Bay State Gas announces growth strategies from its accelerated transition process.

WESTBOROUGH, Mass.--(BUSINESS WIRE)--March 29, 1996--"Bay State believes that utility deregulation offers unprecedented opportunities for growth. Achieving this growth, however, will require radically changing the way we do business," said Joel L. Singer, Chief Operating Officer for Bay State Gas Company (NYSE:BGC). "For the last three months, companywide employee-led teams have been involved in an Accelerated Transition process. As a result of this process, the teams have identified strategies for dramatically growing our business and immediate actions for moving us forward."

STRATEGIES FOR DRAMATICALLY GROWING BAY STATE'S BUSINESSES

"To achieve dramatic growth, we need to base our strategies on anticipating the changes in the industry and aggressively positioning ourselves to capture the new opportunities that the new business environment is creating," Singer continued. Examples of these strategies include:

o Accelerating the unbundling of transportation service all the way to the residential customer level;

o Forging strategic relationships with retail energy product and service companies as a means of increasing throughput on Bay State's system;

o Implementing performance-based rates that provide financial incentives for lowering costs and improving customer service;

o Accelerating the implementation of sophisticated information systems to streamline key business processes; and

o Aggressively expanding Bay State's nonregulated Energy Products & Services business.

IMMEDIATE ACTIONS

Bay State has begun taking immediate actions to implement these growth strategies. Four key initiatives include:

#1: Introducing a companywide restructuring/reorganization;

#2: Initiating the first natural gas residential choice pilot

program in New England;

#3: Aggressively expanding Bay State's Energy Products & Services

business; and

#4: Selling Bay State's interest in the MASSPOWER electricity

cogeneration facility.

IMMEDIATE ACTION #1: A COMPANYWIDE RESTRUCTURING/REORGANIZATION

"We previously announced the company's strategic focus on three distinct, but related business segments -- Local Transportation, Energy Products & Services, and Energy Ventures," Singer said. "As a result of the Accelerated Transition process, we have now formally restructured the company around these business segments."

"We also learned from the Accelerated Transition process that we could significantly add customer value and increase efficiency by organizing our Local Transportation business around companywide business processes, instead of geographic divisions," added Singer. "Further, if we are to significantly grow our business, we recognize that we must radically change the way we do business," he continued. "Having a strong strategic vision is important, but it is worthless without a strong commitment to implementing radical change. We believe we can only get that commitment through the complete involvement of our employees." To do this, Bay State is currently forming employee-led Radical Change teams to implement major changes during calendar year 1996 in four key areas:

o Implementing major culture change initiatives;

o Accelerating the implementation of client/server technology systems and process reengineering;

o Aggressively expanding certain business activities; and

o Cautiously entering new businesses.

IMMEDIATE ACTION #2: RESIDENTIAL CHOICE PILOT PROGRAM

"We firmly believe that deregulation, increased competition, and the unbundling of transportation and energy commodity services will result in greater choice and lower costs for our customers ... which means increased throughput for Bay State," said Singer. "A cornerstone of our commitment to accelerate the unbundling process is our Massachusetts Natural Gas Residential Choice Pilot Program, which we plan to implement prior to this year's winter heating season. As a means of greatly improving the quality of the program, we are involving all of our key stakeholders in helping us develop and implement the program. Working with us on this program are regulators, other gas and electric utilities, gas marketers, key industry thought leaders, and customers."

"This program will enable us to more fully understand the needs of retail energy product and service companies -- so that we can create an environment where they actually want to compete on our system and offer additional services for our customers. Once this is accomplished, energy consumers will benefit from lower prices and wider services, and Bay State's Local Transportation business will benefit from increased gas utilization."

IMMEDIATE ACTION #3: ENERGY PRODUCTS & SERVICES BUSINESS EXPANSION

Bay State currently provides a variety of nonregulated energy products and services to more than 100,000 customers, representing annual revenues of $18 million. These products and services include: gas marketing; propane sales; energy management services; low-interest energy loans; water heater leasing; and oil-to-gas conversion burner leasing.

According to Singer, the outlook for this business is becoming extremely attractive. "Unbundling of natural gas and electric utility systems, new product technologies, and business trends in outsourcing are significantly increasing demand for energy service providers who can provide a wide variety of high-value energy products and services," he said. "Given this attractive outlook and our expertise in these businesses, we see an opportunity to significantly expand these activities both within and outside of our service territories."

"Our first step in aggressively growing this business is to integrate our existing seven separate nonregulated product lines into one Energy Products & Services company. Our next step will be to execute strategies to exploit synergy between these existing product lines (eg. cross selling, expanding service offerings, etc.). And beyond this, we will look to dramatically expand our activities well outside of our service territory by focusing on critical core competencies: technical/engineering capabilities; razor-sharp target marketing skills; managing brand performance and image; developing customer loyalty strategies; and effectively managing several channels of distribution."

IMMEDIATE ACTION #4: SALE OF MASSPOWER INTEREST

The company currently owns a 17.5% equity interest in MASSPOWER, a 240-megawatt electric power plant in Springfield, Mass. Bay State received $859,000 in partnership distributions during fiscal 1995 on its initial $4.2 million investment. A somewhat higher annual distribution is expected during fiscal 1996, with earnings projections significantly increasing once the plant debt is repaid.

"Although MASSPOWER has been an outstanding investment for the company, wholesale cogeneration does not represent a future core business for us," Singer said. "For this reason, the company has notified other MASSPOWER equity partners of its intent to sell its interest in the facility." According to Singer, Bay State expects to realize a substantial gain from the sale, with proceeds expected to greatly exceed the near-term costs of its corporate restructuring.

Bay State Gas Company operates in three distinct, but related energy business segments -- Local Transportation, Energy Products & Services, and Energy Ventures. As New England's largest independent gas distributor, Bay State's Local Transportation business serves 296,000 customers in Massachusetts, New Hampshire, and Maine. The company's Energy Products & Services segment offers energy commodities (such as natural gas, propane, etc.) and related equipment and services. In addition, the company invests in Energy Ventures, which today include MASSPOWER, the Portland Natural Gas Transmission System (PNGTS), Wells LNG, and KBC Energy Services.

This release contains statements of future business plans, including growth projections, that are "forward looking statements" under the federal securities laws. The courses of action actually taken could differ materially from those planned or projected, and there is no assurance that expectations of future results will be achieved. Important factors that could cause actual results to differ materially from those we currently expect include, but are not limited to:

o Unforeseen competition and the uncertainty of customer acceptance of new and existing products and services.

o Unforeseen regulatory requirements and corporate commitments.

o Offers to purchase MASSPOWER that are significantly less than the appraised value.

CONTACT: Carol Churchill

Bay State Gas Company,

Westborough, Massachusetts [phone]