,266			7,095,185		5,693,310
Deferred Charges		2,422,311			2,820,116		2,558,156
Other Investments		1,323,298			597,792		1,081,423
Other Assets		94,646			405,046		97,447

*TOTAL ASSETS*	$	64,430,766		$	58,884,480	$	75,818,965


LIABILITIES AND CAPITALIZATION
Current Liabilities:
Bank overdraft	$	463,700		$	—	$	773,199
Accounts payable		5,092,863			6,035,241		5,783,927
Line of credit		5,595,000			—		17,551,276
Derivative liabilities		—			92,423		—
Accrued taxes		478,818			—		—
Deferred income taxes		—			73,711		—
Accrued and other current liabilities		4,339,533			4,214,539		4,982,684
Overrecovered gas purchases		1,435,172			1,513,240		1,022,853

Total current liabilities		17,405,086			11,929,154		30,113,939


Other Obligations:
Deferred investment tax credits		234,300			255,362		239,565
Other long-term liabilities		2,398,502			2,515,564		2,383,323

Total		2,632,802			2,770,926		2,622,888

Long-Term Debt		13,000,000			13,000,000		13,000,000

Commitments and Contingencies (see note 11)

Stockholders’ Equity:
Preferred stock; $.15 par value, 1,500,000 shares authorized, no shares outstanding		—			—		—
Common stock; $.15 par value, 5,000,000 shares authorized, 4,299,536, 4,346,644 and 4,296,603 shares outstanding at March 31, 2009 and 2008, and December 31, 2008 respectively		652,943			651,997		652,503
Treasury stock		(8,012	)		—		(8,012	)
Capital in excess of par value		5,952,168			6,192,241		5,926,028
Accumulated other comprehensive income		(453,665	)		—		(319,147	)
Retained earnings		25,249,444			24,340,162		23,830,766

Total stockholders’ equity		31,392,878			31,184,400		30,082,138

TOTAL CAPITALIZATION		44,392,878			44,184,400		43,082,138

*TOTAL LIABILITIES AND CAPITALIZATION*	$	64,430,766		$	58,884,480	$	75,818,965

The accompanying notes are an integral part of these condensed financial statements.

ENERGY WEST, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended
	March 31,
	2009			2008
	(unaudited)
REVENUES:
Natural gas operations	$	26,141,570		$	24,167,479
Gas and electric—wholesale		5,079,587			6,620,996
Pipeline operations		112,666			89,797

Total revenues		31,333,823			30,878,272

EXPENSES:
Gas purchased		19,434,852			17,709,457
Gas and electric—wholesale		4,124,894			5,529,655

Total cost of sales		23,559,746			23,239,112

GROSS MARGIN		7,774,077			7,639,160
Distribution, general, and administrative		2,895,554			2,750,428
Maintenance		171,407			203,190
Depreciation and amortization		513,674			487,248
Taxes other than income		629,580			644,844

Total expenses		4,210,215			4,085,710

OPERATING INCOME		3,563,862			3,553,450
OTHER (LOSS) INCOME		(24,979	)		48,157
INTEREST EXPENSE		(345,952	)		(287,748	)

INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE		3,192,931			3,313,859
INCOME TAX EXPENSE		(1,230,208	)		(1,006,561	)

NET INCOME	$	1,962,723		$	2,307,298

BASIC INCOME PER COMMON SHARE:
Income from continuing operations	$	0.46		$	0.53

DILUTED INCOME PER COMMON SHARE:
Income from continuing operations	$	0.46		$	0.53

DIVIDENDS DECLARED PER COMMON SHARE:	$	0.12		$	0.11

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		4,298,092			4,337,363
Diluted		4,301,522			4,342,462

The accompanying notes are an integral part of these condensed financial statements.

ENERGY WEST, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended
	March 31,
	2009			2008
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,962,723		$	2,307,298
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including deferred charges and financing costs		606,456			607,032
Stock-based compensation		26,579			—
Derivative assets		—			(28,072	)
Derivative liabilities		—			28,066
Deferred gain		—			(60,046	)
Investment tax credit		(5,265	)		(5,265	)
Deferred income taxes		738,193			(1,092,811	)
Changes in assets and liabilities:
Accounts and notes receivable		1,460,348			834,215
Natural gas and propane inventories		9,583,082			7,628,536
Accounts payable		(708,840	)		(762,765	)
Recoverable/refundable cost of gas purchases		1,532,727			(261,118	)
Prepayments and other		(170,363	)		72,490
Asset retirement obligation liability		9,984			—
Other assets & liabilities		(141,797	)		(899,505	)

Net cash provided by operating activities		14,893,827			8,368,055


CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures		(1,888,448	)		(1,005,080	)
Purchase of marketable securities		—			(301,989	)
Other investments		(241,875	)		46,985
Customer advances received for construction		5,195			72,436
Increase (decrease) from contributions in aid of construction		7,436			(5,521	)

Net cash used in investing activities		(2,117,692	)		(1,193,169	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt		—			—
Proceeds from lines of credit		1,700,000			4,000,000
Repayment of notes payable		(13,600,000	)		(10,525,495	)
Repurchase of common stock		—			(10,740	)
Sale of common stock		—			188,331
Dividends paid		(522,162	)		(468,165	)

Net cash used in financing activities		(12,422,162	)		(6,816,069	)


NET INCREASE IN CASH AND CASH EQUIVALENTS		353,973			358,817

CASH AND CASH EQUIVALENTS:
Beginning of period		1,065,529			1,905,261

End of period	$	1,419,502		$	2,264,078

The accompanying notes are an integral part of these condensed financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Basis of Presentation

Effective December 31, 2008, the Company changed its fiscal year end from June 30 to December 31.

This change was made in order to align the Company’s fiscal year end with other companies within the industry. The resulting six-month period ended December 31, 2008 may be referred to herein as the “Transition Period.”

The accompanying unaudited condensed consolidated financial statements of Energy West, Incorporated and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature. Operating results for the three month period ended March 31, 2009 are not necessarily indicative of the results that may be expected for future fiscal periods. The financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K/T for the Transition Period ended December 31, 2008.

Certain reclassifications of prior year reported amounts have been made for comparative purposes. Contributions in Aid of Construction were reclassified to offset net fixed assets. Additionally, recoverable costs of gas were separated into assets and liabilities.

The Company is a natural gas utility with operations in Montana, Wyoming, North Carolina and Maine. We were originally incorporated in Montana in 1909. The Company currently has four reporting segments:


• Natural Gas Operations		Annually, the Company distributes approximately 26 billion cubic feet of natural gas to approximately 37,000 customers through regulated utilities operating in and around Great Falls and West Yellowstone, Montana, Cody, Wyoming, Bangor, Maine and Elkin, North Carolina. The approximate population of the service territories is 177,000. The operation in Elkin, North Carolina was added October 1, 2007. The operation in Bangor, Maine was added December 1, 2007.

• Marketing and Production Operations (EWR)		Annually, the Company markets approximately 2.3 billion cubic feet of natural gas to commercial and industrial customers in Montana and Wyoming and manages midstream supply and production assets for transportation customers and utilities through its subsidiary, Energy West Resources, Inc. (EWR). EWR owns an average 60% gross working interest (an average 51% net revenue interest) in 160 natural gas producing wells and gas gathering assets. Energy West Propane, Inc. dba Missouri River Propane (MRP), the Company’s small Montana wholesale distribution company that sells propane to its affiliated utility, is also reported in marketing and production operations.

• Pipeline Operations (EWD)		The Company owns the Shoshone interstate and the Glacier gathering natural gas pipelines located in Montana and Wyoming through our subsidiary Energy West Development, Inc. (EWD). Certain natural gas producing wells owned by the Company’s pipeline operations are being managed and reported under our marketing and production operations.

• Corporate and Other		The corporate and other segment was created to accumulate revenues and expenses that are not allocable to our utilities or other operations. Reported in corporate and other for the three months ended March 31, 2009 are costs associated with business development and acquisitions, and dividend income from marketable securities.

NOTE 1 — MARKETABLE SECURITIES

Securities investments that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and recorded at amortized cost in investments and other assets. Securities investments not classified as either held-to-maturity or trading securities are classified as available-for-sale securities. Available-for-sale securities are recorded at fair value in investments and other assets on the balance sheet, with the change in fair value during the period excluded from earnings and recorded net of tax as a component of other comprehensive income.

The following is a summary of available-for-sale securities at March 31, 2009:


	March 31, 2009
	Investment		Unrealized			Estimated
	at cost		losses			Fair Value

Common Stock	$	3,895,476	$	(737,187	)	$	3,158,289

As of March 31, 2009 unrealized loss on available-for-sale securities of $453,665 (net of $283,522 in taxes) was included in accumulated other comprehensive income in the accompanying unaudited Condensed Consolidated Balance Sheets.

NOTE 2 — FAIR VALUE MEASUREMENTS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS 157), which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. The statement indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability based upon an exit price model.

Valuation Hierarchy

In accordance with SFAS 157, the following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of March 31, 2009:


	March 31, 2009
	Level I		Level 2		Level 3		TOTAL
Available-for-sale securities	$	3,158,289		—		—	$	3,158,289

Total assets at fair value	$	3,158,289	$	—	$	—	$	3,158,289

NOTE 3 — DEFERRED CHARGES

Deferred Charges consist of the following:


	March 31,				December 31,
	2009		2008		2008

Regulatory asset for property taxes	$	1,477,683	$	1,755,654	$	1,554,244
Regulatory asset for income taxes		452,645		480,926		452,646
Regulatory asset for deferred environmental remediation costs		67,040		171,684		114,960
Rate case costs		18,538		—		18,538
Unamortized debt issue costs		406,405		411,852		417,768

Total	$	2,422,311	$	2,820,116	$	2,558,156

Regulatory assets will be recovered over a period of approximately seven to twenty years.

The property tax asset does not earn a return in the rate base; however the property tax is recovered in rates over a ten-year period starting January 1, 2004. The income taxes and environmental remediation costs earn a return equal to that of the Company’s rate base. No other assets earn a return or are recovered in the rate structure. Other regulatory assets include rate case costs to be amortized over the period approved by the appropriate regulatory agency.

NOTE 4 — ACCRUED AND OTHER CURRENT LIABILITIES

Accrued and other current liabilities consist of the following:


	March 31				December 31
	2009		2008		2008

Property tax settlement—current portion	$	242,120	$	242,120	$	235,772
Payable to employee benefit plans		92,091		98,808		57,617
Accrued vacation		536,268		289,781		464,153
Customer deposits		500,811		452,671		501,248
Accrued interest		207,597		157,684		4,897
Accrued taxes other than income		845,684		729,771		492,320
Deferred short-term gain		—		142,775		—
Customer prepayments from levelized billing		1,017,353		876,792		2,075,860
Other		897,609		1,224,137		1,150,817

Total	$	4,339,533	$	4,214,539	$	4,982,684

NOTE 5 — OTHER LONG TERM LIABILITIES

Other long-term liabilities consist of the following:


	March 31,				December 31
	2009		2008		2008

Asset retirement obligation	$	756,183	$	716,766	$	746,199
Customer advances for construction		830,150		743,629		824,955
Regulatory liability for income taxes		83,161		83,161		83,161
Property tax settlement		729,008		972,008		729,008

Total	$	2,398,502	$	2,515,564	$	2,383,323

NOTE 6 — LINES OF CREDIT AND LONG-TERM DEBT

The Company funds its operating cash needs, as well as dividend payments and capital expenditures, primarily through cash flow from operating activities and short-term borrowing. Historically, to the extent cash flow has not been sufficient to fund these expenditures, the Company has used the working capital line of credit portion of the credit facility with Bank of America, N.A. (“Bank of America”) (fka LaSalle Bank, N.A.) The Company has greater need for short-term borrowing during periods when internally generated funds are not sufficient to cover all capital and operating requirements, including costs of gas purchased and capital expenditures. In general, the Company’s short-term borrowing needs for purchases of gas inventory and capital expenditures are greatest during the summer and fall months and our short-term borrowing needs for financing customer accounts receivable are greatest during the winter months.

Bank of America Line of Credit — On June 29, 2007, the Company established its five-year unsecured credit facility with Bank of America, replacing a previous $20 million one-year facility with Bank of America which was scheduled to expire in November 2007. The credit facility includes an annual commitment fee equal to 0.20% of the unused portion of the facility and interest on amounts outstanding at the London Interbank Offered Rate, plus 120 to 145 basis points, for interest periods selected by the Company.

Long-term Debt — $13.0 million 6.16% Senior Unsecured Notes — On June 29, 2007, the Company authorized the sale of $13.0 million aggregate principal amount of its 6.16% Senior Unsecured Notes, due June 29, 2017. The proceeds of these notes were used to refinance the Company’s existing notes. With this refinancing, the Company expensed the remaining debt issue costs of $991,000 in fiscal 2007, and incurred approximately $463,000 in new debt issue costs to be amortized over the life of the new notes.

Debt Covenants — The Company’s 6.16% Senior Unsecured Notes and the Bank of America credit facility agreements contain various covenants, which include, among others, limitations on total dividends and distributions made in the immediately preceding 60-month period to 75% of aggregate consolidated net income for such period, restrictions on certain indebtedness, limitations on asset sales, and maintenance of certain debt-to-capital and interest coverage ratios. At March 31, 2009, the Company believes it was in compliance with the financial covenants under its debt agreements.

At March 31, 2009, the Company had approximately $1.4 million in cash ($956,000 net of bank overdrafts). In addition, at March 31, 2009, the Company had $5.6 million in borrowings under the Bank of America revolving line of credit. At March 31, 2009, the Company had outstanding letters of credit related to supply contracts totaling $1.2 million, which reduced available borrowings. The Company’s net availability at March 31, 2009, was $13.2 million under the Bank of America revolving line of credit.

The total amount outstanding under all of the Company’s long-term debt obligations was $13.0 million at March 31, 2009, and 2008. The portion of such obligations due within one year was $0 at March 31, 2009 and 2008.

NOTE 7 — INCOME TAX EXPENSE (BENEFIT)

Income tax expense (benefit) differs from the amount computed by applying the federal statutory rate to pre-tax income or loss as demonstrated in the following table:


	Three Months Ended
	March 31,
	2009			2008

Income tax from continuing operations:
Tax expense at statutory rate of 34%	$	1,085,597		$	1,159,851
State income tax expense, net of federal tax expense		72,914			74,529
Amortization of deferred investment tax credits		(5,265	)		(5,265	)
Other		76,962			(222,554	)


Total income tax expense	$	1,230,208		$	1,006,561

Other includes an adjustment for prior year actual tax expense from amounts that had been estimated and accrued.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 is effective for fiscal years beginning after December 15, 2006 and the provisions of FIN 48 are applied to all tax positions. Upon the adoption of FIN 48, the Company had no unrecognized tax benefits that would have a material impact to the Company’s financial statements for any open tax years. During the three months ended March 31, 2009, no adjustments were recognized for uncertain tax positions.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expense. No interest and penalties related to unrecognized tax benefits were accrued at March 31, 2009.

The tax years 2004 through 2007 remain open to examination by the major taxing jurisdictions in which the Company operates, although no material changes to unrecognized tax positions are expected within the next twelve months.

NOTE 8 — SEGMENTS OF OPERATIONS


	Three Months Ended
	March 31
	2009			2008

Gross margin (operating revenue less cost of gas purchased):
Natural gas operations	$	6,706,718		$	6,458,022
EWR		954,693			1,091,341
Pipeline operations		112,666			89,797

	$	7,774,077		$	7,639,160


Operating income (loss):
Natural gas operations	$	2,768,806		$	2,558,912
EWR		744,188			954,819
Pipeline operations		50,868			39,719

	$	3,563,862		$	3,553,450


Net income (loss):
Natural gas operations	$	1,538,833		$	1,610,688
EWR		422,915			671,125
Pipeline operations		29,508			21,805
Corporate and other operations		(28,533	)		3,680

	$	1,962,723		$	2,307,298

NOTE 9 — STOCK OPTIONS AND SHAREHOLDER RIGHTS PLANS

2002 Stock Option Plan — The Energy West Incorporated 2002 Stock Option Plan (the “Option Plan”) provides for the issuance of up to 300,000 options to purchase the Company’s common stock to be issued to certain key employees. As of March 31, 2009, there were 29,500 options outstanding, and the maximum number of shares available for future grants under this plan is 63,500 shares. Under the Option Plan, the option price may not be less than 100% of the common stock fair market value on the date of grant (in the event of incentive stock options, 110% of the fair market value if the employee owns more than 10% of the Company’s outstanding common stock). Pursuant to the Option Plan, the options vest over four to five years and are exercisable over a five to ten-year period from date of issuance.

SFAS No. 123 Disclosures — Effective July 1, 2005, the Company has adopted the provisions of SFAS No. 123 Accounting for Stock-Based Compensation. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing.

No options were granted in the quarters ended March 31, 2009 and 2008. At March 31, 2009 and 2008, a total of 29,500 and 19,500 options were outstanding, respectively.

NOTE 10 — COMPREHENSIVE INCOME

Comprehensive income includes net income and other comprehensive income, which for the Company is primarily comprised of unrealized holding gains or losses on our available-for-sale securities that are excluded from the statement of income in computing net income and reported separately in shareholders’ equity. Comprehensive income and its components are as follows:


	Three months ended					Six months ended
	March 31,					December 31,
	2009			2008		2008
Net income	$	1,962,723		$	2,307,298	$	1,158,581
Other comprehensive income
Change in unrealized loss on available-for-sale securities, net of tax		(453,665	)		—		(319,147	)

Comprehensive income	$	1,509,058		$	2,307,298	$	839,434

Other comprehensive income is reported net of tax of $283,522 as of March 31, 2009 and $199,454 as of December 31, 2008.

NOTE 11 — CONTINGENCIES

Derivative Contingencies — Among the risks involved in natural gas marketing is the risk of nonperformance by counterparties to contracts for purchase and sale of natural gas. The Company’s marketing operation is party to certain contracts for purchase or sale of natural gas at fixed prices for fixed time periods. These qualify for treatment as a “normal purchase or normal sale” under SFAS 133.

Legal Proceedings — The Company is involved in lawsuits that have arisen in the ordinary course of business. The Company is contesting each of these lawsuits vigorously and believes it has defenses to the allegations that have been made.

On February 21, 2008, a lawsuit captioned Shelby Gas Association v. Energy West Resources, Inc., Case No. DV-08-008, was filed in the Ninth Judicial District Court of Toole County, Montana. Shelby Gas Association (Shelby) alleges a breach of contract by the Company’s subsidiary, EWR, to provide natural gas to Shelby. Shelby is seeking damages and injunctive relief prohibiting EWR from further breaching the contract. The parties have filed cross motions for summary judgment which are pending. The court has set oral arguments for the pending motions for July 24, 2009. The Company believes this lawsuit to be without merit and is vigorously defending the allegations.

In the Company’s opinion, the outcome of these lawsuits, including the Shelby litigation, will not have a material adverse effect on the Company’s financial condition, cash flows or results of operations.

NOTE 12 — NEW ACCOUNTING PRONOUNCEMENTS

Recently adopted

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS157”). SFAS 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. On January 1, 2008 we elected to implement this statement with the one-year deferral. The adoption of SFAS No. 157 did not have a material impact on our financial position, results of operations or cash flows. Beginning January 1, 2009, we have adopted the provisions for non-financial assets and non-financial liabilities that are not required or permitted to be measured at fair value on a recurring basis.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”). SFAS141R requires an acquirer to recognize and measure the assets acquired, liabilities assumed and any non-controlling interests in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exception. In addition, SFAS141R requires that acquisition-related costs will be generally expensed as incurred and also expands the disclosure requirements for business combinations. The effective date of SFAS 141R is for years beginning after December 15, 2008. We have adopted SFAS 141R on our consolidated financial statements, effective January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, Accounting for Noncontrolling Interests (“SFAS 160”). SFAS 160 amends Accounting Research Bulletin (ARB) No. 51 and establishes standards of accounting and reporting on non-controlling interests in consolidated statements, provides guidance on accounting for changes in the parent’s ownership interest in a subsidiary, and establishes standards of accounting of the deconsolidation of a subsidiary due to the loss of control. The effective date of SFAS 160 is for fiscal years beginning after December 15, 2008. We have adopted SFAS 160 on our consolidated financial statements, effective January 1, 2009.

In March 2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 amends and expands the disclosure requirements of FAS 133, “Accounting for Derivative Instruments and Hedging Activities” and requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for financial statements issued for fiscal periods beginning after November 15, 2008. We implemented SFAS No. 161 on January 1, 2009, and the implementation did not have a material impact on its consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (“FSP”) FAS 142-3, “Determination of Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS 142, “Goodwill and Other Intangible Assets.” FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is not permitted. We have adopted FAS FSP 142-3 on our consolidated financial statements, effective January 1, 2009.

In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (FSP EITF 03-6-1). FSP EITF 03-6-1 states that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 becomes effective for the Company on January 1, 2009. We have adopted FSP EITF 03-6-1 on our consolidated financial statements, effective January 1, 2009.

Recently Issued

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with U.S. generally accepted accounting principles. The Statement becomes effective 60 days following the approval by the Securities and Exchange Commission of the Public Company Accounting Oversight Board amendments to the auditing literature. The adoption of SFAS 162 will not have an impact on the Company’s financial position, results of operations or cash flows.

FSP 107-1, Interim Disclosures about Fair Value of Financial Instruments (FSP 107-1), increases the frequency of fair value disclosures required by Statements of Financial Accounting Standards (SFAS) No. 107, Disclosures About Fair Value of Financial Instruments (SFAS No. 107). FSP 107-1 relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at fair value. Prior to issuing this FSP, fair values for these assets and liabilities were only required to be disclosed once a year. The FSP now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. Based on our evaluation of FSP 107-1, we expect to provide the disclosures required in SFAS No. 107 in interim periods beginning in June 2009.

In April 2009, the FASB issued Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4), which provides additional guidance for estimating fair value in accordance with SFAS No. 157, Fair Value Measurements, when the volume and level of market activity for an asset or liability have significantly decreased. FSP FAS 157-4 emphasizes that even if there has been a significant decrease in the volume and level of market activity for the asset or liability, fair value still represents the exit price in an orderly transaction between market participants. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009. We do not expect the implementation of FSP FAS 157-4 to have a material impact on our consolidated financial statements.

In April 2009, the FASB also issued Recognition and Presentation of Other-Than-Temporary Impairments, (FSP FAS 115-2 and FAS 124-2) which changes the method for determining whether an other-than-temporary impairment exists for debt securities, and also requires additional disclosures regarding other-than-temporary impairments. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009. We do not expect the implementation of FSP FAS 115-2 and FAS 124-2 to have a material impact on our consolidated financial statements.


ITEM 2 —		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This quarterly report on Form 10-Q contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the Exchange Act) which represent our expectations or beliefs concerning future events. Forward-looking statements generally include words such as “anticipates,” “believes,” “expects,” “planned,” “scheduled” or similar expressions and statements concerning our operating capital requirements, negotiations with our lender, recovery of property tax payments, our environmental remediation plans, and similar statements that are not historical are forward-looking statements that involve risks and uncertainties. Although we believe these forward-looking statements are based on reasonable assumptions, statements made regarding future results are subject to a number of assumptions, uncertainties and risks that could cause future results to be materially different from the results stated or implied in this document.

Such forward-looking statements, as well as other oral and written forward-looking statements made by or on behalf of us from time to time, including statements contained in filings with the SEC and our reports to shareholders, involve known and unknown risks and other factors that may cause our company’s actual results in future periods to differ materially from those expressed in any forward-looking statements. See “Risk Factors” in the our Annual Report on Form 10-K/T for the fiscal year ended December 31, 2008 filed with the SEC. Any such forward looking statement is qualified by reference to these risk factors. We caution that these risk factors are not exclusive. We do not undertake to update any forward looking statements that may be made from time to time by or on behalf of us except as required by law.

Overview

We are a natural gas utility with operations in Montana, Wyoming, North Carolina and Maine. We distribute 26 billion cubic feet (bcf) of natural gas annually to approximately 37,000 residential, commercial and industrial customers. In addition to our core natural gas distribution business, we market approximately 2.3 bcf of natural gas annually to commercial and industrial customers in Montana and Wyoming. We also have an average 60% gross working interest (average 51% net revenue interest) in 160 natural gas producing wells and gas gathering assets that provide our marketing and production operation with a partial hedge when gas prices are greater than the cost of production. In addition, we own the Shoshone interstate and the Glacier gathering pipelines located in Montana and Wyoming. We have four reporting segments. Our primary segments are natural gas operations, marketing and production operations and pipeline operations. Our other segment is corporate and other.

Pending Acquisitions

As previously disclosed, on September 12, 2008, we entered into a stock purchase agreement with Richard M. Osborne, Trustee, Rebecca Howell, Stephen G. Rigo, Marty Whelan and Thomas J. Smith (collectively, the Sellers) whereby we agreed to purchase all of the common stock of Lightning Pipeline Co. (Lightning Pipeline), Great Plains Natural Gas Company (Great Plains), Brainard Gas Corp. (Brainard) and all of the membership units of Great Plains Land Development Co., Ltd. (GPL), which companies are primarily owned by an entity controlled by Mr. Osborne and wholly-owned by the Sellers, for a purchase price of $34.3 million. Pursuant to the agreement, we will acquire Orwell Natural Gas Company (Orwell), a wholly-owned subsidiary of Lightening Pipeline and Northeast Ohio Natural Gas Corp. (NEO), a wholly-owned subsidiary of Great Plains. Orwell, NEO and Brainard are natural gas distribution companies that serve approximately 21,000 customers in Northeastern Ohio and Western Pennsylvania. This acquisition will increase our customers by more than 50%.

Mr. Osborne is chairman, chief executive officer and a director, Mr. Smith is vice president, chief financial officer and a director, and Ms. Howell is secretary of Energy West.

The $34.3 million purchase price consists of our assumption of approximately $20.9 million in debt with the remainder of the purchase price to be paid in unregistered shares of common stock of Energy West based on a price of $10.00 per share. The stock portion of the purchase price may be increased or decreased within three business days prior to closing of the transaction depending on the number of active customers of Orwell, Brainard and NEO. The Sellers have the right to elect to terminate the transaction, upon the payment of a $100,000 fee, if the average closing price of our common stock for the twenty consecutive trading days ending seven calendar days prior to closing is below $9.49 and if our common stock underperforms the American Gas Stock Index (as maintained by the American Gas Association) by more than 20%, as described in the agreement. However, we may prevent termination of the transaction in this instance by increasing the number of shares of our common stock paid to the Sellers as part of the purchase price. The agreement also contains customary representations, warranties, covenants and indemnification provisions.

The transaction is expected to close in the second half of 2009 but there can be no assurances that the transaction will be completed on the proposed terms or at all. The closing is subject to customary closing conditions, including the approval of applicable regulators. In addition, the transaction is subject to the approval of our shareholders for the issuance of shares of Energy West as part of the purchase price.

On December 18, 2007, we entered into a stock purchase agreement with certain shareholders of Cut Bank Gas Company, a natural gas utility serving Cut Bank, Montana, to acquire 83.16% of the outstanding shares of Cut Bank Gas for a purchase price of $500,000 paid in shares of common stock of Energy West. In addition, we will offer to purchase the remaining shares of Cut Bank Gas Company for a purchase price of $100,000 paid in shares of common stock of Energy West. The acquisition is subject to the approval of the MPSC and is expected to be completed in the second half of 2009. The acquisition is scheduled to close on the last business day of the month after all closing conditions have been satisfied, including MPSC approval, as the case may be. However, there can be no assurances the acquisition will be closed in this time frame, or at all.

New Holding Company Structure

We filed applications with the Montana Public Service Commission (“MPSC”) and the Wyoming Public Service Commission (“WPSC”) to reorganize our operations into a holding company structure. We have received approval from the WPSC and expect a response from the MPSC in the next few months. We believe that a holding company structure will provide us the flexibility to make future acquisitions through subsidiaries of the holding company rather than Energy West or our subsidiaries.

If the reorganization is approved, Energy West would become a holding company that would indirectly conduct the businesses of all of our operating subsidiaries and our operating subsidiaries would become wholly-owned subsidiaries of Energy West. In addition, the number of shares of common stock of the holding company outstanding immediately after the merger would be equal to the number of shares of common stock of Energy West outstanding prior to the merger. After the merger, each shareholder of common stock of Energy West would own a corresponding percentage of shares of common stock of the holding company with identical designations, preferences, limitations, and rights.

QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS

Quarter Ended March 31, 2009 Compared to Quarter Ended March 31, 2008

The following discussion of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto and other financial information included elsewhere in this report and our Annual Report on Form 10-K/T for the transition period ended December 31, 2008. The following gives effect to the unaudited Condensed Consolidated Financial Statements as of March 31, 2009 and for the three month period ended March 31, 2009. Results of operations for interim periods are not necessarily indicative of results to be attained for any future period.

Net Income (Loss) — Our net income for the three months ended March 31, 2009 was approximately $2.0 million compared to net income of approximately $2.3 million for the three months ended March 31, 2008, a decrease of $300,000. This reduction was primarily due to a decrease in net income from our gas marketing and production operation of $248,000, lower net income from our natural gas operations of $72,000 and the net loss from our corporate and other segment of $28,000.

Revenues — Our revenues for the three months ended March 31, 2009 were approximately $31.3 million compared to approximately $30.9 million for the three months ended March 31, 2008, an increase of $400,000. The increase was primarily attributable to: (1) a natural gas revenue increase of $1.9 million, due primarily to sales growth in our Maine market and (2) an offsetting decrease in our marketing and production operation’s revenue of $1.5 million caused primarily by significantly lower index prices for natural gas.

Gross Margin — Gross margin increased $200,000, to approximately $7.8 million in the three months ended March 31, 2009 from approximately $7.6 million in three months ended March 31, 2008. Our natural gas operation’s margins increased $200,000, due primarily to sales growth in our Maine market. Our marketing and production operation’s margin decreased by $100,000 due to higher natural gas production costs and a decrease in mark to market revenue.

Expenses Other Than Cost of Goods Sold — Expenses other than cost of sales increased by $100,000 to $4.2 million in the three months ended March 31, 2009 as compared to $4.1 million in the three months ended March 31, 2008. The $100,000 increase is due to increases in distribution, general and administrative expenses, and depreciation, and offset by decreases in maintenance expense and taxes other than income taxes.

Other Income — Other income (loss) decreased by $73,000 to a loss of $25,000 in the three months ended March 31, 2009 from income of $48,000 in three months ended March 31, 2008. Corporate and other operations accounted for $48,000 of this change, with the remaining being attributable to our natural gas operations.

Interest Expense — Interest expense increased by approximately $58,000 during the three months ended March 31, 2009 from the three months ended March 31, 2008, due to an increase in short-term borrowings, caused primarily by the higher natural gas commodity prices during the summer and fall of 2008.

Income Tax Expense — Income tax expense increased by $200,000 to $1.2 million in the three months ended March 31, 2009 as compared to $1.0 million in the three months ended March 31, 2008. Tax expense increased in 2009 because the three months ended March 31, 2008 included a negative adjustment to tax expense related to prior year tax and adjustments in the manner in which taxable income was apportioned to various states. This was partially offset by lower pre-tax income in the three months ended March 31, 2009.

Operating Results of our Natural Gas Operations


	Three Months Ended
	March 31,
Natural Gas Operations	2009			2008
Operating revenues	$	26,141,570		$	24,167,479
Gas purchased		19,434,852			17,709,457

Gross margin		6,706,718			6,458,022
Operating expenses		3,937,912			3,899,110

Operating income		2,768,806			2,558,912
Other income		19,333			43,966


Income before interest and taxes		2,788,139			2,602,878

Interest (expense)		(287,347	)		(239,038	)


Income before income taxes		2,500,792			2,363,840
Income tax (expense)		(961,959	)		(753,152	)


Net income	$	1,538,833		$	1,610,688

Natural Gas Revenues and Gross Margins — Our operating revenues in the three months ended March 31, 2009 increased to approximately $26.1 million from approximately $24.2 million in the three months ended March 31, 2008. This $1.9 million increase was primarily due to sales growth in our Maine market.

Gas purchases in our natural gas operations increased by $1.7 million to approximately $19.4 million in the three months ended March 31, 2009 from approximately $17.7 million in the three months ended March 31, 2008. The increase in gas cost reflects higher sales volumes in our Maine market.

Gross margin was approximately $6.7 million for the three months ended March 31, 2009, compared to approximately $6.5 million for the three months ended March 31, 2008. The increase of $200,000 is primarily due sales growth in our Maine market.

Natural Gas Operating Expenses — Our operating expenses were approximately $3.9 million for the three months ended March 31, 2009, compared to approximately $3.9 million for the three months ended March 31, 2008. The $40,000 increase is due to increases in depreciation and distribution, general and administrative expenses, and offset by decreases in maintenance expense and taxes other than income taxes.

Natural Gas Other Income — Other income decreased by $25,000 to $19,000 in the three months ended March 31, 2009 from $44,000 in the three months ended March 31, 2008. This was due primarily to decreased service sales in Great Falls, Montana.

Natural Gas Interest Expense — Interest expense was $48,000 higher in the three months ended March 31, 2009 due to an increase in short-term borrowings, caused primarily by the higher natural gas commodity prices during the summer and fall of 2008.

Natural Gas Income Tax Expense — Income tax expense is $209,000 higher in the three months ended March 31, 2009 due to higher pretax income. The three months ended March 31, 2008 included a negative adjustment to tax expense related to prior year tax and adjustments in the manner in which taxable income was apportioned to various states.

Operating Results of our Marketing and Production Operations


	Three Months Ended
	March 31,
Energy West Resources	2009			2008

Operating revenues	$	5,079,587		$	6,620,996
Gas purchased		4,124,894			5,529,655

Gross margin		954,693			1,091,341
Operating expenses		210,505			136,522

Operating income		744,188			954,819
Other income (expense)		—			511

Income before interest and taxes		744,188			955,330
Interest (expense)		(55,343	)		(44,429	)

Income before income taxes		688,845			910,901
Income tax (expense)		(265,930	)		(239,776	)

Net income	$	422,915		$	671,125

Marketing and Production Revenues and Gross Margins — Our revenues decreased $1.5 million to approximately $5.1 million in the three months ended March 31, 2009 from approximately $6.6 million in the three months ended March 31, 2008. Retail gas revenues decreased due to significantly lower index prices for natural gas and mark to market revenue decreased by $60,000. The decreases are partially offset by an increase in production revenues of $42,000.

The gross margin in our marketing and production operations decreased $100,000 to approximately $1.0 million in the three months ended March 31, 2009 from approximately $1.1 million in the three months ended March 31, 2008. Gross margin from gas production decreased by $81,000, due primarily to higher costs of production, and mark to market revenue decreased by $60,000. These decreases were partially offset by an increase in gross margin from retail gas of $4,000.

Marketing and Production Operating Expenses — Our operating expenses increased approximately $74,000, to $211,000 in the three months ended March 31, 2009 from $137,000 in the three months ended March 31, 2008. Increases in depletion, professional services and salaries expense account for this change.

Marketing and Production Interest Expense — Interest expense increased approximately $11,000 to $55,000 in the three months ended March 31, 2009 from $44,000 in the three months ended March 31, 2008, due to an increase in short-term borrowings, caused primarily by the higher natural gas commodity prices during the summer and fall of 2008.

Marketing and Production Income Tax Expense — Income tax expense increased approximately $26,000 to $266,000 in the three months ended March 31, 2009 from $240,000 in the three months ended March 31, 2008. The three months ended March 31, 2008 included a negative adjustment to tax expense related to prior year tax and adjustments in the manner in which taxable income was apportioned to various states. This is offset by lower pre-tax income in the three months ended March 31, 2009.

Operating Results of our Pipeline Operations


	Three Months Ended
	March 31,
Pipeline Operations	2009			2008

Operating revenues	$	112,666		$	89,797
Gas purchased		—			—

Gross margin		112,666			89,797
Operating expenses		61,798			50,078

Operating income		50,868			39,719
Other income		—			—

Income before interest and taxes		50,868			39,719

Interest (expense)		(2,923	)		(4,281	)


Income before income taxes		47,945			35,438
Income tax (expense)		(18,437	)		(13,633	)


Net income	$	29,508		$	21,805

Net income increased $8,000 to approximately $30,000 in the three months ended March 31, 2009 from approximately $22,000 in the three months ended March 31, 2008, and the overall impact of our pipeline operations was not material to our results of consolidated operations.

Results of our Corporate and Other Operations

The corporate and other operations segment was created to accumulate revenues and expenses that are not allocable to our utilities or other operations. Therefore, it does not have standard revenues, gas purchase costs, or gross margin.

Results of corporate and other operations for the three months ended March 31, 2009 include costs related to acquisition activities of $88,000, offset by dividends from marketable securities of approximately $44,000 and the applicable income tax benefit of approximately $16,000, for a net loss of approximately $28,000.

Results of corporate and other operations for the three months ended March 31, 2008 included approximately $4,000 of dividend income from marketable securities.

Consolidated Cash Flow Analysis

Sources and Uses of Cash

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, depletion, amortization, deferred income taxes and changes in working capital.

Our ability to maintain liquidity depends upon our $20.0 million credit facility with Bank of America, shown as line of credit on the accompanying balance sheets. Our use of the Bank of America revolving line of credit increased to $5.6 million at March 31, 2009, compared with $0 at March 31, 2008. This change in our line of credit is caused primarily by increased construction expenditures, purchases of marketable securities and increased rates paid to fill natural gas storage.

Long-term debt was $13.0 million at March 31, 2009, and 2008.

Cash increased by $354,000 from December 31, 2008 to March 31, 2009, compared with the $359,000 increase in cash for the quarter ended March 31, 2008, as shown in the following table:


	March 31,
	2009			2008

Cash provided by operating activities	$	14,893,827		$	8,368,055
Cash used in investing activities		(2,117,692	)		(1,193,169	)
Cash used in financing activities		(12,422,162	)		(6,816,069	)


Increase in cash	$	353,973		$	358,817

Cash provided by operating activities was approximately $6.5 million higher in the three months ended March 31, 2009, than the three months ended March 31, 2008. This was primarily due to increases in natural gas inventories of $2.0 million, recoverable gas purchases of $1.8 million, and deferred taxes of $1.8 million, accounts receivable of $600,000 and other assets of $300,000, and decreases in other liabilities of $400,000 which were offset by reduced net income and decreases in prepaids as compared to the three months ended March 31, 2008.

Cash used in investing activities was approximately $925,000 higher in the three months ended March 31, 2009, than the three months ended March 31, 2008. This was due to an increase of $884,000 for construction expenditures, an increase of $289,000 in other investments, an increase in customer advances received for construction and contributions in aid of construction of $54,000 and a decrease of $302,000 in purchases of marketable securities as compared to the three months ended March 31, 2008.

Cash used in financing activities in the three months ended March 31, 2009 was $12.4 million. This is $5.6 million more than the cash used of $6.8 million in the three months ended March 31, 2008 and is due to increased net borrowings on the line of credit of $5.3 million, decreased net sales of common stock of $178,000, and a $54,000 increase in dividends paid as compared to the three months ended March 31, 2008.

Liquidity and Capital Resources

We fund our operating cash needs, as well as dividend payments and capital expenditures, primarily through cash flow from operating activities and short-term borrowing. Historically, to the extent cash flow has not been sufficient to fund these expenditures, we have used our working capital line of credit. We have greater need for short-term borrowing during periods when internally generated funds are not sufficient to cover all capital and operating requirements, including costs of gas purchased and capital expenditures. In general, our short-term borrowing needs for purchases of gas inventory and capital expenditures are greatest during the summer and fall months and our short-term borrowing needs for financing customer accounts receivable are greatest during the winter months.

Long-term Debt — $13.0 million 6.16% Senior Unsecured Notes — On June 29, 2007, we issued $13.0 million aggregate principal amount of our 6.16% Senior Unsecured Notes, due June 29, 2017. The proceeds of these notes were used to refinance our existing notes. With this refinancing, we expensed the remaining debt issue costs of $991,000 in fiscal 2007, and incurred approximately $463,000 in new debt issue costs to be amortized over the life of the new note.

Bank of America Line of Credit — On June 29, 2007, we established our five-year unsecured credit facility with Bank of America, replacing a previous $20.0 million one-year facility with Bank of America which was scheduled to expire in November 2007. The credit facility includes an annual commitment fee equal to 0.20% of the unused portion of the facility and interest on amounts outstanding at the London Interbank Offered Rate, plus 120 to 145 basis points, for interest periods selected by us.

The following table represents borrowings under the Bank of America revolving line of credit for each of the periods presented.


Quarter Ended March 31, 2009
Minimum borrowing	$	5,595,000
Maximum borrowing	$	18,095,000
Average borrowing	$	11,987,000

Our 6.16% Senior Unsecured Notes and Bank of America credit facility agreements contain various covenants, which include, among others, limitations on total dividends and distributions made in the immediately preceding 60-month period to 75% of aggregate consolidated net income for such period, restrictions on certain indebtedness, limitations on asset sales, and maintenance of certain debt-to-capital and interest coverage ratios. At March 31, 2009 and 2008, we believe we were in compliance with the financial covenants under our debt agreements.

At March 31, 2009, we had approximately $1.4 million of cash on hand, ($956,000 net of bank overdrafts) and $5.6 million in borrowings under the $20.0 million Bank of America revolving line of credit. In addition, at March 31, 2009, we had two outstanding letters of credit related to supply contracts totaling $1.2 million. These letters of credit reduce our available borrowings on our line of credit. As discussed above, our short-term borrowing needs for purchases of gas inventory and capital expenditures are greatest during the summer and fall months. Our availability normally increases in January as monthly heating bills are paid and storage related gas purchases are no longer necessary.

The total amount outstanding under all of our long term debt obligations was $13.0 million at both March 31, 2009, and 2008. The portion of such obligations due within one year was $0 at both March 31, 2009, and 2008.

Capital Expenditures

We conduct ongoing construction activities in all of our utility service areas in order to support expansion, maintenance, and enhancement of our gas pipeline systems. We are actively expanding our systems in North Carolina and Maine to meet the high customer interest in natural gas service in those two service areas. For the six months ended December 31, 2008 our total capital expenditures were approximately $4.7 million. During the three months ended March 31, 2009 and 2008 capital expenditures were $1.5 million and $1.0 million, respectively. We estimate future cash requirements for capital expenditures will be as follows:


	Estimated
	Future Cash
	Requirements
	through 12/31/09
	(In thousands)

Natural Gas Operations	$	3,575
Energy West Resources		—
Pipeline Operations		—


Total capital expenditures	$	3,575

Contractual Obligations

Our major financial market risk exposure is to changing interest rates. Changing interest rates will affect interest paid on variable-rate debt. Our policy is to manage interest rates through the use of a combination of fixed-rate and floating-rate debt.

The table below presents contractual balances of our consolidated long-term and short-term debt at the expected maturity dates as of March 31, 2009.

Payments Due by Period


			1 year						After
Contractual Obligations	Total		or less		2-3 years		4-5 years		5 years

Interest payments (a)	$	6,606,600	$	800,800	$	1,601,600	$	1,601,600	$	2,602,600
Long Term Debt (b)		13,000,000		—		—		—		13,000,000
Operating Lease Obligations		190,394		89,067		30,999		8,418		61,910
Transportation and Storage Obligation (c)		8,731,396		4,759,770		1,001,748		1,001,748		1,968,130


Total Obligations	$	28,528,390	$	5,649,637	$	2,634,347	$	2,611,766	$	17,632,640


(a)		Our long-term debt and notes payable require interest payments. Interest payments are projected based on debt service schedules provided at debt issuance.

(b)		See Note 6 of the Notes to the unaudited Consolidated Financial Statements for a description of this debt.

(c)		Transportation and Storage Obligations represent annual commitments with suppliers for periods extending up to four years. These costs are recoverable in customer rates.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance-sheet arrangements, other than those currently disclosed that have or are reasonably likely to have a current or future effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to certain market risks, including commodity price risk (i.e., natural gas and propane prices) and interest rate risk. The adverse effects of potential changes in these market risks are discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity nor do they consider additional actions management may take to mitigate our exposure to such changes. Actual results may differ. See the notes to the financial statements for a description of our accounting policies and other information related to these financial instruments.

Commodity Price Risk

We seek to protect ourselves against natural gas price fluctuations by limiting the aggregate level of net open positions that are exposed to market price changes. We manage open positions with policies designed to limit the exposure to market risk, with regular reporting to management of potential financial exposure. Our Risk Management Committee has limited the types of contracts we will consider to those related to physical natural gas deliveries. Therefore, management believes that our results of operations are not significantly exposed to changes in natural gas prices.

Interest Rate Risk

Our results of operations are affected by fluctuations in interest rates (e.g. interest expense on debt). We mitigate this risk by entering into long-term debt agreements with fixed interest rates. Some of our notes payable, however, may be subject to variable interest rates that we may mitigate by entering into interest rate swaps. A hypothetical 100 basis point change in market rates applied to the balance of the notes payable would change our interest expense by approximately $56,000 annually.

Credit Risk

Credit risk relates to the risk of loss that we would incur as a result of non-performance by counterparties of their contractual obligations under various instruments with us. Credit risk may be concentrated to the extent that one or more groups of counterparties have similar economic, industry or other characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in market or other conditions. In addition, credit risk includes not only the risk that a counterparty may default due to circumstances relating directly to it, but also the risk that a counterparty may default due to circumstances which relate to other market participants that have a direct or indirect relationship with such counterparty. We seek to mitigate credit risk by evaluating the financial strength of potential counterparties. However, despite mitigation efforts, defaults by counterparties may occur from time to time. To date, no such default has occurred.

Equity Price Risk

Equity securities are subject to equity price risk, which is defined as the potential for loss in market value due to a decline in equity prices. The value of common stock equity investments is dependent upon the general conditions in the securities markets and the business and financial performance of the individual companies in the portfolio. Values are typically based on future economic prospects as perceived by investors in the equity markets. We regularly review the carrying value of our investments and identify and record losses when events and circumstances indicate that such declines in the fair value of such assets below our accounting basis are other-than-temporary. For additional discussion of our equity securities, see Note 9 to the unaudited financial statements included herein.

ITEM 4(T) — CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of March 31, 2009, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. The evaluation was carried out under the supervision of and with the participation of our management, including our principal executive officer and principal financial officer. Based upon this evaluation, our chief executive officer and chief financial officer each concluded that our disclosure controls and procedures were effective as of March 31, 2009.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 6 — EXHIBITS


Exhibit
Number		Description
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed or furnished herewith.


	Page No.
Part I — Financial Information

Item 1 — Financial Statements		2

Condensed Consolidated Balance Sheets as of March 31, 2009, March 31, 2008 and December 31, 2008		3

Condensed Consolidated Statements of Income — three months ended March 31, 2009 and 2008		4

Condensed Consolidated Statements of Cash Flows — three months ended March 31, 2009 and 2008		5

Notes to Condensed Consolidated Financial Statements		6

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3 — Quantitative and Qualitative Disclosures about Market Risk		23

Item 4(T) — Controls and Procedures		24

Part II — Other Information

Item 6 — Exhibits		24

Signatures		25

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1


			Weighted		Aggregate
	Number of		Average		Intrinsic
	Shares		Exercise Price		Value

Outstanding June 30, 2008		19,500	$	9.10
Granted		10,000	$	7.10
Exercised		—	$	—
Expired		—	$	—


Outstanding December 31, 2008		29,500	$	8.42
Granted		—	$	—
Exercised		—	$	—
Expired		—	$	—


Outstanding March 31, 2009		29,500	$	8.42	$	19,050


Exercisable March 31, 2009		17,500	$	9.52	$	2,700


					Weighted
					Average
			Weighted		Remaining
			Average		Contractual
Grant	Number		Exercise		Life		Number
Date	Outstanding		Price		(Years)		Exercisable

1/6/2006		4,500	$	6.35		1.8		0
12/1/2007		15,000	$	9.93		1.0		15,000
12/1/2008		10,000	$	7.10		9.6		2,500


		29,500						17,500


	ENERGY WEST, INCORPORATED
	/s/ Thomas J. Smith
	Thomas J. Smith
May 15, 2009	Chief Financial Officer (principal financial officer and principal accounting officer)


Date: May 15, 2009

	/s/ Richard M. Osborne
	Richard M. Osborne
	Chief Executive Officer (principal executive officer)

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents


Date: May 15, 2009

	/s/ Thomas J. Smith
	Thomas J. Smith
	Chief Financial Officer (principal financial officer and principal accounting officer)


Date: May 15, 2009	/s/ Richard M. Osborne
	Richard M. Osborne
	Chief Executive Officer (principal executive officer)