UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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, 2005

OR

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

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

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

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 checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the issuer’s common stock, $.15 par value per share, as of May 10, 2005 is 2,625,064 shares.

INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED MARCH 31, 2005

TABLE OF CONTENTS

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Part I — FINANCIAL INFORMATION

ENERGY WEST, INCORPORATED AND SUBSIDIARIES

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

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ENERGY WEST, INCORPORATED AND SUBSIDIARIES

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

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ENERGY WEST, INCORPORATED AND SUBSIDIARIES

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

March 31, 2005

NOTE 1 –	RESTATEMENT OF FINANCIAL RESULTS AND SUMMARY OF THE BUSINESS

Restatement of Financial Results

As previously disclosed in its Annual Report of Form 10-K, the Company has corrected its accounting and previous valuation of certain contracts of Energy West Resources, Inc. (“EWR”) and, as a result, restated the accompanying (unaudited) condensed consolidated financial statements as of March 31, 2004 and for the three and nine-month periods ended March 31, 2004.

The Company’s review of EWR’s contracts included an evaluation of a gas purchase agreement and a gas sales agreement entered into during fiscal year 2002 involving counterparties who are affiliated with each other. The gas purchase agreement had previously been reflected in the Company’s financial statements as a derivative asset. The gas sales agreement was previously classified by the Company as a normal sales contract, and therefore was not reflected on the Company’s financial statements as a derivative liability. The Company determined that a shorter period similar to that of the gas sales agreement should have been used in the determination of the fair value of the gas purchase agreement and that the gas sales agreement does not qualify for the “normal purchase and sale” exception. As a result, the condensed consolidated financial statements for the period ended March 31, 2004 have been restated to reflect a significantly reduced fair value for the gas purchase agreement and the gas sales agreement as a derivative liability at its estimated fair value.

None of the adjustments affects the Company’s cash flows or cash balances. The Company’s cumulative gain (loss) in the portfolio of contracts valued on a mark-to-market basis will be realized in later periods as contracts settle or are performed and/or as natural gas prices change.

As discussed in the table that follows, the condensed consolidated balance sheet at March 31, 2004, and the condensed consolidated statements of operations for the quarter ended March 31, 2004 and the nine months ended March 31, 2004, have been restated from amounts previously reported to reflect the reclassification and revaluation of the gas purchase and gas sale contracts discussed above.

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A summary of the significant effects of the restatement is as follows:

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements 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. Operating results for the three-month period ended March 31, 2005 and the nine-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2005. 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 for the fiscal year ended June 30, 2004.

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Certain non-regulated, non-utility operations are conducted by three wholly owned subsidiaries of the Company: Energy West Propane, Inc. (“EWP”); Energy West Resources, Inc. (“EWR”); and Energy West Development, Inc. (“EWD”). EWP is engaged in wholesale and retail distribution of bulk propane in Arizona. EWR conducts certain marketing activities involving the sale of natural gas in Montana and Wyoming and electricity in Montana, and owns certain natural gas production properties in Montana. EWD owns a natural gas gathering system that is located in both Montana and Wyoming and an interstate natural gas transportation pipeline that runs between Montana and Wyoming. EWD also owns natural gas production properties in Montana. The Company’s reporting segments are: Natural Gas Operations, Propane Operations, EWR and Pipeline Operations. EWD began operations of an interstate natural gas transmission pipeline on July 1, 2003. The revenue and expenses associated with this transmission pipeline are included in the Pipeline Operations segment.

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (the “FASB”) issued a revision of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation. The revised statement requires public entities to measure liabilities incurred to employees in share-based payment transactions at fair value. This Statement is effective for public entities as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. Management is currently evaluating the impact that the adoption of this standard will have on the consolidated financial statements.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

NOTE 2 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY

Management of Risks Related to Derivatives

The Company and its subsidiaries are subject to certain risks related to changes in certain commodity prices and risks of counterparty performance. The Company has established policies and procedures to manage such risks. The Company has a Risk Management Committee, comprised of Company officers and management to oversee the Company’s risk management program as defined in its risk management policy. The purpose of the risk management program is to minimize adverse impacts on earnings resulting from volatility of energy prices, counterparty credit risks, and other risks related to the energy commodity business.

In order to mitigate the risk of natural gas market price volatility related to firm commitments to purchase or sell natural gas or electricity, from time to time the Company and its subsidiaries have entered into hedging arrangements. Such arrangements may be used to protect profit margins on future obligations to deliver gas at a fixed price, or to protect against adverse effects of potential market price declines on future obligations to purchase gas at fixed prices.

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Quoted market prices for natural gas derivative contracts of the Company and its subsidiaries are generally not available. Therefore, to determine the net present value of natural gas derivative contracts, the Company uses internally developed valuation models that incorporate independently available current and forecasted pricing information.

As of March 31, 2005, these derivative contracts were reflected on the Company’s consolidated balance sheet as derivative assets and liabilities at an approximate fair value as follows:

During the first nine months of fiscal year 2005, the Company entered into two new contracts that require mark-to-market accounting under SFAS No. 133 (see Note 4).

As discussed in Note 11, in the quarter ended March 31, 2005 the Company designated certain gas contracts as “normal purchase and normal sales.” The fair value of the contracts on the date of the designation has been recorded as a deferred gain and is being amortized over the life of the contracts.

Natural Gas and Propane Operations

In the case of the Company’s regulated divisions, gains or losses resulting from derivative contracts are subject to deferral under regulatory procedures of the public service regulatory commissions of Montana, Wyoming and Arizona. Therefore, related derivative assets and liabilities are offset with corresponding regulatory liability and asset amounts included in “Recoverable Cost of Gas Purchases,” pursuant to SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. As of March 31, 2005, the Company’s regulated operations have no contracts meeting the mark-to-market accounting requirements.

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NOTE 3 – INCOME TAXES

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

NOTE 4 – LINES OF CREDIT AND LONG-TERM DEBT

The Company’s operating capital needs, as well as dividend payments and capital expenditures, are generally funded through cash flow from operating activities and short-term borrowing. Historically, to the extent cash flow has not been sufficient to fund capital expenditures, the Company has borrowed short-term funds. When the short-term debt balance significantly exceeds working capital requirements, the Company has issued long-term debt or equity securities to pay down short-term debt. 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 the Company’s short-term borrowing needs for financing customer accounts receivable are greatest during the winter months.

The Company substantially restructured its credit facilities during fiscal year 2004. On September 30, 2003, the Company established a $23.0 million revolving credit facility with LaSalle Bank National Association (“LaSalle”), replacing a previous short-term line of credit. The Montana Public Service Commission (“MPSC”) order granting approval of the LaSalle credit facility restricts the use of the proceeds to utility purposes, and requires the Company to provide monthly reports to the MPSC with respect to the financial condition of the Company. The Company continues to be subject to these MPSC requirements.

On March 31, 2004, the Company entered into a restated credit agreement with LaSalle. Pursuant to the restated credit agreement, the previous $23.0 million revolving credit facility was replaced with a $15.0 million revolving credit facility, a $6.0 million term loan maturing on March 31, 2009, and a $2.0 million term loan maturing on September 30, 2004 (collectively referred to as the “LaSalle Facility”).

As of August 30, 2004, the Company and LaSalle amended certain covenants under the LaSalle Facility as follows: (1) increased the total debt to capital ratio from .65 to .70, (2) allowed the

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exclusion of extraordinary expenses incurred by the Company for legal fees and costs of the PPL Montana, LLC (“PPLM”) litigation, expenses and costs associated with the credit facilities, proxy contest costs, and the costs of adoption of the shareholder rights plan, in determining the interest coverage ratio, and (3) waived compliance with the ratios referred to in (1) and (2) above as of June 30, 2004 in addition to a shareholder’s acquisition of more than 15% of the outstanding common stock of the Company.

As of November 30, 2004, the Company executed an agreement with LaSalle providing for (i) an extension of the revolving facility until November 28, 2005; (ii) an extension of the date to consummate infusions of new equity of at least $2.0 million and to repay the $2.0 million term loan to October 1, 2005; (iii) a conditional waiver of the deadline to deliver audited financial statements for fiscal year 2004 and the deadline to deliver financial statements for the fiscal quarter ended September 30, 2004; (iv) a waiver of the technical default that otherwise would have been caused by the restatement of financial results of prior periods; (v) modification of interest rates applicable to the $2.0 million term loan; (vi) a limitation of $1.0 million on total loans and additional capital investment from the Company to EWR; and (vii) waivers of certain financial covenant defaults as of September 30, 2004.

Borrowings under the LaSalle Facility are secured by liens on substantially all of the assets of the Company and its subsidiaries. The Company’s obligations under certain other notes and industrial development revenue obligations are secured on an equal and ratable basis with LaSalle in the collateral granted to secure the borrowings under the LaSalle Facility with the exception of the first $1.0 million of debt under the LaSalle Facility.

Under the LaSalle Facility, the Company may elect to pay interest on portions of the amounts outstanding under the $15.0 million revolving line of credit at the London Interbank Offered Rate (LIBOR), plus 250 basis points, for interest periods selected by the Company. For all other balances outstanding under the $15.0 million revolving line of credit, the Company pays interest at the rate publicly announced from time to time by LaSalle as its “prime rate” (the “Prime Rate”). For the $6.0 million term loan under the LaSalle Facility, the Company may elect to pay interest at either the applicable LIBOR rate, plus 350 basis points (“bps”) or at the Prime Rate, plus 200 bps. For the $2.0 million term loan under the LaSalle Facility, the Company pays interest at the Prime Rate, plus 200 bps, through March 31, 2005; the Prime Rate, plus 300 bps, from April 1, 2005 through June 30, 2005; and the Prime Rate, plus 400 bps, from and after July 1, 2005. The Company also pays a commitment fee of 35 bps for the daily unutilized portion of the $15.0 million revolving credit facility.

During the quarter ended