----

**UNITED      STATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,      D. C. 20549**

**FORM      10-K**

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

**For      the Fiscal Year Ended December 31, 2005**

**OR**

** **

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

**Commission      File No. 1-2921**

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**Delaware**
**44-0382470      **

**             **
**      5444 Westheimer Road**
**77056-5306**

**Houston,      Texas                                                                    **

**(713)      989-7000**

**                        **
**Title      of each Class**
**Name      of each exchange on which registered**

** **
**4.80%      Senior Notes due 2008, Series B**
**New      York Stock Exchange**

** 6.05%      Senior Notes due 2013, Series B**
**New      York Stock Exchange**

** **
** **
**P**
** **

** **
**P**
** **

**P**

**P**

**P**

** **
**P**

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**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**FORM      10-K**

**DECEMBER      31, 2005**

**Table      of Contents**

|                                                                         |                                                                                                                                                  | Page   |
|------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                         | **PART                I**                                                                                                                             |   |
| ITEM                1.                                                       | Business.                                                                                                                                             | 1      |
| ITEM                1A.                                                      | Risk                Factors.                                                                                                                          | 5      |
| ITEM                1B.                                                      | Unresolved                Staff Comments.                                                                                                             | 10     |
| ITEM                2.                                                       | Properties.                                                                                                                                           | 10     |
| ITEM                3.                                                       | Legal                Proceedings.                                                                                                                     | 10     |
| ITEM                4.                                                       | Submission                of Matters to a Vote of Security Holders.                                                                                   | 10     |
|                                                                         | **PART                II**                                                                                                                            |   |
| ITEM                5.                                                       | Market                for the Registrant’s Common Equity, Related Stockholder Matters and Issuer                Purchases of Equity Securities. | 11     |
| ITEM                6.                                                       | Selected                Financial Data.                                                                                                               | 11     |
| ITEM                7.                                                       | Management's                Discussion and Analysis of Financial Condition and Results of                Operation*.*                                 | 11     |
| ITEM                7A.                                                      | Quantitative                and Qualitative Disclosures About Market Risk.                                                                            | 16     |
| ITEM                8.                                                       | Financial                Statements and Supplementary Data.                                                                                           | 16     |
| ITEM                9.                                                       | Changes                in and Disagreements with Accountants on Accounting and Financial                Disclosure.                                   | 16     |
| ITEM                9A.                                                      | Controls                and Procedures.                                                                                                               | 16     |
| ITEM                9B.                                                      | Other                Information.                                                                                                                     | 17     |
|                                                                         | **PART                III**                                                                                                                           |   |
| ITEM                10.                                                      | Directors                and Executive Officers of the Registrant.                                                                                    | 17     |
| ITEM                11.                                                      | Executive                Compensation.                                                                                                                | 17     |
| ITEM                12.                                                      | Security                Ownership of Certain Beneficial Owners and Management and Related                Stockholder Matters.                         | 17     |
| ITEM                13.                                                      | Certain                Relationships and Related Transactions.                                                                                        | 17     |
| ITEM                14.                                                      | Principal                Accountant Fees and Services.                                                                                                | 18     |
|                                                                         | **PART                IV**                                                                                                                            |   |
| ITEM                15.                                                      | Exhibits,                Financial Statement Schedules, and Reports on Form 8-K.                                                                      | 20     |
| Signatures                                                                   |                                                                                                                                                  |   |
| Index                to the Consolidated Financial                Statements | F-1                                                                                                                                                   |

----

**PART      I**

**ITEM      1. Business.**

***Our      Business***

***Introduction.***
*Panhandle      Eastern Pipe Line*
*Panhandle      Energy*
*Southern      Union Company*
*Southern      Union*
*CMS      Gas Transmission*
*CMS      Energy*
*CMS*
*Item      8. Financial Statements and Supplementary Data,*
*Note      1 - Corporate Structure*
*FERC*

| ·   | Panhandle                Eastern Pipe Line; |
|--------------------|---------------------------------------------|

| ·   | Trunkline                Gas Company, LLC (*Trunkline)*; |
|--------------------|----------------------------------------------------------|

| ·   | Sea                Robin Pipeline Company, LLC (*Sea                Robin*); |
|--------------------|------------------------------------------------------------------------------|

| ·   | Trunkline                LNG Holdings, LLC (*LNG                Holdings*); |
|--------------------|-----------------------------------------------------------------------------|

| ·   | Trunkline                LNG Company, LLC (*Trunkline                LNG*);                and |
|--------------------|------------------------------------------------------------------------------------------------|

| ·   | Pan                Gas Storage, LLC (d.b.a. *Southwest                Gas Storage)*. |
|--------------------|--------------------------------------------------------------------------------------|

*pushdown*
*Item      8. Financial Statements and Supplementary Data, Note 1 - Corporate      Structure*

*LNG*
*Bcf/d*

----

*TBtu*

|                                         |   | **Year                  Ended December 31,** |   |
|----------------------------------------------|--------|----------------------------------------------|--------|
|                                         |   | **2005**                                     |   | **2004** |   | **2003** |   |
| **Panhandle                  Energy**        |   |                                         |   |   |   |   |   |   |   |   |
| Panhandle                  Eastern Pipe Line |   |                                         | 609    |   |   | 573 |   |   | 593 |   |
| Trunkline                                    |   |                                         | 459    |   |   | 527 |   |   | 605 |   |
| Sea                  Robin                   |   |                                         | 146    |   |   | 184 |   |   | 182 |   |
| Trunkline                  LNG Usage Volumes |   |                                         | 108    |   |   | 170 |   |   | 248 |   |

|                                                                                                                                   |   |  **Year                  Ended**   |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                                                   |   |  **December                  31,** |   |
|                                                                                                                                   |   |  **2005**                          |   |
| Approximate                  Miles of Pipelines                                                                                        |   |                               |   |
| Panhandle                  Eastern Pipe Line                                                                                           |   |                                    | 6,500  |   |
| Trunkline                                                                                                                              |   |                                    | 3,500  |   |
| Sea                  Robin                                                                                                             |   |                                    | 450    |   |
| Peak                  Day Delivery Capacity (Bcf/d)                                                                                    |   |                                    |   |   |
| Panhandle                  Eastern Pipe Line                                                                                           |   |                                    | 2.8    |   |
| Trunkline                                                                                                                              |   |                                    | 1.5    |   |
| Sea                  Robin                                                                                                             |   |                                    | 1.0    |   |
| Trunkline                  LNG                                                                                                         |   |                                    | 1.3    |   |
| Underground                  Storage Capacity-Owned (Bcf)                                                                              |   |                                    | 72     |   |
| Underground                  Storage Capacity-Leased (Bcf)                                                                             |   |                                    | 16     |   |
| Trunkline                  LNG Terminal Storage Capacity (Bcf)                                                                         |   |                                    | 6.3    |   |
| Average                  Number of Transportation Customers                                                                            |   |                                    | 500    |   |
| Weighted                  Average Remaining Life of Firm Transportation Contracts                                                      |   |                                    |   |   |
| Panhandle                  Eastern Pipe Line                                                                                           |   |                                    | 3.0    |   |
| Trunkline                                                                                                                              |   |                                    | 10.5   |   |
| Sea                  Robin    (1)                                                                                       |   |                                    | 1.0    |   |
| Weighted                  Average Remaining Life of Firm Storage Contracts                                                             |   |                                    |   |   |
| Panhandle                  Eastern Pipe Line                                                                                           |   |                                    | 2.5    |   |
| Trunkline                                                                                                                              |   |                                    | 0.3    |   |
| ___________________                                                                                                                    |   |                                    |   |   |
| (1)                  Sea Robin contracts are evergreen and are tied to the life of the                  gas                  reserves. |   |                                    |   |   |

***System      Enhancements.***
*Bcf*
*Phase      I*

*Phase      II*

----

***Significant      Customers.***

|                                           |   | **Percent                  of**          |   |   |   |                                         |   |   |      |
|------------------------------------------------|--------|-----------------------------------------------|--------|--------|--------|----------------------------------------------|--------|--------|-----------|
|                                           |   | **Transportation                  and**  |   |   |   |                                         |   |   |      |
|                                           |   | **Storage                  Segment**     |   |   |   | **Remaining**                           |   |   |      |
|                                           |   | **Revenues**                             |   |   |   | **average                  life**       |   |   |      |
|                                           |   | **For                  Year Ended**      |   |   |   | **of                  contracts at**    |   |   |      |
| **Customer**                                   |   | **December                  31, 2005**   |   |   |   | **December                  31, 2005**  |   |   |      |
|                                           |   |                                     |   |   |   |                                         |   |   |      |
|                                           |   |                                          |   |   |   |                                         |   |   |      |   |   |
| BG                  LNG Services (1)           |   |                                          | 17     | %      |   |                                         |   | 18.1   |      |   |   |
| ProLiance                                      |   |                                          | 16     |   |   |                                         |   | 2.7    |      |   |   |
| Ameren                  Corp. (2)              |   |                                          | 11     |   |   |                                         |   | 0.4    |  (4) |   |   |
| CMS                  Energy and affiliates (3) |   |                                          | 8      |   |   |                                         |   | 3.3    |      |   |   |
| Other                  top 10 customers        |   |                                          | 14     |   |   |                                         |   | N/A    |      |   |   |
| Remaining                  customers           |   |                                          | 34     |   |   |                                         |   | N/A    |      |   |   |
| Total                  percentage              |   |                                          | 100    | %      |   |                                         |   |   |      |   |   |
|                                           |   |                                          |   |   |   |                                         |   |   |      |   |   |

| (1)   | BG                LNG Services’ contracts will expand with the completion of Phase I and                Phase II. Phase I is currently expected to be completed late in the                first                quarter or early second quarter of 2006. Phase II is expected to                be                completed by mid-2006. Phase I will provide an annual increase of                gross                reservation revenues of approximately $39                million, $6 million of which was realized during 2005 due to the                expanded                vaporization capacity associated with the Phase I project. Phase                II will                provide additional annual gross revenues of approximately $22 million.                (See *Item                8. Financial Statements and Supplementary Data, Note 3 - Regulatory                Matters*).                BG LNG Services’ transportation contract with Trunkline will increase in                volume proportionally with the Phase I and Phase II expansions and                is                expected to increase reservation revenues by $8 million and $5 million,                respectively, from 2005 firm transport levels. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Primarily                these Ameren Corp. subsidiaries are Union Electric, Central Illinois                Light                Company, Illinois Power and Central Illinois Public Service. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Primarily                Consumers Energy contracts that originally were set to expire in                late 2005                but were amended and extended to 2008. These amended contracts will                result                in a reduction in CMS Energy’s revenue contribution to Panhandle Energy in                calendar year 2006, the first full year of effectiveness. If the                new                contract had been in effect for the full year ended December 31,                2005,                Panhandle Energy’s operating revenues would have been approximately                $9                million lower. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | In                February 2006, certain expiring contracts with Ameren Corp. were                renewed.                These renewed contracts have a weighted average remaining life of                9.3                years. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Regulation***

*Item      1. Business - Environmental, Item 1A. Risk Factors *
*      Item      8. Financial Statements and Supplementary Data, Note 3 - Regulatory      Matters*

----

|                                         |   | **Date                  of Last** |   |                                               |
|----------------------------------------------|--------|-----------------------------------|--------|----------------------------------------------------|
| **Company**                                  |   | **Rate                  Filing**  |   | **Status**                                         |
|                                         |   |                              |   |                                               |
| Panhandle                  Eastern Pipe Line |   | May                  1992         |   | Settlement                  effective April 1997   |
| Trunkline                                    |   | January                  1996     |   | Settlement                  effective May 2001     |
| Sea                  Robin                   |   | April                  2001       |   | Settlement                  effective May 2002     |
| Trunkline                  LNG               |   | June                  2001        |   | Settlement                  effective January 2002 |
| Southwest                  Gas Storage       |   | April                  1989       |   | Settlement                  effective October 1989 |
|                                         |   |                              |   |                                               |

*Item      8. Financial Statements and Supplementary Data, Note 3 - Regulatory      Matters.*

***Competition***

----

***Environmental***

*Item      8. Financial Statements and Supplementary Data, Note 13 - Commitments and      Contingencies*

***Insurance***

***Employees***

***Available      Information***

*SEC*

**ITEM      1A. Risk Factors. **

***Panhandle      Energy has substantial debt and depends on its ability to access the capital      markets.***

----

***Credit      ratings downgrades would increase Panhandle Energy’s financing costs and could      limit its ability to access the capital markets.***

***Panhandle      Energy is controlled by Southern Union.***

***Panhandle      Energy is subject to operating risks.***

***Panhandle      Energy is subject to extensive federal, state and local laws and regulations      regulating the environmental aspects of its business that may increase its      costs      of operations, expose it to environmental liabilities and require it to make      material unbudgeted expenditures.***

----

***Terrorist      attacks, such as the attacks that occurred on September 11, 2001, have      resulted in increased costs, and the consequences of the War on Terror and      the      Iraq conflict may adversely impact Panhandle Energy’s results of      operations.***

***Panhandle      Energy’s business is highly regulated.***

***The      pipeline business of Panhandle Energy is subject to      competition.***

***The      success of the pipeline business of Panhandle Energy depends, in part, on      factors beyond its control.***

----

| ·   | future                weather conditions, including those that favor alternative energy                sources; |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

| ·   | the                market price of natural gas; |
|--------------------|-------------------------------------------------|

| ·   | price                competition; |
|--------------------|-----------------------------------|

| ·   | drilling                activity and supply availability; |
|--------------------|-----------------------------------------------------------|

| ·   | the                expiration of significant                contracts; |
|--------------------|------------------------------------------------------------------------|

| ·   | service                area competition; and |
|--------------------|----------------------------------------------|

| ·   | regulatory                actions. |
|--------------------|------------------------------------|

***The      success of Panhandle Energy depends on the continued development of additional      natural gas reserves in the vicinity of its facilities and its ability to access      additional reserves to offset the natural decline from existing wells connected      to its system.***

***Fluctuations      in energy commodity prices could adversely affect the business of Panhandle      Energy.***

***The      pipeline business of Panhandle Energy is dependent on a small number of      customers for a significant percentage of its sales.***

***The      pipeline revenues of Panhandle Energy are generated under contracts that must      be      renegotiated periodically.***

***Panhandle      Energy is exposed to the credit risk of its customers in the ordinary course      of      business.***

----

***Substantial      risks are involved in operating a natural gas pipeline      system.***

***Panhandle      Energy’s assets and operations can be affected by weather and other natural      phenomena.***

***Cautionary      Factors That May Affect Future Results***

----

| ·   | changes                in demand for natural gas by Panhandle Energy’s customers, in the                composition of Panhandle Energy’s customer base and in the sources of                natural gas available to Panhandle                Energy; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                effects of inflation and the timing and extent of changes in the                prices                and overall demand for and availability of natural gas as well as                electricity, oil, coal and other bulk materials and                chemicals; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | adverse                weather conditions, such as warmer than normal weather in Panhandle                Energy’s service territories, and the operational impact of disasters such                as Hurricanes Katrina and Rita; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | changes                in laws or regulations, third-party relations and approvals, decisions                of                courts, regulators and governmental bodies affecting or involving                Panhandle Energy, including deregulation initiatives and the impact                of                rate and tariff proceedings before FERC and various state regulatory                commissions; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                speed and degree to which additional competition is introduced to                Panhandle Energy’s business and the resulting effect on                revenues; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                outcome of pending and future                litigation; |
|--------------------|-----------------------------------------------------------------------------|

| ·   | Panhandle                Energy’s ability to comply with or to challenge successfully existing or                new environmental regulations; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | unanticipated                environmental liabilities; |
|--------------------|---------------------------------------------------------|

| ·   | Panhandle                Energy’s ability to acquire new businesses and assets and integrate those                operations into its existing operations, as well as its ability to                expand                its existing businesses and                facilities; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Panhandle                Energy’s ability to control costs successfully and achieve operating                efficiencies, including the purchase and implementation of new                technologies for achieving such                efficiencies; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the                impact of factors affecting operations such as maintenance or repairs,                environmental incidents, gas pipeline system constraints and relations                with labor unions representing bargaining-unit                employees; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | exposure                to customer concentration with a significant portion of revenues                realized                from a relatively small number of customers and any credit risks                associated with the financial position of those                customers; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | changes                in the ratings of Panhandle Energy’s debt securities or any of its                subsidiaries; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| ·   | changes                in interest rates and other general capital markets conditions, and                in                Panhandle Energy’s ability to continue to access the capital                markets; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | acts                of nature, sabotage, terrorism or other acts causing damage greater                than                Panhandle Energy’s insurance coverage                limits; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | market                risks beyond Panhandle Energy’s control affecting its risk management                activities including market liquidity, commodity price volatility                and                counterparty creditworthiness; and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | other                risks and unforeseen events. |
|--------------------|---------------------------------------------------|

**ITEM      1B. Unresolved Staff Comments.**

**ITEM      2. Properties.**

*Item      1. Business *

**ITEM      3. Legal Proceedings.**

*Item      1, Business - Regulation*
*Item      8. Financial Statements and Supplementary Data, Note 3 - Regulatory Matters      and      Note 13 - Commitments and Contingencies,*
*Item      1A. Risk Factors - Cautionary Factors That May Affect Future      Results.*

**ITEM      4. Submission of Matters to a Vote of Security      Holders.**

----

**PART      II**

**ITEM      5. Market for the Registrant’s Common Equity, Related      Stockholder Matters and Issuer Purchases of Equity      Securities.**

*Item      8. Financial Statements and Supplementary Data, Note 1 - Corporate      Structure*

**ITEM      6. Selected Financial Data.**

**ITEM      7. Management's Discussion and Analysis of Financial      Condition and Results of Operation**
***.***

***Overview***

*Item      1. Business*

*      Item      1A. Risk Factors *
*Item      1. Business*
*.      *

*Item      1. Business*

----

**Results        of Operations**

|                                                         |   |                                          |    |                                 |   | **Year                    Ended**       |   |
|--------------------------------------------------------------|--------|-----------------------------------------------|---------|-------------------------------------------|--------|-----------------------------------------|--------|
|                                                         |   |                                          |    |                                           |   | **December                    31,**     |   |
|                                                         |   | Year                    Ended            |    | Year                    Ended   |   | **2005                    Versus 2004** |   |
|                                                         |   | **December                    31,**           |    |  **December                    31,** |   | **Favorable/(Unfavorable)**             |   |
|                                                         |   | **2005**                                      |    |  **2004**                            |   | **Variances**                           |   |
|                                                         |   | (In                    thousands)   |    |
| Operating                    revenue:                        |   |                                          |    |                                      |   |                                    |   |   |   |   |
| Transportation                    and storage of natural gas |   | $                                             | 434,537 |                                      | $      | 423,011                                 |   | $ | 11,526 |   |
| LNG                    terminalling revenue                  |   |                                          | 62,569  |                                      |   | 56,537                                  |   |   | 6,032 |   |
| Other                    revenue                             |   |                                          | 8,127   |                                      |   | 9,616                                   |   |   | (1,489 | ) |
| Total                    operating revenue                   |   |                                          | 505,233 |                                      |   | 489,164                                 |   |   | 16,069 |   |
|                                                         |   |                                          |    |                                      |   |                                    |   |   |   |   |
| Operating                    expenses:                       |   |                                          |    |                                      |   |                                    |   |   |   |   |
| Operation,                    maintenance and general        |   |                                          | 204,461 |                                      |   | 212,106                                 |   |   | 7,645 |   |
| Depreciation                    and amortization             |   |                                          | 62,171  |                                      |   | 60,182                                  |   |   | (1,989 | ) |
| Taxes,                    other than on income               |   |                                          | 28,196  |                                      |   | 26,867                                  |   |   | (1,329 | ) |
| Total                    operating expenses                  |   |                                          | 294,828 |                                      |   | 299,155                                 |   |   | 4,327 |   |
|                                                         |   |                                          |    |                                      |   |                                    |   |   |   |   |
| Operating                    income                          |   |                                          | 210,405 |                                      |   | 190,009                                 |   |   | 20,396 |   |
|                                                         |   |                                          |    |                                      |   |                                    |   |   |   |   |
| Other                    income (expense):                   |   |                                          |    |                                      |   |                                    |   |   |   |   |
| Interest                    expense, net                     |   |                                          | (48,285 | )                                         |   | (48,429                                 | )      |   | 144 |   |
| Other,                    net                                |   |                                          | 4,069   |                                      |   | 2,409                                   |   |   | 1,660 |   |
| Total                    other expense, net                  |   |                                          | (44,216 | )                                         |   | (46,020                                 | )      |   | 1,804 |   |
|                                                         |   |                                          |    |                                      |   |                                    |   |   |   |   |
| Earnings                    before income taxes              |   |                                          | 166,189 |                                      |   | 143,989                                 |   |   | 22,200 |   |
|                                                         |   |                                          |    |                                      |   |                                    |   |   |   |   |
| Income                    taxes                              |   |                                          | 64,627  |                                      |   | 56,056                                  |   |   | (8,571 | ) |
|                                                         |   |                                          |    |                                      |   |                                    |   |   |   |   |
| Net                    earnings                              |   | $                                             | 101,562 |                                      | $      | 87,933                                  |   | $ | 13,629 |   |
|                                                         |   |                                          |    |                                      |   |                                    |   |   |   |   |

***Operating      Revenue.***

| ·   | Higher                transportation and storage revenue of approximately $11.5 million                primarily due: |
|--------------------|-----------------------------------------------------------------------------------------------------------------------|

| o   | An                $8.8 million increase on Panhandle Eastern Pipe Line, reflecting                higher                average reservation rates on new contracts. Reservation average rates                are                dependent on certain factors including but not limited to rate regulation,                customer demand for reserved capacity, capacity sold levels for a                given                period, and, in some cases, utilization of                capacity; |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | A                $7.4 million increase in Trunkline reservation revenues primarily                related                to the pipeline loop facilities extending from the Trunkline LNG                terminal,                which went into service in the third quarter of                2005; |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Decreased                commodity revenues on Trunkline of $2.3 million due to a reduction                in                commodity volumes of six percent resulting from low market spreads.                Commodity revenues are dependent upon a number of variable factors,                including weather, storage levels, and customer demand for firm,                interruptible and parking services;                and |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Impacts                of Hurricane Rita, which significantly reduced volumes flowing on                Sea                Robin and caused shutdowns of liquids production, resulting in                approximately $3 million of revenue decreases. Management estimates                further revenue reductions of approximately $2 million will be experienced                in 2006 as a result of the hurricanes, plus an estimated $8 million                to $12                million in lost opportunity revenues from delayed expansion in-service                dates which were affected by the hurricanes and other technical                issues. |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Higher                LNG terminalling revenue of $6 million primarily due to expanded                vaporization capacity and a base capacity increase on the BG LNG                contract,                partially offset by lower volumes resulting from fewer                cargoes. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Operating      Expenses.***

| ·   | A                reduction in certain administrative and operating expenses of                approximately $6.9 million primarily due to synergies associated                with the                workforce reduction undertaken in the fourth quarter of 2004 associated                with the integration of CrossCountry Energy, LLC, an affiliate of                Southern                Union; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A                decrease of approximately $3.8 million of operating expenses due                to a                change in vacation pay practice and a corresponding accrual reduction; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A                decrease of approximately $3.4 million of benefit costs primarily                due to                headcount reductions and lower post-retirement costs due to Medicare                Part                D reimbursements enacted; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Incurrence                of approximately $1.7 million of severance-related costs in 2004                associated with the Cross Country Energy, LLC integration;                and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Lower                LNG power costs of approximately $1.5 million due to lower LNG volumes                received in 2005. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                higher net recovery of previously under-recovered fuel volumes of                approximately $4.2 million in 2004; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher                net expenses of approximately $7 million of damages directly associated                with Hurricanes Katrina and Rita;                and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | An                increase of $1.4 million in property tax assessments related to higher                utility income. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------|

***Other      Income (Expense).***
** **
*Item      8. Financial Statements and Supplementary Data, Note 4 - Related Party      Transactions*

***Income      Taxes.***

***Liquidity      and Capital Resources***

***Operating      Activities.***

----

***Investing      Activities.***

|                                                                                                                                                                                                       |                              | **Estimated**                         | **Estimated** |                                       | **Company**    | **Project**                                   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|---------------------------------------|---------------|--------------------------------------------|----------------|-----------------------------------------------|
|                                                                                                                                                                                                       |                              | **Project**                           | **Annual**    | **Projected**                              | **Ownership**  | **Status                  at**                |
| **Project                  Name**                                                                                                                                                                          | **Capacity**                      | **Cost                  (1)**         | **EBIT**      | **In                  Service**            | **Percentage** | **December                  31, 2005**        |
|                                                                                                                                                                                                       |                              | (In                  thousands)       |          |                                       |           |                                          |
|                                                                                                                                                                                                       |                              |                                  |          |                                       |           |                                          |
| Trunkline                  LNG Phase I                                                                                                                                                                     | .57                  Bcf/d        | $137,000                              | $28,000       | Late                  first quarter or     | 100%           | Vaporization                  in service,     |
|                                                                                                                                                                                                       | 2.7                  Bcf storage  |                                  |          | early                  second quarter 2006 |           | remainder                  under construction |
|                                                                                                                                                                                                       |                              |                                  |          |                                       |           |                                          |
| Trunkline                  LNG Phase II                                                                                                                                                                    | .6                  Bcf/d         | $82,000                               | $16,000       | Mid                  2006                  | 100%           | Under                  construction           |
|                                                                                                                                                                                                       |                              |                                  |          |                                       |           |                                          |
| Trunkline                  North Texas                                                                                                                                                                     | .3                  to .6 Bcf/d   | $90,000                  to $110,000  | (2)           | Late                  2007                 | 100%           | Customer                  negotiations        |
|                                                                                                                                                                                                       |                              |                                  |          |                                       |           |                                          |
| Trunkline                  LNG Infrastructure                                                                                                                                                              | Ambient                  Air      | $250,000                  to $280,000 | (2)           | Mid                  2008                  | 100%           | Customer                  negotiations        |
| Enhancement                  Project (IEP)                                                                                                                                                                 | Vaporization                  and |                                  |          |                                       |           |                                          |
|                                                                                                                                                                                                       | NGL                  extraction   |                                  |          |                                       |           |                                          |
|                                                                                                                                                                                                       |                              |                                  |          |                                       |           |                                          |
| (1)                  Excludes capitalized interest.                                                                                                                                                        |                              |                                  |          |                                       |           |                                          |
| (2)                  Amount is not currently determinable as related contractual discussions                  are ongoing and/or the project economic analyses are still being                  developed. |
|                                                                                                                                                                                                       |                              |                                  |          |                                       |           |                                          |

|                                                                                                                                                              |   | **Year**                          |    | **Year**                          |   | **Year**                          |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|-----------------------------------|--------|-----------------------------------|--------|
|                                                                                                                                                              |   | **Ended**                         |    | **Ended**                         |   | **Ended**                         |   |
|                                                                                                                                                              |   | **December                  31,** |    | **December                  31,** |   | **December                  31,** |   |
| **Property,                  Plant and Equipment Additions**                                                                                                      |   | **2005**                          |    | **2004**                          |   | **2003**                          |   |
|                                                                                                                                                              |   | (In                  thousands)   |    |
|                                                                                                                                                              |   |                              |    |                              |   |                              |   |
| LNG                  Terminal Expansions                                                                                                                     |   | $                                 | 75,263  |                              | $      | 88,323                            |   | $ | 34,386 |   |
| Trunkline                  LNG Loop                                                                                                                          |   |                              | 25,329  |                              |   | 21,321                            |   |   | - |   |
| Pipeline                  Integrity                                                                                                                          |   |                              | 21,816  |                              |   | 18,378                            |   |   | 21,860 |   |
| System                  Reliability                                                                                                                          |   |                              | 22,637  |                              |   | 16,807                            |   |   | 14,581 |   |
| Information                  Technology                                                                                                                      |   |                              | 6,162   |                              |   | 6,226                             |   |   | 14,460 |   |
| Other                                                                                                                                                        |   |                              | 38,208  |                              |   | 32,649                            |   |   | 13,678 |   |
|  Total                  (1)                                                                                                                                  |   | $                                 | 189,415 |                              | $      | 183,704                           |   | $ | 98,965 |   |
|                                                                                                                                                              |   |                              |    |                              |   |                              |   |   |   |   |
|                                                                                                                                                              |   |                              |    |                              |   |                              |   |   |   |   |
| (1)                  Includes net capital accruals totaling $(5,537), $10,657 and $5,356                  for                  the years ended December 31, 2005, |
|  December                  31, 2004 and December 31, 2003,                  respectively.                                                                    |

***Financing      Activities.***
*** ***

*Item      8. Financial Statements and Supplementary Data, Note 11 - Debt*

***Other      Matters***

***Regulation.***
** **
*      Item      8. Financial Statements and Supplementary Data, Note 3 - Regulatory      Matters.*

***Environmental      Matters.***
*      Item      8. Financial Statements and Supplementary Data, Note 13 - Commitments and      Contingencies.*

***Off-Balance      Sheet Arrangements and Aggregate Contractual      Obligations***
*.*
*Bridge      Loan*

----

***Contractual      Commitments.***

|                                                                                                                                                                                  |   |                            |   |     |   |     |   |     |    |     |   | **2011                  and** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|----------|--------|----------|--------|----------|---------|----------|--------|-------------------------------|--------|
|                                                                                                                                                                                  |   | **2006**                        |   | **2007** |   | **2008** |   | **2009** |    | **2010** |   | **thereafter**                |   |
|                                                                                                                                                                                  |   | (In                  thousands) |   |     |   |     |   |     |    |     |   |                          |   |
|                                                                                                                                                                                  |   |                            |   |     |   |     |   |     |    |     |   |                          |   |
| Operating                  Leases (1)                                                                                                                                                 |   | $                               | 13,849 |     | $      | 11,956   |   | $        | 8,065   |     | $      | 7,313                         |   | $ | 6,529 |   | $ | 20,906 |   |
|                                                                                                                                                                                  |   |                            |   |     |   |     |   |     |    |     |   |                          |   |   |   |   |   |   |   |
| Total                  long term debt (2)                                                                                                                                             |   |                            | -      |     |   | 455,626  |   |     | 300,000 |     |   | 60,623                        |   |   | 40,500 |   |   | 316,305 |   |
|                                                                                                                                                                                  |   |                            |   |     |   |     |   |     |    |     |   |                          |   |   |   |   |   |   |   |
| Interest                  payments on debt (3)                                                                                                                                        |   |                            | 59,765 |     |   | 45,264   |   |     | 36,048  |     |   | 25,242                        |   |   | 20,602 |   |   | 125,761 |   |
|                                                                                                                                                                                  |   |                            |   |     |   |     |   |     |    |     |   |                          |   |   |   |   |   |   |   |
| Firm                  capacity payments (4)                                                                                                                                           |   |                            | 10,622 |     |   | 8,831    |   |     | 7,385   |     |   | 7,116                         |   |   | 5,739 |   |   | 25,511 |   |
|                                                                                                                                                                                  |   |                            |   |     |   |     |   |     |    |     |   |                          |   |   |   |   |   |   |   |
| OPEB                  funding (5)                                                                                                                                                     |   |                            | 7,812  |     |   | 7,812    |   |     | 7,812   |     |   | 7,812                         |   |   | 7,812 |   |   | - |   |
|                                                                                                                                                                                  |   |                            |   |     |   |     |   |     |    |     |   |                          |   |   |   |   |   |   |   |
| Total                                                                                                                                                                                 |   | $                               | 92,048 |     | $      | 529,489  |   | $        | 359,310 |     | $      | 108,106                       |   | $ | 81,182 |   | $ | 488,483 |   |
|                                                                                                                                                                                  |   |                            |   |     |   |     |   |     |    |     |   |                          |   |   |   |   |   |   |   |
|                                                                                                                                                                                  |   |                            |   |     |   |     |   |     |    |     |   |                          |   |   |   |   |   |   |   |
| (1)                  Lease of various assets utilized for operations.                                                                                                                 |   |                            |   |     |   |     |   |     |    |     |   |                          |   |   |   |   |   |   |   |
| (2)                  The long-term debt cash obligations exclude $12.2 million of unamortized                  debt premium as of December 31, 2005.                                  |   |                            |   |     |   |     |   |
| (3)                  Interest payments at stated rate.                                                                                                                                |   |                            |   |     |   |     |   |     |    |     |   |                          |   |   |   |   |   |   |   |
| (4)                  Charges for third party storage capacity.                                                                                                                        |   |                            |   |     |   |     |   |     |    |     |   |                          |   |   |   |   |   |   |   |
| (5)                  Panhandle is committed to the funding levels of $7.8 million per                  year                  until modified by future rate proceedings, the timing of |   |                            |   |     |
|   which                  is                  uncertain.                                                                                                                     |   |                            |   |     |   |     |   |     |    |     |   |                          |   |   |   |   |   |   |   |

***Postretirement      Benefits***
*Item      8. Financial Statements and Supplementary Data, Note 14 -      Benefits*

***Vacation      Plan Change.***

***Inflation.***

***New      Accounting Pronouncements***

*Share-Based      Payment*

*Item      8. Financial Statements and Supplementary Data, Note 2 - Summary of Significant      Accounting Policies - New Accounting Principles*

----

**ITEM      7A. Quantitative and Qualitative Disclosures About Market      Risks.**

*Accounting      for Derivative Instruments and Hedging Activities, as amended*

*Item      8. Financial Statements and Supplementary Data, Note 11 - Debt*

**ITEM      8. Financial Statements and Supplementary      Data**

**ITEM      9. Changes in and Disagreements With Accountants on      Accounting and Financial Disclosure.**

**ITEM      9A. Controls and Procedures.**

***Evaluation      of Disclosure Controls and Procedures***

----

***Changes      in Internal Controls***

**ITEM      9B. Other Information.**

**PART      III**

**ITEM      10. Directors and Executive Officers of the      Registrant.**

**ITEM11.      Executive Compensation.**

**ITEM      12. Security Ownership of Certain Beneficial Owners and      Management and Related Stockholder Matters.**

**ITEM13.      Certain Relationships and Related      Transactions.**

----

**ITEM      14. Principal Accountant Fees and      Services.**

|                                        |   |                                  |   |   |   |     |   |
|---------------------------------------------|--------|---------------------------------------|--------|--------|--------|----------|--------|
| **Fee                  Category**           |   | **2005**                              |   |   |   | **2004** |   |
|                                        |   |  (in                  thousands) |
| Audit                  Fees (1)             |   |                                  |   |   |   |     |   |
| PricewaterhouseCoopers                  LLP |   | $                                     | 1,034  |   |   |     | $      | 703 |   |
|                                        |   |                                  |   |   |   |     |   |   |   |
| Audit-Related                  Fees (2)     |   |                                  |   |   |   |     |   |   |   |
| PricewaterhouseCoopers                  LLP |   |                                  | 150    |   |   |     |   | 409 |   |
| Ernst                  & Young LLP      |   |                                  | -      |   |   |     |   | 166 |   |
|                                        |   |                                  |   |   |   |     |   |   |   |
| All                  Other Fees (3)         |   |                                  | -      |   |   |     |   | - |   |
|                                        |   |                                  |   |   |   |     |   |   |   |
|                                        |   |                                  |   |   |   |     |   |   |   |
| Total                  Fees                 |   | $                                     | 1,184  |   |   |     | $      | 1,278 |   |
|                                        |   |                                  |   |   |   |     |   |   |   |

*de      minimis*

----

**PART      IV**

**ITEM      15. Exhibits, Financial Statement      Schedules.**

**Exhibits.      **

**Exhibit      No.  **
**Description**

|   | 3(a) |  Certificate              of Formation of Panhandle Eastern Pipe Line Company, LP.  (Filed as              Exhibit 3.A to the Form 10-K for the year ended December 31, 2004 and              incorporated herein by reference.) |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|
|   | 3(b) | Limited                Partnership Agreement of Panhandle Eastern Pipe Line Company, LP,                dated as                of June 29, 2004, between Southern Union Company and Southern Union                Panhandle LLC. (Filed as Exhibit 3.B to the Form 10-K for the year                ended                December 31, 2004 and incorporated herein by                reference.) |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(a) | Indenture                dated as of March 29, 1999, among CMS Panhandle Holding Company,                Panhandle                Eastern Pipe Line Company and NBD Bank, as Trustee. (Filed as Exhibit                4(a)                to the Form 10-Q for the quarter ended March 31, 1999, and incorporated                herein by reference.) |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(b) | 1st                Supplemental Indenture dated as of March 29, 1999, among CMS Panhandle                Holding Company, Panhandle Eastern Pipe Line Company and NBD Bank,                as                Trustee, including a form of Guarantee by Panhandle Eastern Pipe                Line                Company of the obligations of CMS Panhandle Holding Company. (Filed                as                Exhibit 4(b) to the Form 10-Q for the quarter ended March 31, 1999,                and                incorporated herein by reference.) |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  4(c) |  2nd              Supplemental Indenture dated as of March 27, 2000, between Panhandle,              as              Issuer and Bank One Trust Company, National Association, as Trustee.               (Filed as Exhibit 4(e) to the Form S-4 filed on June 22, 2000, and              incorporated herein by reference.) |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|
|   | 4(d) | 3rd                Supplemental Indenture dated as of August 18, 2003, between Panhandle,                as                Issuer and Bank One Trust Company, National Association, as Trustee                (Filed                as Exhibit 4(d) to the Form 10-Q for the quarter ended September                30, 2003,                and incorporated herein by                reference.) |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(e) | 4th                Supplemental Indenture dated as of March 12, 2004, between Panhandle,                as                Issuer and J.P. Morgan Trust Company, National Association, as Trustee.                (Filed as Exhibit 4.E to the Form 10-K for the year ended December                31,                2004 and incorporated herein by                reference.) |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |   |
|--------|--------|--------|

|   | 4(f) | Indenture                dated as of February 1, 1993, between Panhandle and Morgan Guaranty                Trust                Company effective January 1, 1982, as amended December 3, 1999. (Filed                as                Exhibit 4 to the Form S-3 filed February 19, 1993, and incorporated                herein                by reference.) |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|
|   |  24     |  Power              of Attorney. |
|--------|----------------------------------|---------------------------------------|
|   |   |   |
|--------|--------|--------|
|   |  31.1 |   Rule              13a - 14(a)/15d - 14(a) Certification of Chief Executive Officer. |
|--------|------------|-------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|
|   |  31.2 |  Rule              13a - 14(a)/15d - 14(a) Certification of Chief Financial Officer. |
|--------|------------|-------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|
|   |  32.1 |  Section              1350 Certification of Chief              Executive Officer. |
|--------|------------|----------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|
|   |  32.2 | Section                1350 Certification of Chief Financial                Officer. |
|--------|------------|--------------------------------------------------------------------------------------|

----

**SIGNATURES**

|              |  **SIGNATURE                                       **  |  **TITLE**                                                      |
|-------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------|
| (i)     | Principal                  executive officer:   /s/                  ROBERT O. BOND Robert                  O. Bond                                                                                                                        | President                  and Chief Operating Officer               |
| (ii)    | Principal                  financial officer:   /s/                  JULIE H. EDWARDS Julie                  H.                  Edwards                                                                                                   | Senior                  Vice President and Chief Financial Officer   |
| (iii)   | Principal                  accounting officer:   /s/                  GARY W. LEFELAR* Gary                  W.                  Lefelar                                                                                                   | Senior                  Vice President and Chief Accounting Officer  |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  **SIGNATURE**                                                                                                                                                                                                                                                                                                                                                                                                                                    |  **    TITLE**  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------|
| (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | A                  majority of the Board of Directors of Southern Union Company, Sole                  Member                  of Southern Union Panhandle, LLC, General Partner of Panhandle                  Eastern                  Pipe Line Company, L.P.                                                                                                                                                                                             |
|  /s/                  GEORGE L. LINDEMANN* George                  L. Lindemann                                                                                                                                                                                                                                                                                                                                                                                             |  Chairman                  Southern Union Company                                                                                                                                                                                                                                                                                                                                                                                                      |
|  /s/                  DAVID BRODSKY* David                  Brodsky                                                                                                                                                                                                                                                                                                                                                                                                         |  Director,                  Southern Union Company                                                                                                                                                                                                                                                                                                                                                                                                     |
|  /s/                  FRANK W. DENIUS*Frank                  W. Denius                                                                                                                                                                                                                                                                                                                                                                                                           |  Director,                  Southern Union Company                                                                                                                                                                                                                                                                                                                                                                                                     |
|  /s/                  KURT A. GITTER, M.D.*Kurt                  A. Gitter, M.D.                                                                                                                                                                                                                                                                                                                                                                                                 |  Director,                  Southern Union Company                                                                                                                                                                                                                                                                                                                                                                                                     |
|  /s/                  HERBERT H. JACOBI* Herbert                  H. Jacobi                                                                                                                                                                                                                                                                                                                                                                                                 |  Director,                  Southern Union Company                                                                                                                                                                                                                                                                                                                                                                                                     |
|  /s/                  ADAM M. LINDEMANN* Adam                  M. Lindemann                                                                                                                                                                                                                                                                                                                                                                                                 |  Director,                  Southern Union Company                                                                                                                                                                                                                                                                                                                                                                                                     |
|  /s/                  THOMAS N. McCARTER, III* Thomas                  N. McCarter, III                                                                                                                                                                                                                                                                                                                                                                                     |  Director,                  Southern Union Company                                                                                                                                                                                                                                                                                                                                                                                                     |
|  /s/                  GEORGE ROUNTREE, III* George                  Rountree, III                                                                                                                                                                                                                                                                                                                                                                                           |  Director,                  Southern Union Company                                                                                                                                                                                                                                                                                                                                                                                                     |
|  /s/                  ALAN D. SCHERER* Alan                  D. Scherer                                                                                                                                                                                                                                                                                                                                                                                                     |  Director,                  Southern Union Company                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|  *By:/s/ JULIE H.                  EDWARDS     Senior                  Vice President and                          Chief Financial Officer                    Attorney-in-fact                                    | *By:/s/ ROBERT                  O. BOND      President                  and Chief                           Operating OfficerAttorney-in-fact                                      |

----

**PANHANDLE      EASTERN PIPE LINE, LP**

**INDEX      TO CONSOLIDATED FINANCIAL STATEMENTS**

| Financial                Statements and Supplementary Data:                                                      | ** Page:**            |
|------------------------------------------------------------------------------------------------------------------|----------------------------|
| Consolidated                Statement of Operations - years ended December 31, 2005 and 2004,                and |                       |
| the                periods June 12 - December 31, 2003 and January 1 - June 11,                2003              | F-2                        |
| Consolidated                Balance Sheet - December 31, 2005 and December 31, 2004                              | F-3                - F-4   |
| Consolidated                Statement of Cash Flows - years ended December 31, 2005 and 2004                and  |                       |
| the                periods June 12 - December 31, 2003 and January 1 - June 11,                2003              | F-5                        |
| Consolidated                Statement of Owners' Equity and Comprehensive Income -                               |                       |
| years                ended December 31, 2005 and 2004 and the periods                                            |                       |
| June                12 - December 31, 2003 and January 1 - June 11, 2003                                         | F-6                        |
| Notes                to Consolidated Financial Statements                                                        | F-7                        |
| Reports                of Independent Registered Public Accounting Firm                                          | F-37                - F-38 |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**CONSOLIDATED      STATEMENT OF OPERATIONS**

|                                                             |   |                                              |    |                              |   |
|------------------------------------------------------------------|--------|---------------------------------------------------|---------|----------------------------------------|--------|
|                                                             |   | **Post-acquisition**                         |    |  **Pre-acquisition**              |   |
|                                                             |   | **Year                  Ended**                   |    | **Year                  Ended**        |   |   |   | **June                  12 -** |   |    |   |
|                                                             |   | **December                  31, 2005**            |    | **December                  31, 2004** |   |   |   | **December                  31, 2003** |   |  **January                  1 - June 11, 2003** |   |
|                                                             |   |  (In                  thousands)   |
| **Operating                  revenue**                           |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Transportation                  and storage of natural gas  |   | $                                                 | 434,537 |                                   | $      | 423,011 |   |   |   |   | $ | 230,592 |   | $ | 196,408 |   |
| LNG                  terminalling revenue                   |   |                                              | 62,569  |                                   |   | 56,537 |   |   |   |   |   | 33,389 |   |   | 26,750 |   |
| Other                  revenue                              |   |                                              | 8,127   |                                   |   | 9,616 |   |   |   |   |   | 4,974 |   |   | 10,701 |   |
|  Total                  operating revenue                   |   |                                              | 505,233 |                                   |   | 489,164 |   |   |   |   |   | 268,955 |   |   | 233,859 |   |
|                                                             |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                  expenses**                          |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operation,                  maintenance and general         |   |                                              | 204,461 |                                   |   | 212,106 |   |   |   |   |   | 117,930 |   |   | 90,800 |   |
| Depreciation                  and amortization              |   |                                              | 62,171  |                                   |   | 60,182 |   |   |   |   |   | 33,129 |   |   | 23,110 |   |
| Taxes,                  other than on income                |   |                                              | 28,196  |                                   |   | 26,867 |   |   |   |   |   | 14,684 |   |   | 12,478 |   |
|  Total                  operating expenses                  |   |                                              | 294,828 |                                   |   | 299,155 |   |   |   |   |   | 165,743 |   |   | 126,388 |   |
|                                                             |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                             |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                  income**                            |   |                                              | 210,405 |                                   |   | 190,009 |   |   |   |   |   | 103,212 |   |   | 107,471 |   |
|                                                             |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other                  income (expense)**                      |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  expense, net                      |   |                                              | (48,285 | )                                      |   | (48,429 | ) |   |   |   |   | (25,537 | ) |   | (35,416 | ) |
| Other,                  net                                 |   |                                              | 4,069   |                                   |   | 2,409 |   |   |   |   |   | 7,098 |   |   | 6,488 |   |
|  Total                  other income (expense)              |   |                                              | (44,216 | )                                      |   | (46,020 | ) |   |   |   |   | (18,439 | ) |   | (28,928 | ) |
|                                                             |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Earnings                  before income taxes**                |   |                                              | 166,189 |                                   |   | 143,989 |   |   |   |   |   | 84,773 |   |   | 78,543 |   |
|                                                             |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Income                  taxes**(Note                  6)       |   |                                              | 64,627  |                                   |   | 56,056 |   |   |   |   |   | 33,321 |   |   | 30,532 |   |
|                                                             |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Earnings                  before cumulative effect of change** |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| **in                  accounting principles**               |   |                                              | 101,562 |                                   |   | 87,933 |   |   |   |   |   | 51,452 |   |   | 48,011 |   |
|                                                             |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Cumulative                  effect of change in accounting**   |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| **principles,                  net of tax:**                |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Asset                  retirement obligations, SFAS 143    |   |                                              | -       |                                   |   | - |   |   |   |   |   | - |   |   | 2,003 |   |
|                                                             |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                             |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net                  earnings**                                |   | $                                                 | 101,562 |                                   | $      | 87,933 |   |   |   |   | $ | 51,452 |   | $ | 50,014 |   |
|                                                             |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                             |   |                                              |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |

----

**PANHANDLE        EASTERN PIPE LINE COMPANY, LP**

**CONSOLIDATED        BALANCE SHEET**

|                                                                        |   | **December                  31, 2005** |      | **December                  31, 2004** |   |
|-----------------------------------------------------------------------------|--------|----------------------------------------|-----------|----------------------------------------|--------|
| **Assets**                                                                  |   | (In                  thousands)        |
|                                                                        |   |                                   |      |                                   |   |
| **Property,                  plant and equipment**(Note                  7) |   |                                   |      |                                   |   |   |   |
| Plant                  in service                                      |   | $                                      | 2,163,474 |                                   | $      | 1,947,524 |   |
| Construction                  work-in-progress                         |   |                                   | 176,370   |                                   |   | 203,094 |   |
|                                                                        |   |                                   | 2,339,844 |                                   |   | 2,150,618 |   |
| Less                  accumulated depreciation and amortization        |   |                                   | 145,550   |                                   |   | 87,683 |   |
|  Net                  property, plant and equipment                    |   |                                   | 2,194,294 |                                   |   | 2,062,935 |   |
|                                                                        |   |                                   |      |                                   |   |   |   |
| **Investment                  in affiliate**(Note                  9)       |   |                                   | 1,468     |                                   |   | 1,436 |   |
|                                                                        |   |                                   |      |                                   |   |   |   |
| **Current                  assets**                                         |   |                                   |      |                                   |   |   |   |
| Cash                  and cash equivalents                             |   |                                   | 585       |                                   |   | 26,054 |   |
| Accounts                  receivable, billed and unbilled,             |   |                                   |      |                                   |   |   |   |
| less                  allowances of $1,168 and $1,289, respectively    |   |                                   | 55,786    |                                   |   | 48,085 |   |
| Accounts                  receivable - related parties (Note 4)        |   |                                   | 9,556     |                                   |   | 7,287 |   |
| Gas                  imbalances - receivable                           |   |                                   | 105,233   |                                   |   | 36,122 |   |
| System                  gas and operating supplies                     |   |                                   | 89,620    |                                   |   | 98,250 |   |
| Deferred                  income taxes, net (Note 6)                   |   |                                   | 2,086     |                                   |   | 10,698 |   |
| Note                  receivable - Southern Union (Note 4)             |   |                                   | 110,580   |                                   |   | 90,745 |   |
| Other                                                                  |   |                                   | 11,501    |                                   |   | 11,646 |   |
|  Total                  current assets                                 |   |                                   | 384,947   |                                   |   | 328,887 |   |
|                                                                        |   |                                   |      |                                   |   |   |   |
| Intangible                  customer contract, net (Note 8)            |   |                                   | 8,031     |                                   |   | 8,496 |   |
| Restricted                  cash                                       |   |                                   | -         |                                   |   | 1,500 |   |
| Debt                  issuance cost                                    |   |                                   | 3,634     |                                   |   | 4,471 |   |
| Non-current                  system gas                                |   |                                   | 25,087    |                                   |   | 30,471 |   |
| Other                                                                  |   |                                   | 1,853     |                                   |   | 1,964 |   |
|                                                                        |   |                                   |      |                                   |   |   |   |
| **Total                  assets**                                      |   | $                                      | 2,619,314 |                                   | $      | 2,440,160 |   |
|                                                                        |   |                                   |      |                                   |   |   |   |

----

**PANHANDLE        EASTERN PIPE LINE COMPANY, LP**

**CONSOLIDATED        BALANCE SHEET **
**(CONTINUED)**

|                                                                |   | **December                  31, 2005** |      | **December                  31, 2004** |   |
|---------------------------------------------------------------------|--------|----------------------------------------|-----------|----------------------------------------|--------|
|                                                                |   | (In                  thousands)        |      |
| **Owners'                  equity**                                 |   |                                   |      |                                   |   |   |   |
| Partners'                  capital                             |   | $                                      | 903,968   |                                   | $      | 802,406 |   |
| Accumulated                  other comprehensive income        |   |                                   | 1,339     |                                   |   | 1,231 |   |
| Tax                  sharing note receivable - Southern Union  |   |                                   | (50,862   | )                                      |   | (70,971 | ) |
|  Total                  owners' equity                         |   |                                   | 854,445   |                                   |   | 732,666 |   |
|                                                                |   |                                   |      |                                   |   |   |   |
| Long-term                  debt (Note 11)                      |   |                                   | 1,179,534 |                                   |   | 1,174,065 |   |
|  Total                  capitalization                         |   |                                   | 2,033,979 |                                   |   | 1,906,731 |   |
|                                                                |   |                                   |      |                                   |   |   |   |
| **Current                  liabilities**                            |   |                                   |      |                                   |   |   |   |
| Current                  portion of long-term debt (Note 11)   |   |                                   | -         |                                   |   | 12,548 |   |
| Accounts                  payable                              |   |                                   | 3,054     |                                   |   | 3,449 |   |
| Accounts                  payable - overdrafts                 |   |                                   | 7,866     |                                   |   | 20,103 |   |
| Accounts                  payable - related parties (Note 4)   |   |                                   | 8,560     |                                   |   | 3,478 |   |
| Gas                  imbalances - payable                      |   |                                   | 124,297   |                                   |   | 102,567 |   |
| Accrued                  taxes (Note 6)                        |   |                                   | 15,228    |                                   |   | 10,750 |   |
| Accrued                  interest                              |   |                                   | 19,569    |                                   |   | 19,119 |   |
| Fuel                  tracker obligation (Note 2)              |   |                                   | 32,863    |                                   |   | 5,296 |   |
| Labor                  and benefit accruals                    |   |                                   | 16,643    |                                   |   | 15,199 |   |
| Other                  operating expense accruals              |   |                                   | 11,938    |                                   |   | 6,244 |   |
| Capital                  accruals                              |   |                                   | 11,681    |                                   |   | 17,582 |   |
| Post-retirement                  benefits - current (Note 14)  |   |                                   | 7,812     |                                   |   | 7,811 |   |
| Other                                                          |   |                                   | 22,365    |                                   |   | 33,107 |   |
|  Total                  current liabilities                    |   |                                   | 281,876   |                                   |   | 257,253 |   |
|                                                                |   |                                   |      |                                   |   |   |   |
| Deferred                  income taxes, net (Note 6)           |   |                                   | 205,787   |                                   |   | 172,193 |   |
| Post-retirement                  benefits (Note 14)            |   |                                   | 26,103    |                                   |   | 30,449 |   |
| Other                                                          |   |                                   | 71,569    |                                   |   | 73,534 |   |
| Commitments                  and contingencies (Note 13)       |   |                                   |      |                                   |   |   |   |
|                                                                |   |                                   |      |                                   |   |   |   |
| **Total                  owners' equity and liabilities**      |   | $                                      | 2,619,314 |                                   | $      | 2,440,160 |   |
|                                                                |   |                                   |      |                                   |   |   |   |

----

**PANHANDLE        EASTERN PIPE LINE COMPANY, LP**

**CONSOLIDATED        STATEMENT OF CASH FLOWS**

|                                                                                                           |   | **Post-acquisition**                              |     |  **Pre-acquisition**         |   |
|----------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|----------|-----------------------------------|--------|
|                                                                                                           |   | **Year                  Ended**                   |     | **Year                  Ended**   |   |   |   | **June                  12 -** |   |  **January                  1 -** |   |
|                                                                                                           |   | **December                  31,**                 |     | **December                  31,** |   |   |   | **December                  31,** |   |  **June                  11,** |   |
|                                                                                                           |   | **2005**                                          |     | **2004**                          |   |   |   | **2003** |   |  **2003** |   |
|                                                                                                           |   | (In                  thousands)    |
| **Cash                  Flows From (Used In) Operating Activities**                                            |   |                                              |     |                              |   |   |   |   |   |    |   |
| Net                  earnings                                                                                  |   | $                                                 | 101,562  |                              | $      | 87,933 |   |   |   |   | $ | 51,452 |   | $ | 50,014 |   |
| Adjustments                  to reconcile net earnings to net cash from operating                  activities: |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                  and amortization                                                                 |   |                                              | 62,171   |                              |   | 60,182 |   |   |   |   |   | 33,129 |   |   | 23,110 |   |
| Gain                  on extinguishment of debt                                                                |   |                                              | -        |                              |   | (231 | ) |   |   |   |   | (6,123 | ) |   | - |   |
| Deferred                  income taxes, net                                                                    |   |                                              | 42,133   |                              |   | 39,574 |   |   |   |   |   | 33,321 |   |   | 30,532 |   |
| Debt                  premium and discount amortization, net                                                   |   |                                              | (1,293   | )                                 |   | (5,033 | ) |   |   |   |   | (8,272 | ) |   | (201 | ) |
| Cumulative                  effect of change in accounting principle                                           |   |                                              | -        |                              |   | - |   |   |   |   |   | - |   |   | (2,003 | ) |
| Changes                  in operating assets and liabilities:                                                  |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts                  receivable                                                                           |   |                                              | (9,970   | )                                 |   | 1,759 |   |   |   |   |   | 4,212 |   |   | 219 |   |
| Inventories                                                                                                    |   |                                              | (6,683   | )                                 |   | (31,693 | ) |   |   |   |   | (24,625 | ) |   | 2,520 |   |
| Gas                  imbalances - receivable                                                                   |   |                                              | 735      |                              |   | (9,148 | ) |   |   |   |   | 21,742 |   |   | (30,952 | ) |
| Other                  assets                                                                                  |   |                                              | 310      |                              |   | (8,293 | ) |   |   |   |   | 7,173 |   |   | 11,955 |   |
| Payables                                                                                                       |   |                                              | 4,687    |                              |   | (3,564 | ) |   |   |   |   | (3,620 | ) |   | 2,883 |   |
| Accrued                  taxes                                                                                 |   |                                              | 24,587   |                              |   | 8,490 |   |   |   |   |   | 9,979 |   |   | 6,673 |   |
| Interest                  accrued                                                                              |   |                                              | 450      |                              |   | (1,898 | ) |   |   |   |   | 1,194 |   |   | (4,768 | ) |
| Gas                  imbalances - payable                                                                      |   |                                              | (465     | )                                 |   | 36,518  |   |   |   |   |   | (2,455 | ) |   | 27,527 |   |
| Other                  liabilities                                                                             |   |                                              | (12,851  | )                                 |   | 8,714 |   |   |   |   |   | (5,088 | ) |   | (6,915 | ) |
| Net                  cash flows from operating activities                                                      |   |                                              | 205,373  |                              |   | 183,310 |   |   |   |   |   | 112,019 |   |   | 110,594 |   |
|                                                                                                           |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| **Cash                  Flows From (Used In) Investing Activities**                                            |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  increase in Note receivable - Southern Union                                              |   |                                              | (19,835  | )                                 |   | (3,395 | ) |   |   |   |   | (87,350 | ) |   | - |   |
| Net                  increase in Note receivable - CMS Capital                                                 |   |                                              | -        |                              |   | - |   |   |   |   |   | - |   |   | (62,570 | ) |
| Capital                  and investment expenditures                                                           |   |                                              | (194,952 | )                                 |   | (173,047 | ) |   |   |   |   | (64,270 | ) |   | (29,339 | ) |
| Purchase                  of system gas,net                                                                    |   |                                              | -        |                              |   | - |   |   |   |   |   | (3,939 | ) |   | (2,724 | ) |
| Sale                  of Centennial                                                                            |   |                                              | -        |                              |   | - |   |   |   |   |   | - |   |   | 40,000 |   |
| Sale                  of Atchafalaya                                                                           |   |                                              | -        |                              |   | - |   |   |   |   |   | 2,200 |   |   | - |   |
| Retirements                  and other                                                                         |   |                                              | (657     | )                                 |   | (209 | ) |   |   |   |   | 237 |   |   | (886 | ) |
| Net                  cash flows used in investing activities                                                   |   |                                              | (215,444 | )                                 |   | (176,651 | ) |   |   |   |   | (153,122 | ) |   | (55,519 | ) |
|                                                                                                           |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| **Cash                  Flows From (Used In) Financing Activities**                                            |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Increase                  (decrease) in bank overdrafts                                                        |   |                                              | (12,237  | )                                 |   | 13,496 |   |   |   |   |   | (1,001 | ) |   | 219 |   |
| Debt                  issuance                                                                                 |   |                                              | 255,626  |                              |   | 200,000 |   |   |   |   |   | 550,000 |   |   | 10,000 |   |
| Debt                  retirements                                                                              |   |                                              | (258,433 | )                                 |   | (209,671 | ) |   |   |   |   | (545,044 | ) |   | (45,852 | ) |
| Premium                  on debt issuance                                                                      |   |                                              | -        |                              |   | (190 | ) |   |   |   |   | - |   |   | - |   |
| Debt                  issuance costs                                                                           |   |                                              | (354     | )                                 |   | (1,050 | ) |   |   |   |   | (4,434 | ) |   | - |   |
| Debt                  retirement costs                                                                         |   |                                              | -        |                              |   | - |   |   |   |   |   | (1,595 | ) |   | - |   |
| Return                  of capital                                                                             |   |                                              | -        |                              |   | - |   |   |   |   |   | - |   |   | (40,000 | ) |
| Net                  cash flows from (used in) financing activities                                            |   |                                              | (15,398  | )                                 |   | 2,585 |   |   |   |   |   | (2,074 | ) |   | (75,633 | ) |
|                                                                                                           |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  increase (decrease) in cash and cash equivalents                                          |   |                                              | (25,469  | )                                 |   | 9,244 |   |   |   |   |   | (43,177 | ) |   | (20,558 | ) |
|                                                                                                           |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| **Cash                  and cash equivalents at beginning of period**                                          |   |                                              | 26,054   |                              |   | 16,810 |   |   |   |   |   | 59,987 |   |   | 80,545 |   |
| **Cash                  and cash equivalents at end of period**                                                |   | $                                                 | 585      |                              | $      | 26,054 |   |   |   |   | $ | 16,810 |   | $ | 59,987 |   |
|                                                                                                           |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                           |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| **Supplemental                  disclosures of cash flow information**                                         |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| **Cash                  paid during the period for:**                                                          |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  (net of interest rate swap and amounts capitalized)                                  |   | $                                                 | 63,180   |                              | $      | 68,250 |   |   |   |   | $ | 37,846 |   | $ | 38,187 |   |
| Income                  taxes (net of refunds)                                                                 |   |                                              | 7        |                              |   | 66 |   |   |   |   |   | - |   |   | 83 |   |
| **Other                  noncash Investing and Financing activities were:**                                    |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
| Return                  of capital - Guardian equity investment                                                |   | $                                                 | -        |                              | $      | - |   |   |   |   | $ | - |   | $ | (27,781 | ) |
| Property                  contributions received                                                               |   |                                              | -        |                              |   | - |   |   |   |   |   | - |   |   | 15,149 |   |
|                                                                                                           |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                           |   |                                              |     |                              |   |   |   |   |   |   |   |   |   |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**CONSOLIDATED      STATEMENT OF OWNERS’ EQUITY AND COMPREHENSIVE INCOME **

|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |
|------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|---------|-----------------------------------|--------|--------------------------------------------------------------------|--------|--------------------------------------------|---------|---------------------------------------|--------|--------------------------------------------------|--------|--------------------------------------------------|----------|-----------------------------------------------------------------|--------|----------|--------|-----------|----------|
|                                                                               |   | **Partners'                  Capital**                                                                                                      |    | **Common                  Stock** |   | **Accumulated                  Other Comprehensive Income (Loss)** |   | **Other                  Paid-in Capital** |    | **Members'                  Capital** |   | **Retained                  Earnings (Deficit)** |   | **Note                  Receivable-CMS Capital** |     | **Tax                  Sharing Note Receivable-Southern Union** |   |     |   | **Total** |     |
|                                                                               |   | (In                  thousands)                   |    |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |
| Balance                  January 1, 2003 (Pre-acquisition)                         |   | $                                                                                                                                           | -       |                              | $      | 1,000                                                              |   | $                                          | (39,179 | )                                     | $      | 1,280,794                                        |   | $                                                | -        |                                                            | $      | (340,031 | )      | $         | (150,000 | ) | $ | - |   |   |   | $ | 752,584 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income:                                             |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Net                  earnings                                                      |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | -        |                                                            |   | 50,014   |   |      | -        |   |   | - |   |   |   |   | 50,014 |   |
| Unrealized                  loss related to interest rate swaps, net of tax        |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | (3,180  | )                                     |   | -                                                |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | (3,180 | ) |
| Comprehensive                  income                                              |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | (3,180  | )                                     |   | -                                                |   |                                             | -        |                                                            |   | 50,014   |   |      | -        |   |   | - |   |   |   |   | 46,834 |   |
| Return                  of capital - Centennial                                    |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | (40,000                                          | )      |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | (40,000 | ) |
| Return                  of capital - Guardian equity investment                    |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | (27,781                                          | )      |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | (27,781 | ) |
| Capital                  contribution from CMS Gas Transmission                    |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | 15,149                                           |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | 15,149 |   |
| Other                                                                              |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | 194                                              |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | 194 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Balance                  June 11, 2003 (Acquisition date)                          |   | $                                                                                                                                           | -       |                              | $      | 1,000                                                              |   | $                                          | (42,359 | )                                     | $      | 1,228,356                                        |   | $                                                | -        |                                                            | $      | (290,017 | )      | $         | (150,000 | ) | $ | - |   |   |   | $ | 746,980 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Balance                  June 12, 2003 (Post-acquisition)                          |   | $                                                                                                                                           | -       |                              | $      | 1,000                                                              |   | $                                          | (42,359 | )                                     | $      | 1,228,356                                        |   | $                                                | -        |                                                            | $      | (290,017 | )      | $         | (150,000 | ) | $ | - |   |   |   | $ | 746,980 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Acquisition                  adjustments to eliminate original balances            |   |                                                                                                                                        | -       |                              |   | (1,000                                                             | )      |                                       | 42,359  |                                  |   | (1,228,356                                       | )      |                                             | -        |                                                            |   | 290,017  |   |      | 150,000  |   |   | - |   |   |   |   | (746,980 | ) |
| Pushdown                  of purchase price and related costs                      |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | 679,465  |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | 679,465 |   |
| Tax                  sharing receivable - Southern Union                           |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | (85,471 | ) |   |   |   | (85,471 | ) |
| Subtotal                                                                           |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | 679,465  |                                                            |   | -        |   |      | -        |   |   | (85,471 | ) |   |   |   | 593,994 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income:                                             |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Net                  earnings                                                      |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | -        |                                                            |   | 51,452   |   |      | -        |   |   | - |   |   |   |   | 51,452 |   |
| Unrealized                  gain related to interest rate swaps, net of tax        |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | 1,372   |                                  |   |                                             |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | 1,372 |   |
| Comprehensive                  income                                              |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | 1,372   |                                  |   | -                                                |   |                                             | -        |                                                            |   | 51,452   |   |      | -        |   |   | - |   |   |   |   | 52,824 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Balance                  December 31, 2003 (Post-acquisition)                      |   | $                                                                                                                                           | -       |                              | $      | -                                                                  |   | $                                          | 1,372   |                                  | $      | -                                                |   | $                                                | 679,465  |                                                            | $      | 51,452   |   | $         | -        |   | $ | (85,471 | ) |   |   | $ | 646,818 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Adjustment                  to pushdown of purchase price and related costs        |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | (16,444  | )                                                               |   | -        |   |      | -        |   |   | - |   |   |   |   | (16,444 | ) |
| Tax                  sharing receivable - Southern Union                           |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | (5,467 | ) |   |   |   | (5,467 | ) |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income:                                             |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Net                  earnings                                                      |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | -        |                                                            |   | 47,201   |   |      | -        |   |   | - |   |   |   |   | 47,201 |   |
| Unrealized                  gain related to interest rate swaps, net of tax        |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | 405     |                                  |   |                                             |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | 405 |   |
| Comprehensive                  income prior to change in legal ownership structure |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | 405     |                                  |   | -                                                |   |                                             | -        |                                                            |   | 47,201   |   |      | -        |   |   | - |   |   |   |   | 47,606 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Change                  in legal ownership structure (See Note 1)                  |   |                                                                                                                                        | 761,674 |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | (663,021 | )                                                               |   | (98,653  | )      |      | -        |   |   | - |   |   |   |   | - |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Tax                  sharing receivable - Southern Union (See Note 5)              |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | 19,967 |   |   |   |   | 19,967 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income:                                             |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Net                  earnings                                                      |   |                                                                                                                                        | 40,732  |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | 40,732 |   |
| Unrealized                  loss related to interest rate swaps, net of tax        |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | (546    | )                                     |   |                                             |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | (546 | ) |
| Comprehensive                  income                                              |   |                                                                                                                                        | 40,732  |                              |   | -                                                                  |   |                                       | (546    | )                                     |   | -                                                |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | 40,186 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Balance                  December 31, 2004 (Post-acquisition)                      |   | $                                                                                                                                           | 802,406 |                              | $      | -                                                                  |   | $                                          | 1,231   |                                  | $      | -                                                |   | $                                                | -        |                                                            | $      | -        |   | $         | -        |   | $ | (70,971 | ) |   |   | $ | 732,666 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Tax                  sharing receivable - Southern Union (See Note 5)              |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | 20,109 |   |   |   |   | 20,109 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income:                                             |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Net                  earnings                                                      |   |                                                                                                                                        | 101,562 |                              |   | -                                                                  |   |                                       | -       |                                  |   | -                                                |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | 101,562 |   |
| Unrealized                  gain related to interest rate swaps, net of tax        |   |                                                                                                                                        | -       |                              |   | -                                                                  |   |                                       | 108     |                                  |   |                                             |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | 108 |   |
| Comprehensive                  income                                              |   |                                                                                                                                        | 101,562 |                              |   | -                                                                  |   |                                       | 108     |                                  |   | -                                                |   |                                             | -        |                                                            |   | -        |   |      | -        |   |   | - |   |   |   |   | 101,670 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |
| Balance                  December 31, 2005 (Post-acquisition)                      |   | $                                                                                                                                           | 903,968 |                              | $      | -                                                                  |   | $                                          | 1,339   |                                  | $      | -                                                |   | $                                                | -        |                                                            | $      | -        |   | $         | -        |   | $ | (50,862 | ) |   |   | $ | 854,445 |   |
|                                                                               |   |                                                                                                                                        |    |                              |   |                                                               |   |                                       |    |                                  |   |                                             |   |                                             |     |                                                            |   |     |   |      |     |   |   |   |   |   |   |   |   |   |

----

**PANHANDLE        EASTERN PIPE LINE COMPANY, LP**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.      Corporate Structure**

*Panhandle      Eastern Pipe Line*
*,      Panhandle Energy*
*Southern      Union Company*
*Southern      Union*
*Panhandle      Acquisition*
*CMS      Gas Transmission*
*CMS      Energy*
*CMS*
*LNG*
*FERC*

| ·   | Panhandle                Eastern Pipe Line; |
|--------------------|---------------------------------------------|

| ·   | Trunkline                Gas Company, LLC (*Trunkline*),                a direct wholly-owned subsidiary of Panhandle Eastern Pipe                Line; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Sea                Robin Pipeline Company, LLC (*Sea                Robin*),                an indirect wholly-owned subsidiary of Panhandle Eastern Pipe                Line; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Trunkline                LNG Holdings, LLC (*LNG                Holdings*),                an indirect wholly-owned subsidiary of Panhandle Eastern Pipe                Line |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Trunkline                LNG Company, LLC (*Trunkline                LNG*),                a direct wholly-owned subsidiary of LNG Holdings;                and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Pan                Gas Storage, LLC (d.b.a. *Southwest                Gas Storage*),                a direct wholly-owned subsidiary of Panhandle Eastern Pipe Line. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Bcf/d*
*Bcf*

*Texas      Operations*

*Centennial*
*Guardian*
*Note      4 - Related Party Transactions*
*CMS      Capital*
*Note      4 - Related Party Transactions*

----

**PANHANDLE        EASTERN PIPE LINE COMPANY, LP**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

*GAAP*
*pushdown*

|                                                                   |   | (In                  thousands) |     |
|------------------------------------------------------------------------|--------|---------------------------------|----------|
| Owners'                  equity, pre-acquisition                       |   |                            |     | $                  746,980 |   |
| Fair                  value adjustments to pre-acquisition net assets: |   |                            |     |   |   |
| Current                  assets, excluding system gas                  |   |                            | 1,177    |   |   |   |   |
| System                  gas                                            |   |                            | 14,055   |   |   |   |   |
| Property,                  plant and equipment                         |   |                            | 230,065  |   |   |   |   |
| Intangibles                                                            |   |                            | 9,503    |   |   |   |   |
| Goodwill                                                               |   |                            | (112,582 | ) |   |   |   |
| Deferred                  debt costs                                   |   |                            | (14,469  | ) |   |   |   |
| Other                  assets                                          |   |                            | (352     | ) |   |   |   |
| Current                  liabilities                                   |   |                            | (863     | ) |   |   |   |
| Long-term                  debt                                        |   |                            | (63,764  | ) |   |   |   |
| Deferred                  credits and other liabilities                |   |                            | (12,614  | ) |   |   |   |
| Net                  fair value adjustments                            |   |                            |     |   |   | 50,156 |   |
| Net                  liabilities retained by CMS                       |   |                            |     |   |   | 50,811 |   |
| Elimination                  of CMS Capital Note receivable            |   |                            |     |   |   | (184,926 | ) |
| Subtotal                                                               |   |                            |     |   |   | 663,021 |   |
| Tax                  sharing receivable                                |   |                            |     |   |   | (90,938 | ) |
| Owners'                  equity, post-acquisition                      |   |                            |     |   | $ | 572,083 |   |
|                                                                   |   |                            |     |   |   |   |   |

**2.      Summary of Significant Accounting Policies and Other      Matters**

***Basis      of Presentation.***

*Accounting      for the Effects of Certain Types of Regulation*

----

**PANHANDLE        EASTERN PIPE LINE COMPANY, LP**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

***Principles      of Consolidation.***

***Use      of Estimates.***

***Cash      and Cash Equivalents.***

***System      Gas and Operating Supplies.***
*MMBtu*

***Gas      Imbalances.***
** **

***Fuel      Tracker.***
** **

***Property,      Plant and Equipment.***
*PP&E*
*Note      1 - Corporate Structure*

----

**PANHANDLE        EASTERN PIPE LINE COMPANY, LP**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

***Asset      Impairment.***
*Accounting      for the Impairment or Disposal of Long-Lived Assets*

***Related      Party Transactions.***
*** ***
*Consumers*
*Note      4 - Related Party Transactions*

*Code*

***Unamortized      Debt Premium, Discount and Expense.***

----

**PANHANDLE        EASTERN PIPE LINE COMPANY, LP**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

***Environmental      Expenditures.***
** **

***Revenues.***

***Significant      Customers and Credit Risk.***

|                                                             |   | **Post-acquisition**              |   |  **Pre-acquisition**         |   |
|------------------------------------------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
|                                                             |   | **Year                  Ended**   |   | **Year                  Ended**   |   |   |   | **June                  12-** |   |  **January                  1 -** |   |
|                                                             |   | **December                  31,** |   | **December                  31,** |   |   |   | **December                  31,** |   |  **June                  11,** |   |
| **Allowance                  for Doubtful Accounts**             |   | **2005**                          |   | **2004**                          |   |   |   | **2003** |   |  **2003** |   |
|                                                             |   | (In                  thousands)   |   |                              |   |   |   |   |   |    |   |
|                                                             |   |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |
| Beginning                  Balance                               |   | $                                 | 1,289  |                              | $      | 1,464 |   |   |   | $ | 4,138 |   | $ | 8,444 |   |
| Additions:                  Charged to Cost and Expenses         |   |                              | (76    | )                                 |   | - |   |   |   |   | - |   |   | 96 |   |
| Deductions:                  Write-off of Uncollectible Accounts |   |                              | (45    | )                                 |   | (61 | ) |   |   |   | (36 | ) |   | (3,981 | ) |
| Other                                                            |   |                              | -      |                              |   | (114 | ) |   |   |   | (2,638 | ) |   | (421 | ) |
| Ending                  Balance                                  |   | $                                 | 1,168  |                              | $      | 1,289 |   |   |   | $ | 1,464 |   | $ | 4,138 |   |
|                                                             |   |                              |   |                              |   |   |   |   |   |   |   |   |   |   |   |

----

**PANHANDLE        EASTERN PIPE LINE COMPANY, LP**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

|                                                   |   | **December                  31, 2005** |   | **December                  31, 2004** |   |
|--------------------------------------------------------|--------|----------------------------------------|--------|----------------------------------------|--------|
|                                                   |   | **Billed**                             |   | **Unbilled**                           |   | **Total** |   | **Billed** |   | **Unbilled** |   | **Total** |   |
|                                                   |   | (In                  thousands)        |   |
|                                                   |   |                                   |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts                  receivable                   |   | $                                      | 6,281  |                                   | $      | 49,505 |   | $ | 55,786 |   | $ | 3,310 |   | $ | 44,775 |   | $ | 48,085 |   |
| Accounts                  receivable - related parties |   |                                   | 5,003  |                                   |   | 4,553 |   |   | 9,556 |   |   | 478 |   |   | 6,809 |   |   | 7,287 |   |
| Total                                                  |   | $                                      | 11,284 |                                   | $      | 54,058 |   | $ | 65,342 |   | $ | 3,788 |   | $ | 51,584 |   | $ | 55,372 |   |
|                                                   |   |                                   |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                |   | **Percent                  of Operating Revenue for**  |   |
|-----------------------------------------------------|--------|-------------------------------------------------------------|--------|
|                                                |   | **Twelve                  months ended**               |   |
|                                                |   | **December                  31,**                      |   |
| **Customer**                                        |   | **2005**                                                    |   | **2004** |   | **2003** |   |
|                                                |   |                                                   |   |   |   |   |   |
| BG                  LNG Services                    |   |                                                        | 17     | % |   | 15 | % |   | 15 | % |
| ProLiance                                           |   |                                                        | 16     |   |   | 17 |   |   | 16 |   |
| Ameren                  Corp                        |   |                                                        | 11     |   |   | 12 |   |   | 8 |   |
| CMS                  Energy and affiliates (1)      |   |                                                        | 8      |   |   | 10 |   |   | 12 |   |
| Other                  top 10 customers             |   |                                                        | 14     |   |   | 14 |   |   | 18 |   |
| Remaining                  customers                |   |                                                        | 34     |   |   | 32 |   |   | 31 |   |
| Total                  percentage                   |   |                                                        | 100    | % |   | 100 | % |   | 100 | % |
|  ________________________                      |   |                                                        |   |   |   |   |   |   |   |   |
| (1)                 Primarily Consumers Energy |   |                                                        |   |   |   |   |   |   |   |   |

***Interest      Cost Capitalized.***

***Accounting      for Retirement Benefits.***
** **
*Employers’      Accounting for Pensions*
*Employers’      Accounting for Postretirement Benefits Other Than Pensions*
*Employers’      Disclosures about Pensions and Other Postretirement Benefits*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

*CMS      Pension Plan*

*OPEB*
*Panhandle*
* *
*Energy      Plan*
*Note      14 - Benefits*

***Accounting      for Derivatives and Hedging Activities.***
*Accounting      for Derivative Instruments and Hedging Activities, *
*Note      5 - Accounting for Derivatives and Hedging Activities*

***Accounting      for Asset Retirement Obligations.***
*Accounting      for Asset Retirement Obligations*
*Accounting      for Conditional Asset Retirement Obligations (FIN No. 47*
*AROs*

*Conditional      ARO*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

| **December                  31, 2005**         |                            |   |                                       | **(In                  thousands)** |
|------------------------------------------------|---------------------------------|--------|--------------------------------------------|-------------------------------------|
|                                           | **In                  Service** |   |                                       |                                |
| **ARO                  Description**           | **Date**                        |   | **Long-Lived                  Assets**     | **Amount**                          |
| Retire                  offshore lateral lines | Various                         |   | Offshore                  lateral lines    | $                  2,803            |
| Remove                  asbestos               | Various                         |   | Mainlines                  and compressors | 882                                 |

|                               |   | **Post-acquistion**                                   |   |  **Pre-acquisition**         |   |
|------------------------------------|--------|-------------------------------------------------------|--------|-----------------------------------|--------|
|                               |   | **Year                  Ended**                       |   | **Year                  Ended**   |   |   |   | **June                  12 -** |   |  **January                  1 -** |   |
|                               |   | **December                  31,**                     |   | **December                  31,** |   |   |   | **December                  31,** |   |  **June                  11,** |   |
|                               |   | **2005**                                              |   | **2004**                          |   |   |   | **2003** |   |  **2003** |   |
|                               |   | **(In                  thousands)**    |   |
|                               |   |                                                  |   |                              |   |   |   |   |   |    |   |
| Beginning                  Balance |   | $                                                     | 5,657  |                              | $      | 7,479 |   |   |   |   | $ | 7,115 |   | $ | 6,024 |   |
| Incurred                           |   |                                                  | 2,371  |                              |   | - |   |   |   |   |   | - |   |   | 809 |   |
| Settled                            |   |                                                  | (285   | )                                 |   | (2,365 | ) |   |   |   |   | - |   |   | - |   |
| Accretion                  Expense |   |                                                  | 457    |                              |   | 543 |   |   |   |   |   | 364 |   |   | 282 |   |
| Ending                  Balance    |   | $                                                     | 8,200  |                              | $      | 5,657 |   |   |   |   | $ | 7,479 |   | $ | 7,115 |   |
|                               |   |                                                  |   |                              |   |   |   |   |   |   |   |   |   |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

***Accounting      for Gains and Losses on Debt Extinguishment.***
*Rescission      of Financial Accounting Standards Board (FASB) Statements No. 4, 44, and 64,      Amendment of FASB Statement No. 13, and Technical Corrections*
*Note      11 - Debt*

***Accounting      for Taxes.***

***Stock      Based Compensation.***
*Accounting      for Stock Issued to Employees*

*Accounting      for Stock-Based Compensation*
*Accounting      for Stock-Based Compensation—Transition and Disclosure*

|                                                              |   | **Year                  Ended**     |    | **Year                  Ended**   |   |
|-------------------------------------------------------------------|--------|-------------------------------------|---------|-----------------------------------|--------|
|                                                              |   | **December                  31,**   |    | **December                  31,** |   |
|                                                              |   | **2005**                            |    | **2004**                          |   |
|                                                              |   | **(In                  thousands)** |    |                              |   |
|                                                              |   |                                |    |                              |   |
| Net                  earnings, as reported                        |   | $                                   | 101,562 |                              | $      | 87,933 |   |
| Add                  stock-based compensation expense included in |   |                                |    |                              |   |   |   |
| reported                  net earnings, net of related taxes      |   |                                | 710     |                              |   | - |   |
| Deduct                  total stock-based employee compensation   |   |                                |    |                              |   |   |   |
| expense                  determined under fair value based method |   |                                |    |                              |   |   |   |
| for                  all awards, net of related taxes             |   |                                | 1,001   |                              |   | 207 |   |
| Pro                  forma net earnings                           |   | $                                   | 101,271 |                              | $      | 87,726 |   |
|                                                              |   |                                |    |                              |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

|   |                                                |   | **Year                  ended**        |   | **Year                  ended**        |   |   |
|--------|-----------------------------------------------------|--------|----------------------------------------|--------|----------------------------------------|--------|--------|
|   |                                                |   | **December                  31, 2005** |   | **December                  31, 2004** |   |   |
|   |                                                |   |                                   |   |                                   |   |   |
|   | Dividend                  yield                     |   | 0%                                     |   | 0%                                     |   |   |
|   | Volatility                                          |   | 37.36%                                 |   | 36.75%                                 |   |   |
|   | Risk                  free interest rate            |   | 4.06%                                  |   | 4.95%                                  |   |   |
|   | Expected                  term                      |   | 6.25                  years            |   | 6                  years               |   |   |
|   | Expected                  forfeiture                |   | 0%                                     |   | 0%                                     |   |   |
|   | Weighted                  average option fair value |   | $10.64                                 |   | $7.33                                  |   |   |
|   |                                                |   |                                   |   |                                   |   |   |

***New      Accounting Principles***

***Accounting      Principles Recently Adopted.***

***FSP      No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare      Prescription Drug, Improvement and Modernization Act of 2003”(***
**the**
***Medicare Prescription Drug Act).***
** **
*FASB*
*FSP*
*FSP      FAS 106-2*
*Note      14 - Benefits - Recently Enacted Legislation*

***FSP      No. FIN 46R-5, “Implicit Variable Interests under FASB Interpretation No. 46      (revised December 2003), Consolidation of Variable Interest      Entities.”***
* *
*VIE*

***FIN      No. 47, “Accounting for Conditional Asset Retirement      Obligations.”***
*Accounting      for Asset Retirement Obligations*
*Note      2 - Summary of Significant Accounting Policies and Other Matters - Accounting      for Asset Retirement Obligations*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

***Accounting      Principles not yet Adopted.***

***FASB      Statement No. 123R, “Share-Based Payment (revised      2004).”***
** **
** **
*,      Accounting for Stock-Based Compensation*
*Accounting      for Stock Issued to Employees,*
*Statement      of Cash Flows*

***FERC      Accounting Release.***

**3.      Regulatory Matters**

*Phase      I*
*Phase      II*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

*HCA*

**4.      Related Party Transactions**

|                                            |       |   | ** ** | **Post-acquisition**** **** **** **** **** **** **** **** ** | ** ** | ** Pre-acquisition** | ** ** |
|-------------------------------------------------|------------|--------|------------|------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                      | ** ** |   | ** ** | **Year                  Ended**** **                                                            | ** ** |                      | ** ** | **Year Ended ** | ** ** |   | ** ** | **June                  12 - ** | ** ** | **January                  1- ** | ** ** |
| ** **                                      | ** ** |   | ** ** | **December                  31,**** **                                                          | ** ** |                      | ** ** | **December                  31,  ** | ** ** |   | ** ** | **December                  31, ** | ** ** | **June                  11, ** | ** ** |
| **Related                  Party Transactions** | ** ** |   | ** ** | **2005 **                                                                                       | ** ** |                      | ** ** | **2004 ** | ** ** |   | ** ** | **2003 ** | ** ** | **2003**  |   |
|                                            |       |   |       | (In                  thousands)                                                                      |
|                                            |       |   |       |                                                                                                 |       |                      |       |   |   |   |   |   |   |    |   |
| Transportation                  and storage     |       |   |       |                                                                                                 |       |                      |       |   |   |   |   |   |   |    |   |
| of                  natural gas                 |       |   |       |                                                                                                 | $          | 3,962                     |       |   |   |   | $ | 3,902 |   |   |   |   | $ | 2,251 |   | $ | 28,094 |   |
| Operation                  and maintenance:     |       |   |       |                                                                                                 |       |                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Management                  & royalty fees  |       |   |       |                                                                                                 |       | 12,630                    |       |   |   |   |   | 12,215 |   |   |   |   |   | 6,111 |   |   | - |   |
| Other                  expenses                 |       |   |       |                                                                                                 |       | 17,715                    |       |   |   |   |   | 24,607 |   |   |   |   |   | 9,900 |   |   | 9,727 |   |
| Other                  income, net              |       |   |       |                                                                                                 |       | 3,749                     |       |   |   |   |   | 1,779 |   |   |   |   |   | 407 |   |   | 6,572 |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

*SERP*

*Note      1 - Corporate Structure*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

*CCE      Holdings*
*CrossCountry      Energy*
*Management      Agreement*
*Manager*

*Note      13 - Commitments and Contingencies*

----

**PANHANDLE        EASTERN PIPE LINE COMPANY, LP**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**5.      Derivatives Instruments and Hedging Activities**

*Accounting      for Derivative Instruments and Hedging Activities, *
*fair      value hedge*
*cash      flow hedge*

*the      Credit Agreement*
*Note      11 - Debt*

*Note      11 - Debt. *

----

**PANHANDLE        EASTERN PIPE LINE COMPANY, LP**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**6.      Income Taxes**

|                                         |   |                                                          |   |                              |   |   |   |                              |   |                              |   |
|----------------------------------------------|--------|---------------------------------------------------------------|--------|-----------------------------------|--------|--------|--------|-----------------------------------|--------|----------------------------------------|--------|
|                                         |   | **Post-acquisition**                                          |   |  **Pre-acquisition**         |   |
|                                         |   | **Year                  Ended**                               |   | **Year                  Ended**   |   |   |   | **June                  12 -**    |   |  **January                  1 -** |   |
|                                         |   | **December                  31,**                             |   | **December                  31,** |   |   |   | **December                  31,** |   |  **June                  11,**    |   |
| **Income                  Tax Expense**      |   | **2005**                                                      |   | **2004**                          |   |   |   | **2003**                          |   |  **2003**                         |   |
|                                         |   |  (In                  thousands)     |   |
|                                         |   |                                                          |   |                              |   |   |   |                              |   |                              |   |
| Current                  income taxes        |   |                                                          |   |                              |   |   |   |                              |   |                              |   |
| Federal                                      |   | $                                                             | 20,153 |                              | $      | 14,756 |   |                              |   |                                   | $      | - |   | $ | - |   |
| State                                        |   |                                                          | 2,341  |                              |   | 1,726  |   |                              |   |                                   |   | - |   |   | - |   |
| Total                  current income taxes  |   |                                                          | 22,494 |                              |   | 16,482 |   |                              |   |                                   |   | - |   |   | - |   |
| .                                            |   |                                                          |   |                              |   |   |   |                              |   |                                   |   |   |   |   |   |   |
| Deferred                  income taxes       |   |                                                          |   |                              |   |   |   |                              |   |                                   |   |   |   |   |   |   |
| Federal                                      |   |                                                          | 34,330 |                              |   | 32,861 |   |                              |   |                                   |   | 27,823 |   |   | 25,823 |   |
| State                                        |   |                                                          | 7,803  |                              |   | 6,713  |   |                              |   |                                   |   | 5,498 |   |   | 4,709 |   |
| Total                  deferred income taxes |   |                                                          | 42,133 |                              |   | 39,574 |   |                              |   |                                   |   | 33,321 |   |   | 30,532 |   |
|                                         |   |                                                          |   |                              |   |   |   |                              |   |                                   |   |   |   |   |   |   |
| Total                  income tax expense    |   | $                                                             | 64,627 |                              | $      | 56,056 |   |                              |   |                                   | $      | 33,321 |   | $ | 30,532 |   |
|                                         |   |                                                          |   |                              |   |   |   |                              |   |                                   |   |   |   |   |   |   |

|                                                        |   | **Post-acquisition**                                    |   |                              |  **Pre-acquisition** |   |
|-------------------------------------------------------------|--------|---------------------------------------------------------|--------|-----------------------------------|---------------------------|--------|
|                                                        |   | **Year                  Ended**                         |   | **Year                  Ended**   |                      |   |   | **June                  12 -** |   |  **January                  1-** |   |
| **Income                  Tax Expense --**                  |   | **December                  31,**                       |   | **December                  31,** |                      |   |   | **December                  31,** |   |  **June                  11,** |   |
| **Reconciliation                  to Statutory Rate**       |   | **2005**                                                |   | **2004**                          |                      |   |   | **2003** |   |  **2003** |   |
|                                                        |   | (In                  thousands)     |   |
|                                                        |   |                                                    |   |                              |                      |   |   |   |   |    |   |
| Income                  tax, computed at the statutory rate |   | $                                                       | 58,166 |                              | $                         | 50,396 |   |   |   |   | $ | 29,671 |   | $ | 27,490 |   |
| Adjustments:                                                |   |                                                    |   |                              |                      |   |   |   |   |   |   |   |   |   |   |   |
| State                  income tax, net of federal effect    |   |                                                    | 6,594  |                              |                      | 5,485  |   |   |   |   |   | 3,574 |   |   | 3,061 |   |
| Permanent                  differences and other            |   |                                                    | (133   | )                                 |                      | 175    |   |   |   |   |   | 76 |   |   | (19 | ) |
| Total                  income tax expense                   |   | $                                                       | 64,627 |                              | $                         | 56,056 |   |   |   |   | $ | 33,321 |   | $ | 30,532 |   |
|                                                        |   |                                                    |   |                              |                      |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |   |                                                    |   |                              |                      |   |   |   |   |   |   |   |   |   |   |   |
| Effective                  tax rate                         |   |                                                    | 38.9   | %                                 |                      | 38.9   | % |   |   |   |   | 39.3 | % |   | 38.9 | % |
|                                                        |   |                                                    |   |                              |                      |   |   |   |   |   |   |   |   |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

|                                                                      |   |                              |     |                              |   |
|---------------------------------------------------------------------------|--------|-----------------------------------|----------|-----------------------------------|--------|
|                                                                      |   | **December                  31,** |     | **December                  31,** |   |
| **Net                  Deferred Income Tax Asset (Liability) Components** |   | **2005**                          |     | **2004**                          |   |
|                                                                      |   | (In                  thousands)   |     |                              |   |
|                                                                      |   |                              |     |                              |   |
| Property,                  plant and equipment                            |   | $                                 | (206,859 | )                                 | $      | (189,041 | ) |
| Investments                                                               |   |                              | (196     | )                                 |   | (116 | ) |
| Deferred                  credits and other liabilities                   |   |                              | 19,174   |                              |   | 26,534 |   |
| Other                  assets                                             |   |                              | 5,554    |                              |   | 9,933 |   |
| Interest                  rate swap                                       |   |                              | -        |                              |   | 7,536 |   |
| State                  deferred income taxes, net of federal tax effect   |   |                              | (21,374  | )                                 |   | (16,341 | ) |
| Net                  deferred income tax asset (liability)                |   | $                                 | (203,701 | )                                 | $      | (161,495 | ) |
|                                                                      |   |                              |     |                              |   |   |   |
| Gross                  deferred tax liabilities                           |   | $                                 | (229,442 | )                                 | $      | (205,498 | ) |
| Gross                  deferred tax assets                                |   |                              | 25,741   |                              |   | 44,003 |   |
| Net                  deferred income tax asset (liability)                |   | $                                 | (203,701 | )                                 | $      | (161,495 | ) |
|                                                                      |   |                              |     |                              |   |   |   |
|                                                                      |   |                              |     |                              |   |   |   |
| Non                  current deferred income tax asset (liability)        |   | $                                 | (205,787 | )                                 | $      | (172,193 | ) |
| Current                  tax asset                                        |   |                              | 2,086    |                              |   | 10,698 |   |
| Net                  deferred income tax asset (liability)                |   | $                                 | (203,701 | )                                 | $      | (161,495 | ) |
|                                                                      |   |                              |     |                              |   |   |   |

*Note      4 - Related Party Transactions*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**7.      Property, Plant and Equipment**

|                                                                        |   | **Lives**                     |   | **December                  31,** |   | **December                  31,** |   |
|-----------------------------------------------------------------------------|--------|-------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
| **Property,                  Plant and Equipment**                          |   | **In                  Years** |   | **2005**                          |   | **2004**                          |   |
|                                                                        |   |                          |   | (In                  thousands)   |   |
|                                                                        |   |                          |   |                              |   |                              |   |
| Transmission                                                                |   |                          | 36-46  |                              | $      | 1,285,848                         |   | $ | 1,181,182 |   |
| Gathering                                                                   |   |                          | 26     |                              |   | 45,822                            |   |   | 46,074 |   |
| Underground                  storage                                        |   |                          | 36-46  |                              |   | 275,603                           |   |   | 274,337 |   |
| General                  plant - LNG                                        |   |                          | 40     |                              |   | 494,827                           |   |   | 388,703 |   |
| General                  plant - other (1)                                  |   |                          | 1-10   |                              |   | 61,374                            |   |   | 57,228 |   |
| Construction                  work-in-progress                              |   |                          |   |                              |   | 176,370                           |   |   | 203,094 |   |
| Total                  property, plant and equipment                        |   |                          |   |                              |   | 2,339,844                         |   |   | 2,150,618 |   |
| Less                  accumulated depreciation and amortization             |   |                          |   |                              |   | 145,550                           |   |   | 87,683 |   |
| Net                  property, plant and equipment                          |   |                          |   |                              | $      | 2,194,294                         |   | $ | 2,062,935 |   |
|                                                                        |   |                          |   |                              |   |                              |   |   |   |   |
| (1)                  Includes capitalized computer software costs totaling: |   |                          |   |                              |   |                              |   |   |   |   |
|                                                                        |   |                          |   |                              |   |                              |   |   |   |   |
| Computer                  software cost                                     |   |                          |   |                              | $      | 53,716                            |   | $ | 49,828 |   |
| Less                  accumulated amortization                              |   |                          |   |                              |   | 12,386                            |   |   | 6,439 |   |
| Net                  computer software costs                                |   |                          |   |                              | $      | 41,330                            |   | $ | 43,389 |   |
|                                                                        |   |                          |   |                              |   |                              |   |   |   |   |

*Accounting      for the Costs of Computer Software Developed or Obtained for Internal      Use*

**8.      Intangible Customer Contract**

|                                               |   | **Useful**                    |   |                              |   |                              |   |
|----------------------------------------------------|--------|-------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
|                                               |   | **Lives**                     |   | **December                  31,** |   | **December                  31,** |   |
| **Intangible                  customer contract**  |   | **In                  Years** |   | **2005**                          |   | **2004**                          |   |
|                                               |   |                          |   | (In                  thousands)   |   |
|                                               |   |                          |   |                              |   |                              |   |
| Customer                  contract                 |   |                          | 20     |                              | $      | 9,503                             |   | $ | 9,503 |   |
| Accumulated                  amortization          |   |                          |   |                              |   | 1,472                             |   |   | 1,007 |   |
| Intangible                  customer contract, net |   |                          |   |                              | $      | 8,031                             |   | $ | 8,496 |   |
|                                               |   |                          |   |                              |   |                              |   |   |   |   |

*Note      7 - Property, Plant and Equipment*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**9.      Investment in Affiliates**

**10.      Financial Instruments**

*Note      4 - Related Party Transactions*

**11.      Debt**

|                                                      |   |                          |   | **December                  31, 2005** |    |  **December                  31, 2004** |   |
|-----------------------------------------------------------|--------|-------------------------------|--------|----------------------------------------|---------|----------------------------------------------|--------|
| **Long-term                  Debt**                       |   | **Year                  Due** |   | **Book                  Value**        |    | **Fair                  Value**              |   |  **Book                  Value** |   | **Fair                  Value** |   |
|                                                      |   |                          |   | (In                  thousands)        |    |                                         |   |    |   |   |   |
|                                                      |   |                          |   |                                   |    |                                         |   |    |   |   |   |
| 6.50%                  Senior Notes                       |   |                          | 2009   |                                   |  $ | 60,623                                       |   |  $ | 63,228 |   |  $ | 60,623 |   |  $ | 66,024 |   |
| 8.25%                  Senior Notes                       |   |                          | 2010   |                                   |    | 40,500                                       |   |   | 45,135 |   |   | 40,500 |   |   | 47,430 |   |
| 7.00%                  Senior Notes                       |   |                          | 2029   |                                   |    | 66,305                                       |   |   | 73,521 |   |   | 66,305 |   |   | 73,492 |   |
| 4.80%                  Senior Notes                       |   |                          | 2008   |                                   |    | 300,000                                      |   |   | 300,000 |   |   | 300,000 |   |   | 305,214 |   |
| 6.05%                  Senior Notes                       |   |                          | 2013   |                                   |    | 250,000                                      |   |   | 254,450 |   |   | 250,000 |   |   | 268,450 |   |
| 2.75%                  Senior Notes                       |   |                          | 2007   |                                   |    | 200,000                                      |   |   | 200,000 |   |   | 200,000 |   |   | 200,000 |   |
| Bank                  loans                               |   |                          | 2007   |                                   |    | 255,626                                      |   |   | 255,626 |   |   | 258,433 |   |   | 258,433 |   |
| Total                  debt outstanding                   |   |                          |   |                                   |    | 1,173,054                                    |   |  $ | 1,191,960 |   |   | 1,175,861 |   |  $ | 1,219,043 |   |
| Current                  portion of long-term debt        |   |                          |   |                                   |    | -                                            |   |   |   |   |   | (12,548 | ) |   |   |   |
| Interest                  rate swaps (2.75% Senior Notes) |   |                          |   |                                   |    | (5,725                                       | )      |   |   |   |   | (3,936 | ) |   |   |   |
| Unamortized                  debt premium, net            |   |                          |   |                                   |    | 12,205                                       |   |   |   |   |   | 14,688 |   |   |   |   |
| Total                  long-term debt                     |   |                          |   |                                   | $       | 1,179,534                                    |   |   |   |   | $ | 1,174,065 |   |   |   |   |
|                                                      |   |                          |   |                                   |    |                                         |   |   |   |   |   |   |   |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

*Panhandle      Tender Offer*
*Panhandle      Calls*

*Bridge      Loan*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**12.      Comprehensive Income**

|                                                                             |   | **Post-acquisition**                                    |    |                              |  **Pre-acquisition** |   |
|----------------------------------------------------------------------------------|--------|---------------------------------------------------------|---------|-----------------------------------|---------------------------|--------|
|                                                                             |   | **Year                  ended**                         |    | **Year                  ended**   |                      |   |   | **June                  12 -** |   |  **January                  1 -** |   |
|                                                                             |   | **December                  31,**                       |    | **December                  31,** |                      |   |   | **December                  31,** |   |  **June                  11,** |   |
|                                                                             |   | **2005**                                                |    | **2004**                          |                      |   |   | **2003** |   |  **2003** |   |
|                                                                             |   | (In                  thousands)     |    |
|                                                                             |   |                                                    |    |                              |                      |   |   |   |   |    |   |
| Net                  earnings                                                    |   | $                                                       | 101,562 |                              | $                         | 87,933 |   |   |   |   | $ | 51,452 |   | $ | 50,014 |   |
|                                                                             |   |                                                    |    |                              |                      |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized                  gain (loss) related to interest rate swaps,          |   |                                                    |    |                              |                      |   |   |   |   |   |   |   |   |   |   |   |
| net                  of taxes of $1,587, $3,407, $2,769 and                      |   |                                                    |    |                              |                      |   |   |   |   |   |   |   |   |   |   |   |
| $(2,137),                  respectively                                          |   |                                                    | 2,495   |                              |                      | 5,345  |   |   |   |   |   | 4,276 |   |   | (3,180 | ) |
| Reclassifications                  of (gains) losses in net income, net of taxes |   |                                                    |    |                              |                      |   |   |   |   |   |   |   |   |   |   |   |
| of                  $(1,515), $(3,502) and $(1,847), respectively                |   |                                                    | (2,387  | )                                 |                      | (5,486 | ) |   |   |   |   | (2,904 | ) |   | - |   |
|                                                                             |   |                                                    |    |                              |                      |   |   |   |   |   |   |   |   |   |   |   |
|                                                                             |   |                                                    |    |                              |                      |   |   |   |   |   |   |   |   |   |   |   |
| Total                  comprehensive income (loss)                               |   | $                                                       | 101,670 |                              | $                         | 87,792 |   |   |   |   | $ | 52,824 |   | $ | 46,834 |   |
|                                                                             |   |                                                    |    |                              |                      |   |   |   |   |   |   |   |   |   |   |   |

**13.      Commitments and Contingencies**

***Leases.***

***Capital      Expenditures.***

***Litigation.***
** **
*Accounting      for Contingencies*

*Hope      Land*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

***Environmental      Matters***

*Environmental      Remediation Liabilities,*

*PCBs*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

*U.S.      EPA*
*PRP*

|                                             |   | **December                  31,** |   |
|--------------------------------------------------|--------|-----------------------------------|--------|
|                                             |   | **2005**                          |   | **2004** |   |
|                                             |   | (In                  thousands)   |   |
|                                             |   |                              |   |   |   |
| Current                                          |   | $                                 | 2,337  |   | $ | 3,046 |   |
| Noncurrent                                       |   |                              | 8,385  |   |   | 9,866 |   |
| Total                  Environmental Liabilities |   | $                                 | 10,722 |   | $ | 12,912 |   |
|                                             |   |                              |   |   |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

***Air      Quality Control.***
*NOx*

*HAPs*

***Spill      Control.***
*SPCC*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

***Other      Commitments and Contingencies.***

*MMS*

*Note      1 - Corporate Structure*

*Bridge      Loan*

***Controlled      Group Pension Liabilities.***

**14.      Benefits**

***Employee      Retirement Benefits.***
*CMS      Pension Plan*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

|                                                              |   | **Post-acquisition**              |    |
|-------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                              |   | **Year                  ended**   |    | **Year                  ended** |   |
|                                                              |   | **December                  31,** |    | **December                  31,** |   |
| ** OPEB**                                                    |   | **2005**                          |    | **2004** |   |
|                                                              |   | (In                  thousands)   |    |
| Change                  in Benefit Obligation                     |   |                              |    |   |   |
| Benefit                  obligation at beginning of period        |   | $                                 | 62,845  |   | $ | 47,085 |   |
| Service                  cost                                     |   |                              | 2,264   |   |   | 2,327 |   |
| Interest                  cost                                    |   |                              | 2,926   |   |   | 3,004 |   |
| Amendments                                                        |   |                              | (24,285 | ) |   | (1,600 | ) |
| Actuarial                  loss (gain)                            |   |                              | (4,156  | ) |   | 12,029 |   |
| Benefit                  obligation at end of year                |   | $                                 | 39,594  |   | $ | 62,845 |   |
|                                                              |   |                              |    |   |   |   |   |
| Change                  in Plan Assets                            |   |                              |    |   |   |   |   |
| Fair                  value of plan assets at beginning of period |   | $                                 | 12,196  |   | $ | 4,314 |   |
| Return                  on plan assets                            |   |                              | 392     |   |   | 70 |   |
| Employer                  contributions                           |   |                              | 7,812   |   |   | 7,812 |   |
| Benefits                  paid                                    |   |                              | -       |   |   | - |   |
| Fair                  value of plan assets at end of year         |   | $                                 | 20,400  |   | $ | 12,196 |   |
|                                                              |   |                              |    |   |   |   |   |
| Funded                  Status                                    |   |                              |    |   |   |   |   |
| Funded                  status at end of year                     |   | $                                 | (19,194 | ) | $ | (50,649 | ) |
| Unrecognized                  net actuarial loss                  |   |                              | 10,101  |   |   | 13,989 |   |
| Unrecognized                  prior service cost                  |   |                              | (24,822 | ) |   | (1,600 | ) |
| Net                  liability recognized at December 31          |   | $                                 | (33,915 | ) | $ | (38,260 | ) |
|                                                              |   |                              |    |   |   |   |   |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

|                                                              |   | **Post-acquisition**  |   |
|-------------------------------------------------------------------|--------|----------------------------|--------|
| **As                  of December 31**                            |   | **2005**                   |   | **2004** |   | **2003** |   |
|                                                              |   |                       |   |   |   |   |   |
| Discount                  rate                                    |   | 5.50%                      |   | 5.75% |   | 6.25% |   |
| Rate                  of compensation increase                    |   | N/A                        |   | N/A |   | N/A |   |
|                                                              |   |                       |   |   |   |   |   |
| Health                  care cost trend rates:                    |   |                       |   |   |   |   |   |
| Medical                  (graded to 4.65% and 4.75% by            |   |                       |   |   |   |   |   |
| year                  2012 for years 2005 and 2004, respectively) |   | 12.00%                     |   | 13.00% |   | 14.00% |   |
| Dental                                                            |   | N/A                        |   | N/A |   | 8.00% |   |

|                                                |   | **Post-acquisition**              |   |
|-----------------------------------------------------|--------|-----------------------------------|--------|
|                                                |   | **Year                  Ended**   |   | **Year                  Ended** |   | **June                  12 -** |   |
|                                                |   | **December                  31,** |   | **December                  31,** |   | **December                  31,** |   |
| **OPEB**                                            |   | **2005**                          |   | **2004** |   | **2003** |   |
|                                                |   | (In                  thousands)   |   |
|                                                |   |                              |   |   |   |   |   |
| Service                  cost                       |   | $                                 | 2,264  |   | $ | 2,327 |   | $ | 1,302 |   |
| Interest                  cost                      |   |                              | 2,926  |   |   | 3,004 |   |   | 1,425 |   |
| Expected                  return on plan assets     |   |                              | (891   | ) |   | (425 | ) |   | - |   |
| Amortization                  of prior service cost |   |                              | (1,077 | ) |   | - |   |   | - |   |
| Recognized                  actuarial loss          |   |                              | 231    |   |   | - |   |   | - |   |
|                                                |   |                              |   |   |   |   |   |   |   |   |
| Net                  periodic benefit cost          |   | $                                 | 3,453  |   | $ | 4,906 |   | $ | 2,727 |   |
|                                                |   |                              |   |   |   |   |   |   |   |   |

| **Post-acquisition**                                       |   |  **Post-acquisition** |
|------------------------------------------------------------|--------|----------------------------|
| **Period                  Ended December 31**              |   | **2005**                   |   | **2004** |   | **2003** |
|                                                       |   |                       |   |   |   |   |
| Discount                  rate                             |   | 5.75%                      |   | 6.25% |   | 6.00% |
| Rate                  of compensation increase             |   | N/A                        |   | N/A |   | N/A |
| Expected                  long-term return on plan assets: |   |                       |   |   |   |   |
| a.                  Union VEBA rate                        |   | 7.00%                      |   | 7.00% |   | N/A |
| b.                  Non union VEBA rate                    |   | 5.00%                      |   | 5.00% |   | N/A |
|                                                       |   |                       |   |   |   |   |
| Health                  care cost trend rates:             |   |                       |   |   |   |   |
| Medical                  (graded to 4.75% by year 2012)    |   | 12.00%                     |   | 13.00% |   | 13.00% |
| Dental                  (graded to 4.75% by year 2012)     |   | N/A                        |   | 8.00% |   | 8.00% |

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

|                                                                  |   | **One                  Percentage** |   | **One                  Percentage** |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|--------|-------------------------------------|--------|
|                                                                  |   | **Point                  Increase** |   | **Point                  Decrease** |   |
|                                                                  |   | (In                  thousands)     |   |
|                                                                  |   |                                |   |                                |   |
| Effect                  on total service and interest cost components |   | $                                   | 848    |                                | $      | (660 | ) |
| Effect                  on postretirement benefit obligation          |   | $                                   | 8,063  |                                | $      | (6,364 | ) |
|                                                                  |   |                                |   |                                |   |   |   |

***Discount      Rate Selection.***

***Plan      Asset Information***

|                                       |   |        |   | **December                  31,  **  |   |
|--------------------------------------------|--------|--------|--------|------------------------------------------------|--------|
|                                       |   |   |   | **2005**                                       |   | **2004** |   |
| Equity                  securities         |   |   |   |                                           |   | 0 | % |   | 0 | % |
| Debt                  securities           |   |   |   |                                           |   | 0 | % |   | 0 | % |
| Cash                  and cash equivalents |   |   |   |                                           |   | 100 | % |   | 100 | % |
| Total                                      |   |   |   |                                           |   | 100 | % |   | 100 | % |
|                                       |   |   |   |                                           |   |   |   |   |   |   |

***Cash      Flow Information***

|   **Year**                   | ** ** | **Expected                Benefit Before Effect of Medicare Part D** | ** ** |  **Payments                Medicare Part D** | ** ** |   **Net** |   |
|----------------------------------------|------------|----------------------------------------------------------------------|------------|---------------------------------------------------|------------|---------------------|--------|
|  2006                             |       | $                                                                    | 42,534     |                                              | $          | 0                   |   | $ | 42,534 |   |
| 2007                                   |       |                                                                 | 81,276     |                                              |       | 0                   |   |   | 81,276 |   |
| 2008                                   |       |                                                                 | 171,806    |                                              |       | 0                   |   |   | 171,806 |   |
| 2009                                   |       |                                                                 | 334,306    |                                              |       | 0                   |   |   | 334,306 |   |
| 2010                                   |       |                                                                 | 623,217    |                                              |       | 3,899               |   |   | 619,318 |   |
| Years                2011 through 2015 |       |                                                                 | 11,147,149 |                                              |       | 198,522             |   |   | 10,948,627 |   |

***Vacation      Plan Change.***

***Recently      Enacted Legislation.***

***Stock      Options.***
*2003      Plan) *
*Note      2 - Summary of Significant Accounting Policies and Other Matters - Stock Based      Compensation*

----

**PANHANDLE      EASTERN PIPE LINE COMPANY, LP**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

|                                           |   | **2003                  Plan**    |    |                                |   |
|------------------------------------------------|--------|-----------------------------------|---------|-------------------------------------|--------|
|                                           |   |                              |    | **Weighted**                        |   |
|                                           |   | **Shares                  Under** |    | **Average**                         |   |
|                                           |   | **Option**                        |    | **Exercise                  Price** |   |
|                                           |   |                              |    |                                |   |
| Outstanding                  December 31, 2003 |   |                              | -       |                                |   |   |   |
| Granted                                        |   |                              | 254,708 |                                | $      | 16.83 |   |
| Exercised                                      |   |                              | -       |                                |   |   |   |
| Canceled                                       |   |                              | (31,423 | )                                   |   | 16.83 |   |
|                                           |   |                              |    |                                |   |   |   |
| Outstanding                  December 31, 2004 |   |                              | 223,285 |                                | $      | 16.83 |   |
|                                           |   |                              |    |                                |   |   |   |
| Granted                                        |   |                              | 177,991 |                                | $      | 22.90 |   |
| Exercised                                      |   |                              | (31,425 | )                                   | $      | 16.83 |   |
| Canceled                                       |   |                              | (8,821  | )                                   |   | 16.83 |   |
|                                           |   |                              |    |                                |   |   |   |
| Outstanding                  December 31, 2005 |   |                              | 361,030 |                                | $      | 19.82 |   |
|                                           |   |                              |    |                                |   |   |   |

**15.      Quarterly Financial Data (Unaudited) **

|                               |       | **First**                                   |                                                                                                          | **Second**  |       |  **Third**   |       | **Fourth**  |        |       |       |
|------------------------------------|------------|---------------------------------------------|---------------------------------------------------------------------------------------------------------------|-------------|------------|-------------------|------------|-------------|-------------|------------|------------|
|                               |       | **Quarter**                                 |                                                                                                          | **Quarter** |       |  **Quarter** |       | **Quarter** |        | **Total**  |       |
|                               |       | (In                  thousands)   |                                                                                                          |
| **2005**                           |       |                                        |                                                                                                          |        |       |         |       |        |        |       |       |
| Operating                  revenue |       | $                                           | 135,400                                                                                                       |        | $          | 110,421           |       | $           | 115,945     |       |       | 143,467 |   | $ | 505,233 |   |
| Operating                  income  |       |                                        | 62,514                                                                                                        |        |       | 40,395            |       |        | 46,109      |       |       | 61,387 |   |   | 210,405 |   |
| Net                  earnings      |       |                                        | 31,470                                                                                                        |        |       | 18,670            |       |        | 21,470      |       |       | 29,952 |   |   | 101,562 |   |
|                               |       |                                        |                                                                                                          |        |       |              |       |        |        |       |       |   |   |   |   |   |
|                               |       |                                        |                                                                                                          |        |       |              |       |        |        |       |       |   |   |   |   |   |
|                                    |       |                                        | **First **                                                                                               | ** **  | ** ** | **Second**        | ** ** | ** **  | **Third**   | ** ** | ** ** | **Fourth** | ** ** | ** ** | ** ** | ** ** |
|                               | ** ** | ** **                                  | **Quarter **                                                                                             | ** **  | ** ** | **Quarter**       | ** ** | ** **  | **Quarter** | ** ** | ** ** | **Quarter** |   |   | **Total** |   |
|                               |       |                                        | (In                  thousands)              |        |
| **2004**                           |       |                                        |                                                                                                          |        |       |              |       |        |        |       |       |   |   |   |   |   |
| Operating                  revenue |       | $                                           | 138,169                                                                                                       |        | $          | 108,251           |       |  $     | 109,264     |       |  $    | 133,480 |   | $ | 489,164 |   |
| Operating                  income  |       |                                        | 65,771                                                                                                        |        |       | 34,117            |       |        | 37,917      |       |       | 52,204 |   |   | 190,009 |   |
| Net                  earnings      |       |                                        | 33,057                                                                                                        |        |       | 14,144            |       |        | 16,056      |       |       | 24,676 |   |   | 87,933 |   |
|                               |       |                                        |                                                                                                          |        |       |              |       |        |        |       |       |   |   |   |   |   |

----

**PANHANDLE        EASTERN PIPE LINE COMPANY, LP**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**16.      Subsequent Event**

*SRES)*

----

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

----

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

----