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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
                                   (Mark One)

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
       EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998
               or
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the transition period from                 to   

COMMISSION FILE NUMBER 1-2921

                       PANHANDLE EASTERN PIPE LINE COMPANY
             (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
<S>                                                               <C>       
                           DELAWARE                                            44-0382470
(State or other jurisdiction of incorporation or organization)    (I.R.S. Employer Identification No.)
            5400 WESTHEIMER COURT, HOUSTON, TEXAS                              77056-5310
           (Address of principal executive offices)                            (Zip Code)
</TABLE>

                                  713-627-5400
              (Registrant's telephone number, including area code)


           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                                     NAME OF EACH EXCHANGE
             TITLE OF EACH CLASS                      ON WHICH REGISTERED
             -------------------                      -------------------

          7.95% Debentures Due 2023          The  New  York Stock Exchange, Inc.


           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                                 TITLE OF CLASS
                                 --------------
                                      None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes (X) No ( )

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)

The Registrant meets the conditions set forth in General Instructions (I)(1)(a)
and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced
disclosure format. Items 4, 6, 10, 11, 12 and 13 have been omitted and Item 7
has been reduced in accordance with such Instruction I.

All of the Registrant's common shares are indirectly owned by Duke Energy
Corporation (File No. 1-4928), which files reports and proxy materials pursuant
to the Securities Exchange Act of 1934.

Estimated aggregate market value of the voting stock held by nonaffiliates of
the registrant at February 26, 1999.........................................none

Number of shares of Common Stock, without par value, outstanding at
February 26, 1999..........................................................1,000

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<PAGE>
                             PANHANDLE EASTERN PIPE LINE COMPANY
                        FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998
                                      TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM                                                                               PAGE
----                                                                               ----
                                           PART I.
<S>                                                                                  <C>
1.  Business..........................................................................1
        General.......................................................................1
        Natural Gas Transmission......................................................1
        Competition...................................................................2
        Regulation....................................................................2
        Environmental Matters.........................................................3
        Other Matters.................................................................3
2.  Properties........................................................................3
3.  Legal Proceedings.................................................................3


                                           PART II.

5.  Market for Registrant's Common Equity and Related Stockholder Matters.............4
7.  Management's Discussion and Analysis of Results of Operations and Financial   
    Condition.........................................................................4
7A. Quantitative and Qualitative Disclosures About Market Risk........................8
8.  Financial Statements and Supplementary Data.......................................9
9.  Changes in and Disagreements with Accountants on Accounting and Financial
    Disclosure.......................................................................26

                                           PART IV.

14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 26
    Signatures.......................................................................27
    Exhibit Index....................................................................28
</TABLE>

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

From time to time, the Company may make statements regarding its assumptions,
projections, expectations, intentions or beliefs about future events. These
statements are intended as "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. The Company cautions that assumptions,
projections, expectations, intentions or beliefs about future events may and
often do vary from actual results, and the differences between assumptions,
projections, expectations, intentions or beliefs and actual results can be
material. Accordingly, there can be no assurance that the actual results will
not differ materially from those expressed or implied by the forward-looking
statements. For a discussion of some factors that could cause actual
achievements and events to differ materially from those expressed or implied in
such forward-looking statements, see "Management's Discussion and Analysis of
Results of Operations and Financial Condition, Current Issues - Forward-Looking
Statements."

                                       i
<PAGE>

                                           PART I.

ITEM 1. BUSINESS.

GENERAL

Panhandle Eastern Pipe Line Company (PEPL) is a wholly owned subsidiary of
PanEnergy Corp (PanEnergy), which is an indirect wholly owned subsidiary of Duke
Energy Corporation (Duke Energy). PEPL was incorporated in Delaware in 1929.
PEPL and its subsidiaries (the Company) are primarily engaged in the interstate
transportation and storage of natural gas. The interstate natural gas
transmission and storage operations of the Company are subject to the rules and
regulations of the Federal Energy Regulatory Commission (FERC).

PanEnergy and Texas Eastern Corporation (TEC), a subsidiary of PanEnergy,
entered into an agreement to sell PEPL, Trunkline Gas Company (Trunkline), a
subsidiary of PEPL, and additional storage related to those systems, along with
Trunkline LNG Company, a subsidiary of TEC, to CMS Energy Corporation (CMS
Energy). The sales price of $2.2 billion involves cash proceeds of $1.9 billion
and existing PEPL debt of approximately $300 million. Certain assets and
liabilities, such as the Houston office building, certain environmental, legal
and tax liabilities, and substantially all intercompany balances, will be
retained by PanEnergy and TEC. The sale is contingent upon receipt of clearances
under the Hart-Scott-Rodino Act. Closing is expected in early 1999.

Executive offices of the Company are located at 5400 Westheimer Court, Houston,
Texas 77056-5310, and the telephone number is (713) 627-5400.

NATURAL GAS TRANSMISSION

The Company's throughput volumes for the years 1994 to 1998 were 1,186 TBtu,
1,182 TBtu, 1,319 TBtu, 1,279 TBtu and 1,141 TBtu, respectively. A substantial
majority of delivered volumes of the Company's interstate pipelines represents
gas transported under long-term firm service agreements with local distribution
company (LDC) customers in the pipelines' market areas. Firm transportation
services are also provided under contract to gas marketers, producers, other
pipelines, electric power generators and a variety of end-users. In addition,
the pipelines offer both firm and interruptible transportation to customers on a
short-term or seasonal basis. Demand for gas transmission on the Company's
pipeline systems is seasonal, with the highest throughput occurring during the
colder periods in the first and fourth quarters.

<TABLE>
<CAPTION>
--------------------------------- ----------------------------------------------------------
NATURAL GAS TRANSMISSION                          YEARS ENDED DECEMBER 31,
--------------------------------- ----------------------------------------------------------
<S>                                  <C>         <C>        <C>         <C>         <C> 
                                     1998        1997       1996        1995        1994
                                  ----------- ----------- ---------- ----------- -----------
Throughput Volumes - TBtu A
      PEPL                             560         659         687        663         626
      Trunkline                        581         620         632        519         560
                                  ----------- ----------- ---------- ----------- -----------
         Total                       1,141       1,279       1,319      1,182       1,186
================================= =========== =========== ========== =========== ===========
</TABLE>
A   Trillion British thermal units

PEPL's major customers include 20 utilities located in the Midwest market area
that encompasses large portions of Michigan, Ohio, Indiana, Illinois and
Missouri. Trunkline's major customers include eight utilities located in
portions of Tennessee, Missouri, Illinois, Indiana and Michigan.

PEPL also owns and operates three underground storage fields located in
Illinois, Michigan and Oklahoma with working gas capacity of 31 Bcf. PEPL has
received FERC approval to transfer these storage fields to its subsidiary, Pan
Gas Storage Company (Pan Gas) and has filed for an effective transfer date of
April 1, 1999. Pan Gas is also the owner and operator of a 26 Bcf storage field
in Kansas. Trunkline owns and operates one 13 Bcf storage field in Louisiana.
Since the implementation of Order 636, PEPL, Trunkline



                                       1
<PAGE>

and Pan Gas each provide firm and interruptible storage on an open-access basis.
In addition to owning and operating storage fields, PEPL also leases storage
capacity. PEPL and Trunkline have retained the right to use up to 15 Bcf and 10
Bcf, respectively, of their storage capacity for system needs.

During 1998, sales to ProLiance Energy, L.L.C. accounted for approximately 10%
of consolidated revenues of the Company. During 1997, sales to ProLiance Energy,
L.L.C. and Consumers Energy Company, a subsidiary of CMS Energy, each accounted
for approximately 10% of consolidated revenues of the Company. In 1996, no
single customer accounted for 10% or more of consolidated revenues. No other
customer accounted for 10% or more of consolidated revenues during 1998, 1997 or
1996.

COMPETITION

The Company's interstate pipelines compete with other interstate and intrastate
pipeline companies in the transportation and storage of natural gas. The
principal elements of competition among pipelines are rates, terms of service
and flexibility and reliability of service. The Company competes directly with
ANR Pipeline Company, Natural Gas Pipeline Company of America and Texas Gas
Transmission Corporation in the Midwest market area.

Natural gas competes with other forms of energy available to the Company's
customers and end-users, including electricity, coal and fuel oils. The primary
competitive factor is price. Changes in the availability or price of natural gas
and other forms of energy, the level of business activity, conservation,
legislation and governmental regulations, the capability to convert to
alternative fuels, and other factors, including weather, affect the demand for
natural gas in the areas served by the Company.

REGULATION

The FERC has authority to regulate rates and charges for natural gas transported
in or stored for interstate commerce or sold by a natural gas company in
interstate commerce for resale. The FERC also has authority over the
construction and operation of pipeline and related facilities utilized in the
transportation and sale of natural gas in interstate commerce, including the
extension, enlargement or abandonment of such facilities. PEPL, Trunkline and
Pan Gas hold certificates of public convenience and necessity issued by the
FERC, authorizing them to construct and operate the pipelines, facilities and
properties now in operation for which such certificates are required, and to
transport and store natural gas in interstate commerce. For further discussion
of regulatory matters, see Note 3 to the Consolidated Financial Statements,
"Regulatory Matters."

The Company's pipelines operate as open-access transporters of natural gas. In
1992, the FERC issued Order 636, which requires open-access pipelines to provide
firm and interruptible transportation services on an equal basis for all gas
supplies, whether purchased from the pipeline or from another gas supplier. To
implement this requirement, Order 636 provided, among other things, for
mandatory unbundling of services that historically had been provided by
pipelines into separate open-access transportation, sales and storage services.
Order 636 allows pipelines to recover eligible costs, known as "transition
costs," resulting from the implementation of Order 636. 

Regulation of the importation and exportation of natural gas is vested in the
Secretary of Energy, who has delegated various aspects of this jurisdiction to
Office of Fossil Fuels of the Department of Energy.

The Company is also subject to the Natural Gas Pipeline Safety Act of 1968,
which regulates gas pipeline safety requirements, and to the Hazardous Liquid
Pipeline Safety Act of 1979, which regulates oil and petroleum pipelines.


                                       2
<PAGE>

ENVIRONMENTAL MATTERS

The Company is subject to federal, state and local regulations with regard to
air and water quality, hazardous and solid waste disposal and other
environmental matters. Certain environmental regulations affecting the Company
include, but are not limited to:

o   The Clean Air Act Amendments of 1990;
o   The Comprehensive Environmental Response, Compensation and Liability Act
    (CERCLA), which can require any individual or entity which may have owned or
    operated a disposal site, as well as transporters or generators of hazardous
    wastes which were sent to such site, to share in remediation costs for the
    site.

For further discussion of environmental matters involving the Company, including
possible liability and capital costs, see "Management's Discussion and Analysis
of Results of Operations and Financial Condition, Current Issues -
Environmental" and Note 11 to the Consolidated Financial Statements,
"Commitments and Contingencies - Environmental." Compliance with federal, state
and local provisions regulating the discharge of materials into the environment,
or otherwise protecting the environment, is not expected to have a material
adverse effect on the competitive position, consolidated results of operations
or financial position of the Company.

OTHER MATTERS

Foreign operations and export sales were not material to the Company's business
as a whole.

At December 31, 1998, the Company had approximately 1,000 employees.
Approximately 350 employees were represented by the Oil, Chemical and Atomic
Workers International Union, AFL-CIO.

ITEM 2. PROPERTIES.

The Company owns approximately 10,400 miles of interstate pipeline systems.
PEPL's natural gas transmission system, which consists of four large-diameter
parallel pipelines and 13 mainline compressor stations, extends a distance of
approximately 1,300 miles from producing areas in the Anadarko Basin of Texas,
Oklahoma and Kansas through the states of Missouri, Illinois, Indiana and Ohio
into Michigan. Trunkline's transmission system extends approximately 1,400 miles
from the Gulf Coast areas of Texas and Louisiana through the states of Arkansas,
Mississippi, Tennessee, Kentucky, Illinois and Indiana to a point on the
Indiana-Michigan border. The system consists principally of three large-diameter
parallel pipelines, 18 mainline compressor stations and one offshore compressor
platform.

Trunkline also owns and operates two offshore Louisiana gas supply systems
consisting of 337 miles of pipeline extending approximately 81 miles into the
Gulf of Mexico.

For information concerning natural gas storage properties, see "Business,
Natural Gas Transmission."

ITEM 3. LEGAL PROCEEDINGS.

The Illinois Environmental Protection Agency has indicated that it intends to
initiate an environmental enforcement proceeding relating to alleged air quality
permit violations at a natural gas compressor station. This proceeding could
result in a penalty in excess of $100,000. Under the terms of the agreement with
CMS Energy, penalties incurred related to this proceeding will be retained by
PanEnergy. Management believes that the resolution of this matter will not have
a material adverse effect on consolidated results of operations or financial
position.

                                       3
<PAGE>

See Note 11 to the Consolidated Financial Statements, "Commitments and
Contingencies" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition, Current Issues - Environmental" for further
discussion of legal proceedings.


                                    PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

All of the Company's outstanding common stock, without par value, is owned by
PanEnergy. In 1998 and 1997, PEPL declared dividends on common stock of $34
million and $75 million, respectively.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.

INTRODUCTION

Panhandle Eastern Pipe Line Company (PEPL) is a wholly owned subsidiary of
PanEnergy Corp (PanEnergy), which is an indirect wholly owned subsidiary of Duke
Energy Corporation (Duke Energy). PEPL and its subsidiaries (the Company) are
primarily engaged in the interstate transportation and storage of natural gas.
The interstate natural gas transmission and storage operations of the Company
are subject to the rules and regulations of the Federal Energy Regulatory
Commission (FERC).

PanEnergy and Texas Eastern Corporation (TEC), a subsidiary of PanEnergy,
entered into an agreement to sell PEPL, Trunkline Gas Company, a subsidiary of
PEPL, and additional storage related to those systems, along with Trunkline LNG
Company, a subsidiary of TEC, to CMS Energy Corporation (CMS Energy). The sales
price of $2.2 billion involves cash proceeds of $1.9 billion and existing PEPL
debt of approximately $300 million. Certain assets and liabilities, such as the
Houston office building, certain environmental, legal and tax liabilities, and
substantially all intercompany balances, will be retained by PanEnergy and TEC.
The sale is contingent upon receipt of clearances under the Hart-Scott-Rodino
Act. Closing is expected in early 1999.

The following information is provided to facilitate increased understanding of
the 1998 and 1997 consolidated financial statements and accompanying notes of
the Company, and should be read in conjunction therewith. Because all of the
outstanding common stock of PEPL is indirectly owned by Duke Energy, the
following discussion has been prepared in accordance with the reduced disclosure
format permitted by Form 10-K for issuers that are wholly owned subsidiaries of
reporting companies under the Securities Exchange Act of 1934 set forth in
General Instruction I (1)(a) and (b) for Form 10-K.

RESULTS OF OPERATIONS

Revenues decreased $38 million in 1998 from the prior year, primarily due to the
favorable resolution of certain regulatory matters in 1997, which was reflected
as additional revenue and other income. Also contributing to the decrease in
revenues was lower transportation throughput in 1998 compared to 1997.

Total operating expenses decreased $44 million in 1998 from the prior year due
primarily to non-recurring litigation expenses recorded in 1997 and lower
regulatory asset amortization expense in 1998. In 1998, other income and
expenses increased $18 million compared to 1997, primarily as a result of a gain
on the sale of certain of the Company's general partnership interests.

In 1998, interest expense increased 5.5% compared to 1997 as a result of higher
average outstanding short term notes payable-parent.

The combined effect of the foregoing resulted in a 13.8% increase in net income
in 1998 compared to 1997.

                                       4
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Capital and investment expenditures for 1998 and 1997 were $85 million and $105
million, respectively. This decrease is primarily due to 1997 expenditures
related to the Terrebonne business expansion project. In July 1997, the FERC
approved Trunkline's expansion of the Terrebonne system which expands natural
gas production in the Gulf of Mexico.

The Company plans to actively maintain its facilities and also pursue business
expansion as opportunities arise. Projected 1999 capital and investment
expenditures, including allowance for funds used during construction, are
approximately $65 million, of which approximately $50 million relates to
companies expected to be sold to CMS Energy. These projections are subject to
periodic review and revision. Actual expenditures incurred may vary from
estimates due to various factors, including business expansion opportunities and
environmental matters. Expenditures for 1999 are expected to be funded by cash
from operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK. The Company is exposed to risk resulting from changes in
interest rates as a result of its issuance of variable-rate debt and fixed-rate
debt. The Company manages its interest rate exposure by limiting its
variable-rate and fixed-rate exposure to a certain percentage of total
capitalization, as set by policy, and by monitoring the effects of market
changes in interest rates. (See Notes 8 and 9 to the Consolidated Financial
Statements.) All of the Company's variable-rate debt is due to PanEnergy.

If market interest rates average 1% higher (lower) in 1999 than in 1998, the
Company's intercompany interest expense would increase (decrease), and earnings
before income taxes would decrease (increase) by approximately $7 million. This
amount was determined by considering the impact of the hypothetical interest
rates on the Company's variable-rate debt balances outstanding as of December
31, 1998. In the event of a significant change in interest rates, management
would likely take actions to manage its exposure to the change. However, due to
the uncertainty of the specific actions that would be taken and their possible
effects, the sensitivity analysis assumes no changes in the Company's financial
structure.

CURRENT ISSUES

OPERATIONS OUTLOOK. The market for transmission of natural gas to the Midwest is
increasingly competitive, and may become more so in light of projects in
progress to increase Midwest transmission capacity for gas originating in Canada
and the Rocky Mountain region. Therefore, limited opportunities for growth exist
for the Company's natural gas transmission operations. The Company continues to
offer selective discounting to maximize revenues from existing capacity and to
advance projects that provide expanded services to meet the specific needs of
customers.

COMPETITION. WHOLESALE. Currently, the interstate natural gas transmission
industry is regulated on a basis designed to recover the costs of providing
services to customers. (See Note 2 to the Consolidated Financial Statements for
further discussion of cost-based regulation.) On July 29, 1998, the FERC issued
a Notice of Proposed Rulemaking (NOPR) on short-term natural gas transportation
services, which proposed an integrated package of revisions to its regulations
governing interstate natural gas pipelines. "Short term" has been defined in the
NOPR as all transactions of less than one year. Under the proposed approach,
cost-based regulation would be eliminated for short-term transportation and
replaced by regulatory policies intended to maximize competition in the
short-term transportation market, mitigate the ability of companies to exercise
residual monopoly power and provide opportunities for greater flexibility
providing pipeline services. The proposed changes include initiatives to revise
pipeline scheduling procedures, receipt and delivery point policies and penalty
policies, and require pipelines to auction short-term capacity. Other


                                       5
<PAGE>

proposed changes would improve the FERC's reporting requirements, permit
pipelines to negotiate rates and terms of services, and revise certain rate and
certificate policies that affect competition.

In conjunction with the NOPR, the FERC also issued a Notice of Inquiry (NOI) on
its pricing policies in the existing long-term market and pricing policies for
new capacity. The FERC seeks comments on whether its policies are biased toward
either short-term or long-term service, provide accurate price signals and the
right incentives for pipelines to provide optimal transportation services and
construct facilities that meet future demand and do not result in over building
and excess capacity. Comments on the NOPR and NOI are due in April, 1999.

Because these notices are at a very early stage and ultimate resolution is
unknown, management cannot estimate the effects of these matters on future
consolidated results of operations or financial position.

RETAIL COMPETITION. The Company currently does not provide retail natural gas
service, but changes in regulation to allow retail competition could affect the
Company's natural gas transportation contracts with local distribution
companies. Natural gas retail deregulation is in the very early stages of
development and management cannot estimate the effects of this matter on future
consolidated results of operations or financial position.

ENVIRONMENTAL MATTERS. The Company is subject to federal, state and local
regulations regarding air and water quality, hazardous and solid waste disposal
and other environmental matters.

SUPERFUND SITES. The Company is considered by regulators to be a potentially
responsible party and may be subject to future liability at three federal
Superfund sites. The Company will share in any liability associated with
remediation of contamination at these sites with other potentially responsible
parties. Management believes that resolution of these matters will not have a
material adverse effect on consolidated results of operations or financial
position. Under the terms of the agreement with CMS Energy, liability
related to two of these sites will be retained by PanEnergy.

PCB (POLYCHLORINATED BIPHENYL) ASSESSMENT AND CLEAN-UP PROGRAMS. The Company has
identified environmental contamination at certain sites on its systems and has
undertaken clean-up programs at these sites. The contamination resulted from the
past use of lubricants in compressed air systems containing PCBs and the prior
use of wastewater collection facilities and other on-site disposal areas. Soil
and sediment testing, to date, has detected no significant off-site
contamination. The Company has communicated with the Environmental Protection
Agency (EPA) and appropriate state regulatory agencies on these matters.
Environmental clean-up programs are expected to continue until 2001. Under the
terms of the agreement with CMS Energy, PanEnergy is obligated to complete
clean-up programs at certain agreed-upon sites.

At December 31, 1998 and 1997, remaining estimated clean-up costs for the
Company's systems were accrued and were included in the Consolidated Balance
Sheets as Other Current Liabilities and Deferred Credits and Other Liabilities.
These cost estimates represent gross clean-up costs expected to be incurred,
have not been discounted or reduced by customer recoveries and generally do not
include fines, penalties or third-party claims. Costs expected to be recovered
from customers are included in the Consolidated Balance Sheets as of December
31, 1998 and 1997 as Regulatory Assets.

The federal and state clean-up programs are not expected to interrupt or
diminish the Company's ability to deliver natural gas to customers. Based on the
Company's experience to date and costs incurred for clean-up operations,
management believes the resolution of matters relating to the environmental
issues discussed above will not have a material adverse effect on consolidated
results of operations or financial position.

AIR QUALITY CONTROL. In December 1997, the United Nations held negotiations in
Kyoto, Japan to determine how to achieve worldwide stabilization of greenhouse
gas emissions, including methane from natural gas operations. Further
negotiations in November 1998 in Buenos Aires, Argentina, resulted in a work
plan to


                                       6
<PAGE>

complete the operational details of the Kyoto agreement by late 2000. The
Company is taking steps to prepare for possible action on greenhouse gas
emissions and has completed a greenhouse gas emissions inventory. Implications
of greenhouse gas emissions are being integrated into planning processes.
Because this matter is in the early stages of discussion, management cannot
estimate the effects on future consolidated results of operations or financial
position.

LITIGATION AND CONTINGENCIES. For information concerning litigation and other
commitments and contingencies, see Note 11 to the Consolidated Financial
Statements.

COMPUTER SYSTEMS CHANGES FOR THE YEAR 2000. STATE OF READINESS. In 1996, the
Company initiated its Year 2000 Readiness Program and began a formal review of
computer-based systems and devices that are used in its business operations.
These systems and devices include customer information, financial, materials
management and personnel systems, as well as components of natural gas
production, gathering, processing and transmission.

The Company is using a three-phase approach to address year 2000 issues: 1)
inventory and preliminary assessment of computer systems, equipment and devices;
2) detailed assessment and remediation planning; and 3) conversion, testing and
contingency planning. The Company is employing a combination of systems repair
and planned systems replacement activities to achieve year 2000 readiness for
its business and process control systems, equipment and devices. The Company has
substantially completed the first two phases throughout its business operations,
and is in various stages of the third and final phase. The Company's goal is to
have its critical systems, equipment and devices year 2000 ready by mid-1999.
Business acquisitions routinely involve an analysis of year 2000 readiness and
are incorporated into the Company's overall program as necessary.

The Company is actively evaluating and tracking year 2000 readiness of external
third parties with which it has a material relationship. Such third parties
include vendors, customers, governmental agencies and other business associates.
While the year 2000 readiness of third parties cannot be controlled, the Company
is attempting to assess the readiness of third parties and any potential
implications to its operations. Alternate suppliers of critical products, goods
and services are being identified, where necessary.

COSTS. Management believes it is devoting the resources necessary to achieve
year 2000 readiness in a timely manner. Current estimates for total costs of the
program, including internal labor as well as incremental costs such as
consulting and contract costs, are approximately $1 million. These costs exclude
replacement systems that, in addition to being year 2000 ready, provide
significantly enhanced capabilities which will benefit operations in future
periods.

RISKS. Management believes it has an effective program in place to manage the
risks associated with the year 2000 issue in a timely manner. Nevertheless,
since it is not possible to anticipate all future outcomes, especially when
third parties are involved, there could be circumstances in which the Company
would temporarily be unable to deliver services to its customers. Management
believes that the most reasonably likely worst case scenario would be small,
localized interruptions of service, which likely would be rapidly restored. In
addition, there could be a temporary reduction in the service needs of customers
due to their own year 2000 problems. In the event that such a scenario occurs,
it is not expected to have a material adverse impact on consolidated results of
operations or financial position.

CONTINGENCY PLANS. Year 2000 contingency planning is currently underway to
assure continuity of business operations for all periods during which year 2000
impacts may occur. The Company intends to complete its year 2000 contingency
plans by mid-1999. These plans address various year 2000 risk scenarios that
cross departmental, business unit and industry lines as well as specific risks
from various internal and external sources, including supplier readiness.

Based on assessments completed to date and compliance plans in process,
management believes that year 2000 issues, including the cost of making critical
systems, equipment and devices ready, will not have a


                                       7
<PAGE>

material adverse effect on the Company's business operation or consolidated
results of operations or financial position. Nevertheless, achieving year 2000
readiness is subject to risks and uncertainties, including those described
above. While management believes the possibility is remote, if the Company's
internal systems, or the internal systems of external parties, fail to achieve
year 2000 readiness in a timely manner, the Company's business, consolidated
results of operations or financial condition could be adversely affected.

NEW ACCOUNTING STANDARD. In September 1998, Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. The Company is required to adopt this standard by
January 1, 2000. SFAS No. 133 requires that all derivatives be recognized as
either assets or liabilities and measured at fair value, and it defines the
accounting for changes in the fair value of the derivatives depending on the
intended use of the derivative. The Company is currently reviewing the expected
impact of SFAS No. 133 on consolidated results of operations and financial
position.

FORWARD-LOOKING STATEMENTS. From time to time, the Company may make statements
regarding its assumptions, projections, expectations, intentions or beliefs
about future events. These statements are intended as "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. The
Company cautions that assumptions, projections, expectations, intentions or
beliefs about future events may and often do vary from actual results and the
differences between assumptions, projections, expectations, intentions or
beliefs and actual results can be material. Accordingly, there can be no
assurance that actual results will not differ materially from those expressed or
implied by the forward-looking statements. Factors that could cause actual
achievements and events to differ materially from those expressed or implied in
such forward-looking statements include state and federal legislative and
regulatory initiatives that affect cost and investment recovery, have an impact
on rate structures and affect the speed and degree to which competition enters
the natural gas industry; the weather and other natural phenomena; the timing
and extent of changes in commodity prices and interest rates; changes in
environmental and other laws and regulations to which the Company is subject or
other external factors over which the Company has no control; the results of
financing efforts; growth in opportunities for the Company's subsidiaries;
achievement of year 2000 readiness; and the effect of accounting policies issued
periodically by accounting standard-setting bodies.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See "Management's Discussion and Analysis of Results of Operations and Financial
Condition, Quantitative and Qualitative Disclosures About Market Risk."


                                       8
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                     PANHANDLE EASTERN PIPE LINE COMPANY
                      CONSOLIDATED STATEMENTS OF INCOME
                                  (In millions)

                                                   Years Ended December 31,
                                                  -------------------------
                                                  1998      1997       1996
                                                  ----      ----       ----
OPERATING REVENUES
     Transportation and storage of natural gas    $ 468     $ 501      $ 510
     Other                                           28        33         29
                                                    ---       ---        ---
         Total operating revenues                   496       534        539
                                                    ---       ---        ---

OPERATING EXPENSES
     Operation and maintenance                      213       254        260
     Depreciation and amortization                   56        59         58
     Property and other taxes                        26        26         27
                                                    ---       ---        ---
         Total operating expenses                   295       339        345
                                                    ---       ---        ---

OPERATING INCOME                                    201       195        194

OTHER INCOME AND EXPENSES                            24         6          4
                                                    ---       ---        ---

EARNINGS BEFORE INTEREST AND TAXES                  225       201        198

INTEREST EXPENSE                                     77        73         62
                                                    ---       ---        ---

EARNINGS BEFORE INCOME TAXES                        148       128        136

INCOME TAXES                                         57        48         48
                                                    ---       ---        ---

NET INCOME                                         $ 91      $ 80       $ 88
                                                   ====      ====       ====


                 See Notes to Consolidated Financial Statements.

                                       9
<PAGE>

                       PANHANDLE EASTERN PIPE LINE COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (IN MILLIONS)

<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                                                                  ------------------------
<S>                                                                 <C>     <C>    <C> 
                                                                    1998    1997   1996
                                                                    ----    ----   ----
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                                                    $ 91    $ 80   $ 88
      Adjustments to reconcile net income to net cash provided by
          operating activities:
              Depreciation and amortization                           61      61     61
              Deferred income taxes                                   17       2    (88)
              Rate settlement                                          -     (70)    (9)
              (Increase) Decrease in
                  Receivables                                         12     (48)   (31)
                  Inventory                                          (17)      6     11
                  Other current assets                                15      11     (2)
              Increase (Decrease) in
                  Accounts payable                                    10      15     (3)
                  Taxes accrued                                      (19)    (10)     8
                  Other current liabilities                            3      35     23
              Other, net                                               1      24     48
                                                                    ----    ----   ----
                  Net cash provided by operating activities          174     106    106
                                                                    ----    ----   ----
CASH FLOWS FROM INVESTING ACTIVITIES
      Capital and investment expenditures                            (85)   (105)   (52)
      Net increase in advances receivable - parent                  (106)     (9)   (84)
      Proceeds from sales, retirements and other                      17       8     30
                                                                    ----    ----   ----
                  Net cash used in investing activities             (174)   (106)  (106)
                                                                    ----    ----   ----

      Net decrease in cash and cash equivalents                        -       -      -

      CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                 -       -      -
                                                                    ----    ----   ----
      CASH AND CASH EQUIVALENTS AT END OF PERIOD                     $ -     $ -    $ -
                                                                    ====    ====   ====
SUPPLEMENTAL DISCLOSURES
      Cash paid for interest (net of amount capitalized)            $ 78    $ 81   $ 62
      Cash paid for income taxes                                    $ 56    $ 65   $ 60
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                       10
<PAGE>

                       PANHANDLE EASTERN PIPE LINE COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                  (IN MILLIONS)

                                                           December 31,
                                                       -------------------
                                                         1998       1997
                                                       --------   --------
ASSETS

CURRENT ASSETS
      Receivables                                         $ 94      $ 106
      Inventory and supplies                                55         38
      Other                                                 31         48
                                                       --------   --------
          Total current assets                             180        192
                                                       --------   --------
INVESTMENTS AND OTHER ASSETS
      Advances and note receivable - parent                738        662
      Investment in affiliates                              44         47
      Other                                                  6          7
                                                       --------   --------
          Total investments and other assets               788        716
                                                       --------   --------
PROPERTY, PLANT AND EQUIPMENT
      Cost                                               2,777      2,734
      Less accumulated depreciation and amortization     1,798      1,776
                                                       --------   --------
          Net property, plant and equipment                979        958
                                                       --------   --------
REGULATORY ASSETS
      Debt expense                                          11         13
      Other                                                 15         22
                                                       --------   --------
          Total regulatory assets                           26         35
                                                       --------   --------
      TOTAL ASSETS                                     $ 1,973    $ 1,901
                                                       ========   ========

                 See Notes to Consolidated Financial Statements.

                                       11
<PAGE>

                       PANHANDLE EASTERN PIPE LINE COMPANY
                           CONSOLIDATED BALANCE SHEETS
                       (IN MILLIONS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                              --------------------
                                                                                1998       1997
                                                                              ---------   --------
<S>                                                                             <C>        <C> 
LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES
      Accounts payable                                                         $    56     $   46
      Notes payable - parent                                                       675        675
      Taxes accrued                                                                 58         77
      Interest accrued                                                               8          8
      Other                                                                        117        114
                                                                              ---------   --------
          Total current liabilities                                                914        920
                                                                              ---------   --------
LONG-TERM DEBT                                                                     299        299
                                                                              ---------   --------
DEFERRED CREDITS AND OTHER LIABILITIES
      Deferred income taxes                                                         99         82
      Other                                                                        103         99
                                                                              ---------   --------
          Total deferred credits and other liabilities                             202        181
                                                                              ---------   --------
COMMON STOCKHOLDER'S EQUITY
      Common stock, no par, 1,000 shares authorized, issued and outstanding          1          1
      Paid-in capital                                                              466        466
      Retained earnings                                                             91         34
                                                                              ---------   --------
          Total common stockholder's equity                                        558        501
                                                                              ---------   --------
      TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY                               $ 1,973    $ 1,901
                                                                              =========   ========
</TABLE>

                See Notes to Consolidated Financial Statements.

                                       12
<PAGE>

                       PANHANDLE EASTERN PIPE LINE COMPANY
             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
                                  (IN MILLIONS)


                                          Years Ended December 31,
                                         -------------------------
                                           1998     1997      1996
                                         ------   ------    ------

Common Stock
     Balance at beginning of year          $ 1      $ 1       $ 1

                                         ------   ------    ------
         BALANCE AT END OF YEAR              1        1         1
                                         ------   ------    ------

PAID-IN CAPITAL
     Balance at beginning of year          466      466       466
     Other                                   -        -         -
                                         ------   ------    ------
         BALANCE AT END OF YEAR            466      466       466
                                         ------   ------    ------

RETAINED EARNINGS
     Balance at beginning of year           34       29       141
     Net income                             91       80        88
     Common stock dividends                (34)     (75)     (200)
                                         ------   ------    ------
         BALANCE AT END OF YEAR             91       34        29
                                         ------   ------    ------

TOTAL COMMON STOCKHOLDER'S EQUITY        $ 558    $ 501     $ 496
                                         ======   ======    ======


                 See Notes to Consolidated Financial Statements.

                                       13
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


1. NATURE OF OPERATIONS

Panhandle Eastern Pipe Line Company (PEPL) is a wholly owned subsidiary of
PanEnergy Corp (PanEnergy), which is an indirect wholly owned subsidiary of Duke
Energy Corporation (Duke Energy). PEPL and its subsidiaries (the Company) are
primarily engaged in the interstate transportation and storage of natural gas.
The interstate natural gas transmission and storage operations of the Company
are subject to the rules and regulations of the Federal Energy Regulatory
Commission (FERC).

PanEnergy and Texas Eastern Corporation (TEC), a subsidiary of PanEnergy,
entered into an agreement to sell PEPL, Trunkline Gas Company (Trunkline), a
subsidiary of PEPL, and additional storage related to those systems, along with
Trunkline LNG Company, a subsidiary of TEC, to CMS Energy Corporation (CMS
Energy). The sales price of $2.2 billion involves cash proceeds of $1.9 billion
and existing PEPL debt of approximately $300 million. Certain assets and
liabilities, such as the Houston office building, certain environmental, legal
and tax liabilities, and substantially all intercompany balances, will be
retained by PanEnergy and TEC. The sale is contingent upon receipt of clearances
under the Hart-Scott-Rodino Act. Closing is expected in early 1999.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION. The consolidated financial statements include the accounts of all
of the Company's majority-owned subsidiaries after the elimination of
significant intercompany transactions and balances. Investments in other
entities that are not controlled by the Company, but where it has significant
influence over operations, are accounted for using the equity method.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge of current and
expected future events, actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS. All liquid investments with maturities at date of
purchase of three months or less are considered cash equivalents.

INVENTORY. Inventory consists of gas held for operations and materials and
supplies and is recorded at the lower of cost or market, primarily using the
weighted average cost method ($30 million and $20 million at December 31, 1998
and 1997, respectively) and the last-in first-out method ($25 million and $18
million at December 31, 1998 and 1997, respectively).

GAS IMBALANCES. Gas imbalances occur as a result of differences in volumes of
gas received and delivered. Gas imbalance receivables and payables are valued at
lower of cost or market.

PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
original cost. The Company capitalizes all construction-related direct labor and
material costs, as well as indirect construction costs. The cost of renewals and
betterments that extend the useful life of property, plant and equipment is also
capitalized. The cost of repairs and replacements is charged to expense as
incurred. Depreciation is generally computed using the straight-line method. The
composite weighted-average depreciation rates were 2.2%, 2.2% and 2.1% for
1998, 1997 and 1996, respectively.

                                       14
<PAGE>

When property, plant and equipment maintained by the Company's regulated
operations are retired, the original cost plus the cost of retirement, less
salvage, is charged to accumulated depreciation and amortization. When entire
regulated operating units are sold or non-regulated properties are retired or
sold, the property and related accumulated depreciation and amortization
accounts are reduced, and any gain or loss is recorded in income, unless
otherwise required by the FERC.

IMPAIRMENT OF LONG-LIVED ASSETS. The recoverability of long-lived assets and
intangible assets are reviewed whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. Such
evaluation is based on various analyses, including undiscounted cash flow
projections.

UNAMORTIZED DEBT PREMIUM, DISCOUNT AND EXPENSE. Premiums, discounts and expenses
incurred in connection with the issuance of presently outstanding long-term debt
are amortized over the terms of the respective issues. Any call premiums or
unamortized expenses associated with refinancing higher-cost debt obligations
used to finance regulated assets and operations are amortized consistent with
regulatory treatment of those items.

ENVIRONMENTAL EXPENDITURES. Environmental expenditures that relate to an
existing condition caused by past operations and do not contribute to current or
future revenue generation are expensed. Environmental expenditures relating to
current or future revenues are expensed or capitalized as appropriate.
Liabilities are recorded when environmental assessments and/or clean-ups are
probable and the costs can be reasonably estimated. Certain of these
environmental assessments and clean-up costs are expected to be recovered from
the Company's customers and have, therefore, been deferred and are included in
the Consolidated Balance Sheets as Regulatory Assets. (See Note 11 to the
Consolidated Financial Statements.)

COST-BASED REGULATION. The Company's regulated operations are subject to the
provisions of Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation." Accordingly,
certain assets and liabilities that result from the regulated ratemaking process
are recorded that would not be recorded under generally accepted accounting
principles for non-regulated entities. These regulatory assets and liabilities
are classified in the Consolidated Balance Sheets as Regulatory Assets and
Deferred Credits and Other Liabilities, respectively. The applicability of SFAS
No. 71 is routinely evaluated, and factors such as the impact of competition and
the necessity to discount cost based rates charged to customers are considered.
Increasing competition might require companies to reduce their asset balances to
reflect a market basis less than cost and to write off their associated
regulatory assets. Management cannot predict the potential impact, if any, of
increasing competition on future financial position or results of operations.
However, the Company continues to position itself to effectively meet these
challenges by maintaining competitive prices.

REVENUES. Revenues on transportation and storage of natural gas are recognized
as service is provided. When rate cases are pending final approval, a portion of
the revenues is subject to possible refund. Reserves have been established where
required for such cases.

During 1998, sales to ProLiance Energy, L.L.C. accounted for approximately 10%
of consolidated revenues of the Company. During 1997, sales to ProLiance Energy,
L.L.C. and Consumers Energy Company, a subsidiary of CMS Energy, each accounted
for approximately 10% of consolidated revenues of the Company. In 1996, no
single customer accounted for 10% or more of consolidated revenues. No other
customer accounted for 10% or more of consolidated revenues during 1998, 1997 or
1996.

ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC). AFUDC represents the
estimated debt and equity costs of capital funds necessary to finance the
construction of new regulated facilities. AFUDC is a non-cash item and is
recognized as a cost of Property, Plant and Equipment, with offsetting credits
to Other Income and Expenses and to Interest Expense. After construction is
completed, the Company is permitted to recover these costs, including a fair
return, through their inclusion in rate base and in the provision for

                                       15
<PAGE>

depreciation. Rates used for capitalization of AFUDC by the Company's regulated
operations are calculated in compliance with FERC rules.

INCOME TAXES. Duke Energy and its subsidiaries file a consolidated federal
income tax return. Federal income taxes have been provided by the Company on the
basis of its separate company income and deductions in accordance with
established practices of the consolidated group. Deferred income taxes have been
provided for temporary differences. Temporary differences occur when events and
transactions recognized for financial reporting result in taxable or
tax-deductible amounts in different periods. Investment tax credits have been
deferred and are being amortized over the estimated useful lives of the related
properties.

RECLASSIFICATIONS. Certain amounts have been reclassified in the Consolidated
Financial Statements to conform to the current presentation.

NEW ACCOUNTING STANDARD. In September 1998, SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued. The Company is
required to adopt this standard by January 1, 2000. SFAS No. 133 requires that
all derivatives be recognized as either assets or liabilities and measured at
fair value, and it defines the accounting for changes in the fair value of the
derivatives depending on the intended use of the derivative. The Company is
currently reviewing the expected impact of SFAS No. 133 on consolidated results
of operations and financial position.

3. REGULATORY MATTERS

On April 1, 1992 and November 1, 1992, PEPL placed into effect, subject to
refund, general rate increases. On February 26, 1997, the FERC approved PEPL's
settlement agreement which provided final resolution of refund matters and
established prospective rates. The agreement terminated other actions relating
to these proceedings as well as PEPL's restructuring of rates and transition
cost recoveries related to FERC Order 636. The settlement will not have a
material impact on future operating revenues or financial position of the
Company. As a result of the resolution of these and certain other proceedings,
PEPL refunded $38 million to customers in 1997 and recorded earnings before
interest and taxes of $33 million and $8 million in 1997 and 1996, respectively.

Effective August 1, 1996, Trunkline placed into effect a general rate increase,
subject to refund. Hearings were completed in the third quarter of 1997. A
decision on the remaining phase of the rate proceeding was received on November
2, 1998 from the administrative law judge. The case is pending a decision by the
FERC.

In conjunction with a FERC order issued in September 1997, certain natural gas
producers were required to refund previously collected Kansas ad-valorem taxes
to interstate natural gas pipelines. These pipelines were also ordered to refund
these amounts to their customers. All payments are to be made in compliance with
prescribed FERC requirements. At December 31, 1998 and December 31, 1997,
Accounts Receivable included $50 million and $54 million, respectively, due from
natural gas producers and Other Current Liabilities included $50 million and $54
million, respectively, for related obligations.

In June 1998, Trunkline filed with the FERC to abandon 720 miles of its 26 inch
diameter pipeline that extends from Longville, Louisiana to Bourbon, Illinois.
Trunkline requested permission to transfer the pipeline to an affiliate of
PanEnergy, which has entered into an option agreement with Aux Sable Liquids
Products, L.P., for potential conversion of the line for transportation of
hydrocarbon vapors. Trunkline has asked FERC to grant the abandonment
authorization in time to separate the pipeline from existing facilities and
allow Aux Sable to convert the pipeline to hydrocarbon vapor service by October
1, 2000, if the option is exercised. The abandonment would reduce Trunkline's
certificated capacity from the current level of 1,810 million dekatherms per day
(Mdth/d) to 1,555 Mdth/d and will have no adverse effect on Trunkline's ability
to meet all of its firm service obligations. The filing is pending FERC action.

                                       16
<PAGE>

4. RELATED PARTY TRANSACTIONS

-------------------------------------- -------------------------------
(In millions)                           For the Years Ended December
                                                    31,
-------------------------------------- -------------------------------
                                         1998      1997       1996
                                       --------- ---------- ----------
Transportation of natural gas             $29       $32        $30
Other operating revenues                   15        27          9
Operation and maintenance(A)               60        66         68
Interest expense, net                      55        49         35
-------------------------------------- --------- ---------- ----------
(A) Includes allocated benefit plan costs.


------------------------------------- ---------------------
(In millions)                             December 31,
------------------------------------- ---------------------
                                        1998       1997
                                      ---------- ----------
Receivables                              $ 2        $ 8
Accounts payable                          46         37
Taxes accrued                             35         55
------------------------------------- ---------- ----------

Advances and Note Receivable-Parent included a $30 million note at December 31,
1997, which bore interest at the London Interbank Offered Rate plus 0.5%. The
remainder of Advances and Note Receivable-Parent do not bear interest. Advances
are carried as open accounts and are not segregated between current and
non-current amounts. Increases and decreases in advances result from the
movement of funds to provide for operations, capital expenditures and debt
payments of the Company.

5. GAS IMBALANCES

The Consolidated Balance Sheets included in-kind balances as a result of
differences in gas volumes received and delivered. At December 31, 1998 and
1997, other current assets included $20 million and $24 million, respectively,
related to gas imbalances. Other current liabilities included $22 million at
both December 31, 1998 and 1997 related to gas imbalances.

6. INCOME TAXES

--------------------------------------------------------------------------------
INCOME TAX EXPENSE (in millions)
--------------------------------------------------------------------------------
                                                For the Years Ended December 31,
                                               --------------------------------
                                                 1998        1997      1996
                                               ---------- ---------- ----------
Current income taxes
  Federal                                         $34        $41       $123
  State                                             6          5         13
                                               ---------- ---------- ----------
    Total current income taxes                     40         46        136
                                               ---------- ---------- ----------
Deferred income taxes, net
  Federal                                          14          1        (76)
  State                                             3          1        (12)
                                               ---------- ---------- ----------
    Total deferred income taxes, net               17          2        (88)
                                               ---------- ---------- ----------
Total income tax expense                          $57        $48      $  48
================================================================================

-------------------------------------------------------------------------------
INCOME TAX EXPENSE RECONCILIATION TO STATUTORY RATE (in millions)
-------------------------------------------------------------------------------
                                                For the Years Ended December 31,
                                               --------------------------------
                                                 1998       1997       1996
                                               ---------- ---------- ----------
Income tax, computed at the statutory rate        $52        $45        $48
Adjustments resulting from:
  State income tax, net of federal income 
    tax effect                                      5          3          -
                                               ---------- ---------- ----------
Total income tax expense                          $57        $48        $48
                                               ========== ========== ==========
Effective tax rate                                 38.5%      37.5%      35.3%
---------------------------------------------- ---------- ---------- ----------

                                       17
<PAGE>

--------------------------------------------------------------------
NET DEFERRED INCOME TAX LIABILITY COMPONENTS (in millions)
--------------------------------------------------------------------
                                                   December 31,
                                               ---------------------
                                                 1998       1997
                                               ---------- ----------
Deferred credits and other liabilities         $    85    $    95
Other                                                3          3
                                               ---------- ----------
  Total deferred income tax assets                  88         98
                                               ---------- ----------
Investments and other assets                       (18)       (16)
Property, plant and equipment                     (148)      (131)
Regulatory assets                                  (12)       (23)
                                               ---------- ----------
  Total deferred income tax liabilities           (178)      (170)
                                               ---------- ----------
State deferred income tax, net of federal                  
tax effect                                          (7)        (6)
                                               ---------- ----------
Net deferred income tax liability                  (97)       (78)
                                               ---------- ----------
Portion classified as current asset                  2          4
                                               ========== ==========
Noncurrent liability                            $  (99)    $  (82)
============================================== ========== ==========

7. PROPERTY, PLANT AND EQUIPMENT

-------------------------------------------- ------------- --------------
(In millions)                                    1998          1997
-------------------------------------------- ------------- --------------
Transmission                                    $2,003        $1,925
Gathering                                          265           256
Underground storage                                320           320
General plant                                      161           172
Construction work in progress                       28            61
                                             ------------- --------------
   Total property, plant, and equipment          2,777         2,734
Less accumulated depreciation and               
  amortization                                   1,798         1,776   
                                             ------------- --------------
    Net property, plant and equipment          $   979       $   958
============================================ ============= ==============

8. FINANCIAL INSTRUMENTS

The Company's financial instruments include $299 million of long-term debt at
both December 31, 1998 and 1997, respectively, with an approximate fair value of
$318 million and $313 million as of December 31, 1998 and 1997, respectively.
Estimated fair value amounts of long-term debt were obtained from independent
parties. Judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates determined as of December
31, 1998 and 1997 are not necessarily indicative of the amounts the Company
could have realized in current market exchanges.

The fair value of notes payable - parent is not materially different from their
carrying amounts because the stated rates approximate market rates.

Guarantees made to affiliates have no book value associated with them and there
are no fair values readily determinable since quoted market prices are not
available. The fair values of advances and note receivable - parent are not
readily determinable since such amounts are carried as open accounts. See Note
4, Related Party Transactions.

                                       18
<PAGE>

9. LONG TERM DEBT

------------------------------------------ ----------- ------------------------
(In millions)                                               December 31,
                                                       ------------------------
                                            Year Due      1998        1997
------------------------------------------ ----------- ----------- ------------
7 7/8% Note                                   2004         $100         $100
7.2% - 7.95% Debentures                    2023 - 2024      200          200
Unamortized debt discount and premium, net                   (1)          (1)
                                                       ----------- ------------
Total long-term debt                                       $299         $299
------------------------------------------ ----------- ----------- ------------

The 7.2% - 7.95% Debentures have call options whereby the Company has the option
to repay the debt early. Based on the year in which the Company may first
exercise the redemption options, all $200 million could potentially be repaid in
2003.

Notes payable-parent includes a $675 million note bearing interest at prime rate
and maturing on June 30, 1999.

10. INVESTMENT IN AFFILIATES

Investments in affiliates which are not controlled by the Company but where the
Company has significant influence over operations are accounted for by the
equity method. These investments include undistributed earnings of $14 million
and $15 million in 1998 and 1997, respectively. The Company's proportionate
share of net income from these affiliates for the years ended December 31, 1998,
1997 and 1996 was $6 million, $5 million and $6 million, respectively. These
amounts are reflected in the Consolidated Statements of Income as Other
Operating Revenues. Investment in affiliates includes the following:

NORTHERN BORDER PARTNERS, L.P. Northern Border Partners, L.P. (Northern Border)
is a master limited partnership (MLP) that owns 70% of Northern Border Pipeline
Company, a partnership operating a pipeline transporting natural gas from Canada
to the Midwest area of the United States. PEPL has an 7.0% limited partnership
interest in Northern Border, and thus, an indirect 4.9% ownership interest in
Northern Border Pipeline Company. PEPL transferred its interest in Northern
Border to a subsidiary of PanEnergy in early 1999 in conjunction with the
planned sale of PEPL and Trunkline to CMS Energy.

WESTANA GATHERING COMPANY. Westana Gathering Company is a joint venture that
provides gathering, processing and marketing services for natural gas producers
in Oklahoma.

11. COMMITMENTS AND CONTINGENCIES

FUTURE CONSTRUCTION COSTS. Projected 1999 capital and investment expenditures
for the Company, including allowance for funds used during construction, are
approximately $65 million, of which approximately $50 million relates to
companies expected to be sold to CMS Energy. These projections include market
expansion projects and costs relating to existing assets. All projected capital
and investment expenditures are subject to periodic review and revision and may
vary significantly depending on acquisition opportunities, market volatility,
economic trends and the value-added opportunities presented.

ENVIRONMENTAL. The Company is subject to federal, state and local regulations
regarding air and water quality, hazardous and solid waste disposal and other
environmental matters.

The Company has identified environmental contamination at certain sites on its
systems and has undertaken clean-up programs at these sites. The contamination
resulted from the past use of lubricants in compressed air systems containing
PCBs and the prior use of wastewater collection facilities and other on-site
disposal areas. Soil and sediment testing, to date, has detected no significant
off-site contamination. The Company has communicated with the Environmental
Protection Agency and appropriate state regulatory agencies on these matters.
Under the terms of the sales agreement with


                                       19
<PAGE>

CMS Energy discussed in Note 1 to the Consolidated Financial Statements,
PanEnergy is obligated to complete the PEPL and Trunkline clean-up programs at
certain agreed-upon sites. These clean-up programs are expected to continue
until 2001.

At December 31, 1998 and 1997, remaining estimated clean-up costs on the
Company's systems have been accrued and are included in the Consolidated Balance
Sheets as Other Current Liabilities and Deferred Credits and Other Liabilities.
These cost estimates represent gross clean-up costs expected to be incurred,
have not been discounted or reduced by customer recoveries and generally do not
include fines, penalties or third-party claims. Costs to be recovered from
customers are included in the Consolidated Balance Sheets as of December 31,
1998 and 1997, as Regulatory Assets.

The federal and state clean-up programs are not expected to interrupt or
diminish the Company's ability to deliver natural gas to customers. Based on
experience to date and costs incurred for clean-up operations, management
believes the resolution of matters relating to the environmental issues
discussed above will not have a material adverse effect on consolidated results
of operations or financial position.

LITIGATION. Under the terms of the agreement with CMS Energy discussed in Note 1
to the Consolidated Financial Statements, PanEnergy is retaining certain legal
and tax liabilities of the Company, including the matters specifically discussed
below.

On April 25, 1997, a group of affiliated plaintiffs that own and/or operate
various pipeline and marketing companies and partnerships primarily in Kansas
filed suit against PEPL in the U.S. District Court for the Western District of
Missouri. The plaintiffs allege that PEPL has engaged in unlawful and
anti-competitive conduct with regard to requests for interconnects with the PEPL
system for service to the Kansas City area. Asserting that PEPL has violated the
antitrust laws and tortiously interfered with the plaintiffs' business
expectancies, the plaintiffs seek compensatory and punitive damages. Based on
information currently available to the Company, management believes that the
resolution of this matter will not have a material adverse effect on
consolidated results of operations or financial position.

On May 13, 1997, Anadarko Petroleum Corporation (Anadarko) filed suits against
PEPL and other affiliates, as defendants, both in the United States District
Court for the Southern District of Texas and state district court of Harris
County, Texas. Pursuing only the federal court claim, Anadarko claims that it
was effectively indemnified by the defendants against any responsibility for
refunds of Kansas ad valorem taxes which are due purchasers of gas from
Anadarko, retroactive to 1983. On October 20, 1998 and January 15, 1999, the
FERC issued orders on ad-valorem tax issues, finding that first sellers of gas
were primarily liable for refunds. The FERC also noted that claims for indemnity
or reimbursement among the parties would be better addressed by the United
States District Court for the Southern District of Texas. The Company believes
the resolution of this matter will not have a material adverse effect on
consolidated results of operations or financial position.

The Company and its subsidiaries are also involved in other legal, tax and
regulatory proceedings before various courts, regulatory commissions and
governmental agencies regarding matters arising in the ordinary course of
business, some of which involve substantial amounts. Where appropriate, the
Company has made accruals in accordance with SFAS No. 5, "Accounting for
Contingencies," in order to provide for such matters. Management believes that
the final disposition of these proceedings will not have a material adverse
effect on consolidated results of operations or financial position.

OTHER COMMITMENTS AND CONTINGENCIES. In 1993, the U.S. Department of the
Interior announced its intention to seek additional royalties from gas producers
as a result of payments received by such producers in connection with past
take-or-pay settlements, and buyouts and buydowns of gas sales contracts with
natural gas pipelines. The Company's pipelines, with respect to certain producer
contract settlements, may be contractually required to reimburse or, in some
instances, to indemnify producers against such royalty claims. The potential
liability of the producers to the government and of the pipelines to the
producers involves complex issues of law and fact which are likely to take
substantial time to resolve. If required to reimburse or indemnify the
producers, the Company's pipelines will file with FERC to recover a portion of
these costs from pipeline customers. Management believes that these commitments



                                       20
<PAGE>

and contingencies will not have a material adverse effect on consolidated
results of operations or financial position.

Under the terms of a settlement related to a transportation agreement between
PEPL and Northern Border Pipeline Company, PEPL guarantees payment to Northern
Border Pipeline Company under a transportation agreement held by an affiliate of
Pan-Alberta Gas Limited. The transportation agreement requires estimated total
payments of $58 million for 1999 through 2001. Management believes that the
probability that PEPL will be required to perform under this guarantee is
remote.

LEASES. The Company utilizes assets under operating leases in several areas of
operations. Consolidated rental expense amounted to $15 million, $20 million and
$30 million in 1998, 1997 and 1996, respectively. Future minimum rental payments
under the Company's various operating leases for the years 1999 through 2003 are
$11 million, $11 million, $9 million, $6 million and $1 million, respectively.

12. BENEFIT PLANS

RETIREMENT PLAN. The Company participates in PanEnergy's non-contributory
defined benefit retirement plan covering most employees with a minimum of one
year vesting service. Through December 31, 1998, the plan provided retirement
benefits for eligible employees of the Company that are generally based on an
employee's years of benefit accrual service and highest average eligible
earnings.

PanEnergy's policy is to fund amounts, as necessary, on an actuarial basis to
provide assets sufficient to meet benefits to be paid to plan participants. With
respect to the entire plan, the fair value of the plan assets of $819 million
and $748 million at December 31, 1998 and 1997, respectively, exceeded the
projected benefit obligations of $338 million and $290 million, as of December
31, 1998 and 1997, respectively. Under the terms of the agreement with CMS
Energy discussed in Note 1 to the Consolidated Financial Statements, benefit
obligations related to active employees and certain plan assets will transfer to
CMS Energy, and benefit obligations related to existing retired employees and
remaining plan assets will be retained by PanEnergy.

---------------------------------------------------------------------------
ASSUMPTIONS USED IN PANENERGY'S PENSION  AND OTHER POSTRETIREMENT BENEFITS
ACCOUNTING(a)
---------------------------------------------------------------------------
(Percent)                                      1998       1997       1996
------------------------------------------ ---------- ---------- ----------
Discount rate                                   6.75       7.25       7.50
Salary increase                                 4.67       4.75       5.00
Expected long-term rate of return on           
  plan assets                                   9.25       9.25       9.50
Assumed tax rate, where applicable             39.60      39.60      39.60
------------------------------------------ ---------- ---------- ----------
(a) Reflects weighted averages across all plans.

The Company's net periodic pension benefit, as allocated by PanEnergy, was $14
million, $13 million and $11 million for the years ended December 31, 1998, 1997
and 1996, respectively.

PanEnergy also sponsors, and the Company participates in, an employee savings
plan that covers substantially all employees. The Company expensed plan
contributions of $3 million each year in 1998, 1997 and 1996.

OTHER POSTRETIREMENT BENEFITS. The Company, in conjunction with PanEnergy,
provides certain health care and life insurance benefits for retired employees
on a contributory and noncontributory basis. Substantially all employees may
become eligible for these benefits if they have met certain age and service


                                       21
<PAGE>

requirements as defined in the plans. Under plan amendments effective late 1998
and early 1999, health care benefits for future retirees were changed to limit
employer contributions and medical coverage.

The Company accrues such benefit costs over the active service period of
employees to the date of full eligibility for the benefits. The net unrecognized
transition obligation, resulting from the implementation of accrual accounting,
is being amortized over approximately 20 years. With respect to the entire plan,
the fair value of the plan assets was $150 million and $122 million at December
31, 1998 and 1997, respectively, and the accumulated postretirement benefit
obligation was $225 million and $256 million at December 31, 1998 and 1997,
respectively. Under the terms of the agreement with CMS Energy discussed in Note
1 to the Consolidated Financial Statements, benefit obligations related to
active employees will transfer to CMS Energy, and benefit obligations related to
existing retired employees and plan assets will be retained by PanEnergy.

It is the Company's and PanEnergy's general policy to fund accrued
postretirement health care costs. PanEnergy's retiree life insurance plan is
fully funded based on actuarially determined requirements.

The Company's net periodic postretirement benefit cost, as allocated by
PanEnergy, was $7 million each year in 1998, 1997 and 1996.

For measurement purposes, a 5% weighted average rate of increase in the per
capita cost of covered health care benefits was assumed for 1998. The rate was
assumed to decrease gradually to 4.75% for 2005 and remain at that level
thereafter. Assumed health care cost trend rates have a significant effect on
the amounts reported for the Company's health care plans.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
SENSITIVITY TO CHANGES IN ASSUMED HEALTH CARE COST TREND RATES
----------------------------------------------- ------------------- ---------------------
                                                  1-Percentage-        1-Percentage-
(In millions)                                     Point Increase       Point Decrease
----------------------------------------------- ------------------- ---------------------
<S>                                                      <C>                 <C>   
Effect on total of service and interest cost             $   -               $   -
  components
Effect on postretirement benefit obligation              $   5               $  (4)
----------------------------------------------- ------------------- ---------------------

13. QUARTERLY FINANCIAL DATA (UNAUDITED)

-------------------------- ------------ ------------- ------------ ------------ -----------
                              First        Second        Third       Fourth
(In millions)                Quarter      Quarter       Quarter      Quarter      Total
-------------------------- ------------ ------------- ------------ ------------ -----------
1998
Operating revenues             $139         $116         $111         $130          $496
Operating income                 70           44           36           51           201
EBIT                             76           47           37           65           225
Net income                       35           17           11           28(b)         91

1997
Operating revenues          $   166(a)   $   119      $   116      $   133       $   534
Operating income                 88           44           24           39           195
EBIT                             96           48           24           33           201
Net income                       48           18            3           11            80
-------------------------- ------------ ------------- ------------ ------------ -----------
</TABLE>
(a) Includes the effect of the favorable resolution of certain regulatory
matters in 1997.
(b) Includes a gain on the sale of certain general partnership interests.

                                       22
<PAGE>

INDEPENDENT AUDITORS' REPORT

Panhandle Eastern Pipe Line Company:

We have audited the accompanying consolidated balance sheets of Panhandle
Eastern Pipe Line Company and subsidiaries (the Company) as of December 31, 1998
and 1997, and the related consolidated statements of income, common
stockholder's equity and cash flows for the two years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit. The consolidated financial statements
of the Company for the year ended December 31, 1996 were audited by other
auditors whose report, dated January 16, 1997, expressed an unqualified opinion
on those financial statements.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such 1998 and 1997 consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.



/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 12, 1999


                                       23
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Panhandle Eastern Pipe Line Company

We have audited the accompanying consolidated statements of income, common
stockholder's equity, and cash flows of Panhandle Eastern Pipe Line Company for
the year ended December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Panhandle Eastern Pipe Line Company for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.



/s/ KPMG LLP
Houston, Texas
January 16, 1997


                                       24
<PAGE>

RESPONSIBILITY FOR FINANCIAL STATEMENTS

The financial statements of Panhandle Eastern Pipe Line Company are prepared by
management, which is responsible for their integrity and objectivity. The
statements are prepared in conformity with generally accepted accounting
principles appropriate in the circumstances to reflect in all material respects
the substance of events and transactions which should be included. The other
information in the annual report is consistent with the financial statements. In
preparing these statements, management makes informed judgments and estimates of
the expected effects of events and transactions that are currently being
reported.

The Company's system of internal accounting control is designed to provide
reasonable assurance that assets are safeguarded and transactions are executed
according to management's authorization. Internal accounting controls also
provide reasonable assurance that transactions are recorded properly, so that
financial statements can be prepared according to generally accepted accounting
principles. In addition, the Company's accounting controls provide reasonable
assurance that errors or irregularities which could be material to the financial
statements are prevented or are detected by employees within a timely period as
they perform their assigned functions. The Company's accounting controls are
continually reviewed for effectiveness. In addition, written policies, standards
and procedures, and a strong internal audit program augment the Company's
accounting controls.


Gary W. Lefelar
Controller


                                       25
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

                                    PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) Consolidated Financial Statements and Supplemental Financial Data included
    in Part II of this annual report are as follows:
      Consolidated Financial Statements
        Consolidated Statements of Income for the Years Ended December 31, 1998,
          1997 and 1996
        Consolidated Statements of Cash Flows for the Years Ended December 31,
          1998, 1997 and 1996
        Consolidated Balance Sheets as of December 31, 1998 and 1997
        Consolidated Statements of Common Stockholder's Equity for the Years
          Ended December 31, 1998, 1997 and 1996
        Notes to Consolidated Financial Statements

        Quarterly Financial Data (unaudited) (included in Note 13 to the
          Consolidated Financial Statements)

All schedules are omitted because of the absence of the conditions under which
they are required or because the required information is included in the
financial statements or notes thereto.

(b) Reports on Form 8-K

A Current Report on Form 8-K filed on November 10, 1998 contained disclosures
under Item 5, Other Events and Item 7, Financial Statements, Pro Forma Financial
Information and Exhibits.

(c) Exhibits - See Exhibit Index immediately following the signature page.


                                       26
<PAGE>

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



Date:  March 16, 1999                       PANHANDLE EASTERN PIPE LINE COMPANY
                                            (Registrant)


                                            By  /s/ Steven M. Roverud
                                                --------------------------
                                                Steven M. Roverud
                                                President and Director   



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.

    (i) Principal executive officer:
        By:  /s/ Steven M. Roverud                 
             --------------------------------
             Steven M. Roverud
             President and Director

   (ii) Principal financial officer and principal accounting officer:
        By:  /s/ Gary W. Lefelar                                  
             --------------------------------
             Gary W. Lefelar
             Controller 

  
  (iii) A majority of the Directors:
        By:  /s/ W.W. Grygar                                         
                --------------------------------
             W.W Grygar 


        By:  /s/ Jeryl L. Mohn                          
             --------------------------------
             Jeryl L. Mohn

Date:  March 16, 1999


                                       27
<PAGE>

                                  EXHIBIT INDEX

Exhibits filed herewith are designated by an asterisk (*). All exhibits not so
designated are incorporated by reference to a prior filing, as indicated.

<TABLE>
<CAPTION>
------------------ ----------------------------------- ----------------------- -----------
                                                       Originally Filed as       File
Exhibit Number                Description              Exhibit                   Number
------------------ ----------------------------------- ----------------------- -----------
<S>                <C>                                 <C>                     <C>   
3.01               Restated Certificate of             3.01 to Form 10-K of    1-2921
                   Incorporation of Panhandle          registrant for the
                   Eastern Pipe Line Company dated     year ended December
                   October 25, 1993                    31, 1993
3.02               By-Laws of Panhandle Eastern Pipe   19(a) to Form 10-Q of   1-2921
                   Line Company, effective July 23,    registrant for
                   1986                                quarter ended
                                                       September 30, 1986
4.01               Indenture, dated as of February     4 to Form S-3 of        33-58552
                   1, 1993, between Panhandle          registrant filed
                   Eastern Pipe Line Company and       February 19, 1993
                   Morgan Guaranty Trust Company of
                   New York
4.02               Letter, dated February 24, 1994,    4.06 to Form 10-K of    1-2921
                   from Nations Bank of Texas,         registrant for the
                   National Association accepting      year ended December
                   its appointment as successor        31, 1993
                   Trustee with respect to all
                   securities issued or to be issued
                   under the Indenture dated as of
                   February 1, 1993, included as
                   Exhibit 4.01
10.01              Contract for Firm Transportation    10.41 to Form 10-K of   1-8157
                   of Natural Gas between Consumers    PanEnergy Corp for
                   Power Company and Trunkline Gas     the year ended
                   Company, dated November 1, 1989,    December 31, 1989
                   and Amendment, dated November 1,
                   1989
10.02              Contract for Firm Transportation    10.47 to Form 10-K of   1-8157
                   of Natural Gas between Consumers    PanEnergy Corp for
                   Power Company and Trunkline Gas     year ended December
                   Company, dated November 1, 1991     31, 1991
10.03              Contract for Firm Transportation    10.3 to Form 10-K of    1-2921
                   of Natural Gas between Consumers    registrant for the
                   Power Company and Trunkline Gas     year ended December
                   Company, dated September 1, 1993    31, 1993
10.04              Stock Purchase Agreement between    10 to Form 8-K of       1-4928
                   PanEnergy Corp, Texas Eastern       Duke Energy
                   Corporation and CMS Energy          Corporation filed
                   Corporation, dated October 31,      November 5, 1998
                   1998
*12                Computation of Ratio of Earnings
                   to Fixed Charges
*23.1              Consent of Deloitte & Touche LLP
*23.2              Consent of KPMG LLP


                                       28
<PAGE>

*27                Financial Data Schedule for
                   December 31, 1998
</TABLE>


                                       29